C-80/95

The relevant Community and national legis- lation

3. Article 4(1) provides that '"Taxable per- son" shall mean any person who indepen- dently carries out in any place any economic 2. The scope of the Sixth Council activity specified in paragraph 2, whatever Directive 77/388/EEC of 17 May 1977 on the purpose or results of that activity'. The the harmonization of the laws of the Mem- concept of an 'economic activity' is defined

* Original language: English. 1 — OJ 1977 L 145, p. 1.

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in turn in the following terms by 5. transactions, including negotiation, exclu- Article 4(2): ding management and safekeeping, in shares, interests in companies or associations, debentures and other securities, excluding:

4. Article 13, which is one of the central articles of the Sixth Directive dealing with VAT exemptions, provides, at part B, that 'Member States shall exempt the following under conditions which they shall lay down 5. The origin and scope of the right to for the purpose of ensuring the correct and deduct is regulated by Article 17. The gen- straightforward application of the exemp- eral principle set out in Article 17(2) pro- tions and of preventing any possible evasion, vides that the right of a taxable person to avoidance or abuse: deduct 'from the tax which he is liable to pay' will only arise in respect of inputs incurred on 'the goods and services [that] are used for the purposes of his taxable transac- tions'. Nevertheless, under Article 17(3), (d) the following transactions: Member States are obliged to 'grant to every taxable person the right to a deduction or refund of the value added tax referred to in [Article 17(2)] in so far as the goods and ser- vices are used for the purposes of', inter alia: 1. the granting and negotiation of credit and the management of credit by the persons granting it;

'(c) any of the transactions exempted under Article 13B(a) and (d), paragraphs 1 to 5, when the customer is established outside the Community or when these transac-

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tions are directly linked with goods Factual circumstances and procedure intended to be exported to a country outside the Community.'

7. In its reference in the present case, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) states that the relevant provisions of the Wet op de Omzetbelasting 1968 2 (Turnover Tax law, 9. The appellant held during the relevant hereinafter 'the Law'), namely, inter alia, period shares and bonds issued in the United Articles 7(1) and ll(l)(j)(i) concerning, States of America and Canada, whose value at respectively, the concept of a trader and the the end of that period amounted approxi- granting of credit, must, 'following the mately to US $130 000 000, and on which it adjustment of the Law as of 1 January 1979 received dividends and interest respectively. to suit the Sixth Directive', be interpreted as In 1984 the interested party had made an having 'the same meaning as the correspond- interest-bearing loan, of an unstated amount, ing terms' defined in Articles 4, 13B and 17 to an undertaking called All American Met- of that Directive. als. This loan was redeemed on 16 April 1987. On 1 July 1992, the appellant lent C A N $50 000 to Opticast International Cor- 2 — Staatsblad 1968, p. 329. poration. In its tax declaration the interested

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party had sought to deduct the turnover tax and reinvest his money whenever he wishes, charged to it. 3 However, the tax authorities in circumstances where the attendant risk is took the view that, as of 17 April 1987, the spread and, secondly, it is irrelevant whether appellant could no longer be regarded as the bonds are acquired by subscription on being a trader within the meaning of Article 7 issue or, as in this case, bought on the stock of the Law and, accordingly, they assessed it exchange. to the amount of VAT deducted by the appel- lant during the relevant period, namely HFL 124 517.

