JUDGMENT OF THE COURT

17 September 1997(1)

[234s(Value added tax - Interpretation of Articles 21(1)(c) and 22(3)(c) of the SixthDirective 77/388/EEC - Document serving as an invoice - Credit note issued bythe buyer and not contested by the seller as regards the amount of tax shown)[s

In Case C-141/96,

REFERENCE to the Court under Article 177 of the EC Treaty by theBundesfinanzhof for a preliminary ruling in the proceedings pending before thatcourt between

Finanzamt Osnabrück-Land

and

Bernhard Langhorst

on the interpretation of Articles 21(1)(c) and 22(3)(c) of the Sixth CouncilDirective 77/388/EEC of 17 May 1977 on the harmonization of the laws of theMember States relating to turnover taxes - Common system of value added tax:uniform basis of assessment (OJ 1977 L 145, p. 1),

THE COURT,

composed of: G.C. Rodríguez Iglesias, President, G.F. Mancini, J.C. Moitinho deAlmeida (Rapporteur), J.L. Murray and L. Sevón (Presidents of Chambers),P.J.G. Kapteyn, C. Gulmann, D.A.O. Edward, J.-P. Puissochet, G. Hirsch, P. Jann,H. Ragnemalm and M. Wathelet, Judges,

Advocate General: P. Léger,

Registrar: H.A. Rühl, Principal Administrator,

after considering the written observations submitted on behalf of:

• the German Government, by E. Röder, Ministerialrat in the FederalMinistry of Economic Affairs, acting as Agent,
  
  
• the United Kingdom Government, by S. Ridley, of the Treasury Solicitor'sDepartment, acting as Agent, and S. Lee, Barrister,
  
  
• the Commission of the European Communities, by J. Sack, Legal Adviser,acting as Agent,

having regard to the Report for the Hearing,

after hearing the oral observations of the German Government, represented byE. Röder; of the Greek Government, represented by V. Kontolaimos, Deputy LegalAdviser in the State Legal Service, and A. Rokofyllou, Special Adviser to theDeputy Minister of Foreign Affairs, acting as Agents; of the United KingdomGovernment, represented by S. Ridley and S. Richards, Barrister; and of theCommission, represented by J. Sack, at the hearing on 15 April 1997,

after hearing the Opinion of the Advocate General at the sitting on 27 May 1997,

gives the following

Judgment

1. By order of 14 March 1996, received at the Court on 29 April 1996, theBundesfinanzhof (Federal Finance Court) referred to the Court for a preliminaryruling under Article 177 of the EC Treaty three questions on the interpretation ofArticles 21(1)(c) and 22(3)(c) of the Sixth Council Directive 77/388/EEC of 17 May1977 on the harmonization of the laws of the Member States relating to turnovertaxes - Common system of value added tax: uniform basis of assessment (OJ 1977L 145, p. 1, hereinafter 'the Sixth Directive').
   
   
2. Those questions were raised in proceedings between the Finanzamt (Tax Office)Osnabrück-Land and Mr Langhorst concerning the question whether Mr Langhorstis liable to pay the amount of value added tax ('VAT') mentioned on a credit noteissued by a customer, which he did not contest, even though the amount is higherthan that owed by reason of the taxable transactions.
   
   The Sixth Directive
   
   
3. Article 21(1)(a) and (c) of the Sixth Directive provides:
   
   'The following shall be liable to pay value added tax:
   
   1. under the internal system:
   
   (a) taxable persons who carry out taxable transactions other than thosereferred to in Article 9(2)(e) and carried out by a taxable personresident abroad. ...
   
   ...
   
   (c) any person who mentions the value added tax on an invoice or otherdocument serving as invoice'.
   
   
4. Article 22(3) of the Sixth Directive further provides:
   
   '3. (a) Every taxable person shall issue an invoice, or other document servingas invoice in respect of all goods and services supplied by him toanother taxable person, and shall keep a copy thereof.
   
   Every taxable person shall likewise issue an invoice in respect ofpayments on account made to him by another taxable person beforethe supply of goods or services is effected or completed.
   
   (b) The invoice shall state clearly the price exclusive of tax and thecorresponding tax at each rate as well as any exemptions.
   
