C-442/01

KAPHAG

OPINION OF ADVOCATE GENERAL RUIZ-JARABO COLOMER delivered on 6 February 2003 1

1. In these preliminary reference proceed- I — Facts, main proceedings and question ings, the doubts harboured by the Bundes- referred to the Court finanzhof (the highest German court with jurisdiction in tax matters) relate to the interpretation of Articles 2(1) and 19(2) of the Sixth Directive on value added tax 2 ('the Sixth Directive').

3. KapHag Renditefonds ('KapHag') is a partnership whose partners are LOGOS Grundstücks-Treuhand GmbH, LOGOS Zweite Grundstücks-Treuhand GmbH ('LOGOS 1' and 'LOGOS 2' respectively) and three natural persons, Dr Moegelin, Dr Tiemann and Dr Mehnert.

2. The German court is seeking to ascertain whether the concept of 'consideration' in 4. KapHag's object was to acquire a deve- the first of those provisions includes the lopment right in respect of a plot in Berlin admission of a new partner to a partnership and to construct thereon and maintain in consideration for a contribution in cash. certain buildings forming a unit within a Should that first question be answered in shopping centre. The partnership is man- the positive, the national court asks aged as a closed real investment fund. whether the transaction is one of the inci- dental transactions referred to in Article 19(2) of the Sixth Directive and may therefore be excluded from the deduct- ible proportion of the tax.

1 — Original language: Spanish. 2 — Sixth Council Directive 77/388/EEC of 17 May 1977 on the 5. In order to be admitted as a partner, it harmonisation of the laws of the Member Slates relating to turnover taxes — Common system of value added tax: was necessary to pay DEM 38 402 000, uniform basis of assessment (OJ 19 7 7 L 145. p. 1). plus 5% premium.

3 — BGBl. 1991 I , p. 351. 4 — According to that provision, 'If a business uses any goods Article 4(8)(r) provides that 'transactions, including the supplied or imported for the purposes of its business, or a negotiation of transactions, in interests in companies and service supplied to it, only in part for effecting transactions other associations' are to be exempt from tax. Article 15(2) which exclude the right to deduct, then there shall not be provides that '[t]here is no deduction of tax in respect of deducted such part of the input tax as is to be attributed supplies of goods and the import of goods, and in respect of economically to transactions which result in the exclusion of supplies of services, which the business uses for effecting... the right to deduct. The business is entitled to make a fair exempt transactions'. estimate of the non-deductible parts.'

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to bring about the admission of that new to Article 13(B)(d)(5) of the Sixth Directive, member but were also used for the sub- thus raising the question whether it con- sequent leasing activities, which are tax- stitutes an incidental transaction within the able. meaning of the second sentence of Article 19(2) of that directive. In order to resolve the uncertainty, the Bundesfinanz- hof requests the Court to rule on the following question:

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16. The hearing took place on 15 January 18. Article 4(1) defines 'taxable person' as 2003. The German Government and the follows: Commission presented their observations.

'... any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.'

III — The relevant provisions of the Sixth Directive

19. Those economic activities are, pursuant to Article 4(2):

(b)... — documents establishing title to goods,

3. Member States shall also grant to every —· the rights or securities referred to in taxable person the right to a deduction or refund of the value added tax referred to in Article 5(3)'. paragraph 2 in so far as the goods and services are used for the purposes of:

21. Article 17 defines the circumstances in which the right to deduct VAT arises and the scope of that right:

(c) any of the transactions exempted under '1. The right to deduct shall arise at the Article 13B(a) and (d), paragraphs 1 to time when the deductible tax becomes 5, when the customer is established chargeable. outside the Community or when these transactions are directly linked with goods intended to be exported to a country outside the Community.