3 — At the hearing counsel for the Netherlands informed the Court that, on the basis of the information available to the Dutch Government, the monies invested by the appellant were internal to the partnership and not those of third par- ties. However, it did not effect its own investments but, rather, entrusted this work to a professional asset- 12. In its appeal to the national court, the management undertaking. It appears that it was on the invoices for professional services of this asset manager that interested party contested the view that the the disputed VAT inputs of the interested party arose. 4 — The Dutch word for 'bonds' that is used by the national acquisition of bonds could not be catego- court in its order for reference is 'obligaties', which is also rized as the granting of credit. In this the word used in the Dutch text of Article 13B(d)(5) of the Sixth Directive. Although the English version of respect, while contending that neither the Article 13B(d)(5) actually employs the word 'debentures', Law nor the Sixth Directive contains any the use in the present case of the word 'bonds' in English would not appear to be inappropriate, since it is probably in formal provisions relating to the granting of more frequent usage in the United States and Canada for referring to the sorts of intangible assets at issue. While credit, it submitted that, under section 4 of 'debenture' is defined as 'an acknowledgement of indebted- Decree N o 282-15703 of the Staatsecretaris ness' in the Oxford English Reference Dictionary (Second Edition, 1996), it is salutary to recall that Grove I. in Re Florence Land Co., ex p. Moor, 10 Ch. D. 530, described it as 'a word which has no definite signification in the present state of the English language'. 'Bond' is equally a word of broad import. 5 — See Case C-60/90 [1991] ECR I-3111 (hereinafter 'Polysar').

13. The national court, having regard to the 3) If Question 2 has to be answered in the relevance of Articles 4, 13B and 17 of the affirmative, in the event that a taxable Sixth Directive for determining the appeal, person carrying out the activities decided, by an order registered at the Court referred to in the foregoing questions is on 17 March 1995, that the following four also the holder of shares, which, accord- questions should be referred to the Court: ing to that which the Court of Justice held in particular in its judgment of 22 June 1993 in Case C-333/91 Satam SA,7 fall outside the scope of value added tax, can the input tax charged to that taxable person be deducted in full 'l) Are the mere acquisition of ownership or is the input tax relating to the posses- in and the holding of bonds — claims sion of the shares debarred from being embodied in marketable securities —, deducted? activities which are not subservient to any other business activity, and the receipt of income therefrom to be regarded as economic activities within the meaning of Article 4(2) of the Sixth Directive?

4) If Question 3 must be answered in the latter sense, according to what yardstick 2) If that question has to be answered in must the amount disqualified from the affirmative, should those activities deduction be calculated?' be regarded as transactions, within the

7 — See Sofitam SA (formerly Satam SA) v Ministre Chargé du 6 — Vakstudie Nieuws 1982, p. 2281. Budget [1993] ECR1-3513 (hereinafter 'Sofitam').

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II — Observations submitted to the Court A — The first question

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regarded as a form of investment having sim- 19. In the alternative, the Netherlands sub- ply the character of personal wealth manage- mits that if a holder of bonds satisfies the ment. The holding of some investments in criterion of 'involvement' articulated by the the form of securities cannot, from an econ- Court in Polysar then its activities should be omic perspective, be regarded as the provi- classified as economic for the purposes of the sion of credit. When a financial institution Sixth Directive and, as a taxable person, it lends money to a client, it clearly provides a would then be liable for VAT on all the service; no such service is provided upon the receipts generated through that holding. If acquisition of bonds; the bondholder per- this were the case, the Netherlands suggests forms the role of a purchaser vis-à-vis the that the activity of the holding company issuer of the bonds. should be classified either as the granting of credit within Article 13B(d)(l), or as a transaction in bonds coming within Article 13B(d)(5).

9 — Paragraph 14 of the judgment. 10 — While the Dutch text of Article 13B(d)(5), cited by the Commission in its written observations, refers to 'obligaties en andere waardepapieren', the English text mentions 'debentures and other securities'; in this respect, see foot- note 4 above. 21. Although France recognizes that the 11 — Points 1 and 5 are quoted in paragraph 4 above. Court in Polysar held that a related activity

