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A7. Fiscal neutrality
GENERAL​
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Three different meanings of fiscal neutrality
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"[46] In relation to those points, it should be borne in mind that, in the field of VAT, the concept of neutrality is used in different senses.
[47] On the one hand, recalling that the deduction mechanism provided for under the Sixth Directive is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities, the Court has held that the common system of VAT seeks to ensure neutrality of taxation of all economic activities, provided that those activities are themselves subject in principle to VAT (see inter alia, to that effect, Case C‑174/08 NCC Construction Danmark [2009] ECR I‑10567, paragraph 27, and Case C‑277/09 RBS Deutschland Holdings [2010] ECR I‑13805, paragraph 38).
[48] On the other hand, according to settled case‑law, the principle of fiscal neutrality means that supplies of goods or services which are similar, and which are accordingly in competition with each other, may not be treated differently for VAT purposes (see, inter alia, Joined Cases C‑453/02 and C‑462/02 Linneweber and Akritidis [2005] ECR I-1131, paragraph 24, and Joined Cases C‑259/10 and C‑260/10 Rank Group [2011] ECR I‑10947, paragraph 32 and the case‑law cited)." (Zimmermann C-174/11)
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"[28] Since both the referring court and the parties have referred to the principle of fiscal neutrality, it may be convenient to commence by clarifying the meaning of that expression. Indeed, a quick overview of the Court’s case-law shows that the expression ‘principle of fiscal neutrality’ is used in at least three different contexts.
[29] First, that expression is often used to describe the fact that a person who has had to pay VAT to acquire goods or services can then deduct it if these goods or services are in turn intended to be used for the purposes of a taxable activity. This is clearly the primary meaning of that expression.
[30] Second, the principle of fiscal neutrality is sometimes understood as reflecting, in VAT matters, the principle of equal treatment. When it is used in that sense, such a principle can, of course, be invoked to challenge the validity of a provision of the VAT Directive.
[31] Third, the Court sometimes uses that expression to indicate that VAT should be neutral from a competitive point of view. In essence, the idea is that similar goods or services which are in competition with each other should be treated in the same way. That principle is, however, somewhat different from the principle of equal treatment since it does not constitute some kind of overarching rule of primary law that can determine the validity of a stated exemption. Used in this (third) sense, the idea of fiscal neutrality is rather an interpretative principle which comes into play when other methods of interpretation do not lead to a conclusive result." (I GmbH C-228/20, AGO)
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Fiscal neutrality as an expression of equal treatment​
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- Intended to reflect equal treatment
"[41] That principle of fiscal neutrality was intended by the Community legislature to reflect, in matters relating to VAT, the general principle of equal treatment (see, to that effect, Case C‑309/06 Marks & Spencer [2008] ECR I‑2283, paragraph 49, and the case-law cited)." (NCC Construction Danmark C-174/08)
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Effect of fiscal neutrality (similar supplies taxed the same) ​
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- Cannot be invoked to challenge terms of Directive
"[50] From that viewpoint, it should be borne in mind that the principle of fiscal neutrality – a particular expression of the principle of equal treatment at the level of secondary EU law and in the specific area of taxation (see, to that effect, NCC Construction Danmark, paragraph 44) – is not a rule of primary law against which it is possible to test the validity of an exemption provided for under Article 13 of the Sixth Directive..." (Zimmermann C-174/11)
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- Directive may expressly require or permit distinctions to be drawn irrespective of fiscal neutrality
"[51] Indeed, the activities in the public interest which must be exempted from VAT, the activities which may be exempted by the Member States and those which may not, as well as the conditions to which activities eligible for exemption may be made subject by the Member States, are defined by the content of Article 13A of the Sixth Directive (see Case C‑144/00 Hoffmann [2003] ECR I‑2921, paragraph 38, and Case C‑253/07 Canterbury Hockey Club and Canterbury Ladies Hockey Club [2008] ECR I‑7821, paragraph 38).
[52] Accordingly, the principle of fiscal neutrality does not preclude, for example, the situation under Article 13A(1)(g) of the Sixth Directive, whereby, for the purposes of the exemption, it is unnecessary for bodies governed by public law to be recognised as ‘charitable’, but such recognition is required in the case of organisations other than bodies governed by public law.
