C-400/98

1. The Bundesfinanzhof (Federal Finance I. Facts and main proceedings Court, Germany) has referred to the Court for a preliminary ruling two questions concerning the interpretation of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover 3. In 1989, Mrs Breitsohl applied to a car taxes — Common system of value added manufacturer for a dealership. By letter of tax: uniform basis of assessment 1(herein- 14 April 1989, the latter informed her that after the 'Sixth Directive'). her application had been accepted subject to certain conditions. In February 1990, Mrs Breitsohl gave notice of the com- mencement of a business for the 'sale and repair of motor vehicles' and acquired for the sum of DEM 62 670 (without VAT) a vacant plot of land on which the business notified was to be conducted. In April 1990, she commissioned a building com- pany to build a workshop on that plot. By the middle of May, the excavations were 2. The first of these two questions concerns complete, the foundations were laid and whether a right to deduct Value Added Tax part of the floor slab was finished. Pay- (hereinafter 'VAT') on 'setting up' expendi- ments amounting to DEM 173 655.50 were ture exists where, at the time the first tax due for the work. assessment is made, the tax authority is already aware that the economic activity leading to taxable transactions will not be taken up. If the answer is in the affirmative, the national court also wishes to know whether, in the case of a supply of buildings or parts thereof and of the land on which they stand, the option for taxation can be 4. At the planning stage, the total cost of restricted to the buildings and parts thereof. the building works was estimated at DEM 1 400 000. When it became apparent that the price was likely to rise by a further * Original language: Spanish. DEM 230 000, the bank was not prepared 1 — OJ 1977 L 145, p. 1. The wording of this repeatedly to finance the additional cost. At the end of amended directive shows how right F. Pérez Royo was when May 1990, the building company stopped he observed that 'studying value added tax is almost as painful as having to pay it' (Foreword to the book by work because of the uncertainty surround- Ramirez Gómez, S., El Impuesto sobre el Valor Añadido, Civitas, Madrid, 1994). ing the financing.

6. In her annual VAT return for 1990, Mrs Breitsohl declared as taxable transactions the sale of the parts of the building (basis of assessment: DEM 43 859). She claimed DEM 13 900.11 as deductible payments of input tax (lawyers' and tax accountants' fees and building accounts). All this 9. Mrs Breitsohl then brought an action resulted in a surplus in her favour of before the Finanzgericht (Finance Court), DEM 7 759.90. 2In her preliminary returns which was successful on most counts. she had not claimed the deductions of input Referring to the judgment of the Court in tax. the INZO case, 4the Finanzgericht held that Mrs Breitsohl had already been engaged in trading by reason of the pre- paratory acts and had therefore been enti- tled to deduct the amounts of tax charged in the building accounts. It also held that Mrs Breitsohl could have opted to waive the tax exemption on the supply of the property, limited to the separable part of 7. In its tax notice, the Finanzamt Goslar those building works which had been (Tax Office, Goslar) initially took account completed (excavations, foundations, of deductible payments of input tax floor). The right to deduct tax could be amounting only to DEM 95.20, on the refused only in relation to the notary's fees, grounds that the transactions to which which concerned the sale of the land. those payments related were for the pur-

3 — The difference (to within a few pfennigs) between the 2 — The difference (to within a few pfennigs) between the deductible payments accepted by the tax office and the VAT payments deductible and the VAT on the selling price of the on the selling price of the parts of the building. parts of the building. 4 — Case C-110/94 INZO v Belgian State [1996] ECR I-857.

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III. Observations submitted during the 14. Article 4 of the Sixth Directive defines referral proceedings what is meant by a taxable person:

12. The German and Greek Governments and the Commission submitted written observations within the time-limit pre- scribed by Article 20 of the EC Statute of '1. "Taxable person" shall mean any per- the Court of Justice. son who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.

