C-320/88

SHIPPING AND FORWARDING ENTERPRISE SAFE

OPINION OF MR ADVOCATE GENERAL VAN GERVEN delivered on 9 November 1989 *

Mr President, The important provisions of that agreement Members of the Court, seem to me to be the following:

(i) Safe undertakes to transfer to Kats an 1. The Hoge Raad der Nederlanden unconditional right of ownership; (Supreme Court of the Netherlands) has referred to the Court for a preliminary ruling on two questions on the interpre- (ii) as from the date of the agreement Kats tation of Article 5(1) of the Sixth Council is entitled to all profits and liable for all Directive of 17 May 1977 on the harmon- outgoings in respect of the property; ization of the laws of the Member States relating to turnover taxes.1 Article 5(1) provides as follows: (iii) as from the date of the agreement the property is entirely at the risk of Kats;

'"Supply of goods" shall mean the transfer of the right to dispose of tangible property (iv) Safe undertakes to transfer legal as owner.' ownership of the property as soon as Kats so wishes and by 31 December 1982 at the latest;

sold to Abreka all Kats's rights in respect of (ii) has agreed to transfer legal the property. The purchase price was ownership of the property to the HFL 425 000, plus turnover tax of other party at any future time; HFL 76 500 on the transaction. At the same time legal ownership of the property was transferred by Safe to Abreka. (iii) has agreed to grant the other party an irrevocable power of attorney to carry out any transactions necessary to execute that transfer of legal ownership; 4. In 1984 the Inspecteur der Invoerrechten en Accijnzen (Inspector of Customs and Excise), Leiden, imposed on Safe a retro- active assessment to turnover tax of (iv) has, pursuant to that agreement, HFL 343 125 on the ground that the actually placed the property at the payment of HFL 2 250 000 by Kats to Safe disposal of the other party?' in 1979 should be regarded as payment in advance for a supply liable to VAT. Safe appealed against that assessment. The 5. So that the preliminary questions may be Gerechtshof (Court of Appeal), The Hague, properly understood, it seems to me to be annulled the retroactive assessment. The useful to give a brief explanation of the Staatssecretaris van Financiën (Finance concept of 'economic ownership' under Secretary) appealed against that judgment. Netherlands law, to outline the framework In the course of that appeal the Hoge Raad in which this concept is applied according to requested the Court to give a ruling on the Netherlands practice and to summarize the following questions: judgments of Netherlands courts on the consequences which the concept may have as regards the application of the Netherlands Wet op de Omzetbelasting (Law on Turnover Tax). '(1) Must Article 5(1) of the Sixth Directive be interpreted as meaning that a supply of goods takes place only where legal ownership of the property is trans- The Netherlands legislation, case-law and ferred? practice

In the many commentaries on this and subsequent judgments, many definitions of 8. In the Netherlands, in the immovable the concept of 'economic ownership' may be property sector in particular, the transfer of found. They all stress that the benefit economic ownership — the legality of which accrues to a person other than the owner as has been recognized by the Hoge Raad, as defined in civil law, which essentially pres- stated above — has been found to be a upposes two characteristics: device for saving transfer tax. Article 2 of the Wet op Belastingen van Rechtsverkeer (Law of Taxation of Legal Transactions) 3 provides in particular that transfer tax is imposed on the acquisition of immovable (i) any changes in the value of the property property situated within the Netherlands. and all profits and outgoings are for the The courts have consistently held that the benefit of or at the expense of the other term 'acquisition' means the transfer of person; ownership under civil law. If immovable property which is not exempt from transfer tax is purchased with the intention of selling it on to a third party, it is under those circumstances in the interests of the parties (ii) the other person also has effective to transfer solely economic ownership to the power to dispose of the property. original purchaser and to ensure that legal ownership may be transferred directly from the original seller to the final purchaser. Transfer tax is then payable only once.

as far as possible. Thus Article 15 of the In his opinion in the case pending before Wet op Belastingen van Rechtsverkeer the Hoge Raad, Advocate General Van which governs transfer tax provides that the Soest stated that Article 3(1)(e) was inserted supply of immovable property subject to in the legislation in 1954 in order to fill a turnover tax is in principle exempt from 'lacuna' which existed at the time but not in transfer tax. order to cover the transfer of economic ownership. From this history of the legis- lation and from the general scheme of the article it has up to now been concluded by the courts 4 that (exactly as in the case of Account must also be taken of the fact that transfer tax, see 8 above) the transfer of the nature of the immovable property ownership under civil law referred to in frequently changes during the transfer Article 3(1)(a) must be taken as the basis for process and this may have important interpreting the concept of supply, whereas technical consequences for tax purposes, as the function of Article 3(1)(e) is merely is apparent in the present case in which a supplementary. In their judgments the house was converted into a building plot. courts have inferred from that that no According to the rule governing exemption turnover tax should be charged until the contained in Article 11 of the Wet op de supply of legal ownership, unless it is clear Omzetbelasting (Law on Turnover Tax) from the circumstances in which the 1968, the transfer of an 'old' dwelling is in agreement was concluded or from principle exempt from turnover tax (but is subsequent factors that the supply of legal therefore not exempt from transfer tax). ownership will not (or will no longer) take The transfer of building land, on the other place or will take place considerably later, hand, is subject to turnover tax (but not to in which case it is necessary to fall back on transfer tax). the supply of economic ownership. The observations which the Netherlands Government has submitted to the Court in this case are essentially in line with these 10. The concept of supply, as defined in judgments. Article 3 of the Law on Turnover Tax 1968 (hereinafter referred to as 'the 1968 Law', is the main issue in this case. Supply covers inter alia:

