C-110/98

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

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3. Article 22 of the Directive, entitled Article 111(5) adds that, by way of excep- Obligations under the internal system', is tion to Article 111(1), entrepreneurs or also relevant. Under Article 22(1), 'every professional practitioners seeking to deduct taxable person shall state when his activity such tax before commencement of activities as a taxable person commences, changes or must satisfy the following two require- ceases'. Article 22(8) provides that 'Mem- ments: ber States may impose other obligations which they deem necessary for the correct levying and collection of the tax and for the prevention of fraud'. (a) they must have submitted, before pay- ing the VAT, a declaration preceding the commencement of business or pro- fessional activities;

5. Thus, under the system introduced by 2 — BOE No 315 of 31 December 1996. the 1996 amendment, two possibilities are

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open to the taxable person. In the first that refusal, the tax authorities cited in place, the general rule provides that VAT some cases failure to comply with the time- paid before the commencement of activities limit of one year between submission of the may be deducted only upon actual com- declaration required by law and actual mencement of those activities. Alterna- commencement of activities and, in others, tively, by way of exception to the general failure to submit a request for an extension rule, the right to deduct may be exercised provided for under the law (or the request even before commencement if the two had been refused). The undertakings con- requirements set out above are satisfied. It cerned contested those decisions before the follows that availability of the right to Tribunal Económico-Administrativo deduct may vary with respect to the time Regional. They maintained that the when the tax becomes chargeable, as in the national legislation was incompatible with case where a year has elapsed without any Community law in that its application extension being requested or where the tax would deprive them of the right to deduct authorities have refused such a request. conferred by Article 17 of the Directive. Moreover, where the taxable person never carries out any taxable transactions in the form of the provision of goods or services, the right to deduct VAT paid in respect of expenditure on 'preparatory' or ancillary activities is in principle denied.

ments being forfeiture of the right to deduct by the Court of Justice in this connec- or, at least, deferment of its availability tion — in particular, that the body be until the time at which taxable transactions established by law, that it be permanent, begin to be carried out on a regular basis?' that its jurisdiction be compulsory, that its procedure be inter partes and that it apply rules of law — they are silent as regards a requirement which nevertheless raises ser- ious problems, namely that the body be impartial and independent of the executive. 8. In accordance with Article 43 of the In a lengthy written statement, the Spanish Rules of Procedure, the cases — being Government explained the mechanism for identical in respect of their subject-mat- reviewing acts of the tax authorities by ter — were joined, by order of the Pre- means of 'economic-administrative com- sident of the Court of 8 May 1998, for the plaint proceedings' and described the com- purposes of the written procedure and the position and modus operandi of the Tribu- judgment. nales Económico-Administrativos, con- cluding that these must be regarded as courts or tribunals for the purposes of Article 177 of the EC Treaty since they satisfy all the conditions laid down by the Court. It should be noted, however, that this statement, too, makes no mention of Admissibility any provision of law specifying what legal safeguards are in place to preserve the independence of the Tribunales Económ- ico-Administrativos from the executive. 9. Before considering the substance of the question referred to the Court by the Tribunal Económico-Administrat ivo Regional, it must first be determined whe- ther the latter may be regarded as 'a court or tribunal of a Member State' within the meaning and for the purposes of Arti- cle 177 of the EC Treaty (now Article 234 10. I must confess at once that I am not EC). When specifically queried on that persuaded by the views expressed by the point by the Court, the plaintiffs in the parties and the interveners referred to main proceedings, as well as the Commis- above. To my mind, there is good reason sion and the Spanish Government, all to doubt the independence and impartiality expressed the view that the Tribunal could of the Tribunales Económico-Administrati- be so regarded. Although the plaintiffs gave vos and their compliance with the inter no reasons in support of their position, the partes principle. Commission expressly agreed with the statement to that effect made by the Tribunal Económico-Administrativo Cen- tral in an order of 29 March 1990. How- ever, while that order (and, accordingly, the observations submitted by the Commis- sion) refer to provisions of Spanish law 11. On that point, it should first be noted covering some of the conditions stipulated that, because of the need to ensure the

