Flashback on ECJ cases C-186/89 (Van Tiem) – Granting of building rights on immovable property – Economic activity

On December 4, 1990, the ECJ issued its decision in the case C-186/89 (Van Tiem).

Context:

1 . Tax provisions – Harmonization of laws – Turnover taxes – Common system of value added tax – Economic activities within the meaning of Article 4 of the Sixth Directive – Grant of a building right over immovable property (Council Directive 77/388, Art . 4(2))

2 . Tax provisions – Harmonization of laws – Turnover taxes – Common system of value added tax – Supply of goods – Transfer of the right to dispose of tangible property – Creation of a right in rem giving the holder thereof a right of user over immovable property in a Member State which deems such a right to be tangible property – Inclusion (Council Directive 77/388, Arts 5(1 ) and (3)(b))

3 . Tax provisions – Harmonization of laws – Turnover taxes – Common system of value added tax – Taxable persons – Concept – Exhaustive definition contained in Article 4 of the Sixth Directive – Exercise by a Member State of the option mentioned in Article 5(3 ) – No effect (Council Directive 77/388, Arts 4 and 5(3)(b))

Article in the EU VAT Directive

Article 4(2), 5(1), 5(3)(b) of the Sixth Directive (Articles 9, 14(1) and 15 of the EU VAT directive 2006/112/EC).

Article 9
1. ‘Taxable person’ shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as ‘economic activity’. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.
2. In addition to the persons referred to in paragraph 1, any person who, on an occasional basis, supplies a new means of transport, which is dispatched or transported to the customer by the vendor or the customer, or on behalf of the vendor or the customer, to a destination outside the territory of a Member State but within the territory of the Community, shall be regarded as a taxable person.

Article 14
1. ‘Supply of goods’ shall mean the transfer of the right to dispose of tangible property as owner.

Article 15
1. Electricity, gas, heat or cooling energy and the like shall be treated as tangible property.
2. Member States may regard the following as tangible property:
(a) certain interests in immovable property;
(b) rights in rem giving the holder thereof a right of use over immovable property;
(c) shares or interests equivalent to shares giving the holder thereof de jure or de facto rights of ownership or possession over immovable property or part thereof.

Facts

By a judgment of 24 May 1989, which was received at the Court on 29 May 1981, the Hoge Raad der Nederlanden referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty three questions on the interpretation of Articles 4(2 ) and 5(3)(b ) of the Sixth Council Directive ( 77/388/EEC ) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax : uniform basis of assessment ( Official Journal 1977 L 145, p . 1, hereinafter referred to as “the Sixth Directive “).
Those questions were raised in proceedings between Mr van Tiem and the Netherlands Secretary of State for Finances following an assessment to turnover tax
It appears from the file that on 29 September 1980 Mr van Tiem bought a building plot in a private transaction . In respect of that acquisition the sum of HFL 10 677.97 was invoiced to him by way of turnover tax .
On the same date Mr van Tiem granted to Tiem’ s Electro Technisch Installatiebureau BV building rights over the plot for a period of 18 years subject to the annual payment of HFL 3 000 ( inclusive of turnover tax ). Under the terms of Articles 758, 759 and 765 of the Netherlands Civil Code, “a building right is a right in rem to have buildings, works and plant on ground belonging to another person “.
On 20 October 1980 Mr van Tiem requested the national tax authorities to exclude him with effect from 29 September 1980 from the exemption from turnover tax in respect of the grant of a building right in rem .
On 18 December 1980 the Inspector granted that request on the basis that it concerned the letting of the immovable property in question .
In his turnover tax declaration relating to the first quarter of 1981 Mr van Tiem deducted the turnover tax charged to him upon the purchase of the land .
The Inspector disallowed that deduction by raising an assessment to turnover tax in the amount of HFL 10 678, that is to say the amount of tax paid by Mr van Tiem on the purchase of the plot .
The Arnhem Gerechtshof, to which Mr van Tiem appealed, confirmed the assessment on the ground that Mr van Tiem had not been acting as a trader, within the meaning of Article 7 of the 1968 Wet op de Omzetbelasting ( Netherlands law on turnover tax ), upon the creation of the building right and hence was not entitled to deduct the turnover tax invoiced on the purchase of the plot .
Mr van Tiem appealed against the Gerechtshof’ s judgment to the Hoge Raad . That court considered that the grant of the building right was deemed, under Article 7(2)(b ) of the Netherlands legislation, to be the exploitation of a tangible asset for the purpose of obtaining income therefrom on a continuing basis, so that Mr van Tiem fell to be regarded as a trader and was entitled to claim the deduction .
In its judgment making the reference to the Court of Justice, the Hoge Raad observes, on the one hand, that the expression “exploitation of tangible or intangible property”, used in the Netherlands legislation, is borrowed from Article 4(2 ) of the Sixth Directive and, on the other, that the Netherlands legislature availed itself of the option provided for in Article 5(3 ) of the Sixth Directive to consider rights in rem giving the holder thereof a right of user over immovable property to be tangible property, by providing that the creation of a right in rem over immovable property is to constitute a supply of goods in Article 3(2 ) of the Wet op de Omzetbelasting .

