C-73/85

Finanzamt [Tax Office] Mönchengladbach-Mitte

on the interpretation of various provisions of the Sixth Council Directive, No 77/3 8 8/EEC of 17 May 1977, on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1),

THE COURT (Fifth Chamber)

composed of: U. Everling, President, R. Joliét, O. Due, Y. Galmot and C. Kakouris, Judges,

Advocate General: M. Darmon Registrar: P. Heim

after considering the observations presented on behalf of

gives the following

JUDGMENT

Facts and Issues

The facts, the procedure and the written observations submitted pursuant to Article 20 of the Protocol on the Statute of the (b) the supply of building land'. Court of Justice of the EEC may be summarized as follows: In accordance with Article 13 B (g) Member States are to exempt inter alia: I — Facts and written procedure 'the supply of buildings or parts thereof, and 1. Article 2 of the Sixth Council Directive, of the land on which they stand, other than No 77/388/EEC of 17 May 1977, on the as described in Article 4 (3) (a); harmonization of the laws of the Member States relating to turnover taxes — Common ...' system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1) provides that value-added tax is to be Under Article 28 (3) (b) the Member States levied inter alia on : may, inter alia, continue to exempt the acti­ vities set out in Annex F under conditions existing in the Member State concerned. 'the supply of goods or services effected for Point 16 of Annex F refers to 'supplies of consideration within the territory of the those buildings and land described in Article country by a taxable person acting as such'. 4 (3)'.

Article 4 (3) provides that the Member 2. By a contract dated 28 December 1982 States may treat as a taxable person anyone and 3 February 1983 the plaintiffs in the who carries out, on an occasional basis, in main proceedings commissioned a firm of particular one of the following: trustees to purchase a plot of land at Mönchengladbach/Hardt for DM 43 792 '(a) the supply before first occupation of and to construct a building on it (dwelling buildings or parts of buildings and the No 2 on the plan) at a total cost of DM land on which they stand; 445 063. By a contract of 7 February 1983

the plaintiffs acquired, as joint owners in contract of sale for a plot of land and the equal shares, a co-proprietor's share contract for the construction of a building amounting to 230/1 000 of a plot of land must be regarded as a single transaction which had not been built on, located as within the meaning of the law on property mentioned above, at the agreed price. The transfer tax in so far as each of the two conveyance was effected on 23 August partial contracts is devoid of purpose

It contract dated 26 May 1983 for the considers that it is necessary to determine in construction of a dwelling ready for occu the first place whether the goods and pation by 31 December 1983 at a fixed price services supplied by building contractors, of DM 679 906.54 plus value-added tax at skilled workers of the building trade (here the rate of 13%. In addition the plaintiffs inafter referred to as 'building workers'), concluded on their own account the trustees and so on under the building following contracts: contract are subject to value-added tax by virtue of the directive.

The Tax Office justified its Article 13 B (g) and Article 28 (3) (b) approach by reference to recent decisions of in conjunction with point 16 of Annex the Bundesfinanzhof according to which the F to the Sixth Council Directive on the

harmonization of turnover taxes of goods and services under a 'Bauherren' (Directive No 77/388/EEC of 17 May scheme are subject to value-added tax by 1977), or is value-added tax applicable virtue of Article 2 (1) of the Sixth Directive under Article 2 (1) of that directive to and that they do not qualify for exemption the supply of such goods and services from that tax either under Article 13 B (g) but not to the transfer of the land? of the directive or — in so far as they do not concern the land transaction — under (2) If value-added tax is chargeable under Article 28 (3) (b) in conjunction with point Article 2 (1) of the Sixth Directive, 16 of Annex F to the directive. does Community law prohibit double taxation so that no additional transfer tax (in this case the German tax on the transfer of real property) may be levied in respect of the aforementioned supply (a) The Federal Government states that the of goods and services?' supplies of goods and services referred to in the national court's question, which are effected by different taxable persons, do not 4. The order requesting a preliminary constitute a single 'supply of buildings or ruling was registered at the Court on 19 parts thereof, and of the land on which they March 1985. stand' for the purposes of Article 13 B (g) and Article 28 (3) (b) in conjunction with In accordance with Article 20 of the point 16 of Annex F to the Sixth Directive. Protocol on the Statute of the Court of In its view such supplies are subject to VAT Justice of the EEC, written observations individually by virtue of Article 2 (1) of the were submitted by the government of the directive. Federal Republic of Germany, represented by Martin Seidel and Ernst Röder, acting as Agents, and by the Commission of the European Communities, represented by Jürgen Grunwald, a member of the Article 13 B (g) is not applicable because the Commission's Legal Department, acting as exemption it provides for does not extend to Agent. the matters covered by Article 4 (3) (a), which refers to 'the supply before first occu­ Upon hearing the report of the Judge- pation of buildings or parts of buildings and Rapporteur and the views of the Advocate the land on which they stand'. Since the General, the Court decided to open the oral purpose of 'Bauherren' schemes is precisely procedure without any preparatory inquiry. to construct new buildings, exemption under Article 13 B (g) must be ruled out. By an order of 11 November 1985, pursuant to Article 95 of the Rules of Procedure, the Court decided to assign the case to the Fifth Chamber. Exemption from VAT during the transi­ tional period on the basis of Article 28 (3) II — Written observations submitted to the (b) in conjunction with point 16 of Annex F Court for services supplied for consideration by contractors under the 'Bauherren' scheme is 1. The first question likewise excluded. Point 16 of Annex F does indeed refer to supplies of buildings and The Federal Government and the land as described in Article 4 (3), in other Commission both take the view that supplies words the delivery of new buildings and the

