C-37/95

I-3

OPINION OF MR RUIZ-JARABO COLOMER — CASE C-37/95

(c) on the initiative of the city of Ghent, struction undertaking, another survey of the Ghent Coal exchanged the purchased physical characteristics of the ground, and ground on 1 March 1983 and, as a result the installation of a high-voltage cable and of that exchange, never used the invest­ operations to level the land. The cost of that ment work which it had carried out. work came to more than BFR 50 million.

5. The order for reference acknowledges that it is common ground between the parties that — as found in the judgment appealed against — 'the invested goods had been in 9. On 1 March 1983 the municipal authori­ the normal course of events intended for use ties of Ghent required Ghent Coal to in taxable transactions, that the exchange had exchange the abovementioned land, which not been foreseen or planned in advance by was already partly developed, for other land the respondent, and that it could not have belonging to the town. Ghent Coal also been avoided by the respondent in the nor­ received additional compensation. mal course of its business and even consti­ tuted economic force majeure for it'.

6. The various documents submitted by the 10. Ghent Coal, which during the 1981, parties in the main proceedings also reveal 1982 and 1983 tax years had deducted BFR 9 other facts and the progress of the procedure 354 677 as VAT paid in respect of the expen­ before the national courts, which are of diture incurred for the development of the interest for a better understanding of the dis­ land, was required by the Belgian tax pute and which I shall now briefly describe. authorities to repay the amount of those deductions to which, in the authorities' opin­ ion, it was not entitled.

12. Ghent Coal subsequently formed the Applicable Community legislation view that both the repayment and the agree­ ment concluded with the tax authorities had been unlawful. Consequently, on 10 March 1986 it claimed repayment from the Belgian authorities of BFR 2 751 085, the amount which in its opinion it was entitled to deduct for the investment expenditure after the cor­ 16. As a tax on supplies of goods or services, responding adjustment had been made. VAT seeks to be a general tax on consump­ tion exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the produc­ 13. When the tax authorities refused to tion and distribution process before the stage accede, Ghent Coal claimed that amount when the tax is charged. before the Rechtbank van Eerste Aanleg (Court of First Instance), Ghent, which, by judgment of 4 April 1990, dismissed its claim on the ground that the parties were validly bound by the agreement concluded between them in September 1984.

I-5

OPINION OF MR RUIZ-JARABO COLOMER — CASE C-37/95

19. Article 17(1) of the Sixth Directive pro­ 22. Article 20(1) refers to the adjustment of vides: 'The right to deduct shall arise at the deductions, in the following terms: time when the deductible tax becomes chargeable'.

'The initial deduction shall be adjusted according to the procedures laid down by the Member States, in particular: 20. Article 10(2) provides: 'The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed. ...'.

(a) where that deduction was higher or lower than that to which the taxable per­ son was entitled;

21. Article 17(2) provides as follows:

BELGIAN STATE v GHENT COAL TERMINAL

be made on the basis of the variations in the ambiguity. By asking whether the right to deduction entitlement in subsequent years in deduct 'remains in existence' in the case of relation to that for the year in which the investments intended for goods which are goods were acquired or manufactured. not subsequently used, the Hof van Cassatie seems by implication to accept that such a right had already arisen 3 and expresses doubt only as to its possible continuity in time.

By way of derogation from the preceding subparagraph, Member States may base the adjustment on a period of five full years starting from the time at which the goods are first used.

26. The parties' submissions differ, however, concerning the content of the question referred to the Court. In Ghent Coal's view the way in which the question is worded by the Hof van Cassatie implies that the right to In the case of immovable property acquired deduct had already arisen, as demonstrated as capital goods the adjustment period may by the fact that the Hof van Cassatie did not be extended up to 10 years'. adopt the wording suggested by the Belgian 4 State in its appeal. The question therefore draws a distinction between the origin of the right and its subsequent continued existence.