2. In so far as the goods and services are used for the purposes of his taxable trans- actions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

5. As regards goods and services to be used (a) value added tax due or paid in respect by a taxable person both for transactions of goods or services supplied or to be covered by paragraphs 2 and 3, in respect

22. Article 19, under the heading 'Calcu- lation of the deductible proportion', pro- 2. By way of derogation from the provi- vides: sions of paragraph 1, there shall be excluded from the calculation of the deductible proportion, amounts of turn- over attributable to the supplies of capital goods used by the taxable person for the '1. The proportion deductible under the purposes of his business. Amounts of turn- first subparagraph of Article 17(5) shall be over attributable to transactions specified made up of a fraction having: in Article 13B(d), in so far as these are incidental transactions, and to incidental real estate and financial transactions shall also be excluded. Where Member States exercise the option provided under — as numerator, the total amount, exclus- Article 20(5) not to require adjustment in ive of value added tax, of turnover per respect of capital goods, they may include year attributable to transactions in disposals of capital goods in the calculation respect of which value added tax is of the deductible proportion. deductible under Article 17(2) and (3),

— as denominator, the total amount, exclusive of value added tax, of turn- 5

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IV — Analysis of the questions 25. In order to determine the transactions subject to VAT, it is necessary to define the concept of taxable person, a task which, given the philosophy of the Sixth Directive, requires a definition of the concept of 'economic activity'. 7

A. First question

The objective nature 11 of the concept is a requirement of the principle of the neutrality of the common system of VAT. 12 This double concept of the wide application and the objectivity of the definition has recently 24. The Court's answer must proceed from been reiterated by the Court in its judg- a premiss which, although obvious, must ments on the tolls charged for the use of toll not be forgotten: what the Community roads. 13 legislature intended was that all supplies of goods and all supplies of services effected 7 — Advocate General Léger has recently performed that task in for consideration within each Member his Opinion of 12 September 2 0 0 2 i n Case C-77/01 EDM, State by persons exercising the economic in which judgment has not thus far been delivered. 8 — See Case C-186/89 Van Tiem [1990] ECR I-4363, para- activities referred to in Article 4(2) of the graph 17. Sixth Directive should be subject to VAT, 9 — Sec the judgment cited in the previous footnote (same paragraph); see also the judgment in Case C-80/95 Harnas since the latter is a general tax on con- & Helm 11997) ECR I-745, paragraph 13. sumption. 6 10 — It will be remembered that the Court regarded the exercise of public functions by notaries as an 'economic activity' for the purposes of the Sixth Directive, since they supply services to individuals on a permanent basis and in consideration for remuneration (see Case C-235/85 Com- 5 — The discussion as to whether the fees charged by Dr Severin mission v Netherlands [1987] ECR 1471, paragraph 9). were in respect of his services relating to the admission of 11 — See paragraph 8 of the judgment in Commission v the new partner or whether, more widely, they also included Netherlands, cited above. other services in respect of the formation and operation of the partnership must remam outside the limits of the 12 — See Van Tiem, cited above, paragraph 18, and Harnas &

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27. The concept has also been defined the full meaning of the case-law of the negatively. Thus, the mere exercise of the Court which I have just cited. For example, right of ownership by its holder cannot, in the grant to a third party of a surface right itself, be regarded as constituting an econ- by the owner of land is taxable provided omic activity. 14 For that reason, the Com- that the right is transferred for consider- munity case-law does not recognise that the ation. 19 mere acquisition and the mere holding of shares constitute an economic activity, since they do correspond to the exploi- tation of an asset for the purpose of obtaining a income therefrom on an ongoing basis, since any dividend yielded by that holding is merely the result of ownership of the property. 15 Excep- 30. For the same reason, a holding com- tionally, where the holding is accompanied pany which restricts its activity to acquiring by direct or indirect involvement in the shares in other undertakings is not entitled management of the company, without to deduct input VAT, since it is not a prejudice to the rights inherent in the taxable person in the sense that, in the capacity of shareholder or partner, the absence of consideration, it does not carry transaction may be taxable. 16 out an economic activity within the mean- ing of the Sixth Directive; 20 nor is it a taxable person when it receives dividends, which therefore fall outside the system of deductions provided for in the Community rules. 21 In such situations the only activity 28. If the acquisition of shares does not consists in the administration of an asset. constitute an economic activity, nor does The same applies to the acquisition and the transfer of shares. 17 holding of obligations, 22 and also to the purchase and transfer of shares and other titles with the aim of maximising dividends and returns on capital, which are intended to encourage medical research. 23