land on which they stand. However, work 'Supplies of goods and services which are done by building contractors and building effected by different taxable persons must workers in connection with the construction always be assessed separately for the of a building cannot be regarded as consti purposes of turnover tax and cannot tuting with the delivery of the land by the therefore be regarded as constituting only a vendor only a single supply of a building, single transaction. The fact that under a since in that respect Article 2 (1) applies to scheme such as the 'Bauherrenmodell' the the various supplies of goods and services recipient of services enters into a group of individually. transactions (for example works contracts, contracts for the provision of services and a The Federal Government adds that the fact transfer of land) with a view to the that the construction, the work done by the construction of a building is immaterial in building workers and the land transactions, that respect. The labour and services which are all operations carried out by supplied by the contractors are subject to different taxable persons, are economically value-added tax by virtue of Article 2 (1) of linked does not affect the requirement laid the Sixth Directive. They are not covered by down by the directive that they be assessed the exemption provided for in Article 13 B

(b) The Commission expresses the view The services relating to the construction of that all the supplies of goods and services the building and the services provided by under the scheme known as the 'Bauherren building workers, which are legally distinct modell' are in principle subject to VAT from the land transaction and which are under Article 2 of the Sixth Directive. supplied by a taxable person other than the However, it considers that it is necessary to vendor of the land, cannot be reclassified as determine whether one of the exemptions land transactions. Such a reclassification provided for by the directive applies. would be contrary to the principle of the equality of taxation and the requirement that taxation must be non-discriminatory In its view, Article 13 B (g) does not apply from the point of view of competition, in this case because it excludes the goods because it would mean that construction described in Article 4 (3) (a), namely the services would be exempted from turnover supply of buildings or parts of buildings and tax where the co-proprietor, as the recipient the land on which they stand 'before first of the services, accepted a parcel of services, occupation' (new buildings).

In conclusion the Federal Government proposes that the Court should reply to the The Commission adds that exemption is, on first question as follows: the other hand, accorded for 'the granting

KERRUTT v FINANZAMT MÖNCHENGLADBACH-MITTE

(2)). It follows that in so far as such trans to the land transaction. actions are part of a scheme such as the 'Bauherrenmodell', they are exempt from In conclusion, the Commission proposes VAT. that the Court should reply to the first question as follows: The Commission points out that under Article 28 (3) (b) in conjunction with point 'The supply of goods and services under a 16 of Annex F Member States are auth parcel of contracts offered by a promoter orized to 'continue to exempt' supplies of for the construction of a building, including the buildings and land described in Article 4 building contracts and contracts for the (3) 'under conditions existing in the provision of services and a contract for the Member State concerned' during the transi sale of a plot of land, (the scheme known as tional period referred to in Article 28 (4). In the "Bauherrenmodell") are subject to fact the period of five years (from 1 January value-added tax by virtue of Article 2 (1) of 1978 to 31 December 1982) initially fixed in Directive No 77/388/EEC. the first sentence of Article 28 (4) expired before the construction work at issue in In so far as transactions of the kind these proceedings was effected.

The second question concerned when the directive was adopted. Community law prohibits the unilateral The Federal Government and the extension by the Member States of their Commission both point out that according national practice regarding exemption after to Article 33 of the Sixth Directive the the adoption of the directive. provisions of the directive do not prohibit the maintenance or introduction of 'stamp In the Federal Republic of Germany and in duty' 1 by the Member States. the sector with which this case is concerned, 'transactions subject to the Grunderwerb- The German Government adds that steuergesetz [Law on real property transfer although in adopting the exemptions laid tax]' (paragraph 4 (9) (a) of the Umsatz down in Article 13 B of the directive the steuergesetz [Law on turnover tax] of 1973) Community legislature excluded in some were not liable to turnover tax when the directive was adopted. The decisions of the 1 — Transistor's note: 'Grunderwerbsteuer' [real property Bundesfinanzhof concerning real property transfer tax] in the German version of Art. 33.

