Opinion of Mr Advocate General Van Gerven
Mr President,
Members of the Court,
1. The Hoge Raad der Nederlanden (Supreme Court of the Netherlands) has referred to the Court for a preliminary ruling on two questions on the interpretation of Article 5(1) of the Sixth Council Directive of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes. Article 5(1) provides as follows:
Summary of the facts in the main proceedings
2. The questions were raised in an action arising from dealings in real property in which three undertakings were involved: Shipping and Forwarding Enterprise Safe BV (hereinafter referred to as Safe), Kats Bouwgroep NV (hereinafter referred to as Kats) and Abreka BV (hereinafter referred to as Abreka). By a notarial act of 19 June 1979 entitled Economic conveyance, Safe sold to Kats the rights to a detached house with land attached for a purchase price of HFL 2250000, excluding VAT.
3. In 1980 the house was demolished on the orders of Kats and the property was turned into building land. In 1982, before legal ownership was transferred, Kats went bankrupt. By a notarial act dated 11 August 1983, the trustees in bankruptcy of Kats sold to Abreka all Kats's rights in respect of the property. The purchase price was HFL 425000, plus turnover tax of HFL 76500 on the transaction. At the same time legal ownership of the property was transferred by Safe to Abreka.
4. In 1984 the Inspecteur der Invoerrechten en Accijnzen (Inspector of Customs and Excise), Leiden, imposed on Safe a retroactive assessment to turnover tax of HFL 343125 on the ground that the payment of HFL 2250000 by Kats to Safe in 1979 should be regarded as payment in advance for a supply liable to VAT. Safe appealed against that assessment. The Gerechtshof (Court of Appeal), The Hague, annulled the retroactive assessment. The Staatssecretaris van Financiën (Finance Secretary) appealed against that judgment. In the course of that appeal the Hoge Raad requested the Court to give a ruling on the following questions:
5. So that the preliminary questions may be properly understood, it seems to me to be useful to give a brief explanation of the concept of economic ownership under Netherlands law, to outline the framework in which this concept is applied according to Netherlands practice and to summarize the judgments of Netherlands courts on the consequences which the concept may have as regards the application of the Netherlands Wet op de Omzetbelasting (Law on Turnover Tax).
The Netherlands legislation, case-law and practice
6. Economic ownership is a concept which has been developed by Netherlands courts in judgments in tax cases. In a judgment of 19 October 1955, the Hoge Raad expressly mentioned the term for the first time:
7. In the case of movable property the transfer of economic ownership normally coincides with the transfer of ownership under civil law, at least under Netherlands law (unlike French law, for example, where for special cases the principle of consensus applies), at the time of the supply. For immovable property the situation is different. Under Article 671 of the Netherlands Burgerlijk Wetboek (Civil Code), the transfer of legal ownership of immovable property does not take place, so far as the parties and third parties are concerned, until the notarial act of transfer has been entered in the appropriate registers. The transfer of economic ownership of immovable property takes place, when it is separate from the transfer of legal ownership, at the moment when the property is actually placed at the disposal of the other party.
8. In the Netherlands, in the immovable property sector in particular, the transfer of economic ownership — the legality of which has been recognized by the Hoge Raad, as stated above — has been found to be a device for saving transfer tax. Article 2 of the Wet op Belastingen van Rechtsverkeer (Law of Taxation of Legal Transactions) provides in particular that transfer tax is imposed on the acquisition of immovable property situated within the Netherlands. The courts have consistently held that the term acquisition means the transfer of ownership under civil law. If immovable property which is not exempt from transfer tax is purchased with the intention of selling it on to a third party, it is under those circumstances in the interests of the parties to transfer solely economic ownership to the original purchaser and to ensure that legal ownership may be transferred directly from the original seller to the final purchaser. Transfer tax is then payable only once.
9. In practice the circumstances are usually more complicated. Thus on the transfer of immovable property account must be taken of the interaction between transfer tax and turnover tax. Although it cannot be consumed, immovable property does not by its nature fall outside the scope of turnover tax but does pose particular problems. In this regard the Netherlands legislation is based on the premiss that overlapping of the two taxes should be avoided as far as possible. Thus Article 15 of the Wet op Belastingen van Rechtsverkeer which governs transfer tax provides that the supply of immovable property subject to turnover tax is in principle exempt from transfer tax.