IV. First question referred for a preliminary ruling 2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions.' A. The Community provisions applicable

13. According to Article 2 of the Sixth Directive: 15. Article 17 of the Sixth Directive lays down the rules relating to the origin and scope of the right to deduct:

17. According to Paragraph 15(1) of the UStG:

5

'A trader may deduct the following taxes:

B. The national regulations 1. Taxes separately stated in invoices, within the meaning of paragraph 14, in respect of supplies of goods or other 16. Under Paragraph 2(1) of the UStG: services performed for his business by other businesses'.

'A trader is anyone a person who indepen- dently carries out an industrial, commercial or occupational activity. The undertaking comprises the whole of the industrial, C. Brief review of the case-law

5 _ Version of Article 17 of the Sixth Directive in force at the material time. Paragraph 2 was subsequently amended by Article 1(22) of Council Directive 91/680/EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388/EEC with a 18. On several occasions, decisions of the view to the abolition of fiscal Frontiers (OJ 1991 L 376, p. 1) and by Article 1(10) of Council Directive 95/7/EC of Court of Justice have confirmed the right to 10 April 1995 amending Directive 77/388/EEC and intro- deduct VAT on preparatory transactions ducing new simplification measures with regard to value addea tax — scope of certain exemptions and practical carried out for the purpose of pursuing a arrangements for implementing them (OJ 1995 L 102, taxable economic activity. p. 18).

19. In the Rompelman case, 6the Court property and expenditure incurred during was asked whether someone who had exploitation. 7 acquired the future title to business pre- mises under construction with a view to letting such premises and effecting taxable supplies and services was acting, during the preparatory stage, as a taxable person with the right to deduct VAT. 21. A few years later, within the context of an action under Article 169, 8the Court again stressed the importance of the right to deduct and declared that: 'in the absence of any provision empowering the Member States to limit the right of deduction granted to taxable persons, that right must be exercised immediately in respect of all the taxes charged on transactions relating to inputs. Such limitations on the right of deduction have an impact on the level of the tax burden and must be applied in a 20. The Court concluded that the deduc- similar manner in all the Member States. tion system was meant to relieve the trader Consequently, derogations are permitted entirely of the burden of the VAT payable only in the cases expressly provided for in or paid in the course of all his economic the directive'. 9 activities. The common system of value added tax therefore ensured that all eco- nomic activities, whatever their purpose or results, provided that they were themselves subject to VAT, were taxed in a wholly neutral way. In the same judgment the Court held that the economic activities 22. As early as 1991, the Court had held 10 referred to in Article 4(1) might consist in that 'pursuant to Article 17(1) of the Sixth several consecutive transactions and that Directive, which is entitled "Origin and the preparatory acts, such as the acquisition scope of the right to deduct", the right to of assets and therefore the purchase of deduct arises at the time when the deduc- immovable property, must themselves be tible tax becomes chargeable. Conse- treated as constituting economic activity. quently, only the capacity in which a person Any other interpretation of Article 4 of the is acting at that time can determine the Sixth Directive would burden the trader existence of the right to deduct. By virtue of with the cost of VAT in the course of his Article 17(2), in so far as a taxable person, economic activity without allowing him to acting as such, uses the goods for the deduct it in accordance with Article 17 and purposes of his taxable transactions, he is would create an arbitrary distinction entitled to deduct the tax due or paid in between investment expenditure incurred before actual exploitation of immovable 7 — Paragraphs 19, 22 and 23. 8 — Case 50/87 Commission v France [1988] ECR 4797. 9 — Paragraphs 16 and 17. 6 — Case 268/83 Rompelman v Minister van Financiën [1985] 10 — Case C-97/90 Lennartz v Finanzamt München [1991] ECR ECR 655. I-3795.