cases the double taxation of certain trans building workers supply their services actions which would result from the directly to the individual co-propreitors, or charging of turnover tax with other taxes, at that they supply them to the co-proprietors' the same time it deliberately tolerated such association. In this case it is necessary to double taxation in others. In that respect the proceed on the assumption that since the Sixth Directive has harmonized exemptions work was entrusted to the building from turnover tax; it has not, however, contractor by the co-proprietors as a group, harmonized the rules governing the they must be regarded as a single entity collection of other taxes. vis-à-vis third parties ('Außengesellschaft'), and, accordingly, as the recipient of the Nor does Article 33 of the directive limit the service provided by the building contractor. right of the Member States to levy transfer tax in connection with transactions (a) The service provided by the building involving new buildings and the land on contractor consists in the supply of a which they stand, which are in principle dwelling ready for occupation constructed subject to VAT and which, in accordance on a plot of land belonging to the co- with Article 28 (3) (b) in conjunction with proprietors. That service is subject to VAT. point 16 of Annex F and Article 4 (3) (a), may not be exempted after the expiry of a (b) Where the association of co- transitional period. The expiry of the transi proprietors is — as in this case — the tional period removes the possibility of recipient of the building works, it must be exemption; it does not, however, render assumed that it in its turn transfers the unlawful the levying of transfer tax. completed individual dwellings to the various co-proprietors.

The general administrative follows : practice is to recognize that the association may be regarded as a contractor. 1. The German tax authorities continue to levy turnover tax on services supplied in (c) Where the association is deemed to be connection with a 'Bauherren' scheme on a contractor another question arises, namely the basis of a contract for the construction whether the supply of the completed of a building (in other words the services of dwellings by the association to the various the building contractors and the building co-proprietors is liable to the tax or, on the workers), even after the recent decisions of contrary, exempted by virtue of paragraph 4 the Bundesfinanzhof concerning transfer (9) (a) of the Umsatzsteuergesetz.

2. Depending on the structure of the 'Bauherren' scheme, the administrative (d) In accordance with paragraph 15 of practice is based either on the assumption the Umsatzsteuergesetz the association is that the building contractors and the entitled to the deduction of the prepaid tax

The Federal Government and the The Federal Government then states that Commission essentially expanded upon the where, under a 'Bauherren' scheme, the observations which they had submitted in building contractors and the building the written procedure. workers provide their construction services not to the association but directly to the members, those services are also subject to VAT. The members are entitled to deduct The plaintiffs in the main proceedings the prepaid tax under the same conditions argued that supplies of goods and services as those set out under point (e). under a 'Bauherren' scheme, with the exception of the land transaction, are subject to VAT by virtue of the Sixth 3. By virtue of paragraph 2 (1) of the Directive. In their view, the land transaction Umsatzsteuergesetz, the co-proprietors' is, as such, exempt from VAT both on the association or its members are deemed to be basis of the Sixth Directive, which contractors (in other words taxable persons harmonizes exemptions, and on the basis of within the meaning of the Sixth Directive) national law, which precludes the double where they carry out independently and on taxation of a single transaction as the result a continuing basis an economic activity for of the charging of transfer tax and value- the purpose of obtaining income therefrom. added tax. They consider, therefore, that in order to resolve this dispute it is necessary to separate the land transaction, referred to (a) An association of co-proprietors in Article 13 B (g) of the directive, from the satisfies that requirement where it intervenes supplies of goods and services subject to as a single entity vis-à-vis third parties in VAT. the chain of services between the building contractor (and the building workers) and the co-proprietors and where it provides a The defendant in the main proceedings continuing service. submitted observations inter alia concerning the recent decisions of the Bundesfinanzhof. (b) A co-proprietor is deemed to be a contractor when he lets out a dwelling which has been constructed; he is not when The Advocate General delivered his he uses it for his own accommodation. Opinion at the sitting on 22 April 1986.

3 It appears from the order requesting a preliminary ruling and the explanations provided in the course of the proceedings that the transaction in question operated as follows: the Kerrutts and other persons desirous of building a home commis­ sioned a firm of trustees to purchase on their behalf building land and to construct on it a residential building. By virtue of that contract, they acquired a co-proprietor's share of a plot of land which had not been built on. The division of property provided for in the Wohnungseigentumsgesetz [Law on the ownership of apartments] was lawfully completed and registered in the Land Register. In addition, all the co-proprietors, grouped together in a Bauherrengemeinschaft [an association governed by the Civil Code] concluded a contract with a construction company for the construction of the building. The Kerrutts also concluded on their own account a certain number of contracts, namely a contract for the super­ vision of building works, a contract for the management of let accommodation, a contract for the assembly of documentation for tax purposes, a contract of guarantee and a contract for the procurement of finance.

