C-281/91

OPINION OF MR JACOBS — CASE C 281/91

OPINION OF ADVOCATE GENERAL E G. JACOBS delivered on 3 March 1993 *

My Lords,

(d)... 1. In this case the Hoge Raad der Neder- landen seeks a ruling on the interpretation of the Sixth VAT Directive (Council 1. the granting and the negotiation of Directive 77/388/EEC; OJ 1977 L 145, p. 1). credit and the management of credit The issue in the case is whether, where a by the person granting it.' builder concludes a contract with a customer for the supply of land and construction of a building, interest payable by the customer on account of the deferment of payment of the 3. The appellant in the main proceedings, purchase price of the land until the date Muys' en De Winter's Bouw-en Aannem- when the legal title is transferred constitutes ingsbedrijf BV, is a building firm in Rotter- part of the taxable consideration for the sup- dam which, in the course of its business, ply of the land, or consideration for a sepa- enters into 'purchase and construction agree- rate supply of credit exempt from VAT ments' with customers. It appears from the under Article 13(B)(d)(l) of the Sixth Direc- Order for Reference that the agreements tive. provide either:

for the supply of a plot of land and the con- struction of a dwelling (or in some cases the 2. Article 13(B) of the Sixth Directive pro- completion of a partly constructed dwelling); vides as follows: or

for the construction of a building subdivided 'Without prejudice to other Community into apartments, and the supply to the cus- provisions, Member States shall exempt the tomer of a share in the building and the following under conditions which they shall accompanying land, together with the right lay down for the purpose of ensuring the to the exclusive use of part of the building as correct and straightforward application of a dwelling. the exemptions and of preventing any possi- ble evasion, avoidance or abuse:

(1) As a matter of principle, where a supplier of goods allows his customer to defer payment of the purchase price of the goods in return for the payment of inter- 5. The Netherlands tax authorities take the est, can he be regarded as making a sepa- view that, although the interest payable in rate supply consisting in the grant of respect of the overdue instalments of the credit exempted under Article 13(B)(d)(1) construction price qualifies for exemption of the Sixth Directive? under the Netherlands provisions imple- menting Article 13(B)(d)(1), the interest pay- able in respect of the purchase price of the land does not. From the explanation given by the Agent of the Netherlands Govern- (2) If so, does it make any difference if, as in ment at the hearing it seems that the distinc- this case, the supplier purports to grant tion made is based on the fact that the con- the credit before he supplies the goods to struction work involves the performance of the customer? services throughout the period of the con- tract whereas the supply of the land is a sin- gle transaction occurring on completion of the building. The tax authorities' view was upheld at first instance, on the ground that in The first issue the circumstances of this particular case the interest charged between the conclusion of the agreement and the transfer of the land formed part of the consideration charged for the land. On appeal the Hoge Raad has put 7. With respect to the first issue, the appel- the following question to the Court: lant and the Danish, German and Nether-

10. However, Article 13(B)(d)(1), which exempts 'the granting of credit and the nego- 8. The Commission and the Greek Govern- tiation of credit and the management of ment, on the other hand, take the view credit by the person granting it', does not that Article 13(B)(d)(1) does not apply to specify the identity of the lender or the bor- the grant of credit in connection with a rower. It merely defines the nature of the contract for the supply of goods or services. exempt transaction. Whilst it seems likely The Commission considers that that, as the Commission suggests, the Article 13(B)(d)(1) only covers interest on exemption was primarily intended to apply loans stricto sensu and not interest on credit to loans and credit granted by banking and which is incidental to the supply of goods or financial institutions, its wording provides services; in its view the purpose of the pro- no basis for restricting its scope solely to vision is to exempt the banking sector. The such transactions. I therefore agree with the Greek Government considers that there appellant and the Danish, German and Neth- must be a separate loan agreement in order erlands Governments that the term 'granting for the exemption to apply. of credit' is sufficiently broad to encompass credit granted by a supplier of goods in the form of deferment of payment. Moreover, there is no economic justification for exclud- ing credit granted by suppliers from the scope of the exemption. It has become a 9. As exceptions to the general scheme of widespread practice of suppliers to make the Sixth Directive the exemptions provided their own financing arrangements, and a lim- for by Article 13 fall to be construed strictly: itation of the exemption would lead to dis- see for example the Court's judgment in tortion of trade and of competition. There is

