C-136/97

3. Article 28 of the Sixth Directive is con­ cerned with '[T]ransitional [P]rovisions'. It provides, at Article 28(3)(b), that Member States may transitionally 'continue to exempt the activities set out in Annex F under the 2. The relevant provisions of the Sixth Direc­ conditions existing in the Member State con­ tive are those concerned with the supply of cerned'. Point 16 of Annex F refers to '[S]up­ 'building land'. In the first place, it should be plies of those buildings and land described in noted that Article 13B(h) provides for a man­ Article 4(3)'. The effect of this transitional datory VAT exemption in respect of 'the exemption is, thus, that Member States may, notwithstanding the exceptions to the VAT exemptions granted by Article 13B(g) and (h), * Original language: English. retain national exemptions from VAT; i. e. 1 — Sixth Council Directive 77/388/EEC of 17 May 1977 on the they may decide not to give effect to the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uni­ exception whereby 'building land' should be form basis of assessment; OJ 1977 L 145, p. 1 (hereinafter 'the Sixth Directive'). taxed.

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by the Eighteenth Directive. N o funda­ decided to refer the following question to the mental change had occurred in the relevant Court: national rules and the Commissioners were entitled to rely on that exemption since they were not seeking to rely on any new VAT exemption against Norbury.

'In relation to a supply of land which has not been built on but on which at the time of supply the erection of buildings has been legally authorised by a permission granted in accordance with the law of the Member State and which the Tribunal has held to be building land is the United Kingdom entitled to exempt the supply under Article 28(3)(b) of the Sixth 8. The Tribunal took the view that the land Directive? Notwithstanding that: at issue, which was 'sold specifically with planning permission and formed part of a new development', could not 'be regarded as any­ thing other than building land' and, accord­ ingly, that a detailed definition of building land was unnecessary. O n comparing the exemption in force at the time of the adop­ (a) the taxation of supplies of land, including tion of the Sixth Directive (i. e. that stated in supplies of land which is indisputably Schedule 5, Group 1, of the Finance Act 1972) building land, has altered since the United with that in force at the time of the disputed Kingdom adopted the Sixth Directive on supply (i. e. that contained in Schedule 6, 17 May 1977, in particular since the enact­ Group 1, of the Value Added Tax Act 1983), ment of the Finance Act 1989, which the Tribunal stated that '[t]his is not a case of introduced the election to waive VAT the extension of an exemption but the restric­ exemption in respect of certain such tion of an exemption by the introduction of supplies; and an increasing number of qualifications'. Taking the view that the construction of the wording of Article 28(3)(b) was not 'free from doubt' and that it could be construed as allowing Member States to reduce the scope of the exemption but not to extend it, the Tribunal

supplies which were previously exempt Emmen the Court held that 'Article 4(3)(b) to be standard-rated as civil engineering of the Sixth Directive refers expressly to the works; Member States' definitions of building land' and, consequently, 'that it is for the Member States to define what land is to be regarded as being building land, for the purposes of the application both of that provision and of Article 13B(h)...'. 4 The Court also observed and noting that the supply would have been that Member States should 'comply with the exempt had the supply taken place before objective pursued by Article 13B(h) of the 17 May 1977 under item 1 of group 1 of Sched­ Sixth Directive, which seeks to exempt from ule 5 to the Finance Act 1972.' tax only supplies of land which has not been built on and is intended to support a build­ ing'. 5 However, it concluded merely 'that it is for the Member States to define the con­ cept of "building land" within the combined II — Observations provisions of Article 13B(h) and Article 4(3)(b) of the Sixth Directive', and that it 'does not fall to the Court to specify what degree of improvement land which has not been built on must exhibit in order to be categorised as building land...'. 6 9. Written and oral observations were sub­ mitted by the Commission and the United Kingdom; Norbury presented oral observa­ tions only.

11. The Commission has drawn attention to the absence of any definition of 'building land' in the United Kingdom VAT legislation. It observes that, although Gemeente Emmen III — Analysis left Member States free to define 'building land', the failure to provide any definition applicable erga omnes might be contrary to the principle of legal certainty. 7 The Com­ mission nevertheless suggests that this does A — The definition of building land not arise in the present case, first, because no question regarding the absence of a definition of such land in United Kingdom has been

