Flashback on ECJ cases – C-20/91 (De Jong/Staatssecretaris van Financiën) – Private-use charge covers the building, not the land

Facts

• Mr Pieter de Jong was a building contractor established in the Netherlands. On 15 August 1978, he made an exempt purchase of a plot of land with an existing building on it, without paying VAT on the acquisition of the land. [20 | PDF], [eur-lex.europa.eu]
• On 30 July 1979, he sold approximately half of the land to a third party without charging VAT. He then demolished the existing building and constructed two dwellings: one — completed in 1980 — for the purchaser on the part of the land that had been sold, and the other — completed in 1981 — for himself on the retained part of the plot. [20 | PDF]
• Mr de Jong deducted, as input tax, the VAT invoiced to him on the goods and services supplied for the construction of the houses. When he put one of the dwellings to private use, he recorded on his VAT return, as output tax, an amount equal to the input tax deducted on the goods and services used to construct that dwelling. [20 | PDF]
• The Netherlands tax administration considered that, pursuant to Article 3(1)(g) of the Netherlands Law on turnover tax, the basis of assessment had to include not only the value of the house but also the value of the land on which it stood, treating the house and surrounding land as a single supply of goods. It issued a notice of assessment of HFL 26 168, corresponding to 18% of the value of the land. [20 | PDF]
• The Gerechtshof (Regional Court of Appeal), Amsterdam confirmed the assessment, rejecting Mr de Jong’s argument that the land had always formed part of his private assets and had not become a business asset when the house was built. [20 | PDF]
• Mr de Jong appealed to the Hoge Raad der Nederlanden (Supreme Court of the Netherlands), which, considering that the national provisions had to conform with the Sixth Directive, stayed the proceedings and referred three questions to the Court of Justice under Article 177 of the EEC Treaty. [20 | PDF], [eur-lex.europa.eu]

Issue (Questions Referred)

1. Is Article 5(6) of the Sixth Directive to be interpreted as meaning that a taxable person (a building contractor) who acquires land solely for private use and subsequently erects on it, in the pursuit of his business, a dwelling, and finally puts the building together with the land (and possibly the surrounding land) to private use, has applied goods forming part of his business assets for private use not only as regards the building, but as regards the building together with the land on which it stands? [20 | PDF]
2. Is the deductibility condition in Article 5(6) to be understood as meaning that, where there is no deductibility as regards the land, there is no supply of goods either as regards the immovable property as a whole or as regards a part thereof (that is, the building)? [20 | PDF]
3. If the whole immovable property constitutes a supply, is Article 11A(1)(b) to be interpreted as meaning that the taxable amount must be based on the cost price of the whole immovable property (including the land), or is it limited to the part of the cost price on which VAT is deductible? [20 | PDF]

AG Opinion

Article 5(6) of the Sixth Directive must be interpreted as meaning that, where a tax able person (a building contractor) acquires land solely for his private use and, in the course of his business, erects a building on that land which he puts to private use, only the building and not the land is to be treated as applied for private use for the purposes of that provision.

Decision

The Court rules that

Article 5(6) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 is to be interpreted as meaning that, when a taxable person (a building contractor) acquires land solely for his private use but erects on that land, in the pursuit of his business, a dwelling for his own use, only the house, and not the land, is to be regarded as having been applied for his private use. The basis of assessment under Article 11A(1)(b) then comprises solely the value of the building, not the value of the land. Given this answer to the first question — which was answered in the negative — the Court found no need to address the second and third questions, which the Hoge Raad had raised only in the event of an affirmative answer to the first. [20 | PDF], [eur-lex.europa.eu] [20 | PDF]

Argumentation (Key Points)

