C-190/95

* Original language: English. 2 — Tenth Council Directive 84/386/EEC of 31 July 1984 on the 1 — Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to harmonization of the laws of the Member States relating to turnover taxes, amending Directive 77/388/EEC —Appli- turnover taxes — Common system of value added tax: uni- cation of value added tax to the hiring-out of movable tan- form basis of assessment (hereinafter 'the Sixth Directive'); gible property (hereinafter 'the Tenth Directive'); OJ 1984 OJ 1977 L 145, p. 1. L 208, p. 58.

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OPINION OF MR FENNELLY — CASE C-190/95

the customer has established his business or and the hiring-out of forms of transport con­ has a fixed establishment to which the ser­ sider: vice is supplied or, in the absence of such a place, the place where he has his permanent address or usually resides'.

(a) the place of supply of services, which under this Article would be situated within the territory of the country, as being situated outside the Community where the effective use and enjoyment of Article 1(2) of the Tenth Directive added the the services take place outside the Com­ following indent to Article 9(2)(e) of the munity; Sixth Directive, in place of the provision quoted above from Article 9(2)(d):

(b) the place of supply of services, which under this Article would be situated out­ side the Community, as being within the '— the hiring-out of movable tangible prop­ territory of the country where the effec­ erty with the exception of all forms of tive use and enjoyment of the services transport'. take place within the territory of the country.'

4. ARO Lease BV, 4 the appellant in the to the car. ARO takes out insurance against main proceedings, is a private company this risk to protect its interest as owner. incorporated in the Netherlands. It is engaged in the business of concluding, as les­ sor, leasing agreements with third parties in respect of passenger motor cars. The major­ ity of these agreements, at the relevant time, had been concluded for a period of three to four years and involved cars that had been leased to persons established in the Nether­ 6. At the end of the agreed term of the lease, lands. However, approximately 800 of them the lessor gives the customer the option of concerned clients based in Belgium (herein­ purchasing the car at a specified price. after 'the disputed agreements'). All of the Whenever the vehicle is not immediately disputed agreements were drawn up at the sold on the basis of that price, it is stored at lessor's office at 's-Hertogenbosch, the ARO's expense and risk at the premises of a Netherlands. dealer in Belgium, since ARO does not have a depot of its own in that country.

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OPINION OF MR FENNELLY — CASE C-190/95

Belgium in respect of such agreements. the disputed VAT turns on whether the Counsel for ARO stated at the hearing that interested party supplied the services at issue it was only on 24 October 1994 that the Bel­ from a fixed establishment in Belgium. Hav­ gian authorities decided to apply this new ing doubts about the proper interpretation of policy by demanding the payment of Belgian that provision and, in particular, the rel­ VAT backdated to January 1993. This retro­ evance of the Court's judgment in 6 active effect was subsequently modified to Berkholz, it decided to refer the following November 1993. ARO applied unsuccess­ question to the Court: fully for a reimbursement of the disputed VAT paid in the Netherlands.

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ARO LEASE v INSPECTEUR DER BELASTINGDIENST

and the Netherlands, the French Republic Article 9(2). None the less, the reasons for and the Commission. Oral observations were the inapplicability of that paragraph cast presented by ARO , the Federal Republic of light on the interpretation to be given to Germany, the French Republic, the Kingdom Article 9(1). The observations of the Com­ of the Netherlands and the Commission. mission in particular cannot, in my view, be considered without regard to it. The 'hiring- out of movable tangible property' is now one of the services expressly listed in Article 9(2)(e), which, as between taxable persons established in different Member Ill — Analysis States, is to be regarded as supplied at the place where the customer has established his place of business. Article 1 of the Tenth Directive expressly exempted the hiring-out of 'all forms of transport' from this special rule for movable tangible property. The final 12. The national court, the parties to the recital in the preamble to the Tenth Directive main proceedings, the Commission and the explains this exclusion in the following Member States which have submitted obser­ terms: vations are content that the activities of the lessor may properly be classified as compris­ ing the provision of services. 8

'Whereas, however, as regards the hiring-out of forms of transport, Article 9(1) should, for The applicability of Article 9(1) reasons of control, be strictly applied, the place where the supplier has established his business being treated as the place of supply of such services'.