10. The concept of supply, as defined in Article 3 of the Law on Turnover Tax 1968 (hereinafter referred to as the 1968 Law, is the main issue in this case. Supply covers inter alia:
11. Safe, however, takes a different view and one which was accepted by the Gerechtshof, The Hague. It argues basically that the term supply defined in the national legislation must be interpreted in accordance with the term supply as defined in Article 5(1) of the Sixth Directive. Article 3(1)(e) of the 1968 Law would best correspond to this Community concept of supply. Therefore the provision must be regarded as having an independent and not merely a supplementary function.
The first question
12. By the first question the Hoge Raad wishes to ascertain whether the only supply covered by Article 5(1) of the Sixth Directive is one by which legal ownership of property is transferred.
13. The first reason is to be found in the text of Article 5(1) of the Sixth Directive. It states that the supply of goods means the transfer of the right to dispose of tangible property as owner. This provision places the emphasis on the transfer of the right of disposal, which must enable the transferee to be able to dispose of the goods as owner. This phrase in my opinion means that the transferee does not have to be the formal legal owner but need only obtain a right of disposal provided that he thereby acquires a position which is de facto analogous to that of the formal legal owner.
14. The second reason for which the question should be answered in the negative is that the terms used in the VAT directives must be defined at Community level unless the directives themselves leave it to the Member States to determine the definition of a term. This ensures a uniform application of the common system of turnover tax. For that reason the expression supply of goods cannot be regarded as meaning formal supply in the civil law sense of legal ownership of goods. The latter expression is not defined in the VAT directives so that in order to supplement it reference would have to be made to the — to my knowledge — very different ways in which transfer, supply and enforceability of legal — as opposed to economic — ownership are defined in the Member States.
The second question
15. The second question submitted by the Hoge Raad is more difficult; whereas the first question asks whether transfers other than transfers of formal legal ownership are covered by the Community concept of supply, the question at issue here is which other transfers are covered. The Hoge Raad wishes to know in particular whether there is such a transfer if the parties conclude an agreement the content of which may be summarized as follows:
16. Personally I am reluctant to state in general — particularly in terms borrowed from the legal order of one Member State — that once the criteria referred to in (a) are satisfied, a supply within the meaning of Article 5(1) of the Sixth Directive has taken place. As I have already pointed out, the Community legislature, in defining the Community concept of supply, placed emphasis on a right of disposal which is analogous to that of the formal legal owner. I agree with the Commission that the national court must assess on the basis of the particular facts of each case whether the other party acquires the right to dispose of the property as owner. It seems to me at least that he does if the right of ownership retained by the original seller is so diminished that it is reduced to mere legal title.
17. It remains to consider the effect of the clauses in (b). Here it is essentially a question of determining whether, in assessing in each case whether there is a right of disposal within the meaning of Article 5(1) of the Sixth Directive, it makes any difference if the parties to an agreement for the immediate transfer of economic ownership alone have decided on the method by which legal ownership will subsequently be transferred.
18. I agree with the Commission that no support for this view can be found in the Community legislation. Where, in the light of the particular circumstances, a transfer of economic ownership of property must be regarded as transfer of the right to dispose of tangible property as owner, there is in my view a supply within the meaning of Article 5(1) of the Sixth Directive. That is not altered by any agreement between the parties concerning the subsequent transfer of legal ownership. If it were, the precondition for taxation contained in Article 5(1) would be defined in such a way as to depend on specific agreements between the parties, which would be contrary to legal certainty and would jeopardize the uniform application of the conditions governing taxation laid down by the Community.
Conclusion
19. In conclusion I propose that the Court should answer the preliminary questions as follows:
1 Original language: Dutch
2 Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Memoer States relating to turnover taxes — Common system of value-added tax uniform basis of assessment (OJ 1977, L 145.p 1)
3 BNB (Beslissingen Nederlandse Belastingsrechispraak) 1955, p. 377.
4 Law of 24 December 1970 (Staatsblad 1970, p. 611) laying down new rules superseding the legislation on registration and stamp duty (Wet op Belastingen van Rechtsverkeer)
5 See in particular the judgment of the Gerechtshof s'Hertogenbosch of 8 December 1978, BNB 1980, p. 208.
6 See judgment of 1 February 1977 in Case 51/76 Nederlanate Ondernemingen v Inspecteur der Invoerrechten en Accijnzen [1977] ECR 113, paragraphs 10 and 11.