uniform application of Community law, the them: acts of the tax authorities cannot be terms 'court or tribunal', when used in the contested before the administrative courts context of bodies with jurisdiction to refer until complaint proceedings have been questions for a preliminary ruling, have a brought before the Tribunales. 6 Nor is meaning quite separate from their ordinary there any doubt that in reaching their meaning within the various national legal decisions they apply rules of law, in accor- systems. The Court has consistently ruled dance with Articles 1, 38, 44 and 102 of that, in order to determine whether a body the RPEA. is a court or tribunal within the meaning of Article 177 of the EC Treaty, a number of factors must be taken into account, namely whether it is established by law, whether it is permanent, whether its jurisdiction is compulsory, whether its procedure is inter 13. Doubts do arise, however, concerning partes, whether it applies rules of law and their impartiality and independence vis-à- whether it fulfils the requirements of vis the executive and the question whether impartiality and independence. 4 their procedure is inter partes. 7Clearly, it is crucial to determine whether those

out the country. Moreover, they are obliged Administrativo Central concedes (in the to reach a decision in cases brought before order referred to above) that the question whether that condition is fulfilled 'is argu- ably more debatable', but states in conclu- 4 — See inter alia Case 61/65 Vaassen [1966] ECR 407; Case sion that 'Article 177 of the Treaty of 43/71 Politi [1971] ECR 1039; Case 14/86 Pretore di Salò Rome does not predicate the right to refer [1987] ECR 2545, paragraph 7; Case C-24/92 Corbiau [1993] ECR I-1277, paragraph 15; Case C-111/94 Job to the Court of Justice upon the procedure Centre [1995] ECR I-3361, paragraph 9; Joined Cases C-74/95 and C-129/95, Criminal proceedings against X [1996] ECR I-6609, paragraph 18; Case C-54/96 Dorsch Consult [1997] ECR I-4961, paragraph 2 3 ; Joined Cases C-9/97 and C-118/97 Jokela and Pitkäranta [1998] ECR 6 — See Article 163 of the Ley General Tributaria; Article 2 3 of I-6267; Case C-134/97 Victoria Film [1998] ECR I-7023, Real Decreto Legislativo N o 2795/1980. paragraph 14; and Case C-416/96 El-Yassini [1999] ECR 7 — I note in this connection that these doubts were expressed by I-1209, paragraph 17. Advocate General Ruiz-Jarabo Colomer in footnote 5 to his 5 — Ley General Tributaria N o 230/1963 of 28 December 1963 Opinion in Joined Cases C-7495 and C-129/95, Criminal (BOE of 31 December 1963); Real Decreto Legislativo Proceedings against X [1996] ECR I-6609 and in the book N o 2795/1980 of 12 December 1980 por el que se articula El Juez Nacional como Juez Comunitario, Madrid, 1993,

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heard. Admittedly, they are allowed to lodge submissions and evidence in support of their claims (Article 90 RPEA) and to request a public hearing (Article 97 RPEA), but the Tribunal may grant or refuse such a request on the basis of a discretionary assessment which the person concerned is 16. On this point, the Spanish Government expressly precluded by law from challen- itself admits that, in organisational terms, ging (Article 97(2) RPEA). the Tribunales Económico-Administrativos do not officially come under the auspices of the departments responsible for the admin- istration of justice; rather, they are incor- porated in the Ministry of Economic Affairs and Finance (Ministerio de Econo- mia y Hacienda), that is to say, the very authority whose acts taxpayers contest

It should also be noted that the Spanish Government itself above, paragraph 18. draws attention in its written statement to the connection 12 — The office of Registrar of the Tribunal is held by an between the inter partes nature of the procedure and the Abogado del Estado, who has the same voting rights as the independence of the adjudicating body. President and Members (Article 16(1) and (7) RPEA).

clearly and exhaustively defined by law. for dealing with an 'economic-administra- The rules governing the modus operandi of tive complaint' (reclamación económico- the Tribunales do not, therefore, guarantee administrativa), which it classes as an security of tenure for their members. In 'administrative action', comprises a proce- these circumstances, it appears unlikely to dure for 'reviewing' contested acts. The say the least that the Tribunales enjoy a primary feature of that procedure, accord- measure of independence sufficient to ward ing to the Spanish Government, is that the off undue interference or pressure from the authority with jurisdiction has the power to executive. re-examine all issues arising at the 'man- agement' stage, even if those points have not been contested by the persons con- cerned. 13 This is clearly a role which, albeit in the interests of 'justice' lato sensu in that 17. Furthermore, it would be a false it provides citizens with a mechanism for assumption to conclude that the imparti- the equitable settling of disputes in indivi- ality of the Tribunales Económico-Admin- dual cases, is far from being classifiable as istrativos is adequately assured merely on 'judicial'. It is a system which bears all the the basis of the fact — the only fact hallmarks of an administrative 'appeals' referred to by the Spanish Government in procedure and of a general power of self- support of its argument — that pursuant to regulation, manifested here by the admin- Article 90 of the Ley General Tributaria the istration's power to revoke invalid admin- departments responsible for financial istrative acts even where no express request administration are organised in such a has been submitted by the individual con- way that the management, calculation and cerned. Obviously no such power could be collection of taxes are handled by a body conferred on a genuine court, whose role is officially quite separate from the body traditionally limited by the principle that responsible for the adjudication of disputes the 'ruling' made must reflect the 'remedy' concerning the management of fiscal sought. affairs. Far from confirming that the Tri- bunales should be regarded as courts or tribunals, the Spanish Government's asser- tion that they are independent in terms of Organisation and function' from the bodies responsible for fiscal management simply confirms the impression that they are, in fact, a branch of the administration with the specific task of determining whether measures adopted by the management bodies are lawful.

