Flashback on ECJ cases C-193/91 (Finanzamt München III/Mohsche) – The private use of goods should not be subject to taxation if the VAT on their acquisition was deductible

On May 25, 2993, the ECJ issued its decision in the case (C-193/91).

Context: Tax provisions — Harmonization of laws — Turnover taxes — Common system of value added tax — Taxable transactions — Private use of business goods purchased subject to deduction of input tax — Taxation of services not subject to deduction of input tax for the maintenance and use of the goods — Not permissible — Possibility for individuals to rely on the relevant provision (Council Directive 77/388, Art. 6(2)(a))

Article in the EU VAT Directive

Article 6(2) of the Sixth VAT Directive (Article 26 of the EU VAT Directive 2006/112/EC).

Article 26
1. Each of the following transactions shall be treated as a supply of services for consideration:
(a) the use of goods forming part of the assets of a business for the private use of a taxable person or of his staff or, more generally, for purposes other than those of his business, where the VAT on such goods was wholly or partly deductible;
(b) the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.
2. Member States may derogate from paragraph 1, provided that such derogation does not lead to distortion of competition.

Facts

In 1983 Mr Mohsche, a tool manufacturer, used for private purposes a motor car belonging to his business. In assessing the value added tax payable for 1983 the Finanzamt included in the taxable amount a sum corresponding to the provision for depreciation of the vehicle and a percentage of certain expenses incurred for the use and maintenance of the vehicle.
Mr Mohsche lodged an appeal with the Finanzgericht Muenchen (Finance Court, Munich) against the decision of the Finanzamt. The Finanzgericht held that depreciation of the vehicle had rightly been included in the basis of assessment but that the basis of assessment should not have included certain expenses incurred for the maintenance or use of the vehicle, in particular the garage rental, motor vehicle duty, insurance and parking fees, since Mr Mohsche had not been taxed for those payments and had not deducted value added tax.

Questions

1. Does Article 6(2) of the Sixth Directive (77/388/EEC) prohibit taxation of the private use of goods forming part of the assets of a business upon whose acquisition the taxable person was able to deduct the VAT, in so far as such use also includes services which the taxable person received without deduction of input VAT from third parties for the maintenance or use of the goods?

2. If so, can a taxable person rely upon that prohibition before the national courts?

AG Opinion

(1) Article 6(2) of the Sixth VAT Directive (77/388/EEC) prohibits taxation of the private use of services which a taxable person received without deduction of input VAT from third parties for the maintenance or use of goods put to private use.

(2) A taxable person may rely upon that prohibition before the courts of a Member State.

Decision

1. Article 6(2)(a) of the Sixth Directive, 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, must be interpreted as precluding taxation of the private use of goods forming part of the assets of a business upon whose acquisition the taxable person was able to deduct the value added tax in so far as such use also includes services which the taxable person received without deduction of input tax from third parties for the maintenance or use of the goods.

2. A taxable person may rely before the competent national courts on Article 6(2)(a) of the Sixth Directive inasmuch as that provision precludes taxation of the private use of business goods from which value added tax has already been deducted in so far as that use includes services which the taxable person received without deduction of input tax from third parties for the maintenance or use of the goods.

Summary

In case C-193/91, the Court ruled on the interpretation of Article 6(2)(a) of Directive 77/388/EEC, the Sixth Council Directive on the harmonization of turnover taxes. Here’s a summary of the case:

The case involved a dispute between Mr. Mohsche and the Finanzamt Muenchen III regarding the taxation of the private use of goods that were part of Mr. Mohsche’s business assets.
The first question was whether Article 6(2)(a) of the Sixth Directive prohibits the taxation of the private use of goods when the VAT on their acquisition was deductible, and whether this includes services received without deduction of input tax for the maintenance or use of the goods.
The Court held that Article 6(2)(a) of the Sixth Directive should be interpreted as precluding taxation of the private use of goods when the VAT on their acquisition was deductible, and this includes services received without deduction of input tax for the maintenance or use of the goods.
The second question was whether a taxable person can rely on Article 6(2)(a) of the Sixth Directive before national courts.
The Court confirmed that a taxable person can rely on Article 6(2)(a) of the Sixth Directive before national courts to prevent taxation of the private use of goods when the VAT on their acquisition was deductible, including services received without deduction of input tax.
The costs of the proceedings were to be decided by the national court.

Overall, the Court ruled that the private use of goods should not be taxed when the VAT on their acquisition was deductible, and taxable persons can rely on this provision before national courts.

Source