C-269/00

SEELING

OPINION OF ADVOCATE GENERAL JACOBS delivered on 16 May 2002 1

1. In this case die Bundesfinanzhof (Federal the country by a taxable person acting as Finance Court), Germany, has asked the such'. Court whether a Member State may treat the use for private residential purposes of a dwelling in business premises forming as a whole part of the assets of the business as t a x - e x e m p t in a c c o r d a n c e w i t h Article 13(B)(b) of the Sixth VAT Direc- tive 2 with the result that deduction of the 3. Article 6(2)(a) treats as a supply of VAT which arose in connection with the services for consideration: construction of the premises is to that extent precluded.

'the use of goods forming part of the assets of a business for the private use of the taxable person or of his staff or more generally for purposes other than those of Relevant provisions of the Sixth Directive his business where the value added tax on such goods is wholly or partly deductible'.

2. Article 2(1) of the Sixth Directive sub- jects to value added tax: 4. Article 11(A)(1)(c) provides that the taxable amount shall be, 'in respect of supplies referred to in Article 6(2), the full cost to the taxable person of providing the services'. 'the supply of goods or services effected for consideration within the territory of

1 — Original language: English. 2 — 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: 5. Article 13(B) lays down a series of uniform hasis of assessment; OJ 1977 L 145, p. 1. mandatory exemptions from VAT.

Member States may restrict the scope of 9. Sometimes however it may be necessary this right of option and shall fix the details to a d j u s t the i n i t i a l d e d u c t i o n . of its use.' Article 20(2) 3and (3) lay down rules for adjustment in respect of capital goods

3 — As amended by Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new sim- 7. Article 17 concerns the right of a taxable plification measures with regard to value added tax — scope of certain exemptions and practical arrangements for person to deduct from the output VAT implementing them, OJ 1995 L 102, p. 18.

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where the degree to which such goods are period of adjustment. Such business activ- used for the purpose of taxable transactions ities are presumed to be fully taxed in cases varies over time: where the delivery of the said goods is taxed; they are presumed to be fully exempt where the delivery is exempt. The adjust- ment shall be made only once for the whole period of adjustment still to be covered.

'2. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured. The annual adjustment shall ï be made only in respect of one fifth of the tax imposed on the goods. The adjustment shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired or manu- factured.

includes among exempted transactions the 15. The present case is not the first occa- leasing or letting of immovable property. sion on which the German rules relating to the VAT treatment of private use of busi- ness assets have come before the Court. I have already explained the scheme and effect of those rules in my Opinion in Armbreckt, 6and it may be helpful at this point to repeat that explanation: 12. Paragraph 9(1) of the Law provides that the taxpayer may treat a transaction exempted pursuant to Paragraph 4(12) as taxable if it is a supply to another trader for his business. Paragraph 9(2) 5 provides that the exemption may be so waived in the case of a letting or leasing of immovable prop- erty only where the lessee uses or intends to use the immovable property exclusively for transactions which do not preclude the '... the principle underlying the German deduction of input tax. implementing rules is that, in order to ensure fiscal neutrality between taxable persons and private individuals, a taxable person putting goods or services to private use must be placed in the same position for VAT purposes as one of his customers. The German rules therefore require a taxable person to assign goods acquired partly for 13. In accordance with the case-law of the business and partly for private use to the Bundesfinanzhof, the private use of immov- business. The taxable person is seen as able property forming part of the assets of a having the right to deduct tax in full on the business is exempt pursuant to Paragraph goods under Article 17(2) of the directive, 4(12)(a) of the Law. Waiver of the exemp- but must then account for his private use of tion pursuant to Paragraph 9 of the Law is them by paying an annual charge based on not permissible because that provision pre- the depreciation of the goods under supposes a supply to another trader for his Article 6(2)(a). business.

16. Mr Seeling owns a tree-surgery and horticultural business which is subject to the normal tax rules. In 1995 he erected a building which he treated (as a whole) as an 20. In its order for reference the Bundesfi- asset of his business. Since its completion, nanzhof states that according to the case- he has used it partly for business and partly law of the Court of Justice Article 6(2)(a) of for private residential purposes. the Sixth Directive is designed to ensure equal treatment as between taxable persons and final consumers by preventing the non-taxation of business goods used for private purposes: Kühne,7 Mobsche 8and Fillibeck.9

17. In his turnover tax declaration for 7 — Case 50/88 [1989] ECR 1925, paragraph 8 of the judgment. 1995, Mr Seeling claimed the deduction 8 — Case C-193/91 [ 1 9 9 3 ] ECR I - 2 6 1 5 , paragraph 8 of the of sums attributable to the whole building. judgment. 9 — Case C-258/95 [ 1 9 9 7 ] ECR I - 5 5 7 7 , paragraph 25 of the With regard to the private use of the judgment.