Sixth Directive, quoted at paragraph 2 above. mity with the general rule, at the place where The Court ruled that 'all forms of transport the supplier has established his business.' are outside the scope of the exception laid down for the hiring-out of movable tangible property, which therefore remains subject to the general rule in Article 9(1) of the Sixth 10 Directive'. The Court was satisfied that the purpose of Article 9 was to ensure that '... the place where a service is supplied is 15. The rationale set out in the final recital in principle, for the sake of simplification, in the preamble to the Tenth Directive, deemed to be the place where the supplier coupled with the Court's interpretation of has established his business', but that 'an the same words as they formerly appeared in exception to this must be made in certain Article 9(2)(d) in Hamann, provide a clear specific cases', such as the hiring-out of mov­ indication that the intention of the Commu­ able tangible property, in favour of the place nity legislature was to ensure that the place where 'the goods hired out are used, in order of supply of services in the case of the to prevent distortions of competition which hiring-out of 'all forms of transport' would may arise from the different rates of VAT 1 be treated, in the words of the recital, as 'the applied by the Member States'. 1The Court place where the supplier has established his continued by stating that: business'. The Commission accepts in its written observations that the fact that such activities are excluded from the scope of Article 9(2)(e) could, by a contrario reason­ ing, mean that the place of supply of these services is not deemed to be at the place of establishment of the client as such. I think that this insufficiently acknowledges the scheme and clear words of the amendment made to Article 9.

transport, the place where the supplier has short that the economic activity is carried on established his business should be regarded as in Belgium. Of course, the activity at issue is the primary place of supply for the purposes car leasing only. In my view, the practical of applying Article 9(1). Article 9(2)(d), effect of applying such an approach would before the amendment, excepted the hiring- largely be the same as if the alternative rule out of all forms of transport from a rule provided in Article 9(2)(e) in respect of the adopting 'the place of utilization' of the ser­ hiring-out of movable tangible property vice, and Article 9(2)(e), after the amend­ were applied, in spite of the express exclu­ ment, excepted it from a not entirely dissimi­ sion of the hiring-out of forms of transport. lar rule specifying 'the place where the customer has established his business or has a fixed establishment to which the service is supplied'.

18. It is interesting to note that, in its pro­ posal for what subsequently became the Tenth Directive, the Commission had pro­ posed the insertion of the following subpara­ (ii) The interpretation of the place of estab­ graph into Article 9(1) of the Sixth Direc­ lishment tive: 13

hiring-out of forms of transport'. The alternative to purchasing cars, circumstances 'legal fiction' was to treat the supplier as have changed since the adoption of the Tenth being established at the place of supply of Directive. It is arguable that the concerns services. The approach actually adopted by about control, which, as we have already the Council, though similar in effect, avoided seen (paragraphs 13 and 14 above), underlie this 'fiction' and designated the place of the exclusion of the hiring-out of forms of establishment of the customer as the place of transport from the general rule applicable to 15 supply. the hiring-out of movable tangible property, are less serious in the case of car leasing than they would be, for example, as concerns ordinary car-rental activities, since the lessee under a leasing agreement would normally either be established or, at least, have a fixed establishment at the place where the service is effectively, for economic purposes, sup­ 19. The 'economic-realities' approach 16 plied. However, all types of hiring-out of advanced by the Commission in support of forms of transport receive the same treat­ its flexible interpretation of the notion of the ment. If the Commission feels that the place of establishment would, in my opinion, approach adopted in the Tenth Directive is have the effect of defeating the express will no longer appropriate, it may propose an of the legislator. Moreover, as was pointed amending directive to the Council. In the out by Germany, Article 9(3)(b) permits the absence of any new directive, the Court taxation of services in the Member State of clearly can only interpret the current text of their 'effective use and enjoyment', but only the Sixth Directive. where the place of supply otherwise appli­ cable under Article 9 points to a third coun­ try. In any event, the specific activities cited by the Commission, such as the services pro­ vided by the intermediary, the sale and re-sale of the cars and their maintenance are all taxed on their own merits as supplies of goods or services. The hiring-out of forms of The place of supply of car-leasing agreements transport receives special treatment. Only Article 9(1) applies.