[53] As is apparent from paragraphs 42 and 52 above, in the context of the exemption provided for under Article 13(1)(g) of the Sixth Directive, it is not in relation to bodies governed by public law that the principle of fiscal neutrality requires equal treatment in terms of recognition as ‘charitable’, but in relation to all other organisations, each as compared with the others." (Zimmermann C-174/11)
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- Principle of interpretation to be applied alongside other principles where there is not a clear answer
"[49] It is in that latter sense that the concept of neutrality is relevant in the present case. As is clear from the case‑law set out in paragraph 22 above, in the interpretation of the exemptions provided for under Article 13 of the Sixth Directive, the principle of fiscal neutrality must be applied alongside the principle that those exemptions must be interpreted strictly (see also, to that effect, Case C‑44/11 Deutsche Bank [2012] ECR, paragraph 45)." (Zimmermann C-174/11)
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[31] Third, the Court sometimes uses that expression to indicate that VAT should be neutral from a competitive point of view. In essence, the idea is that similar goods or services which are in competition with each other should be treated in the same way. That principle is, however, somewhat different from the principle of equal treatment since it does not constitute some kind of overarching rule of primary law that can determine the validity of a stated exemption. Used in this (third) sense, the idea of fiscal neutrality is rather an interpretative principle which comes into play when other methods of interpretation do not lead to a conclusive result." (I GmbH C-228/20, AGO)
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- Cannot be used to extend the wording of an exemption
"[50]...Nor does that principle make it possible for the scope of such an exemption to be extended in the absence of an unequivocal provision to that effect (see, to that effect, VDP Dental Laboratory, paragraphs 35 to 37, and Deutsche Bank, paragraph 45)." ​(Zimmermann C-174/11)
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- Used to support application of directive condition to all non-public bodies rather than only some
"[59] That interpretation is, moreover, consistent with the principle of fiscal neutrality, which precludes, inter alia, as stated in paragraph 42 above, operators which carry on the same activities from being treated differently as far as the levying of VAT is concerned (judgment of 6 November 2003, Dornier, C‑45/01, [60] It follows that a Member State may, in the exercise of its discretion, subject a private hospital to the condition that it be ‘duly recognised’ in order for the provision of medical care by that hospital under social conditions comparable with those applicable to bodies governed by public law to be exempted under Article 132(1)(b) of the VAT Directive." (I GmbH C-228/20)
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- Principle constraining the exercise of any discretion by Member States
"[41] That principle of fiscal neutrality was intended by the Community legislature to reflect, in matters relating to VAT, the general principle of equal treatment (see, to that effect, Case C‑309/06 Marks & Spencer [2008] ECR I‑2283, paragraph 49, and the case-law cited)." (NCC Construction Danmark C-174/08)
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THE PRINCIPLE​
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Similar supplies in competition with each other not to be taxed differently
"[54] In addition, it must be recalled that the principle of fiscal neutrality precludes, in particular, treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (see, to that effect, Kügler, paragraph 30, and Commission v Germany, paragraph 20)."
(Kingcrest Associates Ltd C-498/03)
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- Breach established where different in treatment of two supplies which are identical from view of consumer
"[48] ... Furthermore, it is apparent from the case-law of the Court that that principle must be interpreted as meaning that a difference in treatment for the purposes of VAT of two deliveries of goods or two supplies of services which are identical or similar from the point of view of the consumer and meet the same needs of the consumer is sufficient to establish an infringement of that principle (see, to that effect, judgment of 10 November 2011, Rank Group, C‑259/10 and C‑260/10, EU:C:2011:719, paragraph 36)..." (WEG C-449/19)
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- Permissible to treat supplies to different groups of customers differently
"[47] That conclusion cannot be called into question by the argument advanced by the German Government and implicitly based on the principle of fiscal neutrality, according to which the supply of heating by an association of residential property owners to the property owners belonging to that association should be exempt from VAT in order to ensure equal treatment for VAT purposes between, on the one hand, the owners and tenants of single family homes not subject to VAT, who are respectively exempt from VAT, where they supply heat to themselves as property owners or where they simultaneously lease the house and the heating system, and on the other, the co-owners of properties subject to VAT, where the association to which they belong supplies them with heating.​
[48]...However, it must be pointed out that the line of argument advanced by the German Government is based on a comparison of supplies of goods to two clearly distinct groups of consumers and that the fact that those groups are potentially treated differently is merely the consequence of the choice made by the persons belonging to those groups to own or not to own a dwelling in a building under co-ownership." (WEG C-449/19)
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- Private law operators must each be subject to the same conditions for the purpose of recognition
"[50] It may be stated at the outset that compliance with the principle of fiscal neutrality requires, first, that all of the categories of establishments governed by private law referred to in Article 13A(1)(b) of the Sixth Directive be subject to the same conditions for the purpose of their recognition for the provision of similar services. In the present case, therefore, it is for the national court to ascertain whether the national legislation complies with that requirement or whether, on the contrary, it restricts the application of the conditions in question to certain types of establishments whilst excluding others." ​(LUP C-106/05)
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Different transactions with economically similar outcomes not required to be taxed the same
"[31] It is true that Wako could have remained a tenant and sub-let the property to CFI for a lower rent than that which it had to pay the landlord or that it could have paid compensation to the landlord so that the latter would accept early termination of the lease. In both cases, the economic impact would have been comparable to that of the transaction at issue in the main proceedings, without the parties concerned having to pay VAT.
