C-415/98

4. Article 4 defines what is meant by a taxable person. The first two paragraphs The Sixth VAT Directive state that '"Taxable person" shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity' and that 'The economic activities referred to in paragraph 2. The Sixth Directive on the harmonisa- 1 shall comprise all activities of producers, tion of the laws of the Member States traders and persons supplying services relating to turnover taxes provided for the including mining and agricultural activities completion of the introduction of VAT in and activities of the professions. The the European Community, defining in exploitation of tangible or intangible prop- erty for the purpose of obtaining income therefrom on a continuing basis shall also 1 — Original language: Italian. 2 — OJ 1977 L 145, p. 1. be considered an economic activity.'

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7. Article 10(1 )(a) defines a chargeable event as '.... the occurrence by virtue of (c) supplies of goods used wholly for an which the legal conditions necessary for tax activity exempted under this Article or to become chargeable are fulfilled.' under Article 28(3)(b) when these

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goods have not given rise to the right to cle 26a of the Sixth Directive) defines a deduction...'.3 'taxable dealer' as a taxable person who:

'in the course of his economic activity, purchases or acquires for the purposes of his undertaking, or imports with a view to 10. Concerning deductions, Article 17(1) resale, second-hand goods and/or works of establishes that 'The right to deduct shall art, collectors' items or antiques, whether arise at the time when the deductible tax that taxable person is acting for himself or becomes chargeable.' on behalf of another person pursuant to a contract under which commission is pay- able on purchase or sale.'

In addition, part B of that article provides: 11. Finally, Article 32, first paragraph, of the original version of the directive (repealed by Directive 94/5/EC) 4stated: 'The Council, acting unanimously on a proposal from the Commission, shall adopt '1. In respect of supplies of second-hand before 31 December 1977 a Community goods, works of art, collectors' items and taxation system to be applied to used antiques effected by taxable dealers, Mem- goods, works of art, antiques and collec- ber States shall apply special arrangements tors' items.' for taxing the profit margin made by the taxable dealer, in accordance with the following provisions.

12. The relevant German rules referred to in the main proceedings can be found in the Umsatzsteuergesetz (Law on Turnover 15. Following the sale, and on the basis of Taxes) (hereinafter 'the 1980 UStG'). the national provisions on turnover tax, the Under the first sentence of Paragraph German tax authorities, in the tax assess- 1(1 )(1) thereof, all supplies effected for ment for 1990, held that the disposal of the consideration by a trader in Germany in the vehicle was subject to VAT, identifying as course of his business are subject to VAT. the taxable amount the sale price (DEM Under the first sentence of Paragraph 10(1) 19 000) less the VAT contained therein of that Law, turnover is to be assessed on (DEM 2 334). The tax authorities accord- the basis of the consideration passing. ingly informed the appellant, by notice of assessment dated 24 May 1994, that pay- ment of the aforementioned tax was due.

16. The appellant appealed against that Facts of the case and questions referred for assessment through administrative chan- a preliminary ruling nels and, following the rejection of his appeal, brought an action before the Finanzgericht (Finance Court). It allowed the claim only in part, reducing the percen- tage for taxable value relating to the private 13. In 1990 the appellant was self- use of the vehicle by the amount of the employed as a haulage contractor. In that costs and expenses in respect of which the business he used a Mercedes 300 D motor appellant had been unable to deduct VAT.

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However, in principle, the Finanzgericht state that there are doubts as to whether considered that the disposal was taxable this possibility is compatible with the Sixth inasmuch as the appellant had, in 1989, Directive as interpreted by the case-law of claimed deduction of the VAT paid for the Court of Justice. repairs to the vehicle in question. Thus, according to the Finanzgericht, the appel- lant had expressed the wish to allocate it to his business.

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the right to deduction are not subject to the provisions of the Sixth VAT Directive, a tax, those applications do not include the taxable person can allocate goods used for case here under discussion. mixed purposes, or used partly for business and partly for private purposes, exclusively to his private assets.

20. Given that the solution to the dispute depends on the interpretation of the provi- sions of the Sixth Directive, the Bundesfi- nanzhof has therefore referred the follow- 22. According to the Commission there is ing questions to the Court for a preliminary no such possibility because, while acknowl- ruling: edging that the taxable person has the right to choose whether and in what proportion he may allocate goods to his personal assets or to the company, the Commission con- siders that such a choice is made through the use to which the goods are put. '(1) May a trader allocate goods used for Consequently, when the taxable person mixed purposes (business and non- uses the goods wholly or partly for business business) wholly to his private assets, purposes he is in fact choosing to allocate regardless of the extent to which they them to his business, whether in whole or are used in his business? in part.

