On December 13, 2012, the ECJ issued its decision in the case C-395/11 (BLV Wohn- und Gewerbebau GmbH). The case dealt with the interpretation of the term ”construction work”.
Context: Taxation – Sixth VAT Directive – Decision 2004/290/EC – Manner in which a Member State applies a derogating measure – Authorisation – Article 2, point (1) – ‘Construction work’ – Interpretation – Supplies of goods covered – Possibility for the derogating measure to be applied only in part – Restrictions
Article in the EU VAT Directive
Under Article 5(1) and (5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), as amended by Council Directive 2004/7/EC of 20 January 2004 (OJ 2004 L 27, p. 44) (‘the Sixth Directive’):
1. “Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.
5. Member States may consider the handing over of certain works of construction to be supplies within the meaning of paragraph 1.’
Article 6(1) of the Sixth Directive provides:
‘“Supply of services” shall mean any transaction which does not constitute a supply of goods within the meaning of Article 5.’
Under the first sentence of point (1)(a) of Article 21 of that directive:
1. Under the internal system, the following shall be liable to pay value added tax:
(a) the taxable person carrying out the taxable supply of goods or of services …’
Article 27(1) of that directive provides:
1. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance …’
Recital 2 in the preamble to Decision 2004/290 is worded as follows:
Considerable [VAT] losses were established in the construction and in the building-cleaning businesses, where VAT was openly invoiced but not paid to the fiscal authorities, while the recipient exercised his right to deduct. The non-compliant operators could not be identified or identification was achieved too late to recover lost VAT. The number of such cases has increased to an extent requiring legal measures. The envisaged liability of the recipient for VAT only concerns businesses which can exercise their right to deduct and does not cover private persons. It is limited to two specific branches, where the losses in terms of VAT have achieved an intolerable dimension …’
Recital 4 to that decision states:
‘The derogation does not affect the amount of [VAT] due at the final consumption stage and has no impact on the Communities’ own resources from VAT …’
Under Article 1 of Decision 2004/290:
By way of derogation from Article 21(1)(a) of [the Sixth] Directive … the Federal Republic of Germany is hereby authorised, with effect from 1 April 2004, to designate the recipients of the supplies of goods and services referred to in Article 2 of this Decision as the persons liable to pay VAT’.
Under point (1) of Article 2 of Decision 2004/290:
In the following instances the recipient of the supply of goods and services may be designated as the person liable to pay VAT:
1. where building-cleaning services are supplied to a taxable person, except where the recipient of the supply exclusively rents not more than two residences or where construction work is supplied to a taxable person’.
- BLV is an undertaking engaged in the activity of acquiring land, providing it with basic infrastructure and building on it. It is a ‘taxable person’ within the meaning of Article 4 of the Sixth VAT Directive.
- In September 2004, BLV engaged Rolf & Co. OHG (‘Rolf & Co.’) to build a residential block of six flats at a fixed price. On 17 November 2005, Rolf & Co. issued a final invoice representing consideration for the work carried out, on which VAT was not itemised, referring to BLV as liable in that it was the recipient of the supply.
- BLV initially declared to the tax authorities that, as the transaction in question had been carried out during the 2005 tax year, it was liable to pay the VAT. Later, however, BLV claimed that the conditions which must be met if it is to incur liability for VAT had not been satisfied, as the Federal Republic of Germany is not permitted under EU law to make the recipient of the supply, rather than the provider, pay VAT on such a transaction. The Finanzamt, on the other hand, disagreed, its position being that BLV was liable for the VAT. BLV brought the matter before the administrative courts.
- The Finanzamt – the defendant in the main proceedings – regarded BLV as liable to pay VAT in accordance with point 4 of the first sentence of Paragraph 13b(1), and the second sentence of Paragraph 13b(2), of the UStG. In the circumstances, the Bundesfinanzhof (Federal Finance Court) believes that the settlement of the dispute depends on the proper interpretation of Decision 2004/290.
(1) The term ‘construction work’ within the meaning of Article 2(1) of Decision 2004/290/EC of 30 March 2004 authorising Germany to apply a measure derogating from Article 21 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes encompasses only supplies of services, in particular because the elements of business structure and labour predominate over the element of the supply of materials.
(2) In assessing whether a transaction constitutes construction work and therefore a supply of services, or a supply of goods, the court must consider all the circumstances of the individual case.
(3) It is contrary to Union law for national legislation and case-law to attach, for the purposes of the distinction in question, exclusive relevance to a single element, in particular the fact that the builder provided his own materials, and automatically to base the distinction between supplies of services and supplies of goods on the existence of that element.
(4) The national legislature may certainly indicate to the courts criteria to be applied in distinguishing supplies of goods from supplies of services, but may not restrict the courts’ power to distinguish between supplies of goods and supplies of services by specifically examining all the circumstances of the case.
1. Point (1) of Article 2 of Council Decision 2004/290/EC of 30 March 2004 authorising Germany to apply a measure derogating from Article 21 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes must be interpreted to the effect that the term ‘construction work’, as used in that provision, covers the supply of goods within the meaning of Article 5(1) of that directive, in addition to the transactions to be regarded as supplies of services, as defined in Article 6(1) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2004/7/EC of 20 January 2004.
2. Decision 2004/290 must be interpreted to the effect that it is open to the Federal Republic of Germany to avail itself only partially of the authorisation granted by that decision, exercising it in respect of certain subcategories, such as particular types of construction work, and in respect of supplies to certain recipients. When establishing those subcategories, that Member State is required to respect the principle of fiscal neutrality and the general principles of European Union law and, in particular, the principles of proportionality and legal certainty. It is for the referring court to determine, taking into account all the relevant facts and points of law, whether that is the position in the case before it and, if appropriate, to take the measures necessary to remedy the harmful consequences brought about by the application of the provisions at issue in a manner inconsistent with the principles of proportionality or legal certainty.
Article 2 (1) of Council Decision 2004/290 / EC of 30 March 2004 authorizing Germany to apply a measure by way of derogation from Article 21 of the Sixth Directive must be interpreted as meaning that the term contained in that provision ‘Construction work’ includes, in addition to transactions classified as services as defined in Article 6 (1) of the Sixth Directive, also transactions constituting supplies of goods within the meaning of Article 5 (1) of this Directive .
Decision 2004/290 must be interpreted as meaning that Germany is entitled to use the authorization granted by this Decision only partially for certain subgroups, such as specific types of construction work, and for services to certain recipients. In defining these subgroups, this Member State should respect the principle of fiscal neutrality and the general principles of Union law, including in particular the principles of proportionality and legal certainty. It is for the referring court, taking into account all relevant circumstances of law and of fact,