   (c) The Member States shall determine the criteria for consideringwhether a document serves as an invoice.'
   
   German law
   
   
5. Paragraph 14(1) of the Umsatzsteuergesetz (Law on Turnover Tax, hereinafter 'theUStG') of 26 November 1979, as amended by the Law of 18 August 1980,provides:
   
   '(1) If a trader carries out taxable supplies or other services under Paragraph1(1)(1), he is entitled and, where he carries out the transactions to another traderfor the latter's undertaking, obliged on request by the latter, to issue invoices inwhich the tax is shown separately. Such invoices must include the followinginformation:
   
   1. the name and address of the trader providing the services,
   
   2. the name and address of the recipient of the services,
   
   3. the quantity and the usual commercial description of the subject-matter ofthe supply or the type and extent of the other service,
   
   4. the date of the supply or other service,
   
   5. the consideration for the supply or other service (Paragraph 10 above) and
   
   6. the amount of tax due on the consideration (point 5 above).
   
   ...'
   
   
6. Paragraph 14(2) of the UStG then provides:
   
   'If the trader has in an invoice for a supply or other service shown separately ahigher amount of tax than he owes under this Law in respect of the transaction,then he shall also owe the additional amount. If he corrects the amount of tax asagainst the recipient, then Paragraph 17(1) shall apply correspondingly.'
   
   
7. Under Paragraph 14(5) of the UStG:
   
   'A credit note by which a trader settles up for a taxable supply or other servicemade to him shall also be deemed to be an invoice. A credit note shall berecognized if the following conditions are met:
   
   1. The trader providing the service (the recipient of the credit note) must beentitled under subparagraph 1 to show the tax separately in an invoice.
   
   2. There must be agreement between the issuer and the recipient of the creditnote that the supply or other service is to be settled by a credit note.
   
   3. The credit note must include the information prescribed in the secondsentence of subparagraph 1 above.
   
   4. The credit note must have been delivered to the trader providing theservice.
   
   Sentences 1 and 2 above shall apply by analogy to credit notes which the traderissues as payment or partial payment for a taxable supply or other service whichhas not yet been carried out. The credit note shall cease to have effect as aninvoice in so far as the recipient contests the amount of tax shown therein.'
   
   Facts of the main proceedings
   
   
8. Mr Langhorst, a farmer, declared his turnover for 1985, the year at issue in thepresent proceedings, after having elected under Paragraph 24(4) of the UStG tobe taxed at the rate of 7% instead of the rate of 13% provided for in the firstsentence of Paragraph 24(1) of the UStG.
   
   
9. Unaware of that fact, livestock dealers whom Mr Langhorst had supplied with fatpigs issued him with credit notes which mentioned separately VAT calculated at13%. Mr Langhorst did not at first contest the amount of VAT mentioned in thecredit notes.
   
   
10. Mr Langhorst subsequently brought proceedings in the NiedersächsischesFinanzgericht (Finance Court of Lower Saxony), which gave judgment on 10October 1989 reducing the amount of VAT. By application of 27 January 1992,supplemented on 26 March 1992, the Finanzamt appealed on a point of law to theBundesfinanzhof against that decision.
    
    
11. In its order for reference, the Bundesfinanzhof considers that the reduction of VATwas calculated correctly by the Niedersächsisches Finanzgericht, but that theFinanzamt's appeal could nevertheless be upheld if, under the first sentence ofParagraph 14(2) of the UStG, Mr Langhorst had to pay the total amount of VATmentioned separately in the credit notes, including the additional amounts whichwere not justified by the taxable transactions.
    
    
12. The Bundesfinanzhof observes, however, that the wording of Paragraph 14(2) ofthe UStG expressly describes as the person solely liable for the higher amount oftax the trader who has mentioned the higher amount of VAT separately in aninvoice. In the present case, however, it was not the supplier, Mr Langhorst, whoissued the document which indicated a higher amount of VAT but his customers,the livestock merchants. The Bundesfinanzhof also states that in so far as the creditnotes issued by the livestock merchants are deemed to be invoices under Paragraph14(5) of the UStG, thus allowing them to deduct an amount of VAT which is notin fact justified, it could be argued that Mr Langhorst is liable for that amount ofVAT, since he did not contest it.
    