concerned is directly or indirectly involved 34. I do not agree with the case-law of the in its management, there is not an 'econ- Bundesfinanzhof cited in the order for omic activity' within the meaning of reference, according to which, since the Article 4(2) of the Sixth Directive if the founding member of a partnership obtains return on the amounts invested in the rights in consideration for his contribu- undertaking is not consideration for the tion, 26 the new partnership makes a supply management, that is to say, if there is not a for consideration, which would be subject direct relationship between the activity and to VAT. the sums received. 24 On the other hand, where there is such a link, where the placements which attract interest originate in funds provided by clients in the context of a supply of services for payment, which are therefore taxable (the management of immoveable property), the interest falls within the scope of VAT. 25

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I have cited makes abundantly clear, there 38. A transaction is 'exempt' where it is an expectation of obtaining advantages, satisfies the conditions laid down to be which are the consequence of the owner- subject to tax but it is not taxable by ship of a share in the partnership acquired decision of the legislature. If those require- by means of the disposal of assets but do ments are not satisfied a transaction is not not constitute payment for that share. exempt; it is simply not a taxable trans- action. That is to say, the exemption provided for in Article 13(B)(d)(5) of the Sixth Directive does not assume that all the classes of transactions in respect of secur- ities to which it refers will be taxable, since transactions in those securities, which are taxable because they satisfy the conditions 36. In short, I propose that the Court, in laid down in Article 2(1) in conjunction answer to the first of the questions referred with Article 4(2) of the Sixth Directive, are to it by the Bundesfinanzhof, should rule exempt from tax. that when a partnership admits a partner in consideration for a contribution in cash, it is not making a supply for consideration within the meaning of Article 2(1) of the Sixth Directive. That is to say, it is not carrying out a taxable transaction.28 39. There is no inconsistency, therefore, between the solution which I propose and the terms of Article 13(B)(d)(5) of the Sixth Directive. That has been decided by the Court, which considers that there are trans- actions in shares, interests in companies or associations, debentures and other secur- 37. Nor is that assertion undermined by the ities which may fall within the scope of fact that Article 13(B)(d)(5) of the Sixth VAT, 29 but nothing more, just as, I would Directive states that, among other trans- add, there are other transactions, such as actions, those in interests in companies are the transaction in the main proceedings, exempt from VAT, an exception which whicri_remain outside its scope. assumes that they were previously taxable transactions. It is not to be inferred from that provision that the acquisition of an interest in a company is always, and in every case, subject to VAT.

hearing. In his submission, that provision B. Second question supports the theory that transactions relat- ing to companies such as that in the main proceedings are taxable, since it allows the Member States to take the view that transfers in the form of a contribution to a company are not supplies of goods. What 42. Should the Court follow my suggestion I have said in respect of Article 13(B)(d)(5) in regard to the first question referred by of the Sixth Directive applies to Article 5(8) the Bundesfinanzhof, there will be no need too. The fact that Member States may to examine the second question. exclude the transactions concerned from that concept does not mean that every contribution to a company is in every case and inevitably a 'supply of goods' within the meaning of Article 2(1) of the Sixth Directive. 43. However, even if it considers that admission to a partnership in consideration for a contribution in cash is subject to VAT, there will still be no need to examine the second question, since, as the Bundes- finanzhof itself states in the order for reference, the transaction will be exempt under Article 13(B)(d)(5) of the Sixth Directive. 41. Nor is the German Government's pos- ition supported by the judgment in Heerma, 30 where the Court held that a partner who leases immovable property to the partnership of which he is a member carries out an independent activity for the purposes of Article 4(1) of the Sixth Direc- 44. Consequently, the question whether the tive. It does not follow from that assertion transactions in the main proceedings con- that the incorporation of a new partner in a stitute incidental transactions referred to in partnership in exchange for a contribution the second sentence of Article 19(2) of the in cash is a taxable transaction. There are Sixth Directive has no bearing on the two distinct activities with nothing in outcome of the dispute and the question common; one is accession to the partner- referred by the German court is devoid of ship and the other is an act for the purpose. administration of the immovable asset, the only singular feature of which is that the person transferring the use and enjoyment of the asset is not a third party but a member of the partnership who, in such a case, acts for that purpose as a stranger.

