C-222/81

In Case 2 2 2 / 8 1

R E F E R E N C E t o the C o u r t u n d e r Anicie 177 of t h e E E C T r e a t y by t h e Finanzgericht M ü n c h e n (Finance C o u r t , M u n i c h ) for a preliminary ruling in the action pending before t h a t court between

B A . Z . BAUSYSTEM A G , Zürich (Switzerland),

and

FINANZAMT M Ü N C H E N FÜR KÖRPERSCHAFTEN [Munich Revenue Office for Corporations],

1 — Language of lhe Case: German.

JUDGMENT

Facts and Issues

The judgment making the reference, the " . . . everything which makes up the course of the procedure and the obser- consideration for the supply of the goods vations submitted under Article 20 of the or the provision of services, including all Protocol on the Statute of the Court of expenses and taxes except the value- Justice of the EEC may be summarized added tax itself." as follows: Paragraph 13 of Annex A to the directive provides that: I —. Facts and written procedure "The expression 'consideration' means 1. The rules in question everything received in return for the supply of goods or the provision of According to Article 8 (a) of the Second services, including incidental expenses Council Directive, in the case of the (packing, transport, insurance, etc.), that supply of goods and the provision of is to say not only the cash amounts services, the basis of assessment is to be: charged, but also, for example, the value

BAUSYSTEM v FINANZAMT MÜNCHEN FÜR KÖRPERSCHAFTEN

JUDGMENT OF 1. 7. 1982 — CASE 222/81

It could not be amount of DM 143 628 in respect of the inferred from Article 352 of the Han- interest paid pursuant to the above- delsgesetzbuch, which also applied to mentioned judgment. interest on account of late payment, that the Oberlandesgericht had fixed current The complaint lodged by Bausystem account interest. Furthermore, that court against the Finanzamts decision was had made no ruling as to the way in unsuccessful. It then brought an action which the interest was to be treatea for before the Finanzgericht München the purpose of turnover tax. [Finace Court, Munich], challenging the inclusion of the interest in the basis of assessment for turnover tax for 1973. 3. The question submitted for a pre-

Bausystem. It was clear from the calcu- Treaty the following question: lations made by the Oberlandesgericht that the interest was not regarded as "How is the expression 'Wert der consideration subject to turnover tax. Gegenleistung' [value of the The taxation of the interest by the consideration] ' in Article 8 of the Finanzamt was contrary to the basic Second Council Directive of 11 April principles of the law on value-added tax, 1967 on the harmonization of legislation because the consortium was unable to of Member States concerning turnover claim a corresponding amount as input taxes — Structure and procedures for tax. application of the common system of value-added tax [Official Journal, Moreover, in the present case the interest English Special Edition 1967, p. 16] to did not represent a payment incidental to be interpreted? Does it include payments

existed between them. Since the dealings had extended over a number of years, 1 — Translator's note: The words actually used in the they constituted continous current provision in question are "alies, was den Gegenwert . . . bildet" ["everything which makes up the account trading. consideration"].

The Finanzgericht states that the older following words ("packing, transport, German works on turnover tax law and insurance, etc.") show that those also the earlier decisions of the incidental expenses in fact refer to any Reichsfinanzhof [Finance Court of the addition to the purchase price which is Reich] (judgment of 1 February 1929, attributable to the method of delivery V A 722/28, Reichssteuerblatt [Tax and that they represent a reimbursement Gazette of the Reich] 1929, p. 237) of costs incurred by the supplier in considered that in view of its compensa- connection with the delivery of the tory nature interest on account of late goods. Therefore the fact that such sums payment was not subject to turnover tax. are included in the consideration does Now that the Reichsfinanzhof, and not enable any conclusion to be drawn following it, the Bundesfinanzhof up as to the correct manner of treating [Federal Finance Court] have departed sums which are paid out by the recipient from that view, it is only seldom to be of goods or services, in addition to the found in modern works, and in the agreed consideration, by reason of the Finanzgericht's view there are cogent fact that he failed to pay the criticisms to be made of it. Although consideration on time and is tnerfore interest payable from the due date or on obliged to indemnify the supplier of the account of late payment has a specific goods or services by the payment of legal basis, namely, failure to pay or interest. delay in payment, it is closely linked to the purchase price or the charge for

First, it might be 1939, p. 1011) and also by the Bun- supposed that on the introduction of desfinanzhof in a consistent line of value-added tax the legislature of the decisions (judgments of 29. 11. 1955, V Federal Republic of Germany — as is 79/55 S, Bundessteuerblatt [Federal Tax shown by the preparatory documents Gazette] III 1956, p. 53, and of 16. 12. relating to the law — was aware of the obligations arising under Community law 1971, V R 2/69, Bundessteuerblatt II and intended to model the German law 1972, p. 508) that the factual' and on turnover tax on the provisions of economic circumstances in each of those the Second Directive.