23. In the INZO judgment, 12 the scope of which will need to be determined in the present case, the Court had to decide (a) The principle of legal certainty, accord- whether its findings in the Rompelman ing to which the rights and obligations case also applied when the envisaged of taxable persons should not depend economic activity for which investment on facts, circumstances or events which expenditure had been incurred was not occurred after the tax authority made a finally taken up. finding in respect of those rights and obligations. It follows that, once the tax authority has accepted, on the basis of information provided by a business, that it should be accorded the status of a taxable person, that status cannot, in 24. The Court held that such investment principle, subsequently be withdrawn expenditure should be regarded as 'eco- retroactively on account of the fact that nomic activities' for the purposes of the certain events have or have not occur- Sixth Directive and concluded that, where red. the tax authority had accepted that a company which had declared its intention to begin an economic activity giving rise to taxable transactions had the status of a taxable person for the purposes of VAT, the carrying out of a study into the technical (b) The principle of neutrality of VAT as and economic aspects of the activity envi- regards the tax burden on a business. saged might be regarded as an economic According to the Court, any other activity within the meaning of Article 4 of interpretation of the directive would the directive. It added that VAT paid in be liable to create, as regards the tax respect of such a profitability study might treatment of the same investment activ- in principle be deducted in accordance with ities, unjustified differences between

26. The Court added that it was for the person applying to deduct VAT to show 28. In the view of the German and Greek that the conditions for deduction were met, Governments, the Court's decision handed and that Article 4 did not preclude the tax down in the INZO judgment is not applic- authority from requiring objective evidence able in the present case. They consider that in support of the declared intention to that judgment is based on the principle of commence economic activities which legal certainty, according to which the would give rise to taxable transactions. 15 rights and obligations of taxable persons should not depend on circumstances arising after they have been accorded the status of a taxable person by the tax authority. In the present instance, contrary to what hap- pened in the INZO case, the tax authority had not yet accorded the status of taxable 27. The Court arrived at the same conclu- person to Mrs Breitsohl when she lodged sion in its judgment in Ghent Coal Term- her VAT return. Accordingly, she cannot inal. 16 In that judgment, it stated that rely upon the principle of protection of a Article 17 of the Sixth Directive must be legitimate expectation of being able to construed as allowing a taxable person deduct VAT. acting as such to deduct the VAT payable by him on goods or services supplied to him for the purpose of investment work inten- ded to be used in connection with taxable transactions. The right to deduct remained acquired where, by reason of circumstances beyond his control, the taxable person had 29. Both governments also consider that never made use of those goods or services there was no breach of the principle of VAT for the purpose of carrying out taxable neutrality. That principle, they submit, applies only when taxable transactions are effected, which was not the case since Mrs 15 — Paragraph 23. 16 — Case C-37/95 Belgian Stale v Ghent Coal Terminal [1998] ECR I-1. 17 — Paragraph 24.

31. According to the Commission, the status of taxable person is acquired ipso jure simply as a result of carrying out an economic activity. If that activity never 34. Thus, the directive establishes a direct reaches the operational stage and remains link between the concept of chargeable in the preparatory phase, the determining event and that of taxable person and the factor is, in accordance with the INZO execution of the taxable transaction defines judgment, the existence, during that pre- the precise moment at which the chargeable paratory phase, of an intention to arrive at event and the taxable person make their the operational stage and, hence, to effect taxable transactions. The Commission claims that that intention does not have to 18 — As the Court pointed out in its judgment of 5 May 1982 in be declared immediately to the tax author- Case 15/81 Schul v Invoerrechten en Accijnzen [1992] ECR 1409, paragraphs 11 and 12, the Sixth Directive ity but, as in the present instance, can be harmonised the concepts of chargeable event, taxable expressed tacitly by incurring investment person, chargeability of tax and taxable amount. These concepts must be interpreted uniformly in the Member expenditure. States.