referred and, secondly, because the only con­ 14. Norbury raised two issues at the oral sequence of a lack of such a definition would hearing. The first point concerns the intro­ be that all land that might otherwise be caught duction in the United Kingdom, by the by it would, subject to the right to opt for Finance Act 1989, of an election to waive the taxation, automatically be exempted by virtue exemption in respect of building land. It is of Article 13B(h). unnecessary to consider whether such a change constitutes, as suggested by Norbury, a change in the conditions under which the exemption is continued. Article 28(3)(c) of the Sixth Directive, as the Commission rightly pointed out at the hearing, permits Member States to 'grant to taxable persons the option for taxa­ 12. It is sufficient, for present purposes, to tion of exempt transactions under the condi­ note that no question has been referred to the tions set out in Annex G'. According to Court on this issue. It is common case that Annex G, in the case of transactions specified the land at issue in the main proceedings is in Annex F, 'Member States which provision­ 'building land' on any possible definition. To ally maintain the right to exempt such sup­ the extent that there are possible unresolved plies may grant taxable persons the right to issues arising from the paragraphs of the opt for taxation' (emphasis added). The right Court's judgment in Gemeente Emmen which to 'grant' — the verb is used three times in have been cited above, they do not arise in the relevant text — contrasts with the right to the instant case. In any event, I agree with the 'continue' used in Article 28(3)(b). It per­ view of the United Kingdom that a definition mitted the introduction of the option granted of 'building land' where its supply is covered by the United Kingdom in 1989. It was Nor­ by an exemption which has not materially bury's misfortune that it failed to avail of that changed since the beginning of 1973 would option. be pointless.

16. The second argument advanced by Nor- bury is not as simple to dismiss. It is grounded on the undisputed fact, noted in the form of the question from the Tribunal, that 'the taxa­ tion of supplies of land which is indisputably building land has altered since the United Kingdom adopted the Sixth Directive on 17 May 1977...'. Norbury contends that in order to continue to rely upon a transitional exemption, Member States must maintain a legal position identical with that in force on 18. The United Kingdom, supported by the the adoption of the Sixth Directive. It also Commission, also asserts that the changes in maintains that any fundamental alteration to the United Kingdom legislation (other than the general VAT regime relating to supplies of the introduction of the option to waive the building land precludes Member States from exemption which, for the reasons I have given continuing to rely on the transitional exemp­ above, does not arise in this connection) are tion. In its view, the United Kingdom legisla­ uniquely designed to narrow the scope of the tion has fundamentally changed the condi­ exemption. In their view, as the agent for the tions applicable to the exemption in that Commission stated at the hearing, the exemp­ country. In respect of both of these proposi­ tion of the greater includes the exemption of tions, it relies on Commission ν Germany.8 the lesser. In support of this contention reli­ ance is placed on the Court's judgment in Kerrutt. 9 Furthermore, an interpretation of Article 28(3)(b), read in conjunction with Annex F, which did not permit Member States to reduce the scope of permitted transitional exemptions without forfeiting the right to retain them entirely would be inimical to the objective of the transitional arrangements, 17. Counsel for the United Kingdom con­ whose rationale must be to encourage Member tended at the hearing that a distinction should States to remove national exceptions to the be drawn between 'built-on-land' and 'build­ common VAT system. ing land'. As regards supplies of building land,

19. Although I remain of the view expressed Kingdom described as 'built-on-land', the in my Opinion in Gemeente Emmen to the original exemption of 'building land' should effect that the scope of the transitional exemp­ be regarded as being unaltered. Presumably, tions covered by Article 28(3)(b) 'must be the United Kingdom has in mind the fact that construed narrowly, in the light of the over­ point 16 of Annex F to the Sixth Directive riding objective of the Sixth Directive to create not only effectively refers to supplies of 'build­ a uniform basis of assessment for a common ing land' but also to supplies of new or pre­ integrated system of VAT', I cannot accept viously unoccupied buildings. However, the Norbury's contention that Member States are pertinence in the present case of the proposed obliged to retain the identical legal position distinction between 'built-on-land' and 'build­ to that which they applied on the adoption of ing land' was disputed by Norbury; it referred the Sixth Directive. 10 Article 28(3)(b) is not a to the fact that under the post-1977 national 'deep-freezer' provision as counsel for Nor- rules civil engineering works, which can bury suggested. The authors of that provision include bare land with sewers, are now sub­ should not, in my view, be regarded as shack­ ject to VAT. Since such land could, in the ling the Member States to the legislation which light of the Court's judgment in Gemeente they applied in 1977. O n the contrary, Member Emmen, be defined as 'building land' by States should, at the very least, be free to Member States, it would not be appropriate, change the legal provisions governing an in my view, to reject Norbury's contention exemption covered by that provision once the that the United Kingdom may no longer rely scope of the relevant exemption remains unal­ on point 16 of Annex F on the basis that no tered. Thus, for example, it must be possible possible curtailment of the pre-1977 exemp­ for a Member State to codify or clarify its tion in that Member State regarding supplies VAT rules in new legislation. To my mind, of building land has befallen. there could be no question of a breach of the principle of legal certainty in such cases.

