Opinion of Mr Advocate General Van Gerven

Mr President,

Members of the Court,

1. The legal question submitted to the Court by the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) concerns Articles 4 and 5 of the Sixth VAT Directive. The Court is asked to rule on whether the grant of a right in rem (in this case building rights) in respect of immovable property for a given period and subject to periodic payment may be regarded as an economic activity, so that the grantor of the right in rem is to be deemed to be a taxable person within the meaning of Article 4 of the directive, even where the abovementioned transaction is to be regarded as a supply of goods within the meaning of Article 5 of the directive.

Background

2. I shall begin with a brief summary of the facts underlying the reference by the national court. On 29 September 1980 Mr W. van Tiem bought a building plot. On the supply he was charged turnover tax amounting to HFL 10677.97. Immediately after the purchase Mr van Tiem granted to Tiem's Electro Technisch Installatiebureau BV building rights in respect of the plot for a period of 18 years subject to the annual payment of HFL 3000 (inclusive of turnover tax). On 20 October 1980 Mr van Tiem requested the Netherlands tax authorities to exclude him with effect from 29 September 1980 from the exemption applicable under Netherlands legislation to the grant of building rights. Mr van Tiem's request was granted on the basis that his request concerned the letting of the immovable property. Some time later Mr van Tiem submitted a turnover tax declaration in which he deducted the amount paid on the purchase. The dispute in the main proceedings concerns the refusal by the Netherlands tax authorities to allow that deduction.

3. The point at issue between the parties in the main proceedings is not (so much) the question whether Mr van Tiem can be regarded as a trader in respect of the purchase of the building plot, but whether he may be deemed to be a trader as regards the grant of building rights. Mr van Tiem's ground of appeal is based on Article 7(2)(b) of the Wet op de Omzetbelasting (Law on turnover tax), which is worded as follows:

The questions

4. Article 7(2) of the Turnover Tax Law mentioned above was enacted in order to transpose Article 4(2) of the Sixth Directive. That is why the Hoge Raad referred to the Court three questions on the interpretation of the Sixth Directive. They are in the following terms:

5. Those questions relate to the scope of VAT, as defined in the Sixth Directive. Under the terms of Article 2(1) of the directive the following are subject to value-added tax: the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such. It is clear from that provision that liability to tax presupposes a taxable person and a transaction chargeable to tax. The former concept is defined in Article 4 of the Sixth Directive, and the second in Articles 5 to 7. The first question submitted for a preliminary ruling concerns the interpretation of the concept of taxable person, which corresponds to the concept of trader in the Netherlands legislation. The second and third questions ask whether the definition of the concept of supply of goods (one of the chargeable transactions mentioned in the directive) can affect the assessment of status as a taxable person.

The first question

6. In accordance with Article 4(1) of the Sixth Directive any person who independently carries on an economic activity, whatever the purpose or results of such activity, is to be regarded as a taxable person. The expression economic activity is defined in the second paragraph of Article 4, to which, as has been stated, Article 7(2) of the Turnover Tax Law corresponds. That expression includes

7. What guidance may be derived from the case-law? In the first place the Court has stressed on several occasions that Article 4 of the Sixth Directive attributes to VAT a very wide scope. In fact the purpose of the VAT system is to ensure absolute neutrality by subjecting all phases of production, distribution and the provision of services to as general a system of taxation as possible. The notion of economic activity must therefore be broadly interpreted in the light of the principle of neutrality.

8. What was at issue in Rompelman was the acquisition of a right to the title in a building under construction with a view to a subsequent letting. Just as in the present case, turnover tax was paid on the transfer of the immovable property and the fiscal authority refused to allow the tax to be deducted. The Court was requested to determine whether the acquisition of such a right could be regarded as an economic activity (more specifically the exploitation of immovable property) within the meaning of Article 4(1) of the Sixth Directive, in such a way as to confer entitlement to deduction (and to set off). The Court answered that question in the affirmative on the basis of an analysis of the fundamental characteristics of the VAT system.

9. In the present case the following elements of the Rompelman judgment are of relevance. First the purchase of immovable property with a view to its subsequent exploitation (for example by means of letting) is itself to be deemed to be an economic activity, so that the purchaser thereupon acquires the status of a taxable person and with it the right to deduct the tax paid at the time of the supply of the goods. Secondly, the principle of VAT neutrality means that the economic activities referred to in Article 4(1) of the Sixth Directive may consist in several consecutive transactions. It follows that the act of investment (the purchase of the goods) and subsequent exploitation may not be considered separately, with the consequence that in the course of exploitation a claim may be made to deduct the tax paid in the context of the investment transaction.

10. The Rompelman judgment did not expressly define the term exploitation of immovable property. But it leaves no doubt that the letting of immovable property must be deemed to be the exploitation of that property. In fact in the operative part of that judgment it is stated that the acquisition of a right to the future transfer of property rights in part of a building yet to be constructed with a view to letting such premises in due course may be regarded as an economic activity within the meaning of Article 4(1) from the very moment of the asset's acquisition. The fact that letting is by implication but without doubt to be regarded as an exploitation is borne out by the passage of the judgment dealing with the exemption from VAT on lettings provided for in Article 13 B(b) of the Sixth Directive. The judgment states that the lessor in Rompelman had exercised the option provided for in Article 13 C to be taxed on lettings of immovable property and held that the purchaser of immovable property is to be regarded as a taxable person from the moment of purchase.

