Report for the Hearing delivered in Case 51/88

I — Facts and written procedure

1. Article 9(1) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1; hereinafter referred to as the Sixth Directive) provides that the place where a service is supplied is to be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides. However, under Article 9(2)(d), in the case of the hiring-out of movable tangible property, with the exception of all forms of transport, which is exported by the lessor from one Member State with a view to its being used in another Member State, the place of supply of the service is to be the place of utilization.

2. The Sixth Directive was amended by the Tenth Council Directive (84/386/EEC) of 31 July 1984 on the harmonization of the laws of the Member States relating to turnover taxes, amending Directive 77/388/EEC —Application of value-added tax to the hiring-out of movable tangible property (Official Journal 1984, L 208, p. 58; hereinafter referred to as the Tenth Directive). The Tenth Directive was intended to enter into force by 1 July 1985. The fourth recital in its preamble states that, as regards the hiring-out of forms of transport, Article 9(1) should, for reasons of control, be strictly applied, the place where the supplier has established his business being treated as the place of supply of such services.

3. In the course of his business, the plaintiff in the main proceedings, Knut Hamann, hired out (uncrewed) oceangoing sailing yachts in 1980 and 1981—the years to which the dispute relates.

4. The charterers took possession of the yachts in their home port of Kiel (Federal Republic of Germany) and generally left German territorial waters to go sailing mainly in Danish and Swedish waters, but also as far away as Norway and Finland. They come back just before the expiry of the charter period in order to return the yachts, which were thus mainly used outside German tax territory.

5. In respect of the financial years 1980 and 1981 Knut Hamann declared a turnover net of tax, which was accepted by the Finanzamt (Tax Office) Hamburg-Eimsbüttel subject to verification in accordance with German tax legislation.

6. In the course of an inspection in 1983, the inspector took the view that the offering of oceangoing yachts on charter constituted a hiring-out of a means of transport, which had to be treated as a taxable service provided in Germany. Accordingly, he calculated the appropriate turnover tax for the financial years 1980 and 1981. The Finanzamt upheld the inspector's interpretation and drew up notices of revised assessment in respect of 1980 and 1981.

7. Knut Hamann brought an action before the Finanzgericht Hamburg against the decision of the Finanzamt, which had rejected his complaints. He argued that the chartering of oceangoing yachts is not subject to turnover tax, by virtue of Paragraph 1 of the German Umsatzsteuergesetz (Turnover Tax Law) of 1980, because he had realized a nontaxable turnover outside German tax territory, movable tangible property being deemed to be hired out at the place where it is used. The exception laid down for forms of transport did not operate because oceangoing yachts were not such means of transport.

8. The Finanzamt, on the other hand, considered the oceangoing yachts to be means of transport for the purposes of German legislation, and concluded that the hiring-out of such goods was an activity to be taxed at the place where the lessor had established his place of business — in this case, on German territory.

9. The Finanzgericht Hamburg took the view that the special rule in respect of the hiring-out of means of transpon was inserted into the 1980 Umsatzsteuergesetz in order faithfully to transpose the Sixth Directive into national law.

10. The Finanzgericht Hamburg held that the dispute involved the interpretation of the relevant Community legislation, and accordingly, by order of 22 December 1987, decided pursuant to Article 177 of the EEC Treaty to stay the proceedings until the Court of Justice had given a preliminary ruling on the following question:

11. The order of the Finanzgericht Hamburg was lodged at the Court Registry on 17 February 1988.

12. In accordance with Anicie 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted on 6 May 1988 by the Commission of the European Communities, represented by Daniel Calleja, a member of its Legal Depanment, assisted by Reinhard Wagner, a German judge attached to the Commission as pan of the exchange programme for officials, on 11 and 17 May 1988 by the Director of the Finanzamt, on 13 May 1988 by Knut Hamann, the plaintiff in the main proceedings, represented by P. Müller-Kemler, Rechtsanwalt, Hanover, and on 16 May 1988 by the Government of the Federal Republic of Germany, represented by Manin Seidel, Ministerial Adviser at the Federal Ministry of Economic Affairs, assisted by Jochim Sedemund, Rechtsanwalt, Cologne.