There is no dispute between the parties as to the answer to this question. The If this view is accepted it will lead, in Netherlands Government, Safe and the circumstances such as those in the main Commission consider that the question must proceedings, to a tax charge favourable to be answered in the negative. I share that Safe. The transfer of economic ownership of view, for the following reasons. what was at that time an old dwelling is and would then remain exempt from taxation, regardless of the time at which legal ownership of the property was later trans- ferred and irrespective of the fact that at 13. The first reason is to be found in the that later date it was taxable. As regards the text of Article 5(1) of the Sixth Directive. It general scheme of the legislation, however, states that the supply of goods means 'the that point of view has the consequence that transfer of the right to dispose of tangible Article 3(l)(e) of the 1968 Law must be property as owner'. This provision places regarded as the fundamental provision as the emphasis on the transfer of the right of regards the concept of supply, whilst other disposal, which must enable the transferee provisions such as Article 3(l)(a) are, in to be able to dispose of the goods 'as cases where economic and legal ownership owner'. This phrase in my opinion means are transferred separately, superfluous or at that the transferee does not have to be the least subsidiary. The adoption of Safe's formal legal owner but need only obtain a position might therefore compel the right of disposal provided that he thereby Netherlands legislature to review the acquires a position which is de facto general scheme of the 1968 Law and analogous to that of the formal legal owner. possibly even the relationship between turnover tax and transfer tax. The questions asked by the Hoge Raad must in my opinion be seen in this light. 14. The second reason for which the question should be answered in the negative is that the terms used in the VAT directives must be defined at Community level unless the directives themselves leave it to the Member States to determine the definition The first question of a term. 5 This ensures a uniform application of the common system of turnover tax. For that reason the expression 'supply of goods' cannot be regarded as meaning 'formal supply in the civil law sense of legal ownership of goods'. The latter expression is not defined in the VAT 12. By the first question the Hoge Raad wishes to ascertain whether the only supply 5 — See judgment of 1 February 1977 in Case 51/76 Neder- lanate Ondernemingen v Inspecteur der Invoerrechten en covered by Article 5(1) of the Sixth Accijnzen [1977] ECR 113, paragraphs 10 and 11.

16. Personally I am reluctant to state in general — particularly in terms borrowed from the legal order of one Member The second question State — that once the criteria referred to in (a) are satisfied, a supply within the meaning of Article 5(1) of the Sixth Directive has taken place. As I have already 15. The second question submitted by the pointed out, the Community legislature, in Hoge Raad is more difficult; whereas the defining the Community concept of supply, first question asks whether transfers other placed emphasis on a right of disposal which than transfers of formal legal ownership are is analogous to that of the formal legal covered by the Community concept of owner. I agree with the Commission that supply, the question at issue here is which the national court must assess on the basis other transfers are covered. The Hoge Raad of the particular facts of each case whether wishes to know in particular whether there the other party acquires the right to dispose is such a transfer if the parties conclude an of the property 'as owner'. It seems to me at agreement the content of which may be least that he does if the right of ownership summarized as follows: retained by the original seller is so diminished that it is reduced to mere legal title.

(a) under the agreement any changes in the value of the property and all profits or any outgoings are for the benefit of or 17. It remains to consider the effect of the at the expense of the party other than clauses in (b). Here it is essentially a the legal owner; he, moreover, acquires question of determining whether, in the right to dispose of the property; assessing in each case whether there is a right of disposal within the meaning of Article 5(1) of the Sixth Directive, it makes any difference if the parties to an agreement (b) the legal owner undertakes to transfer for the immediate transfer of 'economic legal ownership of the property to the ownership' alone have decided on the other party at a later date; he grants the method by which legal ownership will other party an irrevocable power of subsequently be transferred. attorney to execute transactions which will transfer legal ownership.

Conclusion

19. In conclusion I propose that the Court should answer the preliminary questions as follows:

'(1) Supply, within the meaning of Article 5(1) of the Sixth Directive, does not cover solely the transfer of legal ownership of property.

(2) Supply, within the meaning of that provision, covers any transfer of the right to dispose of property by which a party acquires a position which is de facto analogous to that of the formal legal owner. It is for the national court to assess on the basis of the particular circumstances of the case whether such a right of disposal is transferred. In that regard it makes no difference that the parties to an agreement by which such a right to dispose of property is trans- ferred have reached an agreement as to the subsequent transfer of legal ownership.'

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