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20 — I have left aside the question of whether it was possible to separate the parts of the building from the land in opting for taxation, which is the subject of the second question referred for a preliminary ruling. 21 — Provided that the person concerned meets certain require- ments, in particular: (1) is a taxable person; (2) obtained 37. Nevertheless, it follows from the facts the goods or services for consideration in his capacity of taxatie person; and (3) has complied with the formalities set out in the order for reference that Mrs laid down in A r t i c l e18 of the Sixth Directive and fulfilled any obligations imposed by national law on the basis of Article 22(8) of the directive (see Joined Cases 123/87 and 330/87 Jeunehomme and Others v Belgian State [1988] ECR 4517; Case C-217/94 Eismann Atto Adige v Ufficio 19 — Frequent references to the link between the chargeable IVA di Bolzano [1996] ECR I-5287; Case C-85/95 event and the taxable person can be found in the legal Reisdorf v Finanzamt Köln-West [1996] ECR I-6257). literature. Thus, Sainz de Bujanda writes: 'the taxable With respect to the obligation upon Member States to person is the person w h o assumes liability with respect to observe the principle of proportionality in imposing these the fiscal obligation as the author of the chargeable event' formal requirements, see the judgment in Joined Cases (Sainz de Bujanda, F., Notas de Derecho financiero, tome I, C-286/94, C-340/95, C-401/95 and C-47/96 Molenheide vol. 2, Publicaciones de la Facultad de Derecho de Madrid, and Others v Belgian State [1997] ECR I-7281, together Madrid, 1967, p. 608, quoted by Menéndez Moreno, A., with the Opinion of M r Advocate General Saggio in Joined Comentarios a la Ley General Tributaria y líneas para su Cases C-110/98 to C-147/98 Cabalfrisa and Others v reforma — Homenaje a Fernando Sainz de Bujanda, AEAT [2000) ECR I-1577, at page I-1579, paragraphs 32 Instituto de Estudios Fiscales, Madrid, 1991, p. 502). and 33).

42. Instead, Mrs Breitsohl waited for her annual return to exercise her right of deduction, by which time the tax authority was already aware that the economic 46. On the other hand, the German Gov- activity envisaged could not be taken up. ernment barely mentions the other princi- That, however, has no bearing on the above ple on which the Court based its INZO analysis. Mrs Breitsohl was a taxable judgment, namely, the principle of VAT person for the purposes of VAT and, in neutrality. 23 In INZO, the Court stated accordance with the national regulations that that principle forbade the creation, as applicable, she was entitled, if she so regards the tax treatment of the same wished, to wait until the end of the year to exercise her right of deduction. 23 — The German Government merely asserts that, as the tax authority had not accorded Mrs Breitsohl the status of a taxable person, she had not acquired that status and therefore could not carry out taxable economic activities, 22 — This article lays down the procedural rules for the fiscal with the result that, according to the German Government, management of VAT. the principle of tax neutrality was not applicable.

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47. It is my opinion that, a fortiori, the same principle prohibits any discrimination with respect to those latter businesses based on the time at which they requested the deduction of tax — before or after it became apparent that the economic activity 50. I share the German Government's con- envisaged was not going to materialise — cern with regard to the risk of tax fraud. or on whether or not the tax authority had Nevertheless, the Member States are not formally accorded them the status of a devoid of means of providing against and taxable person at the time at which they combating such fraud. In that connection, asked for VAT to be deducted. it may be appropriate to recall, firstly, that Articles 18 and 22 of the Sixth Directive require the taxable person to comply with a series of formalities — statements, invoices and accounts — and that these formalities can be supplemented by additional mea- sures that Member States deem it necessary 48. As the principle of neutrality is one of to adopt in order to ensure that the tax is the pillars of the VAT system, it would be properly collected and fraud prevented. 24 impossible to accept a solution that was Secondly, Member States have broad dis- contrary to its requirements and not based cretion to decide, in each specific case, on an express provision of Community law. what is the actual intention of the person concerned. Finally, in the event of fraud or

24 — According to Anicie 22(8), in the version introduced by Article 28(h) of Directive 91/680, cited in footnote 5 above, Member States may impose other obligations which they deem necessary for the correct collection of the tax 49. This analysis would not be complete if I and for the prevention of evasion, subject to the require- ment of equal treatment for domestic transactions and failed to examine the German Govern- transactions carried out between Member States by ment's contention that giving a reply to taxable persons and provided that such obligations do not, in trade between Member States, give rise to the first question other than the one which formalities connected with the crossing of frontiers.

