C-50/87

OPINION OF SIR GORDON SLYNN — CASE 50/87

O P I N I O N OF ADVOCATE GENERAL SIR G O R D O N SLYNN delivered on 25 May 1988

My Lords, and after issuing a reasoned opinion dated 14 May 1986, the Commission made the present application to the Court on 18 February 1987 for a declaration that France had failed to fulfil its obligations under Articles 99 and 100 of the EEC Treaty by adopting and maintaining in force fiscal rules restricting certain taxable persons' By Articles 233 A to 233 E of the French right to deduct VAT paid ('input tax') at the General Tax Code which incorporated time when the deductible tax becomes char- French Decree N o 79-310 of 9 April 1979 geable and failing to comply with the Sixth (JORF, 19.4.1979, p. 902) undertakings Directive, in particular Articles 17 to 20 which lease buildings for an annual return thereof. of less than one-fifteenth of the value of the property, in respect of which value-added tax is chargeable, may only deduct a fraction of the value-added tax charged on the purchase or construction of the property by those undertakings. The value of the property is defined as the taxable amount of the property for the purposes of France objects first that these proceedings value-added tax less the value of the land are inadmissible. It contends that the initiating letter alleged incompatibility with and financing costs. The legislative the Sixth Directive, whereas the reasoned provisions lay down a formula for the calcu- opinion and this application allege a breach lation of the fraction, and for adjustments of Articles 99 and 100 of the Treaty by the which have to be made in certain event- adoption of the decree and a failure to ualities, which are summarized in the report comply with the Sixth Directive. for the hearing and which I do not repeat here.

If the right to adopt this sort of provision exists, as France contends, then prima facie In this case, however, it is plain that in the the actual figures put forward are letter as well as in the reasoned opinion and persuasive. The question, however, is in this application, the essential claim made whether under the Sixth Directive this kind is that the French legislation contravenes the of provision may be adopted. Sixth Directive. France had ample oppor- tunity at all stages to answer that contention and I do not consider that it has been deprived of its rights under the procedure laid down by Article 169 (see Case 211/81 Denmark v Commission [1982] ECR 4547). The reference in the reasoned opinion and The Commission's case is that there is no the application to Articles 99 and 100 of the provision in the Sixth Directive which EEC Treaty, on which the Sixth Directive permits this kind of arrangement. was based, seem to me to be a formality, perhaps misconceived, and in any event not pursued in oral argument. For my part I accept that these proceedings are admissible.

opted not to treat them as taxable persons. be made where the deduction was in reality If the activities are carried out regularly and higher or lower than that to which the other than occasionally then the under- taxable person was entitled. In the second taking is a taxable person. place, Article 27 enables the Council to authorize a Member State to derogate from the provisions of the directive 'in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance'. The directive, however, gives a Member State the right to exempt the leasing or letting of immovable property (subject to certain exceptions) 'under conditions which they shall lay down for the purpose of ensuring the correct and straightforward Subject to these possible modifications it application of the exemptions and of seems to me that Article 17 is to be read, preventing any possible evasion, avoidance and indeed can only be read, as meaning or abuse' (Article 13 (B) (b)). A Member that the right to deduct arises in full at the State may also grant taxpayers the right of time when the deductible tax becomes char- option for taxation in cases of letting and geable. It seems to me impossible to leasing of immovable property (Article construe that article, or any other provision 13 (C) (a)). of the directive, in the absence of the special authorization under Article 27, as enabling a Member State to permit the deduction of a fraction only of input tax over a prescribed number of years. Once VAT is chargeable the basic rule is to be found in Article 17: '(1) The right to deduct shall arise at the time when the deductible tax becomes chargeable. (2) In so far as the goods and services are used for This is not undermined by the provision in the purposes of his taxable transactions, the Article 13 (B) that Member States shall taxable person shall be entitled to deduct exempt the leasing or letting of immovable from the tax which he is liable to pay: property 'under conditions which they shall (a) value-added tax due or paid in respect lay down for the purpose of ensuring the of goods or services supplied or to be correct and straightforward application of supplied to him by another taxable person;'. the exemptions and of preventing any Rules for the application of this basic possible evasion, avoidance or abuse'. It provision are set out in Articles 17 to 20 of seems to me that that provision goes to the the Sixth Directive. conditions which must be present before the right to deduct arises and cannot operate to limit the right to deduct once it has arisen.

by taxable persons. An interpretation to the services at the rate applicable to such goods latter effect would it seems to me, in any and services, shall be chargeable after event, run counter to the judgments of the deduction of the amount of value-added tax Court in Case 15/81 (Gaston Schul Douane borne directly by the various cost Expediteur BVv Inspecteur der Invoerrechten components', the Member State is entitled en Accijnzen [1982] ECR 1409, at p. 1426, to limit the right to deduct if it can prove paragraph 10) and Case 268/83 (Rompelman that the deduction relates to goods and v Minister van Financiën [1985] ECR 655, services the cost of which will not be passed at pp. 663 and 664, paragraph 16). In the on in the price of the taxed transaction. latter case the Court said that 'a basic element of the VAT system is that VAT is chargeable on each transaction only after deduction of the amount of the VAT borne directly by the cost of the various components of the price of the goods and services and that the deduction procedure is I do not accept that argument. That article so designed that only taxable persons may of the First Directive must be read in the deduct the VAT already charged on the light of the greater elaboration of the goods and services from the VAT for which harmonized system of VAT contained in the they are liable'. The deduction system is Sixth Directive. In my view, the passages in meant to relieve the trader entirely of the the judgments of the Court in Gaston Schul burden of the VAT payable or paid in the and Rompelman, cited earlier, make it clear course of his economic activities, so that all that VAT only becomes chargeable on a economic activities, whatever their purpose transaction after deduction of input VAT or results, provided that they are themselves and that the trader is to be relieved entirely subject to VAT, are taxed in a wholly of the burden of the VAT payable or paid neutral way (Rompelman, paragraph 19 of in the course of all his economic activities. It the judgment). That does not accord with follows that the Member State is not the concept — central to the position entitled to limit the right to deduct if it can adopted by the French Republic — that part prove that the deduction relates to goods of the right to deduct input VAT may, in and services the cost of which will not be appropriate circumstances, be deferred. passed on in the price of the taxed trans- action. If it were permitted to do so, the burden of the input VAT paid would still fall on the taxable person and that is plainly contrary to the interpretation already given by the Court as to the purpose and operation of the deduction system.