23. France contends, however, that the pur­ chase, hiring-out and maintenance of the cars in Belgium, coupled with the establishment there of ARO's clients, result in its having a fixed establishment in that Member State. France — unlike the lessor, the Netherlands (i) Summary of the observations and Germany — considers the requirements laid down by the Court in Berkholz for the application of criteria of fixed establishment, in particular those regarding the existence of the human and technical resources necessary for the provision of the lessor's services, to have been satisfied in this case by the pres­ ence in Belgium of agents who act for and on its behalf. Reference has already been made (in paragraphs 15 and 17 to 20 above) to the 22. The lessor, the Netherlands and Ger­ principal observations of the Commission. many, supported on this point by France, At the hearing, it submitted, in the alterna­ submit that the primary point of reference tive, that ARO could be regarded as having a provided by Article 9(1) is the place where fixed establishment in Belgium from which the supplier has established his place of busi­ its car-leasing services were supplied. ness. It is only if the choice of this place would not lead to a fiscally rational result, or would create a conflict between Member States, that it should be necessary to examine whether the supplier can be regarded as hav­ ing 'a fixed establishment from which the service is supplied' in another Member State. The lessor, supported by the Netherlands 24. The Netherlands regards the number of and Germany, refers to the incongruity of operations which must be effected in order relying upon the fixed-establishment crite­ to lease cars as minimal and, unlike France, rion in respect of hiring-out of forms of views the conclusion of the leasing contracts transport, and draws attention to the final in the Netherlands as the most important recital in the preamble to the Tenth Direc­ operation. Moreover, in its view, the require­ tive, which proposes 'the place where the ments of Berkholz are not met; ARO pos­ supplier has established his business'. The sesses neither personnel nor an establishment Netherlands contends that in Hamann the in Belgium. Germany observes that the Court expressly ruled that the place of use of wording of Article 9(1) regarding 'a fixed a form of transport cannot constitute a establishment' refers to the place from which

25. Belgium and Denmark reach the same conclusion as France and the Commission by slightly different routes. Belgium submits (ii) Opinion that the scope of the notions of 'where the supplier has established his business' or has 'a fixed establishment from which a service is provided' should be interpreted having regard both to the context in which they appear and the general principles and objec­ tives underlying the VAT system. In the instant case, it submits, these factors point to

26. The interpretation of Article 9(1) of the 17 — The Advocate General stated that when the place where, the supplier has established his business does not coincide with Sixth Directive adopted by the Court in the supplier's fixed establishment, he would 'rely on the Berkholz is, in my view, quite clear. The general principle that value-added tax should be charged at the place of consumption', and that he would 'hence give Court, initially, stated that Article 9 must be preference to the criterion which enables the supply of ser- vices to be located more accurately. There is no doubt that interpreted '... within the context of the gen­ the more appropriate of the two for that purpose is the cri- eral scheme of the Sixth Directive', and, hav­ terion of the "fixed establishment" which is clearly more precise'; [1985] ECR 2251, paragraph 2, at p. 2255. ing described the relationship between the

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ARO LEASE v INSPECTEUR DER BELASTINGDIENST

18 — The Court stated that 'Article 9(2) sets out a number of specific instances of places where certain services are deemed to be supplied, whilst Article 9(1) lays down the general rule on the matter'; loc. cit., footnote 6 above, para- graph 14 of the judgment In Case C-327/94 Jürgen Oudda v Finanzamt Bergach Gladbach [1996] ECR I-4595, the 27. There is no irrationality in adopting the Court further clarified the relationship by stating that: 'when Article 9 is interpreted, Article 9(1) in no way takes place of establishment of the supplier as the precedence over Article 9(2). In every situation, the ques- place of supply of the services of leasing tion which arises is whether it is covered by one of the instances mentioned in Article 9(2); if not, it falls within the motor cars for VAT purposes. The rationale scope of Article 9(1)'; paragraph 21 of the judgment. is explained in Hamann. The mere fact that a 19 — Berkholz, paragraph 14 of the judgment. 20 — Ibid., paragraph 17 of the judgment. Member State may suffer financially as a 21 — See, for example, as concerns the reference to 'advertising consequence of its application is not relevant. services' in Article 9(2)(e), Case C-73/92 Commission v Spain [1993] ECR I-5997, paragraph 12 of the judgment. On the contrary, the alternative and — as the 22 — Sec, inter alia, Case C-30/89 Commission v France [1990] ECR I-691, paragraph 23 of the judgment, and the Opinion of Advocate General Cosmas in Case C-231/94 Faaborg- Gelting Linien A/S v Finanzamt Flensburg [1996] ECR I-2395, paragraph 12. 23 — Paragraph 18 of the judgment.