[32] However, that does not justify interpreting Article 13B(b) of the Sixth Directive so as to mean that it also applies to a supply of services that does not include the assignment of a right to occupy property.
[33] An approach of that kind would be contrary to the VAT system's objectives of ensuring legal certainty and a correct and coherent application of the exemptions provided for in Article 13 of the Sixth Directive. The Court observes in that connection that, to facilitate the application of VAT, it is necessary to have regard, save in exceptional cases, to the objective character of the transaction in question (see Case C-4/94 BLP Group [1995] ECR I-983, paragraph 24). A taxable person who, for the purposes of achieving a particular economic goal, has a choice between exempt transactions and taxable transactions must therefore, in his own interest, duly take his decision while bearing in mind the neutral system of VAT (see, to that effect, BLP Group, cited above, paragraphs 25 and 26). The principle of the neutrality of VAT does not mean that a taxable person with a choice between two transactions may choose one of them and avail himself of the effects of the other." (Cantor Fitzgerald C-108/99)
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GROUNDS FOR DISTINGUISHING SUPPLIES​
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Use/anticipated use​
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- Identical goods with different intended uses not in competition
"[66] Third, with regard to the argument concerning the principle of neutrality of VAT, which is said to preclude the applicable VAT rate from being determined by reference to the use of the horses, it must be borne in mind that, according to settled case-law, the principle of fiscal neutrality inherent in the common system of VAT precludes treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes, so that those goods or supplies must be subjected to a uniform rate (see, inter alia, Case C‑267/99 Adam [2001] ECR I‑7467, paragraph 36, and Case C‑94/09 Commission v France [2010] ECR I‑0000, paragraph 40). However, taking their respective uses into account, a horse destined for slaughter is not similar to a racehorse or a pet horse where that animal is sold as such. Therefore, as pointed out by the Advocate General in point 78 of his Opinion, those categories of horses are not in competition, meaning that they can be subject to different rates of VAT." (Commission v. Netherlands C-41/09)
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Objects of entity making supply​
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- Profit-making/non-profit making nature of supplier distinction would breach fiscal neutrality
"[58] Accordingly, national legislation may not, in implementing the exemption provided for under Article 13A(1)(g) of the Sixth Directive, lay down materially different conditions for profit-making entities, on the one hand, and non-profit making legal persons falling under Paragraph 4(18) of the UStG, on the other.
[59] It follows that Article 13A(1)(g) of the Sixth Directive, interpreted in the light of the principle of fiscal neutrality, precludes a threshold such as the two thirds threshold in so far as, in relation to supplies of goods or services which are essentially the same, that threshold is applied – for recognition as ‘charitable’ for the purposes of that provision – to some taxable persons governed by private law, but not to others." (Zimmermann C-174/11)
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"[41] ​As regards, secondly, the principle of fiscal neutrality, it must be remembered that that principle precludes, in particular, treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (see, to that effect, Case C-141/00 Kügler [2002] ECR I‑6833, paragraph 30, and Case C‑109/02 Commission v Germany [2003] ECR I‑12691, paragraph 20).