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22. In the alternative, counsel for France 24. Attention should be focused on the submitted orally that, if the Court were to economic and commercial substance of interpret Article 4(2) of the Sixth Directive as transactions that are alleged to constitute excluding the mere acquisition and holding an economic activity, as opposed to the of bonds from the concept of 'economic formal financial or commercial classification activities', such an exclusion should not be based on the 'involvement' criterion enunci- ated in Polysar. Since bonds by their very nature do not normally give rise to any right 13 — See, inter alia, Van Tiem, paragraph 17 of the judgment. 14 — See Case 268/83 Rompelman v Minister van Financiën of participation in the management of the [1985] ECR 655, where it was held that the purchase of the issuer, the application of such a criterion future title to two showroom-type premises, then still under construction, together with a usufructuary interest in would, he submitted, be inappropriate. the land pertaining thereto with the intention of subse- quently letting them to traders could constitute an econ- omic activity. 15 — Van Tiem, paragraph 18 of the judgment. 16 — Directive 67/228/EC on the harmonization of legislation of 12 — The separate treatment in Article 13B(d)(l) and (5) of trans- Member States concerning turnover taxes —Structure and actions involving the granting of créait and those affecting procedures for application of the common system of value bonds is, France submits, irrelevant, since the purpose of added tax; OJ, English Special Edition 1967 (I), p. 16. that provision is merely to enumerate exemptions from 17 — See Case 89/81 Staatssecretaris van Financiën v Hong Kong VAT. Trade [1982] ECR 1277, p. 1293 (emphasis in original).

'Therefore, Article 4 does not preclude the The Court, however, did not exclude the revenue authorities from requiring the possibility that the holding of shares may declared intention to be supported by objec- constitute an economic activity, '... where the tive evidence such as proof that the premises holding is accompanied by direct or indirect which it is proposed to construct are specifi- involvement in the management of the com- cally suited to commercial exploitation.' panies in which the holding has been

18 — Paragraph 24 of the judgment. 20 — Polysar, paragraph 13 of the judgment. 19 — Ibid. (emphasis added). 21 — Ibid, (emphasis added).

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acquired, without prejudice to the rights held regarded as a taxable person, and that the by the holding company as shareholder.' 22 position should only be different where the activities involved: 25

27. The Court was clearly influenced by the view of Advocate General Van Gerven, who had advised that both Rompelman and Van Tiem 'were concerned not only with an investment, that is to say the acquisition of property ... but also with the property '... go beyond the activities of a normal acquired subsequently being made available investor in connection with the usual man- to a third party for consideration'. 23 H e then agement of his assets, for instance where a drew a distinction between the acquisition of company regularly buys and sells shares as property, on the one hand, and its being profit-making transactions. In such a case, made available, on the other, for the pur- repeated transactions which involve buying poses of determining whether such property and selling may be regarded as economic has been exploited: 24 activities'.

29. The very nature of the many types of tenant, the economic nature of the underly- intangible property and the variety of ways ing activities which produce such receipts is in which it can be exploited make it difficult different. to draw direct comparisons with the physical consequences attendant upon the exploita- tion of tangible property. The physical nature of the effects of the purchase of a plot of land and the grant of a right in rem over that land to a third party, such as in Van Tiem, is indisputable, whereas the effects of the activities of a person who, for example, 31. This interpretation is confirmed, in my simply buys and holds bonds, may only, in view, by the subsequent judgment of the effect, be reflected in the figures appearing in Court in Sofitam. The Court confirmed that the respective bank accounts of the pur- a company shareholder which merely holds chaser and issuer of the bonds. However, I shares in other undertakings cannot be do not think such a difference should, per se, regarded as a taxable person for VAT pur- preclude the activities of a person who deals poses because 'the simple acquisition of in bonds, like those of a dealer in shares, financial holdings in other undertakings does from constituting economic activities for the not constitute an economic activity in the purposes of the Sixth Directive. sense of the Sixth Directive'. 26 The Court, in my opinion, did not state that the acquisition of shares was intrinsically not an economic activity in the sense of having no connection either generally with the economy or, more specifically, with the pursuit of trade. I think, instead, that the Court meant that the mere act of acquisition and ownership of shares was insufficiently connected with the pursuit of a trade to constitute an economic activity under the Sixth Directive.

