IOW - Car Parking - ECJ Judgement - 16th September 2008

The ECJ, yesterday, released its Judgement in respect of the three questions submitted by the High Court in the case of Isle of Wight, and others. The questions were –

1. Is the expression “distortions of competition” to be ascertained on a public body by public body basis such that, in the context of the present case, it should be determined by reference to the area or areas where the particular body in question provides off-street parking or by reference to the totality of the national territory of the Member State?

2. What is meant by the expression “would lead to”? In particular, what degree of probability or level of certainty is required for that condition to be satisfied?

3. What is meant by the word “significant”? In particular, does “significant” mean an effect on competition that is more than trivial or de minimis, a “material” effect or an “exceptional” effect?’

The Judgement, which broadly follows the earlier Opinion of Advocate General and supports Customs' contentions, rules –

1. Article 4(5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment is to be interpreted as meaning that the significant distortions of competition, to which the treatment as non-taxable persons of bodies governed by private law acting as public authorities would lead, must be evaluated by reference to the activity in question, as such, without such evaluation relating to any local market in particular .

2. The expression ‘would lead to’ is, for the purposes of the second subparagraph of Article 4(5) of Sixth Council Directive 77/388, to be interpreted as encompassing not only actual competition, but also potential competition, provided that the possibility of a private operator entering the relevant market is real, and not purely hypothetical.

3. The word ‘significant’ is, for the purposes of the second subparagraph of Article 4(5) of Sixth Council Directive 77/388, to be understood as meaning that the actual or potential distortions of competition must be more than negligible.

The context of, and observations within, the Judgement focus strongly on the issue of fiscal neutrality – i.e. that two operators engaged in the same activity should not be treated differently in respect of the levying of tax.

In our view, this is not good news for the Isle of Wight, and other local authorities that have been pursuing this case with great interest.

A detailed analysis of the Judgement, the text of which is now available in the Members’ Area of our website, will be posted shortly to the Members’ Area.