C-326/99

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8. Article 13 of the Directive concerns domestic exemptions from VAT. Arti- cle 13A enumerates activities which are exempted 'in the public interest'. Arti- cle 13B contains a list of 'other exemp- tions'. Article 13 C entitles Member States 3. Member States may consider the follow- to grant taxpayers a right to opt for ing to be tangible property: taxation in certain of the cases listed in Article 13B. It must be borne in mind that in some circumstances it may work to the advantage of a taxable person to opt for taxation of a supply in order to be able to reclaim the input tax incurred. (a) certain interests in immovable prop- erty;

(b) rights in rem giving the holder thereof a 9. The exemption at issue in the present right of user over immovable property; case is Article 13B(b) which exempts from VAT the 'leasing or letting of immovable property'. The Member States may subject that exemption to conditions and certain transactions are excluded from its scope. Article 13B(b) provides: (c) shares or interests equivalent to shares giving the holder thereof de jure or de facto rights of ownership or possession over immovable property or part thereof.

'B. Other exemptions ...'

Without prejudice to other Community 7. According to Article 6(1) 'supply of provisions, Member States shall exempt services' means any transaction which does the following under conditions which they not constitute a supply of goods within the shall lay down for the purpose of ensuring meaning of Article 5. the correct and straightforward application

1. the provision of accommodation, Member States may allow taxpayers a right as defined in the laws of the of option for taxation in cases of: Member States, in the hotel sector or in sectors with a similar func- tion, including the provision of accommodation in holiday camps or on sites developed for use as camping sites; (a) letting and leasing of immovable prop- erty;

2. the letting of premises and sites for (b) ... parking vehicles;

Member States may restrict the scope of this right of option and shall fix the details 3. lettings of permanently installed of its use.' equipment and machinery;

11. In certain cases it might appear appro- 4. hire of safes. priate to authorise Member States to take

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or retain special measures derogating from by a Law of 18 December 1995. 5Those the Directive in order to simplify the amendments were expressly designed to levying of tax or to avoid fraud or tax combat tax avoidance arrangements with avoidance. Article 27(1) of the Sixth Direc- regard to immovable property. They were tive therefore provides: given retroactive effect from 6 p.m. on 31 March 1995.

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OPINION OF MR JACOBS — CASE C-326/99

17. The first of the two amended provi- implement Article 13B(b) and 13C(a) of sions which are in issue in the present case the Directive 7 and provides: is Article 3(2) of the Law. It establishes a deemed supply of goods and is intended to make use of the possibility afforded by Article 5(3) of the Directive. 6It provides in its amended version: '1. The following are exempted from tax, subject to the conditions to be laid down by general administrative regulation:

(b) the letting (including the leasing) of '2. The grant, transfer, modification, immovable property, excluding: waiver or termination of limited rights over immovable property, with the exception of mortgages and ground rents must also be viewed as a supply of goods, save where the sum paid therefor plus turnover tax amounts to less than the economic value (1) ... of those rights. The economic value shall be not less than the cost price of the immo- vable property to which the right relates, including turnover tax, which would result if it were created by an independent third party at the time of the transaction'

(5) the letting of immovable property, apart from buildings and parts thereof which are used as accom- modation, to persons using such property for purposes in respect of which there exists a complete or virtually complete right to deduct tax pursuant to Article 15, provi- 18. Article 11(1)(b) as amended is the sec- ded that the lessor and lessee have ond contentious provision. It is intended to jointly submitted a request to that

20. In the course of the second trimester of — collect and administer the rents, issue 1995 three new-built housing complexes receipts for rents received, conclude, with dwellings designed for letting (herein- modify and terminate agreements for after 'the new houses') were supplied to the the rental of the buildings and issue appellant. invoices in respect of rent increases,

8 — See paragraph 21 below. 9 — See below, paragraphs 53 to 60.