analogous to such an investor, should not trust'. 28 Wellcome Trust, the appellant tax- depend merely on the form of investment. payer in the main proceedings, argued that, The scope of the Community VAT system by its investment activities and in particular should not depend on the precise form of the sale of 288 million of its shares in the investment. There is a fine line between cer- Wellcome Foundation, which, as Advocate tain holdings of shares and bonds on modern General Lenz pointed out, 'was the largest financial markets. Shares may be simple ordi- non-government sale carried out in the nary shares participating in the profits of the United Kingdom', 29 it should be regarded as enterprise. There are also many forms of par- engaged in an economic activity. The Trust ticipation in the profits of quoted companies. accepted that investments made by Ordinary They include, for example, preference shares investors do not come within the scope of with a fixed interest rate, which are in prac- VAT', but claimed that the situation was dif- tice difficult to distinguish from loan stock. ferent where 'an investor regularly makes Debentures and many forms of convertible investments for the purpose of generating shares or stock may be held. It would be revenue or increasing its capital', and that it both difficult and unreal to seek to distin- was 'irrelevant whether the purpose or guish activities which are essentially those of object of an economic activity is trading or a private investor according to whether his investment'. 30 This argument was not holdings are composed of pure loan stock or accepted by the Court. ordinary shares.

'It is true that, by virtue of Article 13B(d)(5) 'This, however, is not analogous to the activ- of the Directive, transactions in shares, inter- ity of a dealer in shares. A dealer in shares is ests in companies or associations, debentures not primarily concerned with managing and other securities may fall within the scope assets; rather, he endeavours to make profits of VAT. This will be the case, in particular, through buying and selling shares and engag- where such transactions are effected as part ing in risky investments and speculation. He of a commercial share-dealing activity or in does not acquire shares with the principal order to secure a direct or indirect involve- aim of securing the highest possible divi- ment in the management of the companies in dends, but rather in order to resell them at as which the holding has been acquired.' high a price as he can secure.'

35. The Court held that it was clear that the Trust was 'forbidden precisely to engage in such activities', since it was obliged 'to avoid engaging in trade' when carrying out its The Court shared his view that the activities. 36 Counsel for France asserted at portfolio-management activities of the Trust the hearing that the approach adopted by the were similar to those of a private individual Court in Wellcome Trust was really 'an ad managing his assets, and that such a person hoc solution' tied to the particular circum- cannot be regarded as exercising an econ- stances of the case. I cannot accept this inter- omic activity within the meaning of the Sixth Directive. 39

36. The decision of the Court in Wellcome is a commercial dealer in any bonds or secu- Trust did not follow from the exclusively rities. charitable nature of the Trust's activities. The principles established by the Court are of broader import. Indeed, it could be argued that the specific reference to 'debentures and other securities' by the Court puts the matter beyond doubt. 40 However, the Court, in enumerating, inter alia, the types of circumstances in which 37. However, on the basis of the facts as transactions in debentures and other securi- stated in the order for reference and the ties may in principle be subject to VAT, information provided by the Netherlands at was careful to use the words 'inparticular'. 41 the hearing, it does not appear that the I do not therefore share the concern under- appellant engages, save perhaps on a purely lying France's alternative submission, in occasional basis, in any activities other than this case, to the effect that, in any event, those of overseeing the investment, by the the application of the 'involvement' criterion professional asset manager whose services it to bonds would be inappropriate. If an engages, of the private capital brought by the undertaking such as the interested party, partners to their limited partnership. Such which engages in acquiring and holding activities can only, in my opinion, be assimi- bonds, does not confine its activities to lated with the management (to employ the pure investment activities, such as may be words of the Court in Wellcome Trust) of 'an carried out by any private investor, but investment portfolio in the same way as a instead effects those activities as part of a private investor'. 42 commercial bond-dealing operation, or otherwise by way of trade, then that undertaking would clearly be economically exploiting the intangible property rights that it enjoys in its holdings of such bonds. This interpretation would set at rest some of the doubts which troubled counsel 38. Furthermore, counsel for France con- for France at the hearing regarding possible tended orally that the reasoning adopted fiscal distortions from the different treatment recently by the Court in Régie Dauphinoise of straightforward lending and the purchase v Ministre du Budget is applicable to the of bonds. A bank, in lending, is clearly acquisition and holding of bonds. 43 It is engaged in an economic activity; i. e. important to recall precisely the factual the placement for consideration of funds at situation at issue in Régie Dauphinoise. the disposal of the borrower. Equally, so Régie Dauphinoise (hereinafter 'Régie') was involved principally in the management of property, whereby it managed let property on behalf of the owners and acted as a man- ager of condominiums. In the course of car- rying out this business it received advances

