Report for the Hearing in Case C-193/91

I — Facts and procedure

1. Legal framework

In Title V (Taxable transactions), the Sixth Directive (hereinafter the Directive) provides in Article 6(2):

Article 11(A)(1) of Title VIII (Taxable amount) provides in particular that, within the territory of the country,

2. Facts of the main proceedings and the preliminary questions

In assessing Mr Mohsche, a self-employed manufacturer, to turnover tax for 1983, the Finanzamt (Finance Office) München III (hereinafter the Finanzamt) charged Mr Mohsche to tax in respect of private use of a motor car which he had made part of the assets of his business. That use was assessed at 20% of the costs.

Mr Mohsche brought an appeal against that decision before the Finanzgericht [Finance Court] München. In particular he claimed that the amount relating to private use should be determined without including the garage rental in the basis of calculation.

The Finanzgericht München reduced the charge for private use by an amount equal to the garage rental, taxes and duties and insurance in respect of which there was no input tax. It likewise excluded parking fees from the charge for private use on the ground that the parties agreed that those fees did not relate to supplies giving rise to a right of deduction.

The Finanzamt appealed against that assessment on a point of law. The Bundesfinanzhof takes the view that the Finanzamt's appeal should be granted. However, having doubts about the interpretation of Article 6(2) of the Directive, the Bundesfinanzhof decided to stay the proceedings and to refer to the Court the following preliminary questions:

3. Procedure before the Court

The order making the reference was lodged at the Court Registry on 29 July 1991.

Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by:

Upon hearing the Judge-Rapporteur and the views of the Advocate General, the Court, by a decision of 17 June 1992, assigned the case to the Sixth Chamber, pursuant to Article 95 of the Rules of Procedure, and opened the oral procedure without any preparatory inquiry.

II — Summary of the written observations submitted to the Court

In the opinion of the German Government, the questions submitted by the national court go on from the Kühne case. However, the facts of the instant case differ on an essential point from those of that case, which concerned the private use of a motor car acquired from a nontaxable person and in respect of which the purchaser could not deduct input tax.

The German Government explains, in the first place, that the wording of Article 6(2)(a) of the Directive suffices to demonstrate that partial taxation of private use is ruled out and that the charge depends on the existence of a right of deduction in respect of the goods used privately. As a result, as the Court confirmed in paragraph 13 of its judgment in Kühne, the charge does not depend on whether the taxable person could rely on a right to deduct the tax on supplies made to him by third parties for the maintenance or use of the goods.

The German Government claims that the genesis of Article 6(2)(a) of the Directive confirms that that provision excludes any form of partial taxation proportional to the deduction of input tax paid, given that the Council expressly rejected that possibilityowing to the practical difficulties involved.

Secondly, the German Government contends that the taxation in full of the private use of the goods on the basis of the full cost to the taxable person also corresponds to the intent and the purpose of Article 6(2)(a) of the Directive, since that provision is intended to secure equality of treatment between taxable persons making supplies to themselves and final consumers obtaining supplies from third parties, in order to avoid a situation where the final consumer is not taxed. In order for that purpose to be achieved the private use of goods forming part of the assets of the business should be charged to tax even if that use includes the supply of services which did not give rise to a right to deduct the input tax.

That is established by a comparison between private use by the taxable person and the acquisition of supplies of services for consideration by the final consumer. If the latter hires a motor car from a taxable person who hires out vehicles, the taxable amount will be the full amount paid by the hirer (Article 11(A)(1)(a) of the Directive). The rental includes all the costs incurred by the taxable person as well as his profit margin. It is irrelevant that, in respect of supplies made to him, the taxable person has been able to deduct the input tax.

If the conditions for charging to tax on the basis of Article 6(2)(a) or (b) of the Directive are met, the German Government states that the taxable amount is that laid down by Article 11(A)(1)(c) of the Directive.

The private use of goods forming part of the assets of a business, which constitutes a supply of services by the taxable person to himself pursuant to Article 6(2)(a) of the Directive, should be distinguished from prior acquisitions, that is to say the obtaining of goods and supplies of services which make the use of the goods possible. Those acquisitions prior to the use of the goods do not in themselves constitute a chargeable event in relation to the user of the goods. They do not constitute either supplies of services made by the taxable person to himself or supplies of services within the meaning of Article 6(2)(b) of the Directive. It follows that, where a taxable person uses a business vehicle for private purposes and, in order to use the vehicle, has recourse to a supply of insurance, which is exempt, he does not ipso facto carry out a supply of services within the meaning of the aforementioned provision of the Directive.

The German Government cannot support the interpretation of Article 6(2) of the Directive according to which the use of the motor car must be taxed on the basis of subparagraph (a), while the supplies of services for the maintenance and running of the vehicle are to be charged to tax pursuant to subparagraph (b): the supplies of services made to the taxable person by third parties constitute acquisitions prior to the supply of services which he has made to himself and not supplies of his own services, and certainly not supplies within the meaning of Article 6(2)(b) of the Directive.

