On May 26, 2005, the ECJ issued its decision in the case C-536/03 (António Jorge).
Context: VAT – Article 19 of the Sixth VAT Directive – Deduction of input tax – Property transactions – Goods and services used for both taxable and exempt transactions – Deductible proportion.
Article in the EU VAT Directive
Article 19 of the Sixth VAT Directive (Article 174 of the EU VAT Directive 2006/112/EC).
Article 174
1. The deductible proportion shall be made up of a fraction comprising the following amounts:
(a) as numerator, the total amount, exclusive of VAT, of turnover per year attributable to transactions in respect of which VAT is deductible pursuant to Articles 168 and 169;
(b) as denominator, the total amount, exclusive of VAT, of turnover per year attributable to transactions included in the numerator and to transactions in respect of which VAT is not deductible.
Member States may include in the denominator the amount of subsidies, other than those directly linked to the price of supplies of goods or services referred to in Article 73.
2. By way of derogation from paragraph 1, the following amounts shall be excluded from the calculation of the deductible proportion:
(a) the amount of turnover attributable to supplies of capital goods used by the taxable person for the purposes of his business;
(b) the amount of turnover attributable to incidental real estate and financial transactions;
(c) the amount of turnover attributable to the transactions specified in points (b) to (g) of Article 135(1) in so far as those transactions are incidental.
3. Where Member States exercise the option under Article 191 not to require adjustment in respect of capital goods, they may include disposals of capital goods in the calculation of the deductible proportion.
Facts
The company António Jorge is challenging a judgment by the Tax Court of First Instance, which partially allowed an appeal against additional VAT and compensatory interest for the years 1994 to 1997. The company was subject to corporation tax and included in the ordinary VAT regime during these years. Following a tax inspection, the Tax Inspectorate concluded that there were difficulties in determining the tax improperly deducted in respect of “general expenses” and for the acquisition of fixed assets. An expert calculated the amount of VAT that was improperly deducted and the tax that was not paid. António Jorge provided services under public works contracts, paying VAT at different rates and deducting it accordingly. The national court has referred questions regarding the interpretation of Article 19 of the Sixth Directive to the Court of Justice of the European Union.
Questions
(1) In what sense must Article 19 of the Sixth Council Directive of 17 May 1977 (77/388/CEE) be interpreted?
(2) Is Article 23(4) of the CIVA compatible with the abovementioned provision, when interpreted to the effect that, where the taxable person is an undertaking engaged in real property business, carrying out work in two sectors of activity, one being the construction of buildings for sale (exempt from VAT) and the other public works contracts (subject to VAT), in order to calculate the deductible percentage of VAT or the proportion borne by that taxable person on the purchase of goods and services intended for both those activities, it is necessary to include in the denominator of the fraction to be calculated, in addition to the annual turnover, the value of work in progress which at the end of every year has not yet been put on the market and the value of which has not, in whole or in part, been received?
(3) Or in the sense that that denominator comprises turnover only?
AG Opinion
In the light of all the foregoing, I propose that the Court of Justice declare the reference for a preliminary ruling inadmissible.
The admissibility of three questions referred for a preliminary ruling by a national court needs to be examined. The Court of Justice may refuse to rule on a question if the interpretation of Community law sought bears no relation to the actual facts of the main action or its purpose, or if it does not have before it the factual or legal material necessary to give a helpful answer. The first question is worded too generally and cannot be answered separately. The second question concerns the compatibility of national law with a directive, which is not admissible. The order for reference does not contain sufficient detail to give a useful answer. No Member State other than the one concerned has submitted observations, indicating that the order for reference does not contain sufficient information. The subject-matter of the third question is the interpretation of a national law provision and is therefore inadmissible. If the questions referred were aimed at resolving the actual dispute pending before the national court, such a request would also be inadmissible. The Court of Justice is not competent to rule on the facts of the main proceedings or to apply the Community provisions interpreted by it to national measures or facts in an actual case, since that is within the exclusive jurisdiction of the national court.
Decision
It is contrary to Article 19(1) of 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 to include, in the denominator of the fraction making it possible to calculate the deductible proportion, the value of work in progress carried out by a taxable person in the course of civil construction activity, where that value does not correspond to the supply of goods or the provision of services which has already been made by the taxable person or which has given rise to statements of account of work and/or the receipt of payments on account.
Summary
Goods and services used for both taxable and exempt transactions – Pro rata deduction
Article 19 of the Sixth Directive precludes the inclusion in the denominator of the fraction used to calculate the deductible proportion of the value of residential housing works not yet completed by a taxable person if that value does not correspond to a delivery of goods or services that he has already performed, or that have given rise to an invoice for the works and/or an advance payment.
Source
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