40. In my opinion, it is clear that the Court was satisfied that the investment activities of Régie effectively constituted part of a broader business activity or, as Advocate General Lenz aptly put it, that it was satis- fied that '[Régie] invests money which it 39. The Court accepted that the placements holds on the basis of its economic activity'. 48 by Régie could 'be regarded as services sup- The distinction from Wellcome Trust was plied to those institutions, consisting in the clear: in that case 'there was no visible econ- loan of money for a fixed period, duly remu- omic activity on the basis of which the trust nerated by the payment of interest' 44 and, company could have received the money'. 49 moreover, that 'unlike the receipt of divi- In this case, and subject, of course, to the dends by a holding company ... interest reservation that it is ultimately for the received by a property management com- national court to make all relevant findings pany on placements made for its own of fact, there is no evidence before the Court account of sums paid by co-owners and les- to suggest that the bond activities of the sees cannot be excluded from the scope of appellant constitute 'the direct, permanent VAT, since the interest does not arise simply from the ownership of the asset, but is the consideration for placing capital at the 45 — Paragraph 17 of the judgment. 46 — Paragraph 18 of the judgment. 47 — Paragraph 18 of the judgment (emphasis added). 48 — Paragraph 20 of the Opinion. 44 — Paragraph 16 of the judgment. 49 — See the Opinion of Advocate General Lenz, loc. cit., ibid.

41. In the event of the Court deciding that the acquisition and holding of bonds in cir- cumstances such as those involved in the main proceedings are, contrary to the view I have expressed, sufficient to constitute the exercise of an economic activity for the pur- pose of Article 4(2) of the Sixth Directive, it would, however, be necessary to consider 43. It is clear from the order for reference whether a right to deduct arises. 50 that the bonds at issue in this case are issued by public bodies and companies established outside the Community. Thus, if the require- ment set out in the first sentence of 50 — It would seem, from the description of the findings of the Article 17(3)(c) is satisfied, whereby the dis- Gerechtshof, Amsterdam and from the questions contained in the order for reference (see paragraphs 11 and 13 above), puted VAT inputs must relate 'to goods and that, as far as the national court is concerned, no question arises in this case as to whether the appellant could be services' that 'are used for the purposes of' regarded, under Articles 2 and 4(1), as having acted both as the relevant taxable but exempt transactions, a taxable person and independently in carrying out its activities. the appellant should be entitled to exercise

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the right to deduct. In consequence, I the duty of cooperation which governs the would therefore recommend that the Court relationship between national courts and the give an affirmative answer to the second Court in Article 177 proceedings obliges the question, in the event that it needs to be Court to refuse to answer questions referred answered. only in circumstances where it is very clear that no genuinely useful answer can be 54 given. That is plainly not the case with the third and fourth questions referred in this case by the national court.