Indeed the

provisions which are based on Advocate General the Court decided to Community legislation, to take into open the oral procedure without any account the wording, sense and purpose preparatory inquiry. As no Member Sute of the Community legislation and or institution of the Communities had thereby to facilitate the achievement of requested that the case be decided in the objectives of the Treaty. plenary session, it also decided, pursuant to Article 95 (1) and (2) of the Rules of The Finanzgericht takes the view that Procedure, to assign the case to the First the definition of the basis of assessment Chamber. contained in Article 8 (a) of the Second Directive is equivalent in meaning to the definition of the term, "consideration" ("Entgelt") in the German Umsatzsteu­ II — Written observations sub­ ergesetz, adopted by that law as the basis mitted to the C o u r t of assessment. The question concerning the interpretation of Article 8 (a) of the 1. Observations submitted by Bausystem Second Directive therefore coincides with that relating to the corresponding provision of the German law on turnover Consideration is defined in the German tax. It is of particular importance that the Umsatzsteuergesetz as everything which basis of assessment for turnover tax it has been agreed that the recipient of should be uniform in a common system goods or services is to give in return for of value-added tax within the such goods or services. On the basis of Community. that definition the payment of interest fixed by reason of the late payment of the consideration cannot be regarded as 4. Written procedure before the Court consideration, because such interest is not paid in return for the goods or services (since the recipient of the goods The order of the Finanzgericht München or services has already received them was received at the Court Registry on 22 some time before). That interest is in fact July 1981. paid as compensation for the fact that the consideration was not paid or was paid only after the court's judgment. The Written observations were submitted payment of interest thus has no under Article 20 of the Protocol on the connection with the goods or services or Statute of the Court of Justice of the the receipt thereof, and the interest EEC by B.A.Z. Bausystem AG, constitutes compensation for the delay in represented by Mr Krupiński of Controll- payment. expert GmbH, Accountants, Munich, by the Finanzamt München für Körper­ schaften, represented by the Director, Mr Rouges, by the government of the 2. Observations submitted by the Finanz­ Kingdom of Denmark, represented by amt Laurids Mikaelsen, Legal Adviser in the Ministry of Foreign Affairs, acting as According to the well-established Agent, and by the Commission of the case-law of the Bundesfinanzhof, European Communities, represented by consideration includes, in addition to the its Legal Adviser, Erich Zimmermann, actual purchase price, the other amounts acting as Agent. which are paid by the recipient of the goods or services and which have an Upon hearing the report of the Judge- economic nexus with the purchase price. Rapporteur and the views of the In the judgments cited by the Finanz-

gericht München, the Bundesfinanzhof Second Directive excludes deduction decided that interest on account of late only in relation to tax on goods and payment was part of the consideration services used in non-taxable or exempt for the supply of goods or provision of transactions. In this case, Bausystem services subject to turnover tax, since it provided services for another under- had a direct economic nexus with the taking which had the right to make a goods supplied or services provided. deduction. The provisions of the Without the latter, that interest would directive concerning the basis of not be payable. It was therefore not to be assessment (Article 8 (a)) apply to any considered in isolation but only in the supply of goods or provision or services, context of its factual and economic regardless of whether or not the recipient nexus with the goods supplied or services thereof has the right to make a provided. For the purchaser of goods deduction, and therefore also to supplies who has to pay interest on account of at the stage of final consumption.

