The ECJ issued the questions and facts in the case C-243/23 (Drebers).
Article in the EU VAT Directive
Articles 12, 187 and 189 of the EU VAT Directive 2006/112/EC.
Article 12
1. Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:
(a) the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;
(b) the supply of building land.
2. For the purposes of paragraph 1(a), ‘building’ shall mean any structure fixed to or in the ground.
Member States may lay down the detailed rules for applying the criterion referred to in paragraph 1(a) to conversions of buildings and may determine what is meant by ‘the land on which a building stands’.
Member States may apply criteria other than that of first occupation, such as the period elapsing between the date of completion of the building and the date of first supply, or the period elapsing between the date of first occupation and the date of subsequent supply, provided that those periods do not exceed five years and two years respectively.
3. For the purposes of paragraph 1(b), ‘building land’ shall mean any unimproved or improved land defined as such by the Member States.
Article 187
1. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured.
Member States may, however, base the adjustment on a period of five full years starting from the time at which the goods are first used.
In the case of immovable property acquired as capital goods, the adjustment period may be extended up to 20 years.
2. The annual adjustment shall be made only in respect of one-fifth of the VAT charged on the capital goods, or, if the adjustment period has been extended, in respect of the corresponding fraction thereof.
The adjustment referred to in the first subparagraph shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired, manufactured or, where applicable, used for the first time.
Article 189
For the purposes of applying Articles 187 and 188, Member States may take the following measures:
(a) define the concept of capital goods;
(b) specify the amount of the VAT which is to be taken into consideration for adjustment;
(c) adopt any measures needed to ensure that adjustment does not give rise to any unjustified advantage;
(d) permit administrative simplifications.
Facts
The defendant is a company in which the economic activity of the profession of lawyer is exercised. For several years now, she has owned a property that is partly used for private purposes and partly for economic activities. In the course of the years 2007 to 2015, very extensive work in immovable condition was carried out on that property.
Where the economic activity of the profession of lawyer was previously exempt from VAT, that exemption was lifted with effect from 1 January 2014, as a result of which the defendant has since been registered as a VAT taxable person. The applicant, the General Administration of the Special Tax Inspectorate (AABBI), Inspectorate Ghent 2, has commenced an unannounced tax audit at the defendant’s registered office. As a result of that check, the applicant concluded that various violations of VAT legislation had been committed by the defendant in the period from January 1, 2014 to September 30, 2015. These, together with the consequences associated with them, were included in a correction statement by the applicant. In total, VAT was deemed to be due in the official report for an amount of EUR 163,756.24. A writ of execution has been issued against the defendant to collect the amount due. The defendant lodged an appeal against this, which was declared admissible. The applicant appealed against that judgment.
Consideration:
The referring court notes that, on the basis of provisions of European directives, it is stipulated that the deduction of tax levied on assets and services that have characteristics similar to those usually attributed to assets is subject to adjustment for a period of five years, but with regard to the tax levied on real estate assets, this period is increased to 15 years. Under Belgian law, therefore, when an existing building is renovated, the 15-year review period is applied with regard to the VAT levied on these works if, after the execution of those works, there is a ‘new building’ for VAT purposes. The referring court considers the applicant’s complaint to be well founded and holds that the elevator shaft and the two annexes behind the mansion cannot be regarded as ‘part of a building’. These are not autonomously functioning parts of a structure that are permanently connected to the ground, in the sense that they could be economically operated independently.