4 The plaintiffs in the main proceedings contest the tax demands in so far as the transfer tax was calculated on the basis of the consideration for all the various transactions, in accordance with certain recent decisions of the Bundesfinanzhof. According to those decisions, the contract for the sale of the land and the contract for the construction of the building must be regarded as a single transaction within the meaning of the law on transfer tax if each of the two partial contracts is devoid of purpose without the other. That view is disputed by the plaintiffs in the main proceedings who claim, on the contrary, that only the purchase of the land, and therefore not the construction of the building, is liable to transfer tax.

(2) If value-added tax is chargeable under Article 2 (1) of the Sixth Directive,

does Community law prohibit double taxation so that no additional transfer tax (in this case the German tax on the transfer of real property) may be levied in respect of the aforementioned supply of goods and services?'

The first question

7 By the first question the national court seeks essentially to establish whether supplies of goods and services, other than the supply of the building land, under a parcel of contracts for work and services in connection with the construction of a building (the 'Bauherrenmodell') are subject to VAT by virtue of Article 2 (1) of the Sixth Directive, or whether they qualify for the exemptions in respect of the 'supply of buildings or parts thereof and the land on which they stand' provided

JUDGMENT OF 8. 7. 1986 — CASE 73/85

for in Article 13 B (g) and Article 28 (3) (b) in conjunction with point 16 of Annex F to the Sixth Directive.

11 According to Article 13 B (g) of the directive Member States must exempt under certain conditions which they are to lay down 'the supply of buildings or parts

KERRUTT v FINANZAMT MÖNCHENGLADBACH-MITTE

thereof, and of the land on which they stand, other than as described in Article 4 (3) (a)'; Article 4 (3) (a) refers to supplies effected before first occupation. Under Article 28 (3) (b) Member States may 'continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned'. Point 16 of Annex F refers to 'supplies of those buildings and land described in Article 4 (3)'.

12 It must be noted in the first place that both the provisions providing for exemptions use the same expression, namely 'the supply of buildings or parts thereof and the land on which they stand'. Their applicability in a case such as that which is the subject of the main proceedings therefore depends on whether the supplies of goods and services in question for the construction of a building, together with the land transaction, constitute a single property transaction which may be regarded as falling within the scope of the expression 'supply of buildings ... and the land on which they stand' because of the economic connection between the partial transactions concerned and their common aim, which is the construction of the building on the land purchased.

13 It is clear from the words 'supply of buildings ... and the land on which they stand' that such a single transaction can be said to have taken place only where the two categories of goods supplied, namely the building and the land, are, for the purposes of the law governing the sale of property, the subject of a single delivery inasmuch as the delivery is of land which has been built on.

18 For all those reasons the reply to the first question must be that under a scheme such as the 'Bauherrenmodell referred to in the order requesting a preliminary ruling the supply of goods and services under a parcel of contracts for work and services in connection with the construction of a building, except the supply of the building land, are subject to value-added tax by virtue of Article 2 (1) of the Sixth Council Directive (No 77/388/EEC of 17 May 1977).

The second question

19 By the second question the national court seeks essentially to establish whether Community law precludes a Member State from levying on a transaction already subject to VAT other taxes on transfers and transactions, such as, for example, the German 'Grunderwerbsteuer'.

20 The plaintiffs in the main proceedings submit in that respect that the Sixth Directive, which is intended to harmonize, inter alia, exemptions from VAT, would be deprived of its useful effect if a single property transaction could be taxed twice as a result of the application of both VAT and transfer tax.

KERRUTT v FINANZAMT MÖNCHENGLADBACH-MITTE

21 On the other hand, the Federal Government and the Commission consider that the reply is to be found in Article 33 of the Sixth Directive which expressly authorizes the maintenance or introduction by the Member States of any taxes which cannot be characterized as turnover taxes, and in particular 'stamp duty'. The Federal Government states in addition that although by means of the exemptions which it lays down the directive in part excludes the double taxation of certain transactions, it allows such double taxation for other transactions.

JUDGMENT OF 8. 7. 1986 — CASE 73/85

On those grounds,

THE COURT (Fifth Chamber)

in reply to the questions referred to it by the Finanzgericht Düsseldorf by an order of 17 December 1984, hereby rules:

(1) Under a scheme such as the 'Bauherrenmodell' referred to in the order requesting a preliminary ruling the supply of goods and services under a parcel of contracts for work and services in connection with the construction of a building, except the supply of the building land, are subject to value-added tax by virtue of Article 2 (1) of the Sixth Council Directive (No 77/388/EEC of 17 May 1977).

(2) No provision of Community law prohibits a Member State from levying on a transaction which is subject to value-added tax under the Sixth Directive other taxes on transfers and transactions, such as the German 'Grunderwerbsteuer', provided that such taxes cannot be characterized as turnover taxes.