no reason why a customer should be charged where, for example, a contract for the supply tax on credit granted by his supplier but of goods contained one or more specific receive an exempt supply of credit if instead clauses offering the customer a credit facility he has recourse to finance from a bank or and setting out in full the terms on which the other lender. From the viewpoint of the cus- credit was granted, including a specified rate tomer, both arrangements involve the grant of interest. As the German Government of credit; a customer is unlikely to view the points out, by virtue of the introductory interest which he pays to his supplier as part words of Article 13(B) Member States may of the price of the goods or services any lay down any further conditions that are more than if he finances his purchase by necessary to ensure the correct and straight- means of a bank loan. forward application of the exemption and to prevent evasion, avoidance or abuse. This may be of particular importance in the case of transactions between connected parties who might seek artificially to convert the consideration for a taxable supply of goods or services into consideration for an exempt 11. I see no merit in requiring that the credit grant of credit by inflating the interest rate; should be granted under a special loan agree- this is much less likely to occur in the case of ment which is independent of any contract an arm's length transaction. Like the German for the supply of goods or by a person other Government, I consider that the risk of eva- than the supplier of the goods. The fragility sion or abuse may be satisfactorily counter- of such requirements is demonstrated by the acted by suitable measures adopted by the fact that a supplier might in any event be Member States and does not justify an able, without altering the substance of a across-the-board inclusion of credit interest transaction, to draw up a separate loan agree- in the taxable amount as suggested by the ment or provide credit through a separate Commission. finance company set up for that purpose. One consequence of this would be to dis- criminate unfairly between firms which have sufficient resources or trade to set up an independent finance company and firms which do not. That would hardly be consis- tent with the fundamental principle of neu- trality.

services rendered did not constitute consid- transport service, was compulsorily taxable eration for those services for the purposes of under Article 6 of that Directive. That judg- the Second Council Directive on VAT (OJ, ment is, however, only of apparent relevance English Special Edition 1967, p. 16). The to this case. The issue was not whether the Commission points out that in the body of consideration for the collection service its judgment the Court emphasized that the should be treated as part of the consideration undertaking in question was compelled to for the transport service. The issue was agree to a delay in payment not provided for whether the collection service, which was in the contract and that the interest did not acknowledged to be a separate service, was constitute the consideration for a commercial so inextricably linked to the transport service transaction, but was fixed by a court pursu- that it was to be regarded as 'ancillary' to it ant to the relevant provisions of German for the purposes of Annex B, item 5 of the commercial law and was only remotely con- Second Directive and hence as falling into nected with the main services provided. The the category of services which were compul- Commission concludes, by a process of a sorily taxable. contrario reasoning, that interest paid pursu- ant to a contract for the supply of goods forms part of the consideration for the goods. It seems to me, however, that the Court's words were directed towards explaining why the statutory interest in question could not form part of the taxable amount for the services rendered; the Court did not rule out the possibility that a taxable person supplying goods or services might, if he so wished, provide a wholly distinct ser- vice to his customers consisting in the grant 15. The Commission contends further that it of credit in return for the payment of inter- may be concluded from Article 11(A)(3)(a), est. which provides that the taxable amount does not include 'price reductions by way of dis- count for early payment', that price supple- ments in respect of deferred payment must be included in the taxable amount. It seems to me that Article 11(A)(3)(a) does no more than clarify the application of the general rule in Article 11(A)(1)(a), according to which the taxable amount is the consider- ation received or to be received for the sup- ply. Let us suppose, for example, that a tax- 14. The Commission refers secondly to the able person makes a supply of goods to a judgment in Case 126/78 Nederlandse Spoor- customer on terms whereby the customer is wegen v Staatssecretaris van Financiën [1979] granted a discount if he pays for the goods ECR 2041. In that case the Court held that a within thirty days of the date of the invoice. cash-collection service undertaken by a If the customer takes advantage of the dis- transport company when delivering goods to count, the taxable amount is the purchase consignees was a service ancillary to trans- price less the discount. If, on the other hand, port within the meaning of Annex B, item 5, he does not make the payment within the of the Second Directive and hence, like the thirty-day period and is obliged to pay the