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OPINION OF MR JACOBS — CASE C-326/99

— carry out all such (legal) acts on behalf firmed their decision. By decision of of the usufructuary in relation to the 14 February 1997 they however reduced aforesaid management as the Stichting the assessment to the sum of HFL 639 992 may deem appropriate. which corresponds to the amount recouped by the appellant on the basis of the declaration.

24. In its tax declaration for the period 1 April 1995 to 30 June 1995 the appellant indicated the turnover tax for the grant of the usufructuary right to the Stichting 27. By judgment of 20 May 1998 the (HFL 645 067) and offset the amount of Gerechtshof te Arnhem (Regional Court the turnover tax charged to it in connection of Appeal, Arnhem) annulled the tax with the construction of the new houses authorities' initial assessment but con- (HFL 1 285 059). On the basis of that firmed the assessment in its corrected form declaration the appellant initially recouped of 14 February 1997. The Gerechtshof held HFL 639 992. that the setting-up of the Stichting and the grant of the usufructuary right were of no relevance for VAT purposes and argued essentially as follows.

31. The Hoge Raad appears to have no doubt about three issues. In the Hoge — it could not be regarded as a transfer of Raad's view the Gerechtshof was wrong the right to dispose of the asset in in assimilating the appellant to the Sticht- question as owner within the meaning ing, because the legal transactions at issue of Article 5(1) of the Sixth Directive resulted in the creation of a separate legal and Article 3(1)(e) of the Law, since it entity, in the form of a foundation, which involved merely the grant of a limited was distinct from the appellant. However, right; the Gerechtshof had rightly held that there was no transfer of the right to dispose of the assets in question as owner within the meaning of Article 5(1) of the Sixth Direc- tive and Article 3(1)(e) of the Law. The Stichting obtained only a limited right which did not encompass the right to dispose freely of the houses in question. — it could also not be regarded as a Finally, it was in the present case not open supply of goods within the meaning of to the courts to question the retroactive Article 3(2) of the Law as amended, effect of the Law of 19 December 1995. since the sum paid for it amounted to less than the cost price of the houses in question;

32. The Hoge Raad considers however that several of the appellant's arguments raise questions regarding the interpretation of the Sixth Directive. — since it could not be considered as a supply of goods it had to be considered as a supply of services, taxable in principle; but that supply had to be considered as exempted 'letting of immovable property' within the mean- 33. Before the referring court the appellant ing of the new definition contained in maintained in substance, first, that Arti- Article 11(1)(b) of the Law as amen- cle 3(2) of the Law infringes Article 5(3)(b) ded, since it constituted 'a form in of the Directive. In its view, the Nether- which immovable property is made lands legislature wrongly established a link available for use otherwise than by between the amount of the consideration way of supply thereof'. paid for the grant of a right in rem and the

'1. Is Article 5(3) of the Sixth Directive to Question 1: Article 5(3) of the Sixth Direc- be interpreted as meaning that rights in tive rem entitling the holder thereof to use immovable property may be treated by the national legislature as tangible property only if the remuneration agreed in respect of the grant, transfer, modification, waiver or termination of 36. By its first question the referring court those rights is at least equivalent to the wishes to ascertain whether Article 5(3)(b) financial value of the immovable prop- of the Sixth Directive must be interpreted erty concerned? as precluding a national provision such as Article 3(2) of the Law as amended which subjects the classification as 'supply of goods' of the grant, transfer, modification, waiver or termination of rights in rem, with the exception of mortgages and ground rents, to the condition that the sum paid 2. Are Article 13B(b) and Article 13C(a) therefor plus turnover tax amounts at least of the Sixth Directive to be interpreted to the economic value of the immovable as meaning that the national legislature property to which the rights in rem relate.

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41. As regards the second element, Arti- cle 5(3)(b) provides that the Member States may consider 'rights in rem giving the 38. The Netherlands Government and the holder thereof a right of user over immo- Commission maintain — and I agree with vable property' to be tangible property. them on this point — that a national That provision was prompted by the exis- provision such as Article 3(2) as amended tence in the private law of several Member States of limited rights in rem such as 'usufruct', 'emphyteusis' and 'superficie' 10 —Council Decision 96/432/EC of 8 July 1996 authorising the Netherlands to apply a measure derogating front Article 11 of Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 11 — Case C-320/88 Shipping and Forwarding Enterprise Safe (Sixth VAT Directive), OJ 1996 L 179, p. 51. [1990] ECR I-285, paragraph 7 of the judgment.