52. In accordance with Article 28(3) of the Sixth Directive:

25 — In the Ghent Coal Terminal NV judgment, the Court held that: '... in cases of fraud or abuse, in which the person 53. Annex F, point 16 covers 'supplies of concerned, on the pretext of intending to pursue a those buildings and land described in particular economic activity, in fact sought to acquire as his private assets goods in respect of which a deduction Article 4(3)'. could be made, the tax authority may claim repayment of the sums retroactively on the ground that those deductions were made on the basis of false declarations' (judgment cited in footnote 16, paragraph 21). In German law, this possibility is provided for in Article 164 of the Abgabe- 26 — The transitional period was initially fixed at five years as nordnung (Tax Code), according to which the tax notice is from 1 January 1978. Nevertheless, it must be considered issued without prejudice to any subsequent verification to have been extended indefinitely since the Council has and the taxpayer must be informed that the notice is still to take a decision on the possible abolition of these provisional and subject to change. derogations.

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54. Under Article 4(3) of the Sixth Direc- (b) the supply of building land. tive:

"Building land" shall mean any unim- proved or improved land defined as '3. Member States may also treat as a such by the Member States.' taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in paragraph 2 and in particular one of the following: 55. Annex G, point 1, reads as follows:

However, in the latter case, Member States may waive the requirement for adjustment in so far as the purchaser is a taxable person using the capital goods in question solely for transactions in respect of which value added tax is deductible. ' 1 . A trader may treat a supply exempted under Paragraph 4... (9) as taxable where the supply is made to another trader for the purposes of his business.'

B. The national regulations

57. According to Paragraph 4 of the UStG:

C. Observations of the parties

'Among the transactions referred to in Article 1(1), points 1 to 3, the following shall be exempt from VAT:

59. The German Government points out, firstly, that the Federal Republic of Ger- many has made use of the power conferred upon it by Article 13 C of the Sixth Directive to allow its taxpayers a right of option for taxation on the supply of judgment not on the server buildings and the land on which they stand.

61. The Commission observes that the exemption granted under German law is not based on Article 13 B(g) of the Sixth Directive but on Article 28(3)(b), read in conjunction with Annex F, point 16, and Article 4(3), adding that the right of option is not based on Article 13 C but on 64. The parts of buildings supplied in the Article 28(3)(c), read in conjunction with present case were supplied before first Annex G, point 1(b), of the Sixth Directive. occupation. Thus, the exemption and the The Commission deduces from these pro- right of option can only be based on visions that a supply of buildings or parts Article 28(3)(b), read in conjunction with thereof and the land on which they stand Annex F, point 16, and Article 4(3), as the can only be exempted from tax in its totality. The same applies to the right of option for taxation. 27 — Emphasis added.

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referring court rightly points out and stand' 28 accorded to Member States in the contrary to what the German Government second part of the first sentence of Arti- contends in its observations. cle 4(3)(a) of the Sixth Directive, this legal concept must be interpreted uniformly in all the Member States; otherwise the pur- pose of the directive, namely 'to determine the basis of assessment of value added tax in a uniform manner according to Com- 65. This point having been clarified, I can munity rules', could not be achieved. 29 now go on to examine the actual question referred for a preliminary ruling.

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portion of the hotel used for private 74. In that respect, the Armbrecht judg- purposes. ment clearly sets a precedent for the present case. The fact that, as the Bundesfinanzhof has stressed, a building and the land on which it stands are inseparable under Ger- man civil law (Articles 93 and 94 of the Civil Code) and cannot be the object of 72. In its observations on the Armbrecht separate rights does not mean that, for the case, the German Government pointed out application of VAT, the land and the that Mr Armbrecht's property formed a building cannot be treated differently, pro- single entity in German civil law and was vided, of course, that the correct applica- entered as such in the land register. It tion of the Sixth Directive requires that therefore considered that it should be they be separated. treated as a single entity for the application of the Directive.

77. There can be no doubt that in the present case the situation is different..

81. The Netherlands Government had con- tended that the construction of a dwelling on land made available to the undertaking 78. Thus, the property sold by Mrs Breit- for that purpose gave rise, for the purposes sohl, which consisted of parts of a building of turnover tax, to a new unit of real estate and the land on which they stood, was comprising the building and the surround- always used for business purposes. Accord- ing land. Consequently, it was that unit ingly, it was never put to any private use resulting, in that form, from the pursuit of that might have justified an apportionment the taxable person's business activity that along the lines of the Armbrecht judgment. the latter had applied for his private use. Both the sale of the land and the sale of the parts of the building were effected by a taxable person acting as such.