Court has clearly stated in Berkholz — registered in Germany and operated by the exceptional fixed-establishment point of ref­ Bundesbahn (German federal railway com­ erence may only be applied if the conditions pany), the place of supply in international prescribed by the Court are satisfied and if, waters would in any case have been Ger­ in that eventuality, the application of the many. I do not think that the Court intended place of establishment would be unreason­ to limit the scope of the Berkholz principle able. This is illustrated by the approach of to the peculiar circumstances of that case. the Court to the factual circumstances of Indeed, that principle has subsequently been Berkholz. The first question referred con­ confirmed by the Court. cerned whether the expression 'fixed estab­ lishment' could be construed as covering the operation of gaming machines on board a German-registered ship sailing on the high seas. Despite the fact that the supplier 'regu­ larly employ[ed] two workers on the ferries (a) to keep in good order, repair and replace the machines and (b) to empty them and, together with the staff of the [ferry opera­ 24 tor], to count the takings', the Court ruled that '[i]t does not appear that the installation on board a sea-going ship of gaming machines, which are maintained intermit­ tently, is capable of constituting such an establishment, especially if tax may appropri­ ately be charged at the place where the operator of the machines has his permanent 25 business establishment'. 29. First, in Hamann, although no question arose regarding the place of a possible fixed establishment, the Court stipulated the place of establishment of the supplier as the appro­ priate approach in cases concerning the hiring-out of forms of transport . Secondly, in Faaborg-Gelting, as in Berkholz, the Court was concerned with the taxation of transac­ tions on board ferries, viz. the supply of meals for consumption. Having determined that such supplies, at least whenever they took the form of restaurant transactions, constituted the supply of services, the Court, referring with approbation to Berkholz, 28. The Commission seeks to establish a dis­ ruled that the place of permanent establish­ tinction based on the special circumstances ment of the operator of the ship affords an of Berkholz, namely that, since the ship was appropriate point of reference for VAT pur­ poses. Advocate General Cosmas, in his Opinion in Faaborg-Gelting, said that any supposed inappropriateness affecting the 24 — Sec the Opinion of Advocate General Mancini [1985] ECR 2251, paragraph 1, at p. 2253. place of establishment of the supplier as a 25 — Ibid., paragraph 18 of the judgment. point of reference should be based on more

30. However, in the light of the observations submitted, particularly by France and the Commission, I think that it is necessary to examine whether, in the particular circum­ 31. Even if, contrary to the view which I stances of this case, the application of the have just expressed, the notion of 'human fixed-establishment approach might be appo­ and technical resources' employed in the site. Reference has been made to various fac­ Court's case-law may be interpreted expan­ tual elements which purportedly suffice to sively to include resources provided by third link the services provided by ARO with Bel­ parties and subject to separate VAT treat­ gium. However, in my opinion, none of ment under the Sixth Directive, I would not these supposed connections is convincing. be convinced that the service of leasing cars Whilst ARO might have canvassed potential at issue in this case could realistically be Belgian customers through Belgian car deal­ regarded as having been provided from a ers, who were also responsible for the physi­ fixed establishment in Belgium, since such an cal procurement and supply of the cars to establishment would have to be composed of actual customers, I am not convinced that the various Belgian places of business of the the presence of such intermediaries amounts numerous agents who provided pre-and to 'the permanent presence of ... human post-leasing services on behalf of ARO . The 27 resources'. There is nothing in Berkholz to essence of the services provided by ARO indicate that such a broad construction of comprises the conclusion of the leasing the notion of 'human resources' was agreements, which clearly occurred in the intended or is justified. On the contrary, pri­ Netherlands and which undoubtedly mary emphasis was placed on 'the place involved the use there by ARO of both where the supplier has established his busi­ human and technical resources; contracts ness'. Moreover, unlike the activities of cannot be concluded and financial arrange­ Berkholz's employees, the Belgian activities ments put in place without the use of consid­ of ARO's intermediaries all constitute sepa­ erable resources. Consequently, the Nether­ rate legal transactions; their services are tax­ lands is the rational place of supply in able in Belgium if that is where they have accordance with the broad scope to be established their business. By the same attributed to the notion of 'the place where token, the fact that these dealers provide the supplier has established his business'. repair and maintenance services for the cars in Belgium cannot be equated with 'the per­ manent presence of ... technical resources' 28 — Such services are taxable where they are physically carried out (namely Belgium in the present case) in accordance with the fourth indent of Article 9(2)(c); see, generally, with reference to this indent, paragraphs 13 to 18 of my Opinion of 28 November 1996 in Case C-167/95 Linthorst, Pouwela 26 — Sec especially paragraph 20 of the Opinion. en Scheres v Inspecteur der Belastingdienst/Ondernemingen, 27 — See Berkholz, paragraph 19 of the judgment. Roermond [1997] ECR I-1195.