Under the VAT Directive, the review period for investment goods is, in principle, 5 years. However, member states can extend the review period to a maximum of 20 years for ‘immovable investment goods’. The defendant argues that ‘immovable capital goods’ in the Community context usually refers to goods that are used and depreciated over a longer period of time and that have a longer economic life. The VAT Directive gives the national member states a certain discretion, including the power to determine which goods fall under the concept of ‘investment good’ and to determine what ‘amount of VAT should be taken into account in the adjustment’. The defendant argues that this competence is not absolute and that the Member States may not exceed the limits of their discretion, which implies that the Member States must respect the terms used in the VAT Directive. The referring court considers that the defendant should therefore be followed in stating that reference is made to the principle of neutrality as a special expression of the principle of equality, on the basis of which similar goods or services, which are therefore in competition with each other, must be treated equally for VAT purposes and that a taxable person may rely on the VAT Directive to oppose national legislation which is inconsistent with the Directive and its underlying principles. which implies that Member States must respect the terms used in the VAT Directive. The referring court considers that the defendant should therefore be followed in stating that reference is made to the principle of neutrality as a special expression of the principle of equality, on the basis of which similar goods or services, which are therefore in competition with each other, must be treated equally for VAT purposes and that a taxable person may rely on the VAT Directive to oppose national legislation which is inconsistent with the Directive and its underlying principles. which implies that Member States must respect the terms used in the VAT Directive. The referring court considers that the defendant should therefore be followed in stating that reference is made to the principle of neutrality as a special expression of the principle of equality, on the basis of which similar goods or services, which are therefore in competition with each other, must be treated equally for VAT purposes and that a taxable person may rely on the VAT Directive to oppose national legislation which is inconsistent with the Directive and its underlying principles.
The defendant is of the opinion that by transposing the concept of ‘immovable investment goods’ as used in the VAT Directive in such a strict manner into domestic law, by only applying the 15-year review period for works that lead to a building that can be sold subject to VAT, without applying the same period for works that result in a building having a similar economic life as a new building as a result of those works, solely because, in the opinion of the appellant, the renovated building could not be subject to VAT. sold, this violates the VAT Directive.
The defendant argues that it should first be established that the VAT Directive in no way refers to ‘new buildings’ or explains what should be regarded as a ‘new building’ under the VAT rules, which, under the application of VAT can be transferred. On the other hand, the notion ‘investment good’, according to the respondent, unmistakably refers to goods that are used over a longer period of time and are generally written off. Subsequently, the defendant argues that ‘immovable investment goods’ must be understood to mean real estate that has a longer economic life than the standard review period of 5 years. Based on the principle of fiscal neutrality, the defendant argues that it is the economic useful life of the property that is important, rather than the time when it was first put into use. When buildings are undergoing major renovations, so that they have an economic useful life that is just as long as new buildings, they are comparable to new buildings as a means of production created as a result of the works and they should receive the same VAT treatment.
Source ecer.minbuza.nl
Questions
1. Do Articles 187 and 189 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax preclude legislation such as that at issue in the main proceedings (i.e. Article 48, §2 and 49 JVBT read together with article 9 of the Royal Decree no. 3 of December 10, 1969, regarding the deduction scheme for the application of the value added tax), according to which the extended revision period (of 15 years) in case of renovation of a existing building is only used if, after completion of the works, there is a “new building” within the meaning of Article 12 of the aforementioned Directive on the basis of the criteria of internal law,while the economic useful life of a thoroughly renovated building (which, however, does not qualify as a “new building” within the meaning of the aforementioned Article 12 on the basis of internal legal administrative criteria) is identical to the economic useful life of a new building, which is considerably longer than the five-year term referred to in the aforementioned Article 187, which is apparent, among other things, from the fact that the works carried out are depreciated over a period of 33 years, which is also the period over which new buildings are depreciated?what is apparent, among other things, from the fact that the works carried out are depreciated over a period of 33 years, which is also the period over which new buildings are depreciated?what is apparent, among other things, from the fact that the works carried out are depreciated over a period of 33 years, which is also the period over which new buildings are depreciated?
2. Does Article 187 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax have direct effect, so that a taxable person has carried out works on a building, without those works resulting in the converted building qualifies as a “new building” on the basis of the internal law criteria within the meaning of Article 12 of the aforementioned Directive, but where those works have an economic useful life that is identical to the economic useful life of such new buildings for which a review period of 15 years applies, can rely on the application of the review period of 15 years?
AG Opinion
Decision
Summary
Source
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