24. Finally, Article 20(3) provides for the situation of capital goods which have been transferred during the period of adjustment.

27. The Belgian Government, however, takes the view that the failure to use the invest­ ment work carried out by Ghent Coal means The wording of the question referred to the that 'the deduction must be rejected ab ini- Court tio, outright and in full'. In other words, the right to deduct had never legally arisen.

30. It might be thought, in principle, that 33. I consider that the Court's answer to the the Hof van Cassatie, by asking whether the Hof van Cassatie should essentially be right to deduct 'remains in existence', seeks confined to the actual terms of the question, to ascertain whether or not it is possible to which do not refer directly to — although apply the procedure for adjusting deductions they do not exclude — problems of adjust­ to the present case in order to amend the ment. deductions already effected, since it appears to be the specific procedure provided for by the Sixth Directive. Neither of the parties to 6 — That does not prevent Ghent Coal from maintaining that, as the main proceedings supports that it was a case of 'economic force majeure', comparable to the approach, however. destruction or loss of the goods (a situation provided for in the Sixth Directive as an exceptional case in which the deduction is not to be adjusted), the original deduction had become definitive, which allowed Ghent Coal, inter alia, to 'claim full reimbursement, in separate proceedings, of the VAT which it had deducted in respect of the investments in 5 — The word normally used is 'adjustment', in preference to question and had subsequently repaid on demand by the 'review'. Belgian State'.

I-8

BELGIAN STATE v GHENT COAL TERMINAL

34. I shall therefore analyse, first of all, the 37. Deduction of VAT on inputs is possible requirements necessary to give rise to the in so far as the corresponding goods or ser­ right to deduct the business expenditure vices (those whose acquisition or use deter­ incurred with a view to setting up Ghent mines the right to deduct) are acquired and Coal's project. That analysis will extend to used by the taxable person to carry out, in the possible effect on the right to deduct of turn, transactions which fall within the scope 7 the fact that the project initially envisaged of his economic activity. was abandoned.

39. That does not mean, however, that the purpose or objective for which the goods acquired or services received are to be used in the normal course must always be 36. In the dynamics of VAT, deduction, gov­ achieved in every case. On the contrary, it is erned by Article 17 of the Sixth Directive, perfectly possible that certain business trans­ becomes a key part of the system. As a result actions for the realisation of which goods or of the way in which it is regulated, the VAT services were acquired may subsequently be paid by undertakings does not entail any fis­ cal burden whatsoever for them and the underlying principle of the neutrality of 7 — This statement must be qualified where the taxable person VAT, a tax on final consumption and not on acquires and uses the goods or services for exempt transac- the earlier economic stages, is respected. If tions, in which case the right to deduct does not arise and the taxable person becomes, so to speak, the 'final consumer' the right to deduct VAT on inputs did not and is unable to deduct the VAT In such a case the taxable person must therefore bear all the VAT which has been exist that VAT would become an extra fiscal passed on to him by the previous economic agents (those cost for undertakings and distort the prin­ who have supplied the products or services) and cannot deduct it, in strictly legal terms. He is therefore in the same ciple of neutrality. position as the final consumers, the true payers of VAT.

I-9

OPINION OF MR RUIZ-JARABO COLOMER — CASE C-37/95

frustrated. The right to deduct the VAT paid 42. As regards the scope of the right to does not cease to exist for that reason. deduct the VAT due, the Lennartz judgment refers to the Rompelman judgment and reit­ erates:

'... a person who acquires goods for the pur­ 41. The Lennartz judgment begins by stat­ poses of an economic activity within the ing: 'Pursuant to Article 17(1) of the Sixth meaning of Article 4 does so as a taxable per­ Directive, which is entitled "Origin and son, even if the goods are not used immedi­ 13 scope of the right to deduct", the right to ately for such economic activities'. deduct arises at the time when the deductible tax becomes chargeable. Consequently, only the capacity in which a person is acting at that time can determine the existence of the right to deduct. By virtue of Article 17(2), in so far as a taxable person, acting as such, uses the goods for the purposes of his taxable transactions, he is entitled to deduct the tax 1 43. Consequently, according to the Lennartz due or paid in respect of those goods'. 1 judgment, it is the acquisition of the goods by a taxable person acting as such that gives rise to the application of the VAT system and 8 — Case 268/83 Rompelman v Minister van Financiën [1985] therefore of the deduction mechanism. The ECR 655. 9 — Case C-97/90 Lennartz v Finanzamt München III [1991] ECR 1-3795. 10 — Case C-110/94 Intercommunale voor Zeewaterontzilting (INZO) v Belgian State [1996] ECR I-857. 12 — Paragraph 13. 11 — Paragraph 8. 13 — Paragraph 14.

I-10

BELGIAN STATE v GHENT COAL TERMINAL

use to which the goods are put, or intended subsequently abandoned the project without to be put, merely determines the extent of commencing the activity envisaged. the initial deduction to which the taxable person is entitled under Article 17 and the extent of any adjustments in the course of 14 the following periods.

47. Next, the judgment stated that where the tax authority had accepted that a company which had declared its intention to begin an economic activity giving rise to taxable transactions had the status of a taxable per­ son for the purposes of VAT, the carrying 45. The question for the Court in INZO out of a study into the profitability of the was whether or not an undertaking which activity envisaged may be regarded as an had acquired certain capital goods and com­ economic activity within the meaning of missioned a study on the profitability of a Article 4 of the Sixth Directive even if the project for the construction of a desalination purpose of that study is to investigate the plant (in respect of which supply of goods degree of profitability of the activity con­ and services the undertaking paid VAT) 15 cerned. could deduct the VAT paid, despite the fact that owing to profitability problems and the withdrawal of some investors it

14 — Paragraph 15. 15 — Rather than deduction stricto sensu, the case concerned the repayment of the VAT paid, which was initially agreed by 48. In the Court's view, it followed that, if the tax authority pursuant to Article 76 of the Belgian VAT Code. On subsequently rinding in the course of a tax the same requirements were met, VAT paid inspection that INZO had not carried out any taxable transaction, the tax authority claimed repayment of the in respect of such a profitability study might VAT recovered by INZO. INZO contested that claim before the Rechtbank van Eerste Aanleg, relying on the in principle be deducted in accordance with doctrine formulated by the Court of Justice in Rompelman. Article 17 of the Sixth Directive, even if it

The application of those decisions to the — where the tax authority has accepted that present case a company which has declared an inten­ tion to commence an economic activity giving rise to taxable transactions has the status of a taxable person for the pur­ poses of VAT, the commissioning of a profitability study in respect of the envis­ 50. Transposing the decisions in the Rompel- aged activity may be regarded as an econ­ man, Lennartz and INZO judgments to the omic activity within the meaning of that present case, there is little doubt that Ghent article, even if the purpose of that study Coal's argument regarding the right to deduct — which is also supported by the Commission and, with certain qualifications, 16 — The judgment based that conclusion on two principles: by the German Government — is better (a) the principle of legal certainty, according to which the rights and obligations of taxable persons cannot depend on founded than that of the Belgian Govern­ facts, circumstances or events which occurred after they ment. were recognised by the tax authority. It follows that, as from the time when the tax authority accepted, on the basis of information provided by a business, that it should be accorded the status of a taxable person, that status cannot, in principle, subsequently be withdrawn retroactively on account of the fact that certain events have or have not occurred; (b) the principle that VAT should be neutral as regards the tax burden on a business. Any other interpretation of the directive, according to the Court, would be liable to create, as regards the tax treatment of the same investment activi- 51. If the conditions determining the right to ties, unjustified differences between businesses already car- deduct are to be assessed at the time when rying out taxable transactions and other businesses seeking by investment to commence activities which will in future the tax is payable, Ghent Coal enjoyed that be a source of taxable transactions. Likewise, arbitrary dif- ferences would be established between the latter businesses, right when it acquired or received, for the in that final acceptance of the deductions would depend on whether or not the investment resulted in taxable transac- purpose of its business activities, certain tions. goods and services which all bore VAT. At