Questions

( 1 ) Must the second sentence of Article 4(2) of the Sixth Directive be interpreted as meaning that the relinquishment by the owner of immovable property of the use of that property in favour of another person for a specified period in return for a sum to be paid periodically, by the grant to that person for such a period and in return for such payment of a right in rem to use the immovable property, such as building rights, constitutes exploitation of tangible property for the purpose of obtaining income therefrom on a continuing basis, within the meaning of that provision of the directive?
( 2 ) In so far as a Member State has made use of the possibility provided for in Article 5(3)(b) of the Sixth Directive to consider rights in rem giving the holder thereof a right of user to be tangible property, must Article 5(1) be interpreted as meaning that the term ‘transfer’ used in that provision also covers the creation of such a right?
( 3 ) Is the answer to the first question different if and in so far as the second question is answered in the affirmative?

AG Opinion

N/A

Decision

1 . The grant by the owner of immovable property to another person of building rights in respect of that property, by authorizing that person to use the immovable property for a specified period in return for consideration, must be regarded an economic activity as defined in Article 4(2 ) of the Sixth Council Directive ( 77/388/EEC ) on the harmonization of the laws of the Member States relating to turnover taxes . Such a transaction entails the exploitation of tangible property for the purpose of obtaining income therefrom on a continuing basis within the meaning of the second sentence of Article 4(2 ) of the Sixth Directive .

2 . Under the terms of Article 5(1 ) of the Sixth Directive “supply of goods” means the transfer of the right to dispose of tangible property as owner . In so far as a Member State has made use of the possibility provided for in Article 5(3)(b ) of the Sixth Directive to consider rights in rem giving the holder thereof a right of user over immovable property to be tangible property, the term “transfer” used in Article 5(1 ) must be interpreted as also covering the creation of such a right .

3 . In accordance with the purpose of the Sixth Directive which is inter alia to found a common system of value added tax upon a uniform definition of “taxable persons”, the scope of Article 4 of the Sixth Directive, concerning taxable persons, cannot be altered by the fact that a Member State has or has not exercised the option of assimilating the creation of a building right to the supply of goods, as provided for in Article 5(3)(b ) of the directive .

Summary

The granting of a right of superficies on an immovable property by the owner of that property to another person, whereby this other person obtains a right of use of the immovable property for a certain period in return for compensation, must be regarded as an economic activity consisting in the exploitation of a physical thing in order to obtain sustainable returns from it.

To the extent that a Member State has made use of the option offered by Article 5(3)(b) of the Sixth Directive to treat as tangible property rights in rem which confer on the right holder the right to use immovable property, it must the concept of transfer or transfer used in Article 5(1) shall be interpreted as including the creation of such a right in rem .

Source