As the Court has expressly confirmed, the private use of goods forming part of the assets of a business must give rise to a charge when those goods have provided entitlement to deduct all or part of the input value added tax. Whether or not supplies made for the maintenance or use of the goods have given rise to the deduction of the tax by the taxable person is thus irrelevant.

In the case in point, the acquisition of the motor car entitled Mr Mohsche to deduct the input tax. Consequently, private use must be subject to value added tax, pursuant to Article 6(2)(a) of the Directive. The taxable amount is, in the words of Article 11(A)1(c) of the Directive, the full cost to the taxable person of the private use of the goods, including garage rental, taxes and duties, insurance and parking fees.

The German Government suggests that the first question submitted by the national court be answered as follows:

In the light of that reply, the German Government does not consider it necessary to answer the second question submitted to the Court.

The Commission explains that self-taxation, pursuant to Article 6(2)(a) of the Directive, when a taxable person makes private use of goods forming part of the assets of his business, is fundamental to the fiscal neutrality of the system, given that equality of treatment between final consumers is thus achieved. The principle of fiscal neutrality also presupposes that the taxable person does not bear the final burden of the tax, which could happen if the same goods or the same supply of services were taxed twice.

According to the Commission, supplies provided by way of insurance and garage rental are exempt and, as such, not deductible. With regard to Article 6(2)(a) of the Directive, it must be assumed that the principle of non-taxation of transactions until the stage of the final consumer is applicable. As a result, Mr Mohsche should not be liable for tax on his private use of the supplies at issue, unless that non-taxation infringes a fundamental principle of the Community system of turnover tax.

Had Mr Mohsche rented the garage and paid the insurance premium as a private individual, he would not have been charged value added tax on those supplies. On the other hand, if Mr Mohsche had, as a private individual, rented the vehicle from an undertaking which hired out vehicles, he would, as the final consumer, have had to bear the turnover tax for all the supplies appearing on the invoice, including, consequently, the nondeductible expenses pertaining to insurance and rental.

In the Commission's view, it is appropriate to treat Mr Mohsche as the private purchaser of a motor car and not as the hirer of that car, given that, most of the time, motor cars are used privately by their owners, and it is only in particular cases that a private individual uses a hire car. On the other hand, hire cars are hired for business purposes and in that case the value added tax is again fully deductible.

The fact that tax on nondeductible supplies is payable by the paying customer is an anomaly of the Community fiscal system which cannot be a reason for not applying fundamental principles. There is nothing to prevent the text of Article 6(2)(a) of the Directive from applying where the supplies in question are for the taxable person's own consumption. The Community legislature has simply given priority to equality of treatment; thus, whether they are taxable persons or private individuals, the same persons are treated equally when they use the same goods. The fact that, in different circumstances, supplies which are exempt in themselves may none the less be taxed cannot have the consequence of preventing the application of a provision which is clear in itself and in accordance with the system.

It is thus necessary to ascertain whether the supplies in respect of garage rental and insurance must come under subparagraph (a) or subparagraph (b) of Article 6(2) of the Directive. In the Commission's opinion, it is apparent from paragraphs 13 and 14 of the judgment in Kühne that partial deduction does not cover all the costs (acquisition of the goods, fuel and repairs) but only the cost of acquisition. In itself, partial deduction in respect of a capital asset is not compatible with the Directive.

According to the Commission, Article 6(2)(a) of the Directive does not mean that, when the value added tax paid in respect of the acquisition of goods is deductible, the expenses relating to insurance and garage rental are not however deductible; partial deductibility exists, allowing the self-taxation of all the expenses.

The question therefore arises whether the supplies at issue in the instant case are to be compared with those referred to in Kühne and which were used for the maintenance and use of the vehicle. The Commission is of the opinion that it is sufficient that the supplies have a connection with the acquisition and maintenance of the goods and that, as a result, a difference between the supplies made to the vehicle (repairs, fuel) or for the vehicle (rent, insurance) is not justified. The supplies thus do not come within the rule laid down by Article 6(2)(b) of the Directive. That case is fundamentally different from the case where there is no self-taxation in respect of supplies which are themselves exempt and nondeductible, while in the case of supplies which are made on a strictly personal basis, there is no input.

As far as the second question is concerned, the Commission refers to paragraphs 22 to 27 of the judgment in Kühne. Article 6(2)(a) of the Directive consists simply of a prohibitory provision which does not need any further implementing provisions. It is thus of such a nature as to produce direct effects in the legal relations between the Member States and individuals.

The Commission accordingly suggests that the Court reply to the questions submitted by the national court as follows:

1 Language of the case: German.

2 Judgment of 27 June 1989 in Case 50/88 Kühne v Finanzamt München III [1989] ECR 1925.

3 See Article 7(2)(a) of the directive proposal of 29 June 1973 (OJ 1973 C 80, p. 1).