19. The appellant takes the view that the 16. Finally on this first issue, I do not con- parties to a contract for the supply of goods sider that interest on credit falls within the are entitled to agree that the purchase price is term 'incidental expenses' which are included wholly or partly payable at a date before the in the taxable amount by virtue of goods are supplied. It is at that date that the Article 11(A)(2)(b) of the Sixth Directive. right to demand payment arises under the The expenses mentioned in that provision, Netherlands civil law. By allowing the cus- such as those relating to commission, pack- tomer to defer payment until the date of the ing, transport and insurance, are costs which supply the supplier therefore makes a grant are inextricably linked to the sale and trans- of credit to the customer. port of goods to the customer. There is no such link in the case of interest on credit granted by a supplier, which is an optional service offered in addition to the supply of goods.

20. The Netherlands Government, on the other hand, considers that there is no genu- ine grant of credit in circumstances such as The second issue those of the present case, where the purchase price is payable before the supply is made but payment may be, and in practice invari- ably is, deferred until the supply is actually made. The Spanish Government shares the Netherlands Government's view. It observes that the chargeable event arises and the tax 17. I now turn to the second issue, namely becomes chargeable when the land and whether it is possible for there to be a grant building are finally supplied and the cus- of credit consisting in deferment of payment tomer pays the purchase price. It is at that of the purchase price of goods before the moment that the chargeable event occurs goods have been supplied. under Article 10(2) and the taxable amount

24. The peculiar feature of the present case is 'The chargeable event shall occur and the tax that the builder purports to grant credit in shall become chargeable when the goods are respect of an instalment of the purchase price delivered or the services are performed.' (corresponding to the price of the land) pay- able before the supply is made and hence before the chargeable event occurs under the first subparagraph of Article 10(2). It seems to me that in such circumstances the full value of the goods at the moment when they It is at that moment, therefore, that the tax- are supplied must be taken to include any able amount falls to be determined under finance costs incurred by the supplier up to Article 11(A)(1)(a) of the Directive. By vir- the moment when the supply is made which tue of that provision the taxable amount is: the supplier passes on to the customer, even

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MUYS' EN DE WINTER'S BOUW- EN AANNEMINGSBEDRIJF BV v STAATSSECRETARIS VAN FINANCIEN

if he purports in the contract to pass them services are performed, the tax shall become on as interest charges distinct from the pur- chargeable on receipt of the payment and on chase price of the goods. In this respect the amount received.' finance costs are no different from any other overheads incurred by the supplier up to the moment of the supply and passed on in the price of the goods.

27. The contrary view would enable traders and their clients, by means of a fictitious grant of credit, to avoid paying VAT on part of the price of goods or services in transac- 'However, where a payment is to be made on tions where there is a delay between contract account before the goods arc delivered or the and supply. This point perhaps becomes

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OPINION OF MR JACOBS — CASE C-281/91

Conclusion

29. I am accordingly of the opinion that the question p u t b y the H o g e Raad should be answered as follows:

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MUYS' EN DE WINTER'S BOUW EN' AANNEMINGSBEDRIJF BV v STAATSSECRETARIS VAN' FINANCIEN

(1) Where a taxable person who supplies goods or services to a customer makes a separate grant of credit to that customer on terms which clearly distinguish between the supply of goods or services and the credit transaction, the grant of credit con- stitutes a separate transaction which is in principle exempt under Article 13(B)(d)(1) of the Sixth Directive.

(2) However, where a purchase and construction agreement between a building contractor and a purchaser provides that payment for the supply of the land must be made on or shortly after conclusion of the agreement but may be deferred to the time of the supply in return for the payment of interest, such interest does not con- stitute consideration for a separate supply of credit but must be regarded as part of the consideration for the supply of the land for the purposes of Article 11(A)(1)(a) of the Directive.