24. First, it should be stated that in both wording of Article 6(2) of the Sixth Direc- the order for reference and the observations tive. 5 That article defines the system made by the parties it is clear that the first applicable to the private use of company question does not cast any doubt on the goods by the taxable person, and confirms principle by which a taxable person, when that, for the purposes of application of the he acquires goods, is free to choose whether Sixth Directive, the assets to which goods to allocate them to his private assets or to belong do not necessarily depend on the use his business. I do not believe that there can for which the goods are intended. be any doubt as to the existence of this freedom. It is true that the aforementioned question concerns the criteria to be fol- lowed to establish what the choice of the taxable person actually was. The reply to the referring court will be negative or positive according to whether one consid- ers, as the Commission does, that the use of the goods determines the assets to which they belong (thus excluding a priori the possibility that goods for mixed use can be 26. This solution is confirmed in the case- exclusively part of the private assets of the law of the Court, which states, in principle, trader) or, as the German Government that '... whether, in a particular case, a argues, that the fact that goods belong to taxable person has acquired goods for the particular assets is evidenced by factors purposes of his economic activity within other than the use of the goods, in parti- the meaning of Article 4 of the Sixth cular the exercise of the right to deduct Directive is a question of fact which must input tax (making it possible for a trader to be determined in the light of all the include goods which he uses for mixed circumstances of the case...'. 6It is hardly purposes in his own personal assets). necessary to add that this assessment is a matter for the national court, which has available all the necessary elements of fact. In addition, concerning more specifically goods used for mixed purposes, the Court has stated that a taxable person has the freedom to choose '... whether or not to integrate into his business for the purposes of applying the Directive, part of an asset which is given over to his private use' and that, consequently, '... capital goods used both for business and private purposes may 25. As a matter of principle, I agree with none the less be treated as business goods, the position taken by the German Govern- the VAT on which is in principle wholly ment. Nothing in the Sixth Directive sup- deductible.' 7 ports the argument of the Commission concerning the existence of a link between the use of goods and the assets to which 5 — See point 6 of this Opinion. they should be allocated. Rather, as the 6 — Case C-97/90 Lennartz [1991] ECR I-3795, paragraph 21. German Government also contended dur- Also see Case C-230/94 Enkler [1996] ECR 1-4517, ing the hearing, there is indirect evidence to paragraphs 26 to 29. 7 — Case C-291/92 Armbrecht [1995] ECR 1-2775, paragraph support the opposite argument in the 20.

It therefore seems to me that from the case- to be allocated, this is of particular impor- law, in particular the case just mentioned, it tance. is quite clear that, in the system of value added tax, there is no direct and necessary link between the use of goods and the assets to which they belong. As indicated by the referring court, it is true that the Court has never ruled specifically in a case involving goods for mixed use allocated wholly to the private assets of the trader, but I do not see As we know, the VAT system is character- any reason to exclude that possibility. ised by the fact that it is designed to tax final consumers and the main persons subject to the tax (that is, those who must comply with the formalities laid down by the legislation) are the taxable persons. In order to ensure that the system functions and, in particular, that taxable persons do not bear the burden while collecting and paying VAT, a mechanism of impositions and deductions was set up to make the tax 27. In the light of what has been considered 'neutral' with regard to them. In the up to now, and to reply more directly to the Community VAT system, therefore, the question put by the national court, I position of the taxable person differs from consider that there are no doubts as to the that of the final consumer inasmuch as only fact that the freedom of a taxable person to the former can make use of that mechan- choose the assets to which goods acquired ism. It follows that, when a person exer- are to be allocated means that he can decide cises his freedom of choice by allocating to allocate goods which he uses partly for goods to his business or to his own private business purposes wholly to his own pri- assets, he is at the same time choosing vate assets. whether to introduce the goods into the tax system, bringing them into the mechanism of impositions and deductions described above, or whether to act as a final con- sumer, thereby abandoning that system entirely. It seems to me, therefore, that the fact that a person exercises the right to deduct tax paid at the time of purchase of goods can be regarded as a perfectly good reason to consider that he has decided to 28. Once this is established, however, I allocate the goods to his business. believe that it is also appropriate to add some comments regarding the criterion, pointed out by the German Government, which relates to exercising the right to deduction. For reasons which I shall now explain, I believe that, among the various factors to be taken into account in inter- preting the conduct of the trader concern- Although in the case under discussion here ing the choice of assets to which goods are it was not possible to recover the VAT paid