[42] Clearly, as the Advocate General observed, in essence, in paragraph 29 of his Opinion, that principle would not be observed if, where the national legislature has not made the exemption subject to the condition set out in the first indent of Article 13A(2)(a) of the Sixth Directive, the welfare services covered in Article 13A(1)(g) and (h) were treated differently for VAT purposes depending on whether the entities which provide them are profit-making or not." (Kingcrest Associates Ltd C-498/03)
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Funding
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- Not permissible to distinguish based on how costs of supplies are funded that only applies to some candidates for exemption
"[63] In the light of all the foregoing considerations, the answer to the questions referred is that, under Article 13A(1)(g) of the Sixth Directive, interpreted in the light of the principle of fiscal neutrality, the VAT exemption for out-patient services supplied by commercial service-providers may not be made subject to a condition such as that at issue in the main proceedings, by virtue of which the costs relating to those services must, during the preceding calendar year, have been borne wholly or partly by the statutory social security or social welfare authorities in at least two thirds of cases, where that condition is not capable of ensuring equal treatment in relation to the recognition, for the purposes of that provision, of the ‘charitable’ nature of organisations other than bodies governed by public law." (Zimmermann C-174/11 - the 2/3 funding from social security condition did not apply to officially recognised voluntary welfare associations)
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Location of supply​
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- Paramedical services should be exempt regardless of where they are provided
"[49] Lastly, it must be pointed out that that interpretation of the term medical care in Article 13A(1)(b) is in keeping with the principle of fiscal neutrality because paramedical services, such as treatment given by qualified psychologists, are exempt from VAT regardless of where they are provided." (Dornier C-45/01)
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- Laboratory tests cannot be treated differently based on where carried out if qualitatively the same
"[32] This interpretation is, moreover, consistent with the principle of fiscal neutrality, which precludes treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (Case C-109/02 Commission v Germany [2003] ECR I‑12691, paragraph 20; and Kingscrest Associates and Montecello, paragraph 54). It would be contrary to that principle to make medical tests prescribed by general practitioners subject to a different VAT scheme depending on where they are carried out when they are equivalent from a qualitative point of view in the light of the professional qualifications of the service providers in question (see, to that effect, Dornier, paragraph 49; and Joined Cases C‑443/04 and C‑444/04 Solleveld and van den Hout-van Eijnsbergen [2006] ECR I-0000, paragraphs 40 and 41)." (LUP C-106/05)
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Qualifications of service provider
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-Professional qualifications of service provider may justify different treatment
"[32]...It would be contrary to that principle to make medical tests prescribed by general practitioners subject to a different VAT scheme depending on where they are carried out when they are equivalent from a qualitative point of view in the light of the professional qualifications of the service providers in question (see, to that effect, Dornier, paragraph 49; and Joined Cases C‑443/04 and C‑444/04 Solleveld and van den Hout-van Eijnsbergen [2006] ECR I-0000, paragraphs 40 and 41)." (LUP C-106/05)
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Whether there is already sufficient capacity for a particular service​
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- Not permissible to refuse exemption on the basis that there is already sufficient supply capacity
[67] The referring court states, in that regard, as mentioned in paragraph 21 above, that the consequence of applying the national legislation at issue is that the exemption provided for in Article 132(1)(b) of the VAT Directive applies only if the services supplied by the private hospital in question meet specified needs under social security law. Thus, in practice, a private hospital would have no prospect of being included in the hospital plan for the Land in which it is located or of concluding care supply contracts with the statutory health insurance funds if enough hospital beds for a particular speciality are already available within the Land in question.
[68] As the Advocate General observed in points 111 and 112 of his Opinion, it follows from the information provided by the referring court that the providers of statutory accident insurance, the Land-level health insurance fund associations and substitute fund associations all enjoy a discretion as to whether to conclude an agreement with a hospital and that the Länder are not obliged to include in their hospital plan private non-university hospitals that carry on their activities under social conditions comparable with those applicable to bodies governed by public law.