44. As these questions are closely related, they may conveniently be answered together. Having regard to the designation of the activities of the appellant set out in the order for reference, it is not altogether clear whether it also holds shares or, furthermore, 45. The nature of bonds is such that some derives dividend income therefrom. 5 2 In the of those held by the appellant might conceiv­ circumstances, there may be a doubt as to ably have taken the form of convertible whether the Court can provide a useful loan stock and subsequently have been answer to that question. 5 3 In my opinion, converted into shares during the relevant period. Alternatively, the national court may have in mind some information made avail­ 51 — If the information provided by the Netherlands at the hear­ able to the Gerechtshof, Amsterdam regard­ ing is correct, namely that the alleged VAT inputs origi­ nated in payments made by the appellant to the undertak­ ing entirely separate holdings of shares held ing which managed its financial activities, then it would by the appellant. Indeed, it does not seem appear that the required link between those inputs and the VAT-exempt transactions between the appellant and its unlikely that a limited partnership that held third-country customers would be present in this case. However, it is for the national court ultimately to make any US $130 000 000 worth of bonds during the outstanding findings of fact that may prove necessary in relevant period might also have owned some this respect. See further the discussion, arising out of the third and fourth questions referred by the national court, at shares. It is noteworthy that the appellant, in paragraphs 48 to 54 below. its appeal to the national court, described its 52 — The national court simply asks in its question whether, 'in the event' ('dan ingevaľ) of a taxable person carrying out activities as comprising the exploitation on a the activities ascribed to the interested party also being a shareholder, the input tax paid can still be deducted in full. continuing basis of several assets, some of 53 — The Court has, for example, consequent upon its judgment which might, at the relevant time, have con­ in Joined Cases C-320/90, C-321/90 and C-322/90 Tele- marsicabruzzo v Circostel and Others [1993] ECR1-393, sisted of shares. This is, of course, all specu­ where it ruled that 'the need to provide an interpretation of lative, but I do not think that it should be Community law which will be of use to the national court makes it necessary that the national court define the factual and legislative context of the questions it is asking or, at the very least, explain the factual circumstances on which those questions are based' (paragraph 6 of the judgment), adopted a number of orders in which it has declined to answer ques­ 54 — See, in this respect, paragraph 29 of my Opinion in Case tions referred where those conditions are not met; see, inter C-105/94 Angelo Celestini v Saar-Sektkellerei Faber [1997] alia, Case C-101/96 Italia Testa [1996] ECR 1-3081. ECR 1-2971, I-2974.

46. The national court refers in its third question to the judgment in Sofitam. It may, in my opinion, be assumed, from the description of the activities of the interested party provided in the order for reference, It is therefore clear that whatever income the that the national court has formed the view appellant derives from its holdings of shares, that, if the appellant does engage in share- such income cannot affect the deductible holding activities, those activities are not proportion of its VAT inputs. such as to involve it in the management of the companies in which the shares are held, or, at least, such as may otherwise be regarded as economic. They must therefore be regarded as falling outside the scope of the Community VAT system. In such cir- cumstances the Court held in Sofitam that: 55 47. It is still necessary to determine the extent of the right to deduct in circumstances such as those raised by the national court in its third and fourth questions.

'Since the receipt of dividends is not the con- sideration for any economic activity within the meaning of the Sixth Directive, it does 48. Article 17(2) of the Sixth Directive pro- not fall within the scope of VAT. Conse- vides unambiguously that a taxable person quently, dividends resulting from holdings shall only be entitled to deduct VAT inputs fall outside the deduction entitlement.' from the tax which he is liable to pay 'in so

55 — Paragraph 13 of the judgment. 56 — Paragraph 14 of the judgment.

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'... a taxable person is entitled to deduct the value added tax he has paid in respect of goods and services supplied if and in so far as those goods and services are subsequently for the purposes of taxable transactions .... The same holds true in the case of (in prin- '... when confronted with supplies which, as ciple taxable) activities which the Directive in the present case, are not objectively linked exempts from value added tax'. to taxable transactions, would have to carry out inquiries to determine the intention of the taxable person. Such an obligation would be contrary to the VAT system's objective of ensuring legal certainty and facilitating appli- cation of the tax by having regard, save in exceptional cases, to the objective nature of the transaction in question'. 49. The Netherlands, supported on this point by France in its oral observations, sub- mits that the approach adopted by the Court in BLP Group provides a useful comparison for this case. 58 In that case the Court had to consider whether a taxable person, who pays