• The purpose of Article 5(6) of the Sixth Directive is to ensure equal treatment between a taxable person who applies business goods for private use and an ordinary consumer who buys goods of the same type. It prevents a taxable person who has deducted VAT on goods used for his business from escaping VAT when he applies those goods to private use, thereby enjoying advantages not available to an ordinary consumer. [20 | PDF]
• Those conditions are not satisfied where a building contractor owns land in his own right and, in pursuit of his business, builds a dwelling on it for his own use. Where a taxable person acquires goods solely for his private requirements, he acts in a private capacity and not as a taxable person; consequently the provisions on acquisition of goods by a business — in particular Article 17(2) (right to deduct) and the administrative and accounting rules in Articles 18 and 22 — do not apply. [20 | PDF]
• Taxing the land would conflict with the objective of equal treatment, since the tax burden would vary depending on whether the contractor built the house himself as a taxable person or acted as an ordinary consumer by having a third party build it — in the latter case VAT would be due only on the price of the house, not the land. [20 | PDF]
• Accordingly, regardless of whether land and building are inseparable under national law, it is necessary to distinguish, for the purposes of Article 5(6), between the taxation of land owned in a private capacity and the taxation of a building erected on that land in pursuit of the business. The land never formed part of the business assets and therefore could not have been applied for private use within the meaning of Article 5(6). [20 | PDF]

Source

• Curia
• Judgment full text, CELEX 61991CJ0020 (eur-lex.europa.eu) [eur-lex.europa.eu]
• Opinion of Advocate General Jacobs delivered on 27 February 1992, CELEX 61991CC0020 (eur-lex.europa.eu) [eur-lex.europa.eu]
• Sixth Council Directive 77/388/EEC of 17 May 1977 (eur-lex.europa.eu)

Similar ECJ Cases

• C-97/90 (Lennartz) — A taxable person who uses capital goods (a car) for business has the right to deduct input VAT however small the proportion of business use, provided the goods are acquired as a taxable person and allocated to the economic activity; a general national restriction requires an Article 27 derogation. Expressly referenced in AG Jacobs’ Opinion in De Jong. [eur-lex.europa.eu], [eurlexsearch.com]
• C-291/92 (Finanzamt Uelzen v Armbrecht) — Where a taxable person sells property part of which he chose to reserve for private use, he does not act as a taxable person on that part, so its sale is outside VAT. The right to deduct is correspondingly limited to the business-used portion. [vatupdate.com], [eur-lex.europa.eu]
• C-415/98 (Bakcsi) — A taxable person acquiring a mixed-use capital item (a car bought from a private individual) may retain it wholly within his private assets, excluding it entirely from VAT. Actual business/private use matters only if he claims deduction; supply arrangements are dissociated from expenses for use and maintenance. [eur-lex.europa.eu], [eur-lex.europa.eu]
• C-269/00 (Seeling) — Where a taxable person treats an entire building as a business asset and later uses part privately, he may deduct all input VAT on construction costs and must pay output VAT on the private-use expenditure. Such private use is not exempt “leasing or letting” of immovable property. [eur-lex.europa.eu], [vatupdate.com]
• C-25/03 (Finanzamt Bergisch Gladbach v HE) — Where spouses in a non-trading community build a dwelling and one spouse uses a room as a home office, that spouse is a taxable person entitled to deduct input VAT on his business-used share, up to his co-ownership quota, without needing an invoice apportioned to his name. [eur-lex.europa.eu], [eu.vlex.com]
• C-460/07 (Puffer) — Where a taxable person allocates an entire mixed-use building to the business, full input-VAT deduction plus staggered output taxation of the private use does not breach equal treatment, nor does it constitute unlawful State aid. Member States may retain pre-existing exclusions from the right to deduct. [vatupdate.com], [eur-lex.europa.eu]

Reference to the Case in the Other EU Member States

No specific national references identified in public sources. The ruling is a recurring citation in the Court’s own case-law on the private-use charge and the business/private allocation of immovable property (see the Armbrecht, Seeling and Puffer line of cases above), but no distinct national application was traceable via VATupdate.com or the curia case-law database. [eur-lex.europa.eu]