in principle always open to appeal before important or which involve large sums, and the administrative courts 14 (whether imme- refer them to the Finance Minister. Given diately or after the Tribunal Central has that the Tribunal Económico-Administra- made a ruling); thus the reclamación eco- tivo Central is the body to which taxable nómico-administrativa serves the purpose, persons may appeal against decisions of the typical of administrative actions, of local Tribunales, it seems clear that the enabling the administrative authority to whole mechanism for dealing with eco- hand down its own final decision after nomic-administrative complaints is condi- hearing the views of the individuals con- tioned by the executive's ability, conferred

t h a n j u d i c i a l . F u r t h e r m o r e , Arti- be considered as a court or tribunal 17 — cle 4(1)(3)(a) of Legislative Decree does not arise in the present case. As I No 2795/1980 provides that the Tribunal pointed out above, decisions taken by the Económico-Administrativo Central may Tribunales Económico-Administrativos are decline cases which it considers particularly in any event subject to appeal before the administrative courts. Ultimately, it will be for those courts to appraise the need for a preliminary ruling from the Court of Jus- 14 —Article 40 of Real Decreto Legislativo No 2795/1980; Article 4(2) RPEA. tice, thus securing the intervention of the 15 — It is significant that the Spanish Government itself acknowledges, at the beginning of its written pleadings, that 'it is a privilege of the public administrative autho- rities that they may review measures on administrative 16 — Case 246/80 Broekmeulen [1981] ECR 2311. appeal; this is recognised as a general principle of public law, which makes provision for such a remedy in the form 17 — The Court emphasised on that occasion 'the absence, in of a pre-litigation procedure, thus giving the administra- practice, of any right of appeal to the ordinary courts .

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Court and confirming the right of indivi- Tribunal Económico-Administrativo duals to obtain proper judicial review. 18 Regional de Cataluña.

20. Lastly, I consider that the conclusion I have just reached is not invalidated by the Substance fact that in Diversinte and Iberlacta 19 the Court answered a question referred by the Tribunal Económico-Administrativo Cen- tral, Madrid, without considering whether the latter was a 'court or tribunal' within 22. If, contrary to my first proposal, the the meaning of Article 177 of the EC Court should regard the Tribunal as a Treaty. In my view, that cannot be accorded 'court or tribunal' within the meaning of the authority of precedent since the Court Article 177 of the Treaty, the substance of did not touch upon the issue of admissi- the question referred for a preliminary bility at all. The question whether the ruling would have to be considered. The referring body was a court or tribunal had following observations bear on that aspect not been raised by any of the parties of the case. involved in the case, including the Com- mission and the intervening governments. Consequently, the judgment in that case does not preclude the Court from apprais- ing, in the light of the relevant legislation, the rules governing the constitution and 23. It will be recalled that the question modus operandi of the Tribunales Económ- essentially concerns the compatibility with ico-Administrativos, in order to determine the Sixth VAT Directive of the Spanish whether they may be regarded as courts or legislation on the deduction of VAT paid by tribunals for the purposes of Article 177 of a taxable person in respect of expenditure the Treaty. incurred before the actual commencement of business or professional activities. This predicates exercise of the right to deduct upon fulfilment of two conditions, namely submission of an appropriate declaration and commencement of activities within one 21. In the light of the foregoing considera- year thereafter. tions, I suggest that the Court dismiss as inadmissible the reference made by the

