Flashback on ECJ Cases C-173/88 (Morten Henriksen) – VAT Exemptions for Letting Garages in Denmark

On July 13, 1989, the ECJ issued its decision in the case C-173/88 (Morten Henriksen).

Context: Tax provisions – Harmonization of laws – Turnover taxes – Common system of value-added tax – Exemptions provided for in the Sixth Directive – Exemption for lettings of immovable property – Exemption for premises and sites for parking vehicles – Scope – Obligation of Member States to tax lettings not covered by the exemption

Summary

Parties Involved: The case involved Morten Henriksen, who owned garages, and the Skatteministeriet (Danish Ministry of Fiscal Affairs), focusing on whether the letting of these garages was exempt from value-added tax (VAT) under EU law.
Questions to the Court: The Danish Supreme Court (Højesteret) referred two questions:
- Does Article 13B(b) of the Sixth Directive apply to the letting of garages as “premises and sites for parking vehicles”?
- Are Member States required to subject such lettings to VAT?
Court’s Decision: The Court ruled that the phrase “premises and sites for parking vehicles” includes all places designed for parking, including closed garages, but these lettings cannot be exempt from VAT if they are closely linked to other exempt lettings of immovable property.
Justification for Decision: The Court emphasized that the directive should not be interpreted restrictively and that all parking spaces, regardless of being open or closed, fall under the tax liability unless they are part of an exempt economic transaction.
Costs and Further Implications: The Court determined that the costs incurred by the Danish Government and the European Commission were not recoverable, leaving decisions on costs for the national court in the ongoing proceedings.

Articles in the EU VAT Directive

Article 13(B)(b) of the Sixth VAT Directive (Article 135(l) of the EU VAT Directive 2006/112/EC).

Article 135
1. Member States shall exempt the following transactions:

(l) the leasing or letting of immovable property.

Facts

Parties Involved: The case was brought before the European Court of Justice (ECJ) by Morten Henriksen, a private individual who owned garages, against the Danish Ministry of Fiscal Affairs (Skatteministeriet).
Nature of the Dispute: The dispute centered on whether the letting of garages owned by Henriksen qualified for exemption from value-added tax (VAT) under Article 13B(b) of the Sixth Council Directive (77/388/EEC), which pertains to the harmonization of laws regarding turnover taxes in the EU.
Garages Description: Henriksen owned two blocks of garages, each containing 12 closed garages. These garages were part of a residential development that included 37 linked one-family houses. Some garages were rented to residents of the development, while others were rented to individuals from the surrounding area.
Initial Ruling: The case initially went before the Østre Landsret (Eastern Division of the High Court of Denmark), which ruled that the letting of these garages was not subject to VAT. The court interpreted that the exception to the general principle of exemption for lettings of immovable property did not encompass closed garages.
Referral to ECJ: The Østre Landsret, unsure about the interpretation of Article 13B(b) of the Sixth Directive, referred two specific questions to the ECJ regarding whether the letting of garages fell under the category of “premises and sites for parking vehicles” and whether Denmark was obliged to subject the letting of such garages to VAT.

These facts set the stage for the ECJ’s examination of the scope of VAT exemptions in relation to property lettings, specifically focusing on the definition and interpretation of terms within the Sixth Directive.

Questions

1 . Should Article 13B(b ) of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ( Sixth VAT Directive ) be understood as meaning that tax liability on the letting of ‘premises and sites for parking vehicles’ also encompasses the letting of garages of the type in question in this case?

2 . If the above question is answered in the affirmative, must the said article be interpreted as meaning that the Member States are under a duty to subject the letting of garages of the type in question in the case to tax?

AG Opinion

Article 13B(b ) of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of Member States relating to turnover taxes ( the Sixth VAT Directive ) must be interpreted as meaning that the letting of individual closed garages is not subject to VAT, unless a Member State has itself adopted specific legislative measures to extend liability to VAT to such lettings .

Decision

(1) Article 13B(b ) of the Sixth Council Directive ( 77/388/EEC of 17 May 1977 ) must be interpreted as meaning that the phrase “premises and sites for parking vehicles” covers the letting of all places designed to be used for parking vehicles, including closed garages, but that such lettings cannot be excluded from the exemption in favour of the “leasing or letting of immovable property” if they are closely linked to lettings of immovable property for another purpose which are themselves exempt from value-added tax .
(2) Article 13B(b ) of the Sixth Council Directive ( 77/388/EEC of 17 May 1977 ) must be interpreted as meaning that Member States may not exempt from value-added tax lettings of premises and sites for parking which are not covered by the exemption provided for in that provision, that is to say, those which are not closely linked to lettings of immovable property for another purpose which are themselves exempt from value-added tax

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