84. Firstly, in De Jong, the person con- cerned acquired the land for private pur- 88. My analysis of the provisions of the poses whereas, as already pointed out, Mrs Sixth Directive dealing with the taxation of Breitsohl acquired hers in order to pursue a supplies of immovable property confirms business activity. Secondly, in De Jong, the this interpretation. dwelling was built by the company of the person concerned, who intended to occupy it himself, whereas Mrs Breitsohl entrusted the construction of the building to a third party and that building was to be used for taxable activities. 89. Thus, the Sixth Directive makes a distinction between land which has not been built on, building land and land which has been built on:

85. I therefore conclude that the reply to the Bundesfinanzhofs question cannot be found in the case-law of the Court but must — supplies of land which has not been be sought directly in the provisions of the built on other than building land are Sixth Directive. exempt from VAT, although Member States may allow taxpayers a right of option for taxation; 36

35 — Thus, in the Spanish version: 'la entrega anterior a su 86. The Commission, basing its argument primera ocupación de edificios o partes de edificios y de la porción de terreno sobre la que éstos se levanten'; in the on a literal interpretation of Article 4(3)(a), English version: 'the supply before first occupation of buildings or parts of buildings and the land on which they concludes that this provision concerns the stand'; in the German version: 'die Lieferung von Gebäu- supply of a unit of real estate inseparably den order Gebäudeteilen und dem dazugehörigen Grund und Boden, wenn sie vor dem Erstbezug erfolgt'; and in the Italian version: 'la cessione, effettuata anteriormente alla rima occupazione, di un fabbricato o di una frazione di Efabbricato e del suolo attiguo' (emphasis added). 34 — Paragraphs 19 and 20. 36 — Article 13 B(h) and Article 13 C(b).

(b) subsequent supplies of buildings or parts thereof and of the land on which 39 — Article 13 B(g) and Article 13 C(b). 40 — My analysis is restricted to legal acts relevant to the present case, that is to say, to the transfer of the right of ownership in the developed land. 37 — Article 28(3)(b), read in conjunction with Article 4(3)(b) 41 — As already noted in connection with the Armbrecht and De and Annex F, point 16, and Article 28(3)(c), read in Jong judgments, I refer here to the situation in which both conjunction with Annex G, point 1(b). the building and the land are supplied by a taxable person acting as such, as in the present case. 38 — Article 28(3)(b), read in conjunction with Article 4(3)(a) and Annex F, point 16, and Article 28(3)(c), read in 42 — Case 73/85 Kerrutt v Finanzamt Mönchengladbach-Mitte conjunction with Annex G, point 1(b). [1986] ECR 2219.

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cle 2(1) of the Sixth Directive, or whether stand" that such a single transaction can be they qualified for the exemptions in respect said to have taken place only where the two of the 'supply of buildings or parts thereof categories of goods supplied, namely the and the land on which they stand' provided building and the land, are, for the purposes for in Article 13 B(g) and Article 28(3)(b), of the law governing the sale of property, in conjunction with point 16 of Annex F to the subject of a single delivery inasmuch as the Sixth Directive. the delivery is of land which has been built on.' 43

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the supply before first occupation of a ber States may restrict the scope of this building and the land on which it stood. right of option and shall fix the details of its There is no relation between this problem use' and goes on to assert that the directive and that which confronts us in the present does not prevent national regulations from case. Nevertheless, it seems to me that the limiting the right of option to the building expressions 'single transaction' and 'single or to the land. delivery' used by the Court in referring to the legal concept now at issue confirm the interpretation that I propose.

98. First of all, I should point out that this assertion has no bearing on the present case. The Federal Republic of Germany has made no use of any such supposed author- ity to limit the right of option in the way suggested.