the fundamental principle that VAT should 25. This issue was first raised before the be neutral, preclude a Member State from Court in Rompelman, a case in which it imposing conditions or limits, as provided was sought to determine whether the for by the Spanish legislation at issue, on acquisition of a right to the future transfer the right to deduct tax paid by a taxable of property rights in part of a building yet person. to be constructed, with a view to letting such premises in due course, could be regarded as an 'economic activity' within the meaning of Article 4(1) of the Direc- tive. After rehearsing the characteristics of the VAT system, with particular emphasis on its guiding principle — the principle of neutrality — as well as the rules governing Sufficient grounds for that conclusion may deduction and the concept of a taxable be gleaned from an analysis of the Court's person, the Court held that 'the deduction case-law on the classification of prepara- system is meant to relieve the trader tory activities as 'economic activities' entirely of the burden of the VAT payable within the meaning of Article 4 of the or paid in the course of all his economic Directive. That provision, which comes activities; [t]he common system of VAT under Title IV of the Directive, under the therefore ensures that all economic activ- heading of 'Taxable persons', states: ities, whatever their purpose or results, provided that they are themselves subject to VAT, are taxed in a wholly neutral way'. 20

broad interpretation of the concept of tation of immovable property, a financial 'economic activity' for the purposes of charge will encumber the property during Article 4 of the Directive, encompassing the period, which may sometimes be con- acts ancillary to the pursuit of the commer- siderable, between the first investment cial or professional activity itself. expenditure and the commencement of exploitation; [a]nyone who carries out such investment transactions which are closely connected with and necessary for the future exploitation of immovable property must After pointing out that 'it is not necessary therefore be regarded as a taxable person to distinguish the various legal forms which within the meaning of Article 4'. 23 such preparatory acts may take', the Court added that 'the principle that VAT should be neutral as regards the tax burden on a business requires that the first investment expenditure incurred for the purposes of and with a view to commencing a business must be regarded as an economic activity; 28. The conclusion reached in Rompelman, [i]t would be contrary to that principle if that the concept of 'economic activities' such an activity did not commence until the also covers preparatory activities, ancillary property was actually exploited, that is to to the primary activity, was subsequently say until it began to yield taxable confirmed. In Lennartz, the Court was income'. 22 The Court explained that any asked inter alia to determine whether it is other interpretation would burden the sufficient, for the application of the rules trader with the cost of VAT without allow- laid down in Article 20(2) for the adjust- ing him to deduct it in accordance with ment of input tax, for a person to acquire Article 17 of the Directive and would goods as a taxable person or whether there create an arbitrary distinction between must be immediate use of the goods for the investment expenditure incurred before purposes of economic activities.

. . . Article 4 does not preclude the revenue authorities from requiring the declared intention on preparatory transactions is refunded to be supported by objective evidence such as proof that after the commencement of actual exploi- the premises which it is proposed to construct are specifically suited to commercial exploitation'. It should be noted that, on that occasion, the expenditure had been incurred by natural persons with a view to commencing a commercial activity, namely the letting of a property. 22 — Ibid., paragraph 23. 24 — Case C-97/90 Lennartz [1991] ECR I-3795, paragraph 14.

to say that, consequently, 'it is the acquisi- where the tax authority has accepted that a tion of the goods by a taxable person acting company has the status of a taxable person as such that gives rise to the application of for the purposes of VAT, tax paid in respect the VAT system and therefore of the of such preparatory activities 'may in deduction mechanism; [t]he use to which principle be deducted in accordance with the goods are put, or intended to be put, Article 17 of the Directive'. 27 Since the merely determines the extent of the initial deduction relates to 'economic activities', deduction to which the taxable person is entitlement to it is retained even if the entitled under Article 17 and the extent of shareholders in the company in question any adjustments in the course of the subsequently decide not to move to the following periods'. Accordingly, the Court operational phase but to put the company concluded that the immediate use of the into liquidation, with the result that the goods for taxable or exempt supplies does economic activity envisaged has never not in itself constitute a condition for the given rise to taxable transactions. The application of the provision on the right to Court added that any other interpretation adjustment of deductions. 'would, moreover, be contrary to the prin- ciple that VAT should be neutral as regards the tax burden on a business; [i]t would be liable to create, as regards the tax treatment of the same investment activities, unjusti- fied differences between businesses already carrying out taxable transactions and other businesses seeking by investment to com- 29. The subsequent judgment in INZO 25 mence activities which will in future be a is extremely interesting in this connection. source of taxable transactions; [l]ikewise, The issue to be determined on that occasion arbitrary differences would be established was whether the first investment expendi- between the latter businesses, in that final ture — in particular, expenditure on feasi- acceptance of the deductions would depend bility studies — incurred by a taxable on whether or not the investment resulted person with a view to carrying out com- in taxable transactions'. mercial transactions in the future should be regarded as 'economic activities' within the meaning of Article 4 of the Directive even where the transactions, following an assess- ment of their profitability in the light of research, were in fact never carried out. Referring to the principles established in Rompelman, the Court again emphasised that 'the first investment expenditure incur- 30. Ultimately, what the Court sought to red for the purposes of a business may be establish in the judgments referred to above regarded as an economic activity within the was that the concept of 'economic activ- meaning of Article 4 of the Directive' and ities' for the purposes of the Directive also that 'in that context, the tax authority must includes activities prior and ancillary to take into account the declared intention of those that directly constitute the commer- the business'. 2 6 It follows, therefore, that cial or professional activity. Consequently, they must in principle be treated in the