Those two which must be paid by the recipient of conditions are not fulfilled in so far as the services therefore constitutes interest on account of late payment is additional consideration for the service concerned. provided by the undertaking and not consideration for a special transaction undertaken independently of that service. It is payable by virtue of the law. In addition to the actual service, the under- 3. Observations submitted by the Danish taking does not provide a special service Government (such as credit facilities) for which payment must be made by interest on account of late payment. It follows that By way of introduction the Danish the undertaking which provides the Government emphasizes that the Second services has an unlimited right to make a Directive has not been applicable since deduction. Indeed, Article 11 (2) of the 1 January 1978, the date of the Sixth

Directive's entry into force. In its view, it goods or provision of services is cannot be ruled out that the interpret- irrelevant. ation to be given by the Court in this case to the term "consideration" in the Second Directive may be important for The linguistic interpretation — which in the interpretation of the corresponding the view of the Danish Government is term contained in Article 11 of the Sixth conclusive — is corroborated by certain Directive. Conversely, the legal ideas factors relating to the Second Directive. underlying the Sixth Directive are not First, the chargeable event is to occur at without importance in relation to the the moment when delivery is effected or interpretation of the Second Directive. the service is provided (Article 5 (5) and The Danish Government further recalls Article 6 (4)). Next, the Second Directive in that regard that the Sixth Directive does not specify the chargeable event in defines the basis of assessment to be relation to interest on account of late taken into account for the purpose of the payment and it is impossible to apply to calculation of the Community's own such interest the moment (defined in the resources, in so far as they accrue from directive) when the chargeable event of value-added tax (cf. Council Decision of delivery or provision of the service 21 April 1970 on the replacement of occurs. Such a provision would be financial contributions from Member necessary. It is decisive not merely with States by the Community's own regard to the determination of the resources, Official Journal, English taxable person's liability in relation to the Special Edition 1970 (I), p. 224).

services provided. Whether it is a by the legal ideas underlying the question of interest on overdue payment adoption of the Sixth Directive. Indeed, (which runs in principle from the due interest on account of late payment date) or of interest fixed by the court ought, if it were considered necessary, to (which runs from the date on which have been included in Article 11 A (2) application is made to the Court), among the expenses to be included in interest on account of late payment is the taxable amount; moreover, credit not part of the consideration for the transactions are exempt from tax (Article goods supplied or services provided, but 13 B (d)(1)). rather consideration for the failure to satisfy an obligation and for the resulting credit, which, though was not provided for in the contract, is actually supplied. 4. Observations submitting by the That is the ordinary linguistic interpre- Commission tation of Article 8 of the Second

BAUSYSTEM v FINANZAMT MÜNCHEN FÜR KÖRPERSCHAFTEN

There due date for the debt would then be must, however, always be a supply of postponed until the expiry of the period goods or provision of services by the for payment and the interest after the taxable person — albeit in the form of due date provided for in Article 353 of incidental services, such as packing, the Handelsgesetzbuch would not then transport, insurance and the like — be payable). There was no such corresponding to the consideration. That agreement in this case. condition is not fulfilled when, without his agreement, the taxable person receives the agreed consideration after the due date and the debtor must pay In everyday language, a taxable person interest on account of the late payment does not deliver goods or provide a by way of compensation. service against payment when the recipient, contrary to the agreement reached, does not furnish the The question of the taxation of interest consideration on the due date. The late due on account of late payment was the payment of the consideration takes place subject of negotiations and discussions against the will of the taxable person. prior to the adoption of the Sixth The intention to perform, which is Council Directive. In the proposal presumed to exist in the case of the submitted to the Council by the supply of goods and provision of services Commission on 29 June 1973 (Bulletinof subject to turnover tax, is therefore the European Communities, Supplement

(B) (j). tractual provisions, to compensate for the injury suffered by the other contracting party by the payment of The exclusion of interest on account of interest. late payment is justified by the fact that such interest, being intended to penalize

the buyer, cannot be said to form part of payable after the due date and interest a normal commercial transaction." on account of late payment, there is voluntary reciprocal performance since the deferred payment or grant of a specified period for payment of the As no agreement was reached by the consideration is agreed between the Council, the exemption for interest due parties in exchange for payment of on account of deferred or late payment appropriate interest. In relation to expressly proposed by the Commission interest payable for failure to pay the was not included in the final version of consideration by the due date, there are

However, since the objective of the directives on value-added tax is to harmonize national laws concerning Interest due on account of late payment turnover taxes and so to ensure equal of the consideration is not subject to conditions of competition at national and turnover tax in any Member State apart Community level, Community law from the Federal Republic of Germany. demands that a uniform answer should In the Belgian and Italian legislation on be given to that question in all Member value-added tax, it is expressly provided States.