11. Yet in the judgment of the Arnhem district court, against which Mr van Tiem appealed to the Hoge Raad, it was stated that the grant of building rights cannot be regarded as an exploitation of the property by the owner since the grantee of the building rights under Netherlands law acquires the right of disposition over the asset so that it is the holder of the building rights and not the owner who is exploiting the asset. This view does not seem to me to be correct under Community law. The fact that the holder of the building rights (under national law) may dispose of the immovable property, for example by erecting constructions on it, does not prevent the owner of the immovable property from exploiting that property within the meaning of Article 4 of the Sixth Directive by the grant of building rights. The owner transfers his power of disposition over the property for a certain time subject to a periodic remuneration. In that sense he is exploiting the property. In other words, the term exploitation is a Community concept which implies that in the application of VAT the national (civil) law may not lead to a situation where one form of exploitation but not another is regarded as an economic activity depending on the nature of the power of disposition enjoyed by the holder of the user rights under national law. The view of the Arnhem Gerechtshof would lead precisely to a situation in which the Community concept of exploitation is tied to a national law concept having a different objective and content, thus infringing the principle of VAT neutrality.

12. On the first question it remains to examine a point raised by the Commission: is it a prerequisite for the status of taxable person for the economic activity to be carried on on a regidar basis? That requirement was contained in the Second Directive but is missing from Article 4(1) of the Sixth Directive. Nevertheless, as the Commission rightly points out, that requirement must be accepted as continuing to be of general application. Indeed Article 4(3) gives Member States the possibility of treating as a taxable person anyone who on an occasional basis carries out a transaction relating to the activities referred to in the second paragraph of that article. That provision would be superfluous, if the first paragraph already applied to economic activities carried on on an occasional basis.

The second and third questions

13. As has already been mentioned, the concept of taxable transactions is more particularly described in Articles 5 to 7 of the Sixth Directive. The first kind of taxable transaction is the supply of goods, which is defined in Article 5(1) as:

14. The concept of supply of goods arose in the recent Safe judgment in which the Court made clear that it does not refer to transfer of ownership under procedures prescribed by the applicable national law but covers any transfer of tangible property by one party which empowers the other party actually to dispose of it as if he were the owner of the property. Whether there is a transfer of the owner's power to dispose of tangible property (that is to say the actual power, which can be wider than the legal concept of ownership) must be determined by the national court in each individual case on the basis of its facts.

15. The third question seeks to ascertain whether, assuming that under the answer to be given to the second question the creation of building rights is to be regarded as a supply, the owner of the asset may continue to be presumed to be exploiting the immovable property in question and thus to be deemed to be a taxable person within the meaning of Article 4 of the Sixth Directive. The Commission and the Netherlands Government maintain that the question whether the creation of building rights is to be deemed to be a supply within the meaning of Article 5 is distinct from the question whether a person is to be regarded as a taxable person in accordance with the criteria set out in Article 4. I am also of the view that both questions must be answered separately, for the following reasons.

Conclusion

16. On the basis of the foregoing considerations I suggest that the questions referred to the Court by the Hoge Raad should be answered as follows:

1 Original language: Dutch.

2 Sixth Council Directive of 17 May 1977 (77/388/EEC) on the harmonization of the laws of the Member Sutes relating to turnover taxes — Common system of value added tax: Uniform basis of assessment (OJ 1977, L 145, p. 1, hereinafter referred to as the Sixth Directive).

3 Evidently that request was made for the purpose of acquiring in respect of that transaction the status of a taxable person (more on this later) and thus the right to deduct the turnover tax paid on the purchase.

4 See for example the judgment in Case 235/85 Commission v Netherlands [1987] ECR 1471, paragraphs 6 to 8.

5 See the judgment mentioned in the previous footnote and the Opinion of Mr Advocate General Lenz in that case, in particular at paragraphs 19 to 21. See also the judgment in Case 348/87 Stichting Uitvoering Financiële Acties (1989) ECR 1737, paragraphs 10 to 13.

6 Judgment in Case 268/83 Rompelman v Minister van /ïnanrifti[1985] ECR 655.

7 Paragraph 19.

8 Paragraph 22.

9 Paragraph 23.

10 Paragraph 21.

11 It 5hould however be noted that the Netherlands fiscal authorities granted Mr van Tiem's request to exclude him from exoneration from turnover ux in respect of the grant of building rights on the ground that the request related to the letting of immovable property (see above, paragraph 2).

12 The same reasoning was followed by the Court of Justice in connection with the expression goods from customers' materials in Article 5 of the Second and the Sixth Directives (judgment in Case 139/84 Van Dijk'i Boekhuii [1985] ECR 1405, in particular paragraphs 15 to 17), and with regard to the concept of supply in Article 5(1) of the Sixth Directive (judgment in Case C-320/88 (Shipping and Forwarding Enterprise Safe BV [1990] ECR I-285, in particular paragraphs 6 to 9), more on this in paragraph 14.

13 See Article 4 of Directive 67/228/EEC of 11 April 1967 (OJ, English Special Edition 1967, p. 16).

14 Cited above in footnote 11.

15 Paragraph 7.

16 Paragraphs 10 to 12.

17 Sec for example Anieles 8 md 9 (place of taxable transactions) and Article 11 (taxable amount).