50. It follows, in my opinion, that in so far 57 — Polysar, [1991] ECR I-3111, p. I-3128 (emphasis in origi- as some of the disputed inputs in this case nal). See also the Explanatory Memorandum issued by tne relate entirely to the share-holding activities Commission in respect of its revised proposal for the direc- tive where it stated that 'the principle has been maintained that value added tax on goods and services used for the pur- poses of non-taxable or exempt transactions (except for transactions effected abroad or exports) should not be tax- able'; Bulletin of the EC, Supp. II-73, p. 18. 59 — Paragraph 23 of the judgment. 58 — Case C-4/94 [1995] ECR I-983. 60 — Paragraph 24 of the judgment (emphasis added).

of the appellant, they must be excluded from above that a taxable person, such as the the calculation of its deductible amount. appellant, who incurs VAT inputs paying for professional services rendered in respect both of the economic activity (if so classified by the Court) of acquiring and holding bonds and the non-economic activity (for VAT purposes) of merely holding shares, 51. In this case, however, a further question can, where the bonds are issued by custom- arises: to the extent that the disputed VAT ers established outside the Community, only inputs may actually concern services which deduct that proportion of those inputs which are provided to the taxable person in relation may properly be assigned to the economic both to its non-taxable and taxable but activity. Although Article 18 does not pre- exempt transactions, by what yardstick must scribe any particular formalities for the exer- the inputs which are to be disqualified from cise of the right to deduct permitted by the deduction allowed be calculated? The Article 17(3), every taxable person is obliged Netherlands and France submit essentially, by Article 22(2) of the Sixth Directive to by analogy with Article 19 of the Sixth 'keep accounts in sufficient detail to permit Directive, that a pro rata method of calculat- application of the value added tax and ing the deductible proportion should be inspection by the tax authority'. Moreover, applied. Article 22(4) requires 'every taxable person' to 'submit a return within an interval to be determined by each Member State', which 'may not exceed two months following the end of each tax period', the duration of which is to be determined by each Member 52. I do not think that this question can State, although it may not 'exceed a year'. be answered directly by reference to Articles 17(5) and 19, though, as will appear, I think that they must be applied by analogy. The factual circumstances at issue in the main proceedings were not envisaged by the draftsmen of Article 17(5), which assumes that a taxable person will have VAT inputs related to goods and services used for the 54. It follows, in my opinion, that the purposes of both taxable and exempt trans- taxable person who seeks to rely on actions. In this case, however, the national Article 17(3)(c) in circumstances where some court's questions address a factual situation of its VAT inputs related to non-taxable where the taxable person has incurred inputs activities is obliged to establish, to the satis- which relate both to exempt and non-taxable faction of the relevant tax authorities, the transactions. proportion of those inputs which it claims are attributable to taxable, but exempt trans- actions, figuring in Article 13B(a) and (d), paragraphs 1 to 5. 61

If, however, the Court considers that the activities specified in respect of my pro- posed answer to the first question should be regarded as economic activities for the purposes of Article 4(2) of the Sixth Council Directive, I recommend that the sec- ond, third and fourth questions referred by the national court be answered as fol- lows:

(2) Article 17(3)(c) of the Sixth Council Directive confers a right on a taxable per- son to deduct VAT inputs incurred on services provided to him in so far as they are used by that person for the purposes of acquiring ownership in and holding bonds, and obtaining income therefrom, so long as those bonds are issued by public bodies or companies who are established outside the Com- munity.

(3) A taxable person carrying on the activities described in the preceding answers who also engages in the activity of acquiring holdings of shares which falls outside the scope of VAT and whose VAT inputs relate both to his bond and share-holding activities, is only entitled to exercise the right to deduct con- ferred by Article 17(3)(c) of the Sixth Council Directive in respect of the pro- portion of the inputs which relate to the first-mentioned bond activities, in so far as he is capable of demonstrating the relationship to the satisfaction of the appropriate tax authorities.

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