C-193/91

OPINION OF MR JACOBS — CASE C-193/91

OPINION OF ADVOCATE GENERAL JACOBS delivered on 10 November 1992 *

My Lords, generally for purposes other than those of his business where the value added tax on such goods was wholly or partly deduct- ible; 1. In this case the Bundesfinanzhof has asked the Court to give a ruling on the inter- pretation of the Sixth VAT Directive (Coun- (b) supplies of services carried out free of cil Directive 77/388/EEC; OJ 1977 L 145, charge by the taxable person for his own p. 1), in particular Article 6(2) thereof. The private use or that of his staff or more central issue in the case is whether a trader generally for purposes other than those of who uses a motor car belonging to his busi- his business. ness for private purposes must account for tax, by way of a charge for private use, on the cost of various non-taxable or exempt items of expenditure incurred in connection with the maintenance or use of the car (in Member States may derogate from the provi- particular garage rental, tax, insurance and sions of this paragraph provided that such parking fees). derogation does not lead to distortion of competition.'

The relevant Community provisions 3. Article 11A(1) of the Directive provides that:

2. Article 6(2) of the Sixth Directive pro- vides as follows: 'The taxable amount shall be:

'The following shall be treated as supplies of services for consideration: (a) ...

...' belonging to his business for private pur- poses. In determining Mr Mohsche's VAT liabilityin respect of his private use of the car for 1983, the German tax authorities included in the taxable amount both an amount in respect of the depreciation of the car and a proportion of various costs incurred in connection with its use and maintenance. Mr Mohsche appealed against 4. Under those provisions, therefore, a tax- the tax authorities' decision to the Finan- able person (that is to say a person engaged zgericht. The latter held that the tax author- in an economic activity within the meaning ities had correctly included the depreciation of Article 4 of the directive) who puts to pri- of the car in the taxable amount. (The vate use goods belonging to his business or Bundesfinanzhof observes that this appears receives services from his business for private to have been based on the fact — not purposes is deemed to make a supply of ser- expressly mentioned by the Finanzgericht — vices to himself for a consideration equal to that Mr Mohsche had deducted VAT on the the full cost of the services. Article 6(2)(a) is acquisition of the car.) The Finanzgericht designed to prevent a taxable person from decided, however, that under Paragraph enjoying tax-free use of goods by putting to l(l)(2)(b) of the Umsatzsteuergesetz private use business goods on which he 1980 [German Turnover Tax Law], construed deducted VAT under Article 17 of the direc- in accordance with the Community provi- tive (that is to say, on which he recovered the sions, the taxable amount should not have VAT charged by his supplier from the tax included some of the expenses incurred for authorities by setting it off against the VAT the maintenance or use of the car (in partic- for which he was liable on his own supplies ular garage rental, road tax, insurance and to customers). It therefore applies only if the parking fees), since Mr Mohsche neither was taxable person deducted at least part of the charged nor deducted VAT on them. The tax VAT which he paid on the goods. Article authorities have appealed to the Bundesfi- 6(2)(b) is intended more generally to prevent nanzhof, which in its order for reference a taxable person from receiving tax-free ser- concludes that the Finanzgericht's interpre- vices from his business. tation of the German legislation is incorrect. The Bundesfinanzhof is, however, uncertain whether the German legislation correctly implements Article 6(2) of the Sixth Direc- tive and therefore asks the Court to give a preliminary ruling on the following ques- The facts and the questions put by the tions: national court

6. In their written observations both the 8. Both the German Government and the German Government and the Commission Commission have referred to the Court's argue that Article 6(2) must be interpreted in judgment in Case 50/88 Kühne v Finanzamt the light of the principle of fiscal neutrality München III [1989] ECR 1925. That case underlying the common VAT system. How- also concerned the interpretation of Article ever, they differ in their views as to the pre- 6(2)(a) and even had certain factual similari- cise nature of that neutrality and the conse- ties with the present case. Dr Kühne, who quences for the interpretation of Article 6(2). was a lawyer, was likewise charged VAT in The German Government considers that a respect of the private use of a motor car taxable person in the position of Mr belonging to his business. The private-use Mohsche must be equated with a normal charge was also based partly on the depreci- consumer hiring or leasing the motor car ation of the car and partly on expenses from a taxable person. In such a case VAT incurred for its maintenance and use. How- would be payable on the full amount of the ever, there the similarity between the two lease payments regardless of whether the les- cases ends. First, unlike Mr Mohsche, Dr sor was entitled to deduct VAT on insurance Kühne had not deducted VAT on the acqui- and other items. Accordingly, in the German sition of the car because he had bought it

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9. The Court held that, since a taxable per- 11. However, the broader view, advocated son was not permitted to deduct the tax by the German Government, is inconsistent remaining in the value of goods purchased with the purpose of Article 6(2)(a). Unlike second-hand from a private individual, the normal supplies, which are in principle tax- VAT on such goods was not wholly or partly able regardless of whether VAT was deduct- deductible within the meaning of Article ible on the goods and services used for mak- 6(2)(a); consequently, that provision did not ing them, the private use of goods is taxable permit a tax charge in respect of private use under Article 6(2)(a) only if VAT was to be levied on the depreciation of the goods. deductible on the goods. It follows that the That was so notwithstanding the fact that the purpose of the provision is to place the tax- taxable person was able to deduct VAT on able person, to the extent to which he puts the various supplies received for the use and business goods to private use, in the position maintenance of the goods. in which he would have been if he had acquired the goods as a private individual without any right of deduction.