same way for tax purposes. The right to on the question raised in the present case. deduct referred to in Article 17 must be Here, too, the right to deduct is deter- extended to expenditure incurred in respect mined — and sometimes refused — on the of 'preparatory' or ancillary activities, such basis, not of a substantive assessment of the as the acquisition of immovable property or conduct of the taxable person, but of a land, provided that such activities are general rule under which the term 'eco- carried out by a person recognised as a nomic activity' applies only to the actual taxable person by the authorities. More- transactions that constitute the primary over, as Article 17(1) clearly states, the professional or business activity. Ancillary right to deduct arises immediately or, to be transactions connected with those activities precise, 'at the time when the deductible qualify for deduction only if they are tax becomes chargeable'. followed by 'economic activities' as thus defined and provided that they meet certain formal requirements laid down by law. In my view, such a system is in flagrant breach of the Directive as interpreted by the Court. Of course, as the Court made clear in Rompelman 28 and INZO, 29 that does not preclude the tax authority from requiring objective evidence in support of a declared intention to commence economic activities. Obviously, in cases of fraud or abuse in which the person concerned, on the pretext of intending to pursue a particular eco- 32. That said, it remains to be determined nomic activity, in fact seeks to acquire as whether the measures adopted by the his private assets goods in respect of which Spanish legislature may nevertheless be a deduction could be made, the tax author- justified on the ground that they are ity may claim repayment of the sums designed to prevent the defrauding of the retroactively on the ground that those public purse. In that connection, it should deductions were made on the basis of false be recalled that Article 22(8) of the Direc- declarations. However, in that case, of tive allows Member States to impose other course, there is a substantive assessment obligations which they deem necessary for of the actual conduct of the taxable person, the correct levying and collection of the tax based on the undisputed assumption that and for the prevention of fraud. the right to deduct arises, under Article 17 of the Directive, at the time when the deductible tax becomes chargeable.

tax authorities to retain, as a protective I repeat, falls to be classed as an 'economic measure, refundable amounts of VAT where activity' under the Directive. there were grounds for a presumption of tax evasion, the Court held that this must be considered in the light of the principle of proportionality. 31 It stated that, conse- quently, 'the Member States must employ means which, whilst enabling them effec- tively to attain the objective pursued by their domestic laws, are the least detrimen- tal to the objectives and the principles laid 34. Moreover, my negative findings in down by the relevant Community legisla- respect of the requirements imposed by tion; [a]ccordingly, whilst it is legitimate Spanish legislation are unaffected by the for the measures adopted by the Member fact that this allows the tax authorities to States to seek to preserve the rights of the extend the one-year time-limit prescribed Treasury as effectively as possible, they by Article 111(1) of Law No 37/92 where must not go further than is necessary for warranted by the nature of the activities to that purpose; [t]hey may not therefore be be carried on in the future or by the used in such a way that they would have circumstances surrounding the commence- the effect of systematically undermining the ment of the activities. Clearly, if the pre- right to deduct VAT, which is a fundamen- paratory activities are fully covered by the tal principle of the common system of VAT concept of 'economic activities' within the established by the relevant Community meaning of Article 4 of the Directive, the legislation'. right to deduct tax paid in respect of expenditure incurred in connection with those activities cannot be made conditional upon discretionary decisions taken by the authorities.

In the alternative, I propose that the Court reply to the question as follows:

Article 17 of 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 must be interpreted as precluding a national measure which

— makes exercise of the right to deduct VAT paid before taxable transactions commence on a regular basis conditional upon fulfilment of the requirements that

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(a) an express request to that effect be submitted before the tax becomes chargeable;