31 — As stated in paragraph 2 of Article 17 of the Sixth Directive. On the system of deductions as a means of ensuring the neutrality of the tax, see Case 268/83 Rompehnan [1985] ECR 655, paragraph 19; Case 50/87 Commission v France [1988] ECR 4797, paragraph 15· Case C-37/95 Ghent Coal Terminal [1998] ECR I-1, paragraph 15; Joined Cases C-110/98 to C-147/98 Gab- 48. In short, the provision to which the alfrisa and Others [2000] ECR I-1577, paragraph 44; and Case C-78/00 Commission v Italy |2001] ECR I-8195, second question relates forms part of the paragraph 30. system of deductions provided for in the 32 — See Case C-318/96 Spar 11998] ECR I-785, paragraph 23. 33 — See Case 165/86 Intiem [1988] ECR 1471, paragraph 14. See also, to the same effect, Sofitam, cited above, paragraph 11. 35 — See Case C-291/92 Ambrecht [1995] ECR I-2775, para- 34 — See Case C-97/90 Lennartz [1991] ECR I-3795, paragraph graph 27. 36 — See Régie Dauphinoise, cited above, paragraph 21.

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50. On the basis of the foregoing reason- 37 — In reality, the right to deduct arises as a consequence of ing, I can assert that the admission of a two factors: the amount of the deductible tax and the use of the goods or services for the purposes of the taxable partner into a partnership in consideration transactions (see P. Alguacil Marí and G. Orón Moratal, 'La deducción en el IVA español y su adecuación a la Sexta for a contribution in cash falls in any event Directiva', in Noticia/C.E.E., Nos 67 and 68, August/ outside the scope of VAT, so that in the September 1990, p. 96. 38 — As I have already stated in footnote 3, Article 15(2) of the mairi proceedings there is no need to deduct UStG precludes the right to deduction of tax in respect of the VAT paid in respect of the supply of supplies of goods and services used for effecting exempt transactions. The Spanish Law on Value Added Tax (Law services placed at the disposal of the 37/1992 of 28 December 1992; Boletín Oficial del Estado, 29 December 1992, p. 44247, is quite clear on that point; partnership. Consequently, the pro rata Article 94(1)(1)(a) of that law provides that the taxable rule and the rule in the second sentence of person may deduct the amounts of VAT paid on the acquisition or import of goods and services used for Article 19 of the Sixth Directive are not transactions which are taxable and not exempt from VAT (emphasis added). applicable to the dispute and the second 39 — See P. Alguacil Marí and G. Orón Moratal, op. cit., p. 101. question referred by the Bundesfinanzhof is S. Colmenar Valdés, in 'El derecho a la deducción en el IVA', in Revista de Derecho financiero y Hacienda thus devoid of purpose. Pública, No 157, 1982, p. 327, states that, 'as the deduction of the input tax is linked to the output tax, it appears that where there is no tax obligation there can be no right to deduct the input tax, since the ultimate reason on which the right to deduct was based no longer exists'. 40 — Case C-4/94 (1995) ECR I-983.

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