10. In my view, the prohibition on taxation of private use which the Court recognized in that case should also apply to exempt or untaxed costs incurred by a taxable person in 12. That view is consistent with the Court's connection with the use and maintenance of judgment in Kühne, where the Court stated goods. Admittedly, a literal reading of the (at paragraph 8):

'It is clear from the structure of the Sixth together with Article 13B(c), which exempts Directive that that provision is designed to supplies of goods where for certain defined prevent the non-taxation of business goods reasons the tax paid on the purchase of the used for private purposes and therefore goods was not deductible. O n that reading a requires the taxation of the private use of private-use charge under Article 6(2)(a) such goods only where the tax paid on their would be prohibited only where the VAT acquisition was deductible.' was not deductible for one of the reasons specified in Article 13B(c). That view is untenable since the exemption in Article 13B(c) is limited to supplies of goods. If it had been the intention that Article 6(2)(a) should be read in conjunction with Article 13, the latter would surely have contained an 13. If in this case Mr Mohsche, a taxable per- equivalent exemption for services consisting son, had purchased the car wholly for private in the use of goods. Moreover, it might have purposes, he would have been treated like a been expected that Article 6(2)(a) would private purchaser (see the judgment in Case contain an express reference to Article 13. C-97/90 Lennartz v Finanzamt München III [1991] E C R I-3795, paragraphs 8 to 11; see also the judgment in Case C-20/91 De Jong [1992] ECR I-2847, in particular at para- graph 17). A private purchaser would not pay VAT on untaxed items such as the car tax, and his tax burden in respect of an exempt item such as car insurance would be limited to the VAT which the insurance com- pany, as a supplier of exempt insurance ser- vices, was unable to recover on its purchases under Article 17(2) of the directive and hence was obliged to pass on to him in the insurance premiums. It seems absurd that, if Mr Mohsche acquires the car partly for busi- ness use, he should suffer an increased tax burden in respect of his private use. As the 15. I therefore agree with the Commission's Commission stated at the hearing, Mr conclusion that untaxed and exempt costs on Mohsche is not hiring the car from a car-hire which no VAT was deducted should be firm or taking a taxi. N o r is he in the busi- excluded from the scope of Article 6(2). The ness of leasing or hiring cars. H e is a tool- analysis upon which the Commission bases maker who has bought the car partly as a that conclusion is, however, inconsistent trader and partly as a private individual. with the wording of Article 6(2)(a). If, like the Commission, we assume that the expres- sion 'use of goods' includes services and other costs connected with such use, then the letter of Article 6(2)(a) demands that they should be included in the charge for private use, since the application of the provision 14. In the order for reference the suggestion depends solely on VAT being deductible on is made that Article 6(2)(a) might be read the goods.

19. Moreover, this interpretation of Articles 6(2)(a) and 17(2) leads to a coherent treat- ment of the various categories of private use. In particular, services received by a taxable 17. It might be objected that this interpreta- person from third parties and used for pri- tion would lead to avoidance of tax on tax- vate purposes would be treated in confor- able services and costs. However, since Arti- mity with the aims of the directive regardless cle 17(2) of the directive allows a taxable of whether they relate to the use of goods person to deduct VAT on his purchases of and, if so, whether VAT happens to have goods and services only in so far as they are been deductible on the goods. used for the purposes of his taxable transac- tions, he would not be entitled to deduct VAT on services used for private purposes. Where a motor car is used partly for private purposes, it would be necessary to apportion the VAT on the motoring expenses according to the degree of private use. Thus the VAT 20. It is true that at paragraph 29 of its judg- would be deductible only to the extent to ment in Kühne the Court suggested, when which the car was used for business pur- considering the taxable amount for the pur- poses. poses of Article 11A(1)(c), that motoring expenses on which VAT was deducted should be taxed. However, the issue in Kühne was not the taxation of the motoring expenses but the taxation of the depreciation of the car itself. The point which the Court was making was that it was consistent with the aims of the common VAT system to refrain from taxing the depreciation of the 18. This view is consistent with the wording car whilst taxing the motoring expenses. For of Article 6(2)(a) and also with its underlying the reasons given above it would in my view

21. I will comment finally on two specific points that have been raised. First, the Ger- man Government has observed that for prac- tical reasons the possibility of partial taxa- 23. By its second question the Bundes- tion of the use of goods in proportion to the finanzhof asks whether a taxable person may input tax deducted was rejected in the dis- rely upon Article 6(2) before the national cussions preceding the adoption of the Sixth courts. Directive. Whilst that observation may be valid with respect to the case where the VAT on the goods themselves was only partly deductible, I fail to see why there should be any practical difficulty in distinguishing between goods and the costs incurred for their use and maintenance. 24. In Kühne the Court held (at paragraph 26) that the prohibition on the taxation of private use of business goods where the VAT on the goods was not wholly or partly deductible was capable of producing direct effects in the legal relations between Member States and persons within their jurisdiction. It seems to me that the criteria for direct effect are equally satisfied by the prohibition 22. Secondly, in my opinion those submit- on taxation of exempt or untaxed services ting observations correctly take the view that and costs incurred for the maintenance and Article 6(2)(b) is inapplicable to the present use of business goods.

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Conclusion

25. I am accordingly of the opinion that the questions put by the Bundesfinanzhof should be answered as follows:

(1) Article 6(2) of the Sixth VAT Directive (77/388/EEC) prohibits taxation of the private use of services which a taxable person received without deduction of input VAT from third parties for the maintenance or use of goods put to pri- vate use.