[69] The exercise of such discretion depending on needs defined under social security law may, contrary to the principle of fiscal neutrality, result in similar private hospitals being treated differently as regards the exemption laid down in Article 132(1)(b) of the VAT Directive in respect of similar services supplied under social conditions comparable with those applicable to bodies governed by public law." (I GmbH C-228/20)
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- Company can rely on exemption for medical care provided by professionals
"[30] The principle of fiscal neutrality precludes, inter alia, economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned. It follows that that principle would be disregarded if the possibility of relying on the exemption which is envisaged for the provision of medical care referred to in Article 13(A)(1)(c) were dependent on the legal form in which the taxable person carries on his activity (see, to that effect, Gregg, cited above, paragraph 20)." (Kugler C-141/00)
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Legal form through which activity carried on not preventing exemption
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- Individuals can rely on exemption for medical care provided by bodies governed by public law etc.
"[19] That interpretation, to the effect that the terms 'establishment‘ and 'organisation‘ do not refer only to legal persons, is, in particular, consistent with the principle offiscal neutrality inherent in the common system of VAT and in compliance with which the exemptions provided for in Article 13 of the Sixth Directive must be applied (see, to that effect, Case C-283/95 Fischer [1998] ECR I-3369, paragraph 27).
[20] The principle of fiscal neutrality precludes, inter alia, economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned. It follows that that principle would be frustrated if the possibility of relying on the benefit of the exemption provided for activities carried on by the establishments or organisations referred to in Article 13A(1)(b) and (g) was dependent on the legal form in which the taxable person carried on his activity." (Gregg C-216/97)
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"[36] Thus the Court has already held, in respect of a private entity aiming to make a profit, that the expression ‘other organisations recognised as charitable by the Member State concerned’ in Article 13A(1)(g) of the Sixth Directive does not exclude from that exemption natural persons running a ‘business’ (see Gregg, cited above, paragraph 21)." (Kingcrest Associates Ltd C-498/03)
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Previously
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"[20] Certain of the exemptions mentioned in Article 13A(1) of the Sixth Directive, including the one provided for in paragraph (g) of that provision, expressly refer to the concept of 'body' or 'organization', whereas others do not. The position is, therefore, that in the former case the exemption may be claimed only by legal persons whereas in the latter case it may also be claimed by natural persons including traders." (Bulthuis-Griffioen C-453/93)
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- Soloist musicians can rely on the exemption for cultural services as "cultural bodies"
"[27] Consequently, the principle of fiscal neutrality requires that individual performers, as long as their services are recognised as cultural, may be regarded, like cultural groups, as bodies similar to public-law bodies supplying certain cultural services mentioned in Article 13A(1)(n) of the Sixth Directive." (Hoffmann C-144/00)
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Organisational structure within group/company may affect VAT outcome
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- Single company not the same as company with branch or subsidiary in different territory
"[45] That finding is not called into question by the argument that a company which has its principal establishment in a Member State and a branch in a third State must, for VAT purposes, be taxed in the same way as a company, also established in a Member State, which provides the same services without recourse to such a branch or which has, for that purpose, a subsidiary in that third State. Those different possibilities reflect situations which are clearly different and cannot therefore be treated in the same way by the tax system.
[46] In that regard, furthermore, taxable persons are generally free to choose the organisational structures and the form of transactions which they consider to be most appropriate for their economic activities and for the purposes of limiting their tax burdens (Case C‑277/09 RBS Deutschland Holdings [2010] ECR I‑13805, paragraph 53).
[47] Thus, a trader’s choice between exempt transactions and taxable transactions may be based on a range of factors, including on tax considerations relating to the neutral system of VAT (see Case C‑108/99 Cantor Fitzgerald International [2001] ECR I‑7257, paragraph 33).
[48] In addition, as is apparent from the case-law of the Court, where it is possible for the taxable person to choose from among a number of transactions, he may choose to structure his business in such a way as to limit his tax liability (see, inter alia, Case C‑255/02 Halifax and Others [2006] ECR I‑1609, paragraph 73, and RBS Deutschland Holdings, paragraph 54).
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- No distinction between supplies of lawful goods and supplies of unlawful goods
"[19] In accordance with the principle of fiscal neutrality on which the Sixth Directive is based, that provision entails no distinction, as far as exemptions are concerned, between lawful and unlawful exports. When the latter consist of goods which fall within the scope of the Sixth Directive, they must accordingly be treated in the same manner as lawful exports of the same goods." (Lange C-111/92)
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