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which give the holder certain rights of Article 5(3)(b) not to be tangible property economic utilisation over immovable prop- at all, they may a fortiori also subject their erty. 12 classification as tangible property to restric- tive conditions. The only limitation which the Member States have to respect is that the conditions imposed must not funda- mentally alter the nature of the choice offered by Article 5(3)(b).

45. An alternative criterion could have 12 — See the Explanatory Memorandum to the Commission's been the period for which a limited right first proposal for the Sixth Directive, Bulletin of the European Communities, Supplement 11/73, p. 10. in rem is granted. That is illustrated by a 13 — Case C-186/89 [1990] ECR I-4363. Council Decision authorising Ireland to I - 6844 •GOED WONEN'

apply a measure derogating from the Sixth as supplies of services, a conflict with Directive.14 It appears incidentally from Article 5(1) as interpreted by the Court 15 that decision that Ireland treats the supply could perhaps arise. Since the present case of long-term lease interests (i.e. a lease of does not concern a transaction of that type 10 years or more) in immovable property as and since no question on the interpretation a supply of goods. The Council stated in of Article 5(1) was referred, the Court does that context that Community law gives the not need to pursue that hypothesis further. Member States a great deal of discretion in determining the VAT treatment to be applied to immovable property, and its transposition has led to considerable varia- tions in the national laws applied in that 48. I accordingly conclude that Arti- field. cle 5(3)(b) of the Sixth Directive must be interpreted as allowing a Member State to subject the classification as 'supply of goods' of a transaction concerning a limited right over immovable property to the condition that the sum paid for the trans- action plus turnover tax amounts at least to the economic value of the immovable 46. Since the disputed amendment is property to which the right relates. allowed by Article 5(3) of the Directive, the Netherlands did not need an authorisa- tion pursuant to Article 27 of the Directive. It is therefore not necessary to discuss the appellant's arguments concerning the authorisation of 1996. Question 2: Article 13B(b) of the Sixth Directive

50. The question is thus formulated in abstract terms by reference to the wording of the disputed amendment of Arti- cle 11(1)(b) of the Law 16 which defines The nature of usufruct 'letting of immovable property' as 'inter alia, any other form in which immovable property is made available for use other- wise than by way of supply thereof'. 53. According to Article 3:021 of the Neth- erlands Civil Code a usufructuary right gives the holder thereof the right to use the property of another and to take the fruits of 51. Despite the broad scope of the referring that property. court's question the arguments of the parties in the main proceedings and the observations submitted to the Court have concentrated almost exclusively on the concrete problem discussed in the main proceedings, namely the grant of a usu- 54. Usufruct has its origin in Roman law 17 fructuary right and its classification for where it was defined as the right to use and VAT purposes. It would moreover be enjoy the things of another without impair- difficult to give the referring court a general ing their substance. Its primary purpose reply which takes into account all legal was essentially alimentary, e.g. provision forms available under the laws of the for a widow. Initially Roman lawyers were Member States through which immovable not sure how to classify it and it was argued property can be made available for use. that in many respects usufruct was a fraction of ownership. Only at a later stage did it come to be thought of as a limited ius in rem which was to be classified as a personal servitude. A servitude was a right 52. I therefore propose to reformulate the which encumbered another person's prop- second question in the light of the facts of 17 — See the useful synthesis by A. Borkowski, Textbook on Roman Law, Blackstone Press Limited, London, 1994, 16 — See paragraph 18 above. p. 163 et seq.