    
13. The Bundesfinanzhof is uncertain whether such an interpretation of Paragraph14(2) of the UStG is consistent with Community law, in particular Article 21(1)(c)of the Sixth Directive, under which any person who mentions VAT on an invoiceor other document serving as an invoice is liable to pay VAT, and Article 22(3)(c)of that directive, which gives the Member States power to determine the criteriaunder which a document may serve as an invoice, but does not expressly state thatcredit notes issued by customers may be treated as invoices issued by the taxableperson. The Bundesfinanzhof accordingly stayed the proceedings and referred thefollowing questions to the Court for a preliminary ruling:
    
    '1. Is it permissible under Article 22(3)(c) of the Sixth Council Directive77/388/EEC of 17 May 1977 on the harmonization of the laws of theMember States relating to turnover taxes for a credit note within themeaning of Paragraph 14(5) of the Umsatzsteuergesetz 1980 to be regardedas an invoice or other document serving as an invoice (Article 21(1)(c) ofthe Sixth Directive)?
    
    2. If so, is it permissible under Article 21(1)(c) of the Sixth Directive for aperson who accepts a credit note showing a higher amount of tax than thatowed by reason of taxable transactions, and does not contest in that respectthe amount of tax mentioned in the credit note, to be regarded as a personwho mentions value added tax in an invoice or other document serving asan invoice and is therefore liable to pay that value added tax?
    
    3. Can the recipient of a credit note, in the circumstances set out in Question2, rely on Article 21(1)(c) of the Sixth Directive if the value added taxmentioned in the credit note is claimed from him as a tax debt to the extentof the difference between the tax mentioned and the tax owed by reason oftaxable transactions?'
    
    
14. The order for reference explains that Question 3 arises only if the answer toQuestion 2 is negative.
    
    Question 1
    
    
15. By its first question the national court essentially asks whether Article 22(3)(c) ofthe Sixth Directive authorizes Member States to regard a credit note issued by therecipient of goods or services as a 'document serving as an invoice'.
    
    
16. Under Article 22(3)(a) of the Sixth Directive, an invoice or document serving assuch must be issued by every taxable person in respect of all goods and servicessupplied by him to another taxable person and, under Article 22(3)(b), that thatinvoice or document serving as such must 'state clearly the price exclusive of taxand the corresponding tax at each rate as well as any exemptions'.
    
    
17. The minimum conditions regarding the information which must appear on theinvoice or document serving as such having thus been laid down, Article 22(3)(c)leaves the Member States free to determine the criteria for considering whethersuch a document serves as an invoice. That power must, however, be exercisedconsistently with one of the objectives of the Sixth Directive, namely to ensure thatVAT is levied and collected under the supervision of the tax authorities (see, to thiseffect, Joined Cases 123/87 and 330/87 Jeunehomme and EGI v Belgian State [1988]ECR 4517, paragraphs 16 and 17, and Case C-85/95 Reisdorf v Finanzamt Köln-West [1996] ECR I-6257, paragraph 24).
    
    
18. It must therefore be considered whether a credit note which includes, as in the casein the main proceedings, the compulsory information referred to in Article 22(3)(b)of the Sixth Directive may be regarded as serving as an invoice even though it isissued by the recipient of the goods or services, where under the relevant nationalprovisions the issuer and the recipient of the credit note must have agreed that thesupply or service is to be settled by a credit note, the credit note must have beendelivered to the trader providing the service, and the credit note may no longerserve as an invoice if its recipient contests the amount of tax stated therein.
    
    
19. Article 22(3)(a) of the Sixth Directive refers to the normal situation where aninvoice or document serving as an invoice is issued by the taxable person whosupplies the goods or services.
    
    
20. However, as the Advocate General observes in point 29 et seq. of his Opinion,since the purpose of that provision is to ensure correct collection of the tax and toavoid fraud, there is no reason why the document in question should not be drawnup by the recipient of the goods or services, provided that it includes theinformation prescribed for an invoice and the taxable person who supplies thegoods or services has been given the opportunity to ask, if necessary, for theinformation to be corrected.
    
