Flashback on ECJ cases C-326/99 (“Goed Wonen”) – Member State’s power to consider certain rights in rem on immovable property as tangible property subject to delivery

On October 4, 2001, the ECJ issued its decision in the case C-326/99 (“Goed Wonen”).

Context: Sixth VAT Directive – Power of a Member State to treat certain rights in rem in immovable property as tangible property capable of supply – Restriction of the exercise of that power to cases where the price of the right in rem is at least equal to the economic value of the property concerned – Letting and leasing of immovable property – Exemptions

Article in the EU VAT Directive

Articles 5(3)(b), 13B(b), 13C(a) of the Sixth VAT Directive (Articles 15(2), 135(1)(l), 135(2), 137 of the EU VAT Directive 2006/112/EC).

Article 15 (Taxable transactions)
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.

Article 135 (Exemption)
1. Member States shall exempt the following transactions:
(l) the leasing or letting of immovable property.
2. The following shall be excluded from the exemption provided for in point (l) of paragraph 1:
(a) the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;
(b) the letting of premises and sites for the parking of vehicles;
(c) the letting of permanently installed equipment and machinery;
(d) the hire of safes.
Member States may apply further exclusions to the scope of the exemption referred to in point (l) of paragraph 1.

Article 137
1. Member States may allow taxable persons a right of option for taxation in respect of the following transactions:
(a) the financial transactions referred to in points (b) to (g) of Article 135(1);
(b) the supply of a building or of parts thereof, and of the land on which the building stands, other than the supply referred to in point (a) of Article 12(1);
(c) the supply of land which has not been built on other than the supply of building land referred to in point (b) of Article 12(1);
(d) the leasing or letting of immovable property.
2. Member States shall lay down the detailed rules governing exercise of the option under paragraph 1.
Member States may restrict the scope of that right of option.

Facts

The Stichting ”Goed Wonen”, the applicant in the main proceedings, is the legal successor of the housing association Woningbouwvereniging ”Goed Wonen” (hereinafter referred to as ”the GW Association”).
In the course of the second quarter of 1995, three newly-built housing complexes with dwellings designed for letting were supplied to the GW Association.
By notarial act dated 28 April 1995, the GW Association set up the Stichting ”De Goede Wonen” (hereinafter ”the GW Foundation”) and granted to it a usufructuary right for a term of 10 years in respect of the new dwellings in return for a sum lower than the cost price of those dwellings. As usufructuary, the GW Foundation commissioned the GW Association to manage the dwellings, to carry out or have carried out large and small-scale maintenance work, to collect and administer rents, to issue receipts for rent received, to conclude, amend and terminate leases of the dwellings, issue invoices in respect of rent increases and to carry out all such legal acts on behalf of the usufructuary as the GW Association might deem appropriate in connection with such management.
In its tax return for the period 1 April to 30 June 1995, the GW Association entered, first, the VAT which it had charged the GW Foundation for the grant of the usufruct, amounting to NLG 645 067, and, second, the amount of VAT which it itself had been charged for construction of the dwellings, amounting to NLG 1 285 059, which was deducted as input tax. On the basis of that declaration, the GW Association recouped NLG 639 992.
The Tax Inspector later issued a supplementary assessment for the amount deducted by the GW Association. That assessment was confirmed by a decision of 12 December 1996 which the GW Association challenged before the Gerechtshof te Arnhem. However, by decision of 14 February 1997, the Inspector reduced his assessment to the sum of NLG 639 992, which corresponded to the amount which the tax authorities had reimbursed to the GW Association on the basis of its tax declaration.
On 21 August 1997, the GW Association adopted the legal form of a foundation and became the Stichting ”Goed Wonen”
By judgment of 20 May 1998, the Gerechtshof upheld the supplementary assessment, as reduced in the meantime by the Tax Inspector. It is against that judgment that the Stichting Goed Wonen has appealed in cassation to the referring court, the Hoge Raad der Nederlanden.
As the Hoge Raad der Nederlanden points out in its judgment, the Gerechtsof te Arnhem ruled that the situation created by the GW Association, in setting up the GW Foundation and granting it the usufructuary right over the dwellings, was no different from that which would have prevailed if it had itself let the newly-built dwellings. Given its very limited freedom of action, the GW Foundation was to be assimilated to the GW Association owing to the quite preponderant role of the latter, as shown by the powers conferred in granting the usufructuary right, and to the close administrative association of the two bodies. Consequently, the creation of the usufruct could not be a taxable transaction for VAT purposes.
The Gerechtsof also held, that even if the GW Foundation could not be assimilated to the GW Association, the supplementary assessment had to be upheld for the following reasons:
- the grant of a limited right such as usufruct did not constitute a supply of goods within the meaning of Article 3(1)(e) of the VAT Law or Article 5(1) of the Sixth Directive since that concept does not cover the transfer of the right to dispose of an asset as owner;
- the Sixth Directive does not preclude the grant of a limited right in rem from being treated as a supply of goods under the sole condition referred to in the first subparagraph of Article 3(2) of the VAT Law;
- the grant of a usufruct in the circumstances of the instant case had to be treated as a letting within the meaning of Article 13B(b) of the Sixth Directive so that the exemption provided for by that provision was applicable.
The Hoge Raad der Nederlanden held that the first plea of the Stichting Goed Wonen, so far as it contested the interpretation of the Gerechtshof assimilating it to the GW Foundation, was well founded. According to the Hoge Raad, the legal transactions which had taken place in the case had incontestably led to the creation of a new and distinct legal person by the GW Association.
With regard to the question whether the Dutch legislature could so implement Article 5(3)(b) of the Sixth Directive as to treat or not treat rights in rem entitling the holder to use immovable property as tangible goods depending on the price of transfer of those rights, the national court refers to the principles laid down in Case C-320/88 Shipping and Forwarding Enterprise Safe [1990] ECR I-285, paragraphs 8 and 9. According to the Hoge Raad the Court, in that judgment, held that the transfer of the power to dispose of tangible property as owner, even if there were no transfer of the legal property in the goods, was to be regarded as a supply of goods on the ground that it was necessary to base the common VAT system on a uniform definition of taxable transactions.
The Hoge Raad also points out that, since the Sixth Directive does not define letting or leasing, the case raises the question whether, in Article 13B(b) of the Directive, the Council intended to limit the scope of those concepts to that which they have in the civil law of the Member State concerned.