101. To return to the present case, Mrs Breitsohl had a choice between (1) claiming total exemption for the transaction or (2) exercising the right of option for taxation 104. As pointed out by the Bundesfinanz- of the supply of immovable property com- hof in its order for reference, this might prising the parts of the building and the have led to double taxation. land.

105. In its reply to a question put to it by 102. If Mrs Breitsohl had opted for total the Court, the Commission acknowledged exemption, she would have had to adjust the existence of this risk, which it explained her deductions under the terms of Arti- as follows: cle 20(3) of the Sixth Directive and use the simplified adjustment procedure laid down in Paragraph 15(a), subparagraph 5, of the UStG. 45

— A sells to B, free of VAT, a plot of undeveloped land whose price includes VAT previously paid in connection 103. If, on the other hand, Mrs Breitsohl with certain excavation work. had opted for taxation of the supply of

46 — According to Article 11 A(1): 'The taxable amount shall be: (a) in respect of supplies of goods and services other 45 — Under this article of the UStG, which was adopted on the than those referred to in (b), (c) and (d) below, everything basis of Article 20(4) of the Sixth Directive, the deduction which constitutes the consideration which has been or is to may also be adjusted upon disposal of the capital goods be obtained by the supplier from the purchaser, the item in the course of the calendar year in which it is first customer or a third party for such supplies including used. subsidies directly linked to the price of such supplies'

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the exemption is granted at an intermediate problem of double taxation which might stage, the risk of its leading to double arise in this case. Mrs Breitsohl cannot rely taxation is increased. on Article 28(3)(f) of the Sixth Directive since, as has been shown, she did not acquire the building land for the purpose of resale. 50 Nor, as I have already pointed out, is it possible to separate the value of the land from that of the building for the purpose of calculating the taxable amount. 108. Nevertheless, there is an important There is therefore a risk of double taxation, difference between the transactions men- which is incompatible with the principle of tioned by the Commission and first supplies neutrality. of immovable property. The Community legislature decided that, for reasons of general policy common to the Member States, 48 insurance transactions and finan- cial services should be exempt from VAT. On the other hand, under the system established by the Sixth Directive, the supply before first occupation of both building land and land which has been built on is subject to VAT. Member States 110. This is not the first time that the were allowed to continue exempting such Court has had to consider the risk of supplies or grant the right of option for double taxation without the Sixth Directive taxation only during a transitional period. being able to provide a solution. I am Accordingly, after that transitional period thinking of the case-law relating to the expires, there will no longer be any possi- application of VAT to second-hand goods bility of double taxation occurring in and, in particular, of the judgment in Oro connection with the first supply of immo- Amsterdam Beheer and Concerto. 51 vable property because the acquisition of building land will always be subject to VAT. 49

a Community taxation system to be applied of a gradual harmonisation of national to used goods, works of art, antiques and legislation pursuant to Articles 99 and 100 collectors' items. Until this Community of the Treaty. This harmonisation, as system becomes applicable, Member States brought about by successive directives and applying a special system to these items at in particular by the Sixth Directive, is still the time this Directive comes into force only partial. The harmonisation is designed may retain that system'. in particular to preclude double taxation, so that the deduction of input tax at each stage of taxation is an integral part of the system of VAT. That objective has not yet been achieved, however, as is clear from Article 32 of the Sixth Directive, and nowhere in the common system of value added tax, as it stands at present, are to be found the necessary bases for determining Twelve years after the time-limit indicated and laying down detailed rules for applying in that provision, a Community tax regime a common system of taxation enabling applicable to second-hand goods had still double taxation to be avoided in trade in not been adopted. second-hand goods'. 52

(1) Articles 4 and 17 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment are to be interpreted as meaning that the right to deduct VAT on transactions effected with a view to taking up a projected economic activity continues to exist even where the tax authority is already aware, when the first tax assessment is made, that the economic activity leading to taxable transactions will not be taken up.

(2) Article 4(3)(a) of the Sixth Directive should be interpreted as meaning that in the case of a supply of buildings or parts thereof and of the land on which they stand, the option for taxation must be exercised inseparably in respect of the immovable property as a whole, including both the buildings or parts thereof and the land on which they stand.

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