13. Upon hearing the repon of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

14. Pursuant to Article 95(1) and (2) of the Rules of Procedure, the Court, by a decision of 27 October 1988, assigned the case to the Second Chamber.

II — Written observations submitted to the Court

1. Knut Hamann, the plaintiff in the main proceedings, points out that the interpretation of the term forms of transport is a matter of controversy in the Federal Republic of Germany. He explains that the most meticulous attempt so far to define the term has been made by the Finanzgericht (Finance Court) Schleswig-Holstein in its judgment of 29 September 1983. In order to classify objects capable of use as either sporting means of transport or sports equipment serving as a means of transportation, the main criteria should, according to the decision of the Finanzgericht, be the inherent qualities and functional purpose which give the equipment its essential character according to prevailing public opinion and the circumstances of the case. The Finanzgericht accepted that sailing boats do not a priori belong within the category of forms of transport. The transportation of yachtsmen and of their equipment and cargo to any given place is, in principle, merely the factual result and not the purpose, certainly not the main purpose, of sailing. The main purpose in chartering an oceangoing yacht lies in the pursuit of sport and relaxation. The movement of persons and things is merely subsidiary and concomitant, put up with because it would otherwise be impossible to practise sailing at all. On those grounds a sailing boat is, according to the judgment quoted, primarily an item of equipment for sport and leisure and not a means of transport for the purposes of tax legislation.

2. The Finanzamt, the defendant in the main proceedings, argues that the exemption in the Sixth Directive for means of transport was created for the sake of simplifying taxation so as to avoid insuperable practical problems of demarcation and proof. The desire for simplification underlying those provisions calls for a broad interpretation of the term form of transport, so as to apply to any object serving to transpon persons or things when the determination of its place of use would involve practical difficulties. In support of its opinion the Finanzamt quotes the opinion of the Advisory Committee on Value-Added Tax of 22 September 1983. In enumerating forms of transpon, that opinion included not only boats for sport and pleasure but also bicycles and saddle-horses, which are usually, and almost exclusively, hired out for the purposes of sport, recreation or leisure. The Finanzamt observes that the interpretation of forms of transport advocated by Knut Hamann overlooks the fact that all transport, regardless of the means used, is not intended merely for locomotion but seeks primarily, and necessarily, the attainment of other aims, with the result that any distinction by reference to the principal and the secondary aim of such locomotion is neither possible nor practicable.

3. The Government of the Federal Republic of Germany claims that the question referred to the Court should receive an affirmative answer. Such an interpretation is indicated by the generally accepted view of the term forms of transport, and also by the fundamental purpose of the rule contained in Article 9 of the Sixth Directive. Since the Community legislature has not defined the term at issue, it clearly relied on consistent linguistic usage and standard administrative practice, which had long prevailed in the Member States. According to that linguistic usage, it is an essential feature of a means of transport that it should serve to move persons and goods from place to place, such movement being necessarily the intrinsic, or the main, object of the activity. Accordingly, there are two conditions essential to the concept of forms of transport: the means of transport must be immediately suitable for locomotion and must be used, as intended, for the transportation of persons or objects. According to the Federal German Government, a sailing yacht fulfils both the conditions to be met by a means of transport, even if it is used solely for the sport of yachting. The purpose of the transportation is irrelevant. According to the Sixth Directive, the hiring-out of property is taxed as a supply of services, irrespective of the extent and manner of its use. The set of rules laid down in Article 9 of the directive does not concern the question whether or not the property was actually used, but confines itself to determining the place of taxation.

4. The Commission submits that, in order to avoid conflicts of jurisdiction in cases in which a supply of services is liable to be governed by the legal system of more than one Member State, Article 9(1), in derogation from the strict principle of territoriality, lays down the general rule under which the place where a service is supplied is deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied; Article 9(2), however, qualifies that general rule by introducing a number of exceptions in respect of specific services for which the fictitious identification of the supplier's business premises as the place of supply would be inappropriate, and with regard to which it sets out other determining criteria. According to the Commission, the a contrario conclusion to be drawn from Article 9(2)(d) means that the place where a service consisting in the hiring-out of means of transpon is supplied is always the supplier's place of business, by virtue of the principle laid down in Article 9(1).

1 Language of the case: German.