Questions

1. Is Article 5(3) of the Sixth Directive to be interpreted as meaning that rights in rem entitling the holder thereof to use immovable property may be treated by the national legislature as tangible property only if the remuneration agreed in respect of the grant, transfer, modification, waiver or termination of those rights is at least equivalent to the financial value of the immovable property concerned?

2. Are Article 13B(b) and Article 13C(a) of the Sixth Directive to be interpreted as meaning that the national legislature may treat the terms ”leasing or letting” as covering not only leasing and/or letting in the sense applied to those terms by civil law but also any other form in which immovable property is made available for use otherwise than by way of the supply thereof?

AG Opinion

(1) Article 5(3)(b) of the Sixth VAT Directive must be interpreted as allowing a Member State to subject the classification as a ”supply of goods” of a transaction concerning limited rights over immovable property to the condition that the sum paid for the transaction plus turnover tax amounts to no less than the economic value of the immovable property to which the rights relate;

(2) Article 13B(b) and C(a) of the Sixth VAT Directive must be interpreted as allowing a Member State to regard the grant of a usufructuary right over immovable property for a limited period of time (for example 10 years) as leasing or letting of immovable property within the meaning of those provisions.

Decision

1. On a proper construction of Article 5(3)(b) 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 tax – Common system of value added tax: uniform basis of assessment, it does not preclude adoption of a national provision, such as Article 3(2) of the Wet houdende vervanging van de bestaande omzetbelasting door een omzetbelasting volgens het stelsel van heffing over de toegevoegde waarde (Law replacing turnover tax by the system of taxing added value) of 28 June 1968, as amended by the Wet ter bestrijding van constructies met betrekking tot onroerende zaken (Law to prevent artificial arrangements relating to immovable property) of 18 December 1995, whereby classification as a supply of goods of the grant, transfer, modification, waiver or termination of rights in rem in immovable property is made subject to the condition that the total consideration, plus turnover tax, must amount to at least the economic value of the immovable property to which those rights in rem relate.

2. On a proper construction of Article 13B(b) and C(a) of Directive 77/388, it does not preclude adoption of a national provision such as Article 11(1)(b), point 5, of the VAT Law of 28 June 1968, as amended by the Law of 18 December 1995, which, for the purposes of the application of the exemption from value added tax, allows the grant, for an agreed period and for payment, of a right in rem entitling the holder to use immovable property, such as the usufructuary right in question in the present case, to be treated as the leasing or letting of immovable property.

Summary

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