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21. It adds, however, that it is open to of the assets of the business — which is question how far that equivalence of treat- equated to a supply of services for con- ment extends, in particular whether the sideration under Article 6(2)(a) of Directive (partial) use of goods forming part of the 77/388/EEC — as tax-exempt (in accord- assets of a business for the private use of a ance with Article 13(B)(b) of that directive, taxable person may be regarded as an but without the possibility of waiving the exempt 'leasing or letting of immovable exemption), with the result that deduction p r o p e r t y ' w i t h i n the meaning of under Article 17(2)(a) of the directive of the Article 13(B)(b) of the Directive. value added tax which arose in connection with the construction of the premises is precluded to that extent?'

whether or not to integrate into his busi- purposes may be treated as assigned wholly ness, for the purposes of applying the to the business. However, such an analysis Directive, that part of an asset which is may in some circumstances promote the given over to his private use. Where a neutrality of the tax by allowing proper taxable person has opted to treat as busi- account to be taken of changes in the ness assets goods used for both business degree of private use over the useful life of and private purposes, the VAT on those the asset by a taxable person or as between goods is in principle wholly deductible. 13 It a taxable vendor and a taxable pur- is clear that by 'in principle' the Court chaser. 16 meant simply in the absence of any relevant derogation in the Sixth Directive: subject to that, the Court has stressed the absolute nature of the 'right of deduction' even where the use of the goods for the purposes of the business is very limited. 14

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30. In support of that approach the Ger- general principle stated in Article 2 of the man Government submits that it follows Directive according to which VAT is to be from the wording of Article 6(2)(a) that all levied on all supplies of goods or services the provisions of the Directive applicable to made for consideration by a taxable per- supplies of services are in principle also son. 19 Although that requirement of strict applicable to the private use of business interpretation does not mean that the terms assets. In the present case treating the used to specify exemptions should be con- private use of the property as a supply of strued narrowly or restrictively so as to services for consideration pursuant to deprive the exemptions of their intended Article 6(2) of the Directive implies that effect, 20 it is clear that exemptions cannot Article 13(B)(b) should be applied by in any event be extended by analogy, as the analogy. The fact that there is no use by a German Government's argument seems to third party does not in the German Govern- require. ment's submission preclude that interpre- tation: the fact that Article 6(2)(a) treats private use as a supply of services shows that a link with a third party is not critical.

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period, the right to occupy his property and 36. Finally, as the Commission points out, to exclude other persons from it. 22 The the Court has held that both Article 6(2)(a) exemption provided for in Article 13(B)(b) and Article 13(B)(b) may be relied upon by cannot therefore in my view apply to a an individual as against a Member State fictional leasing by the taxpayer to himself, before a national court. 24 It would perhaps where there can by definition be no genuine be surprising if two provisions which have agreement as to consideration or term (or separately been held to be sufficiently clear, indeed anything else). precise and unconditional to have direct effect were to be construed so as to be interdependent in the absence of any explicit or implicit reference to that effect.

34. If moreover the legislature had intended Article 6(2)(a) to be read in 37. Since I do not accept the German conjunction with Article 13(B)(b), it might Government's argument that have been expected that Article 6(2)(a) Article 13(B)(b) applies by analogy to the would contain an express reference to private use of immovable property forming Article 13(B)(b): 23 the effect of such a part of the taxable person's business assets, reading is, after all, to transform a taxable it is not necessary to deal with its sub- supply into an exempt supply. missions as to the relevance and effect of Article 13(C), which permits Member States to allow taxable persons 25 a right of option for taxation in cases of letting and leasing of immovable property.

be liable to pay an annual charge under Memorandum to the Commission's pro- Article 6(2)(a) of the Directive. posal for the Sixth Directive 26 that it was accepted that the same aim could have been attained by other means (specifically, adjustments to deductions already made), but that 'the technique of treating these transactions as taxable supplies was chosen for reasons of impartiality and simplic- ity'. 27 Thus the output tax charge under 39. The G e r m a n Government submits Article 6(2)(a) was specifically chosen as an however that that approach would enable alternative to a restriction on the right to a taxable person in M r Seeling's position to deduct input tax. 28 obtain a cash-flow advantage and a tax advantage which would not be available under the German rules.

42. Second, the German Government sub- mits that a taxable person in M r Seeling's position would obtain a tax advantage if he were to sell the building more than 10 years after its acquisition and deduction in full of 40. First, the taxable person would obtain the input tax. An analysis of that argument a cash-flow advantage in that he would requires a brief explanation of the mech- have the full benefit of the deduction at the anism used in the Sixth Directive for the outset whereas the t a x charge under adjustment of deductions. Article 6(2)(a) which is designed in effect to offset the deduction is staggered over the period of private use.

45. While there may be some justification for those concerns, they can now be at least partially allayed by opting to permit adjust- 44. The German Government notes that in ment within a 20-year period. Mr Seeling accordance with Article 11(A)(1)(c) the moreover points out a further anomaly taxable amount in the case of supplies arising from the German rules on private referred to in Article 6(2) is the full cost to use of immovable property. Where there the taxable person of providing the service. has been deduction in full of the input tax Where that service consists in the private attributable to immovable property form- use of immovable property, that cost will ing part of business assets and used in the principally consist in the depreciation of 10 years following its acquisition wholly the property or that part of it which is for business purposes, there is no mech- subject to private use. It is unlikely that anism for adjusting that deduction to within ten years of acquisition immovable reflect subsequent private use of the prop- property will have depreciated fully or erty if that private use starts ten years after consequently that the input tax deducted its acquisition. Even where — as in the will have been fully extinguished by the present case — private use began on annual charge paid. If therefore the taxable acquisition of the property, there will be person sells the property after the 10-year no possibility of making adjustments to the period without any VAT being payable on proportion of input tax whose deduction that supply, 30 he will have had the benefit was permitted in order to reflect changes in the proportion of private and business use after the 10-year period. Fiscal neutrality can be attained only if deduction in full is 30 — Presumably because the supply would be exempt by virtue of Article 13(B)(g|. It should however be noted that in permitted at the outset, since in that case some circumstances the vendor may opt for taxation in private use is taxed throughout its duration a c c o r d a n c e with the G e r m a n rules implementiim Article 13(C)(1)). b in accordance with Article 6(2)(a).