18 — See also WAV. Buckland and A.D. McNair, Roman Law and Common Laiw: A Comparison in Outline, second edition revised by EH. Lawson, Cambridge University Press, Cambridge 1965, p. 127 et seq. — in many legal orders the transfer of a 19 — The following comparisons between the different national usufructuary right is excluded by law legal orders are based on the helpful analysis in A. Hurn- dall (Ed.), Property in Europe: Law and Practice, Butter- or at least subject to the agreement of worths, London, Dublin, Edinburgh 1998. the owner.

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57. Usufruct as such does not exist in The grant of a usufructuary right as 'leasing Denmark, Finland, Sweden, Ireland or the or letting' within the meaning of Arti- United Kingdom. cle 13B(b) of the Sixth Directive

61. The appellant and the Commission 58. In Denmark, Finland, Sweden and Ire- maintain that the grant of a usufructuary land there are comparable but much more right cannot be regarded as exempted limited rights to take the produce from 'leasing or letting' within the meaning of another's land for a determined period (e.g. Article 13B(b) of the Sixth Directive. timber felling rights, grazing licences).

62. In the first place, they recall the Court's 59. Close equivalents to usufruct in Eng- settled case-law that the exemptions pro- land and Wales, Ireland and Northern vided for in Article 13 of the Sixth Direc- Ireland are perhaps life estates and the long tive are to be interpreted strictly since they lease which may be determinable on death constitute exceptions to the general princi- to make it similar to a usufruct for life. In ple that VAT is to be levied on all supplies Scotland the liferent apparently fulfils a of goods or services made for consideration similar purpose. by a taxable person. 20

— 'exploitation of property for the pur- pose of obtaining income therefrom on a continuing basis' in Article 4(2). 22 — usufruct grants the holder a right in rem, whilst rental contracts grant only rights in personam;

65. The appellant and the Commission maintain that the authors of the Directive were thus aware of the fundamental differ- ences in civil law between, on the one hand, the grant of a right in rem such as a usufructuary right and, on the other hand, 'leasing or letting' (in Netherlands 'ver- — a usufructuary right does not survive the death of the original usufructuary, whilst a rental agreement continues in 21 — See paragraph 6 above. principle with the successors of the 22 — Sec paragraph 5 above. tenant;

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OPINION OF MR JACOBS — CASE C-326/99

— a usufructuary right may be granted common list of exemptions in Article 13 is without remuneration, whilst the con- designed to guarantee that VAT is collected cept of a rental contract presupposes in a uniform manner in all the Member the payment of a remuneration; States. It is therefore well-established case- law that the terms used to specify the exemptions provided for by Article 13 constitute independent concepts of Com- munity law which must be given a Com- munity definition. 24 — the usufructuary has the right to use the property in question fully and thus also to sublet it; in a rental agreement subletting is in principle precluded if not exceptionally allowed by the owner. 70. The wording of Article 13B(b) of the Sixth Directive does not shed any light on the scope of the concept of 'leasing or letting of immovable property'. 25

76. Secondly, those substantive differences are reflected in important linguistic differ- ences of terminology within Article 13B(b) as regards the phrase 'leasing or letting'. The wording of the Danish, Dutch, French, 74. For example the 'lease' to which the German, Italian and Swedish language wording of the English version refers is a versions refers to two distinct types of peculiar institution of the common law contracts. One of those contracts (udlejn- jurisdictions. 'Leasehold' is considered as ing, location, Vermietung, locazione, ver- one of two main types of 'interests in land', huur, uthyrning) consists of granting the the other being 'freehold' (akin to absolute tenant the right to use the property of ownership). Leasehold is traditionally another. The other type of contract (bort- regarded as a kind of limited ownership forpagtning, affermage, Verpachtung, and may thus be even stronger than limited affitto, verpachting, utarrendering) consists rights in rem. A lease may be used to grant of allowing the tenant also to enjoy the a right to occupy or take the profits from gains produced by the property. The Eng- land or buildings either for a fixed term, lish and Spanish versions also use two commonly up to 999 years, or by way of words (leasing or letting, arrendiamento y periodic tenancy, e.g. on a recurring alquiler), but the words do not correspond monthly or yearly basis until determined to two technically distinct types of con- by notice. tracts. The Finnish, Greek and Portuguese versions use only one word referring to one type of contract.