55. In accordance with the principles expressed in the judgments cited, Ghent Coal could deduct the VAT paid on purchas­ 52. In other words, when Ghent Coal ing the goods or paying for the services con­ acquired the land at Imsakkerlaan, engaged nected with the construction of the coal the services of other undertakings to carry plant, in so far as: out a development survey and carried out certain investment works in connection with the land for the purpose of constructing a coal terminal, it was entitled to deduct from the VAT paid on those transactions the VAT (a) it is not necessary that the goods and ser­ which, according to the corresponding vices acquired in the course of opera­ invoices, had been passed on to it in respect tions preparatory to carrying out an of the works carried out and the services activity be immediately used for transac­ received. tions subject to VAT (Rompelman), when there is no doubt whatsoever as to Ghent Coal's purpose in acquiring those goods and services, which are directly linked to the pursuit of its business activity;

53. For the right to deduct to arise, it was irrelevant that the necessarily slow process of preparing and developing the land for the purpose of erecting the coal plant had not (b) strictly speaking, it is not even necessary been completed when the Ghent municipal that those goods and services be used to authorities required Ghent Coal to exchange carry out subsequent taxable transactions its land. What matters for the purposes of where they have been acquired in the VAT is that the VAT which was paid when course of the stages prior to the perfor­ the goods or services were received could mance of an envisaged activity which also be deducted during the corresponding subsequently and for lawful reasons does period. not reach the operational phase (INZO);

57. In paragraphs 28 to 32 of this Opinion I set out the arguments of both parties to the dispute regarding the treatment of the pos­ sible adjustment of the deductions, a ques­ tion which, in Ghent Coal's view, is extrane­ 61. Nor can it be said that the problem is ous to this dispute in so far as it was neither extraneous to the appeal to the Hof van submitted to the Hof van Cassatie nor raised Cassatie: indeed, counsel for the Belgian by that court in its reference for a prelimi­ State claimed that the appeal court had erred nary ruling. in law by stating, inter alia, that the right to deduct had arisen and that the only available

17 — The application at first instance, in addition to confirming the origin of the right to deduct, further states: 'in any event, that deduction is subject to adjustment in pursuance of Article 48 of the VAT Code, which provides that the 58. It is true that the question referred sim­ deduction can be reviewed where there have been variations ply seeks the interpretation of Article 17(2) in the factors taken into consideration for the calculation of the VAT deductible, and Article 10.4 of Royal Decree of the Sixth Directive, without referring to No 3'.

I-14

BELGIAN STATE v GHENT COAL TERMINAL

means of correcting the deduction was 64. The answer should therefore contain an adjustment. express reference to the possibility of adjust­ ing the original deduction owing to the exist­ ence of subsequent circumstances which affected the factors taken into account to establish that deduction.

62. Moreover, in their observations to the 19 Court both the Commission and Ghent 20 Coal suggest answers to the questions referred which expressly include a confirma­ tion of the possibility of adjustment.

I-15

OPINION OF MR RUIZ-JARABO COLOMER — CASE C-37/95

Conclusion

67. I therefore propose that the Court of Justice should answer the question referred by the Hof van Cassatie as follows:

Article 17(2) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Com­ mon system of value added tax: uniform basis of assessment, allows an undertaking to deduct the VAT paid in connection with the acquisition of goods and the receipt of services corresponding to investment works originally intended to be used in its business activity but which, for reasons beyond its control, were never in fact put to use by the undertaking. The adjustment of those deductions must be effected as provided for in Article 20 of that Directive.

I-16