    
21. In such a case, since he has that power of control, the taxable person may beregarded as the author of the document, the drawing up of which he has, as itwere, delegated to his customer. The credit note thus fulfils the function ofdocumenting the taxable person's rights and obligations with respect to VAT, sinceit contains the same information as a traditional invoice and the taxable person isfree to approve its content.
    
    
22. As the German and United Kingdom Governments have rightly observed, a creditnote issued by the recipient of the goods or services is in many cases the bestmeans of accounting for the supplies effected, in that it is only the recipient of thegoods or services who is in a position to check that they comply with the terms ofthe contract.
    
    
23. In those circumstances, it cannot be deduced from the fact that Article 22(3)(a) ofthe Sixth Directive provides only for the issuing by the taxable person who suppliesthe goods or services of an invoice or document serving as such that it is notpossible for the Member States to regard a document as serving as an invoicesolely because it has been issued by the recipient of the goods or services.
    
    
24. The answer to Question 1 must therefore be that Article 22(3)(c) of the SixthDirective authorizes Member States to regard a credit note issued by the recipientof the goods or services as a 'document serving as an invoice', where it includesthe information prescribed for invoices by that directive, it is drawn up with theagreement of the taxable person who supplies the goods or services, and the latteris able to contest the amount of VAT mentioned.
    
    Question 2
    
    
25. By its second question the national court seeks to establish whether a taxableperson who has not contested the mention, in a credit note serving as an invoice,of an amount of VAT greater than that owed by reason of taxable transactions maybe regarded as the person who has mentioned that amount, and is consequentlyliable for the amount stated, within the meaning of Article 21(1)(c) of the SixthDirective.
    
    
26. Article 21(1)(c) of the Sixth Directive provides that 'any person who mentions thevalue added tax on an invoice or other document serving as invoice' is liable to payvalue added tax under the internal system.
    
    
27. Where, as in the case in the main proceedings, a credit note serves as an invoice,the taxable person must be regarded as the person who has in fact mentioned VATin the credit note, within the meaning of Article 21(1)(c) of the Sixth Directive, andis consequently liable to pay the amount stated.
    
    
28. Were it otherwise, part of the VAT appearing in the document serving as aninvoice would not have to be paid by the taxable person, even though, as the orderfor reference observes, that VAT might have been deducted in full by the recipientof the goods or services, thus giving scope for possible fraud or collusion, contraryto the proper functioning of the common system of VAT established by the SixthDirective and to its objective of ensuring that VAT is levied and collected underthe supervision of the tax authorities.
    
    
29. The answer to Question 2 must therefore be that a taxable person who has notcontested the mention, in a credit note serving as an invoice, of an amount of VATgreater than that owed by reason of taxable transactions may be regarded as theperson who has mentioned that amount, and is consequently liable to pay theamount shown, within the meaning of Article 21(1)(c) of the Sixth Directive.
    
    Question 3
    
    
30. In view of the answer to Question 2, there is no need to answer Question 3.
    
    Costs
    
    
31. The costs incurred by the German, Greek and United Kingdom Governments andby the Commission of the European Communities, which have submittedobservations to the Court, are not recoverable. Since these proceedings are, for theparties to the main proceedings, a step in the action pending before the nationalcourt, the decision on costs is a matter for that court.
    
    On those grounds,

    THE COURT,

    in answer to the questions referred to it by the Bundesfinanzhof by order of 14March 1996, hereby rules:

    1. Article 22(3)(c) of the Sixth Council Directive 77/388/EEC of 17 May 1977on the harmonization of the laws of the Member States relating to turnovertaxes - Common system of value added tax: uniform basis of assessment,authorizes Member States to regard a credit note issued by the recipient ofthe goods or services as a 'document serving as an invoice', where itincludes the information prescribed for invoices by that directive, it isdrawn up with the agreement of the taxable person who supplies the goodsor services, and the latter is able to contest the amount of value added taxmentioned.
       
       
    2. A taxable person who has not contested the mention, in a credit noteserving as an invoice, of an amount of value added tax greater than thatowed by reason of taxable transactions may be regarded as the person whohas mentioned that amount, and is consequently liable to pay the amountshown, within the meaning of Article 21(1)(c) of the Sixth Directive.
       

    
    
    

Delivered in open court in Luxembourg on 17 September 1997.

R. Grass

Registrar

1: Language of the case: German.