that there is express and detailed excludes from the .taxable amount provision for such reservations in each interest payable in the case of purchases directive constitutes a ground for by instalment and other transactions concluding that the rules relating to falling within the Hire Purchase Act. turnover taxes must be laid down in a According to the information available to uniform manner in the Member States. the Commission, interest due on account of late payment of the consideration is also excluded from the taxable amount. In Ireland, Luxembourg and the

BAUSYSTEM v FINANZAMT MÜNCHEN FÜR KÖRPERSCHAFTEN

If, contrary to the opinion expressed by chargeable event is to occur at the the Commission, interest payable after moment when delivery is effected or the the due date and interest on account of service is provided (Article 6 (4) of the late payment were subject to tax, a Second Directive; Article 10 (2) of the difficulty would arise owing to the fact Sixth Directive). The derogation that at the moment when delivery was contained in the second sentence of effected or the service was provided it Article 6 (4) authorizes the Member would not be possible to determine the States only to bring forward the date on amount of value-added tax payable. In which the liability to tax arises and not this case, the amount of interest payable to postpone it until after the date when to Bausystem by the consortium could the provision of services is completed. not be determined until after payment of the balance of the debt. Since the consortium was not ordered by the Oberlandesgericht München to pay the Ill — Oral procedure balance until 1978, more than four years had elapsed since the date on which the At the sitting on 4 March 1982 oral debt fell due. According to the argument was presented by H. T. Kleiner, Finanzamts argument that the interest acting as Agent, for the defendant in the received was subject to value-added tax main action, and by W. D. Krause- in respect of 1973, the definitive amount Ablass, Rechtsanwalt, Düsseldorf, for the of tax payable in respect of a liability to Commission of the European Com- tax arising in 1973 could not have been munities. calculated until five years later. That would be contrary to the legal principles The Advocate General delivered her concerning value-added tax, whereby the opinion at the sitting on 6 May 1982.

4 After an inspection of the company's records, the German customs auth- orities assessed the value-added tax payable by Bausystem for 1973 at DM 191 050.85, including in the taxable amount a sum of DM 143 628 in respect of the interest paid pursuant to the judgment of the Oberlandes- gericht.

5 The complaint lodged by Bausystem against the assessment of a sum of DM 14 233.40 in respect of value-added tax on the interest paid by the consortium was unsuccessful. Bausystem then, brought an action before the Finanzgericht München, which has referred to the Court for a preliminary ruling the following question :

"How is the expression 'Wert der Gegenleistung' [value of the consideration] ' in Article 8 (a) of the Second Council Directive of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes — Structure and procedures for application of the common system of value-added tax to be interpreted? Does it include payments which the undertaking receives in addition to the agreed price of the goods or services because that sum is not paid in due time, where the additional payment is calculated in the form of interest on the outstanding claim and its purpose is to indemnify the creditor for the damage due to the delay in payment?"

6 Article 8 (a) of the Second Directive reads as follows:

1 — Translator's note: The words actually used in the provision in question are "alles, was den Gegenwert... bildet" ["everything which makes up the consideration"].

BAUSYSTEM » FINANZAMT MÜNCHEN FÜR KÖRPERSCHAFTEN

io Indeed, the undertaking was compelled to agree to a delay in payment, not provided for in the contract, on the part of the recipient of its services. The interest which constitutes the consideration for that delay was fixed by a court in application of the provisions of both the Bürgerliches Gesetzbuch [German Civil Code] and the Handelsgesetzbuch [German Commercial Code]. In those circumstances, the grant of credit is only remotely connected to the main services provided. The interest payable in respect of such credit cannot therefore be described as supplementary payment.

ii It follows from those considerations that the answer to the question submitted by the national court should be that the basis of assessment referred to in Article 8 (a) of the Second Council Directive of 11 April 1967

JUDGMENT OF 1. 7. 1982 — CASE 222/81

on the harmonization of legislation of Member States concerning turnover taxes does not include interest awarded to an undertaking by a judicial decision where such interest has been awarded to it by reason of the fact that the balance of the consideration for the services provided has not been paid in due time.

Costs

1 2 The costs incurred by the Danish Government and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.

J. A. Pompe G. Bosco Deputy Registrar President of the First Chamber