in the hotel sector or in sectors with a ment of a toll by reference to categories of similar function, including the provision of national law. It held instead that the accommodation in holiday camps or on concept 'leasing or letting' could not be sites developed for use as camping sites'. It considered to cover contracts in which the might be argued that the existence of the parties have not agreed on any duration for exclusion in question logically presupposes the right of enjoyment of the immovable that the contract for a hotel room consti- property, which was an essential element of tutes 'leasing or letting' for the purposes of a contract to let. Where access to roads was Article 13B(b). The authors of the Direc- provided, the duration of the use of the tive were however certainly aware that road was not a factor taken into account by such a contract — in view of the over- the parties, in particular in determining the riding importance of the services provided price. 28 More recently in Stockholm Lin- by the hotelier and the control he retains döpark, which concerned the making avail- over the use of the premises — is in some able of a golf course, the Court repeated national laws not considered to be a that agreement on the duration of the right contract to let. of enjoyment of the immovable property was an essential element of 'leasing or letting'. 29 In my Opinion in the same case I emphasised also another essential element: that a lease or let necessarily involved the grant of some right to occupy the property as one's own and to exclude or admit 78. It does not therefore come as a surprise others, a right which is, moreover, linked to that the Court's case-law on the concept of a defined piece or area of property. 30 'leasing or letting of immovable property' instead of referring to legal categories of national law takes a functional approach which takes into account the context in which the concept is used and the general structure of the Sixth VAT Directive.

82. In his Opinion in Lubbock Fine Advo- cate General Darmon used a definition which was common ground between the parties, namely that a letting was a contract by which the owner transfers in return for a rent certain rights in his property, such as the right of enjoyment of the property, 85. If one applies that interpretation to the whatever the nuances of national law on present case the grant of a usufructuary that point. In a footnote he added that right as in issue in the main proceedings can leasing or letting for the purposes of properly be considered as exempted 'leas- Community law included in his view a ing or letting of immovable property'. 'lease', a 'licence', a 'bail' or a 'convention d'occupation précaire'. 33

86. It may be recalled that the appellant 83.In the light of the Court's subsequent granted the Stichting a usufructuary right case-law I would tentatively suggest a more over the new houses for a period of 10 specific interpretation which takes into years. There was thus an agreement whereby one party grants the other the right to occupy and to use and even take 32 — See paragraph 40 and note 11 above. the profits from a specified immovable 33 — Case C-63/92 f 1993] ECR I-6665, paragraph 39 and note 27 of the Opinion. It is not clear whether he referred m property. That right was granted for remu- tilat nute to the French or the English term 'licence'. neration and for an agreed duration.

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87. The particularities of usufruct empha- 89. The fact mentioned by the Commission sised by the appellant and the Commis- that usufruct does not survive the death of sion 34 cannot affect that result. the original usufructuary whilst a rental contract continues in principle with the successors of the tenant only confirms my thesis about the irrelevance of the abstract distinction between the legal effects of rental contracts and of usufruct. The the- oretical distinction between rights in rem and rights in personam would lead one to expect exactly the opposite.

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GOED WONEN

ject to contractual limitations or forbidden the grant of a usufructuary right over subject to contractual authorisation. immovable property for a limited period of time (for example 10 years) as leasing or letting of immovable property within the 92. In the light of the foregoing, I conclude meaning of Article 13B(b) and C(a) of the that a Member State can properly regard Sixth Directive.

Conclusion

93. For the above reasons the questions referred should in my view be answered as follows:

(1) Article 5(3)(b) of the Sixth VAT Directive must be interpreted as allowing a Member State to subject the classification as a 'supply of goods' of a transaction concerning limited rights over immovable property to the condition that the sum paid for the transaction plus turnover tax amounts to no less than the economic value of the immovable property to which the rights relate;