32. The only provisions of the Sixth Direc- tive which state that taxation is subject to a previous deduction are in Article 5(6), The second question concerning the system of application, and Article 6(2), relating to the private use of goods for business purposes. 9 This is justified by the fact of being strictly used for the particular objective of these articles. 30. In its second question, the national As stated by the Court in relation to the court asks the Court of Justice whether the system of applications, but with reasoning disposal of goods intended by the trader for which can also be extended to the use of business use should be subject to VAT even business goods for private purposes, '...the if, at the time of purchase, it was not purpose of Article 5(6) of the Sixth Direc- possible to deduct VAT because the goods tive is to ensure equal treatment as between were purchased from a private individual a taxable person who applies goods form- not subject to that tax. Neither of the ing part of the assets of his business for parties disputes the fact that such liability gives rise to double taxation which is contrary to the principles of value added 8 — See point 3 of this Opinion. tax, in particular the principle of fiscal 9 — See points 5 and 6 respectively of this Opinion.

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10 — Case C-20/91 De Jong [1992] ECR I-2847, paragraph 15. 12 — See point 9 of this Opinion. Sec also Enkler, cited above, and Case C-48/97 Kuwait 13 — In this regard, sec Case C-45/95 Commission v Italy [1997] Petroleum [1999] ECR 1-2323, paragraph 21. For the ECR 1-3605, paragraph 15. extension to Article 6(2) of tile reasoning with regard to 14 —See, inter aha. Case C-2/95 SDC |1997| ECR 1-3017, Article 5(6), see in particular Case C-258/95 Fillibeck 11997) ECR I-5577, paragraph 25. paragraph 20, Case C-149/97 Institute of the Motor Industry [1998] ECR I-7053, paragraph 17, and Case 11 — See point 20 of this Opinion. C-216/97 Gregg [1999] ECR I-4947, paragraph 12.

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35. On the basis of the above arguments, the conclusion ought, in my view, to be drawn that, in the light of the rules set out in the Sixth Directive, the supply of goods by a taxable person who is acting as such, but not as a taxable dealer within the meaning of Article 26a of the Sixth Direc- tive, comes within the scope of Article 2(1) and is therefore taxable even if the goods 37. In the Oro Amsterdam case the Court supplied did not give rise to deduction as concluded that the double taxation affect- they were purchased from a private indivi- ing a trader who sold, a second-hand item dual. was unavoidable, as it could not be con- sidered that, in the absence of Community provisions, the State was obliged to pro- vide, in its own national legislation, a special system applicable to this type of goods. First of all the Court ruled that '... if the Council fails to adopt measures falling within the exclusive competence of the 36. There remains the fact that this situa- European Communities, there can be no tion gives rise to double taxation which, as fundamental objection in certain cases to stated by the Court, is '... contrary to the Member States' maintaining or introdu- principle of fiscal neutrality which is inher-

17 — Case 50/88 Kühne [1989] ECR 1925, paragraph 10. 15 — Cited above. 18 — Case C-165/88 Oro Amsterdam Beheer and Concerto 16 — As stated in particular in the fifth recital in the preamble to [1989] ECR 4081. Directive 94/5. 19 — See point 11 of this Opinion.

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cing, pursuant to the duty to cooperate is therefore necessary to continue to apply imposed on them by Article 5 of the Treaty Article 32 of the Sixth Directive, which [now Article 10 EC], national measures merely authorises Member States that designed to achieve Community objec- apply a special system of VAT to second- tives'; however, it went on to hold that hand goods to retain that system, but does 'no general principle requiring the Member not impose on them any obligation to States to act in the place of the Council introduce such a system if none exists.' 21 whenever it fails to adopt measures falling within its province can be inferred' from this. 20

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introduce into their own legislation on within the category of taxable dealers, value added tax provisions to exclude from within the meaning of Article 26a of the that tax the supply of second-hand goods Sixth Directive, in order to avoid double effected by a trader who does not fall taxation.

Conclusion

41. In view of the above considerations, I propose that the Court reply as follows to the questions referred by the Bundesfinanzhof:

(1) A trader can legitimately include in his own private assets goods intended for mixed use (that is, partly for business and partly for private purposes), irrespective of the respective percentages of the two types of use, provided that his conduct unequivocally indicates that he wishes to exclude the aforementioned goods entirely from the system of value added tax.