dwellings — whose result was that the par­ tinuing transitional exemption of such sup­ ticipating 'co-proprietors' were each supplied plies in the United Kingdom. with a new dwelling was effected on their behalf by a single agent. The purpose of the scheme was to reduce costs and provide deductible expenses for income tax purposes. The dispute at issue however concerned VAT. As Advocate General Darmon pointed out, while the supply of building land had always been exempted in Germany, supplies of goods and services used in the construction process 22. To resolve this issue, I propose to con­ of what would later become the supply of a sider the changes in United Kingdom legisla­ tion in the light of the decision of the Court new building had never been exempted. 1 2 The in Commission ν Germany. Court took the view that the supply of such goods and services and the supply of a new building, including the land on which it stood, were legally separate transactions. It is in this light that the Court's statement that the wording 'continue to exempt' used in Article 28(3)(b) 'precludes the introduction of new exemptions or the extension of the scope of existing exemptions after the date of the 23. The relevant legislation is summarised in entry into force of the directive' should be the order for reference. It is not unduly com­ understood. 1 3 Thus, even if the land aspect of plex and the parties do not contest that a the transaction might have benefited from the comparison is to be made between the lists of transitional exemption under Article 28(3)(b), exceptions to the exemptions found in sched­ read in conjunction with point 16 of Annex F, ules respectively to the Finance Act 1972 ('the the subjection to VAT of supplies of the 1972 Act') and the Value Added Tax Act 1983 upstream goods and services used in the con­ ('the 1983 Act'). The 1972 Act exempted a list struction process could not 'affect the scope of acts capable of constituting a supply of of the exemption from turnover tax'. 1 4 There land. The exceptions to that list found in is nothing in the case to suggest that, if the Schedule 5 related only to matters concerned scope of the original transitional exemption broadly with holiday or leisure activity such as the provision of hotel accommodation or of building land had been abridged, the ben­ gaming or fishing rights. The structure of the efit of that exemption would have been lost comparable provisions in the 1983 Act is iden­ altogether. However, this does not suffice to tical, though there are changes in content. dispose of Norbury's argument in the instant The existing exceptions are enumerated in case that, on the basis in particular of Com­ more detail but there does not seem to me to mission ν Germany, the post-1977 reduction be any essential change. It has not been sug­ in the scope of the exemption of supplies of gested that they involve any extension to the building land operates to preclude the con­ exemption. More materially, the exceptions now include what I would paraphrase as con­ sisting essentially of the 'grant of the fee

25. The essence of the special scheme is that 27. In response, Germany relied on its existing travel agents are taxed not on the gross price exemption under point 17 of Annex F of air of their services but only on their 'margin', and sea transport services. In effect, sea trans­ which is defined as 'the difference between port had never been subject to the German the total amount paid by the traveller', exclu­ VAT system, whereas air transport had ben­ sive of VAT, and 'the actual cost to the travel efited from a ministerial exempting order. It agent of supplies and services provided by seems to have been accepted, at least by the other taxable persons where these transac­ Advocate General, that the legal changes made tions are for the direct benefit of the traveller' by Germany in its 1980 Law did not effect (Article 26(2)). These services (which I will any substantive change in the tax treatment of call 'input services') will typically consist of these transport services. O n the other hand, hotel and transport provision. The travel agent at the time of the adoption of the Sixth may not deduct any VAT that he has to pay Directive Germany had no existing

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exemption of travel agents' services: they were by point 16. Accordingly, the central point in taxed in the normal way. the reasoning of the Court can have no bearing on the present case.

30. None the less, I do not think the changes in the national legal provisions at issue in the 16 — The Court then concludes in the first sentence of para­ graph 17 that, since Germany had not denied that it had not present case are analogous to those consid­ maintained a general scheme for travel agents, and since it had also actually adopted a special scheme pursuant to ered by the Court in that case. As I have Article 26 of the Sixth Directive, it could not 'rely on the already pointed out (see paragraph 23 above), possibility of continuing to exempt certain activities for which exemption is not envisaged by that article'. the legal structure of the exemption as found

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in the 1972 and 1983 Acts is identical. In so subject'. In my opinion, that reasoning far as a change is made by the 1983 Act, it applies by analogy to the present case where consists in the introduction of a number of the exemption has been narrowed over time. significant additions to the list of exceptions The Court's exclusion, in paragraph 17 of its so as to limit the scope of the exemption of judgment, of 'the maintenance of partial the supply of land. There does not appear to exemptions' related to the special terms of me to be any difficulty in identifying the Article 26 of and point 27 of Annex F to the 18 changes being made. Furthermore, it is not Sixth Directive. suggested that they involve, contrary to the Kerrutt principle, any disguised extension of the exemption.

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IV — Conclusion

33. Accordingly, I recommend that the Court answer the question referred by the VAT and Duties Tribunal, Manchester as follows:

In relation to the supply of land which has been held to be building land, a Member State is entitled to exempt the supply under Article 28(3)(b) of, read in conjunction with point 16 of Annex F to, 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 — Common system of value added tax: uniform basis of assessment, not- withstanding that it has, first, since the adoption of the Sixth Directive introduced an election to waive the VAT exemption in respect of such supplies and, secondly, reduced the material scope of the exemption which it applies in respect of such sup- plies so that some previously exempt supplies are now subject to VAT.

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