C-128/14 Het Oudeland Beheer

JUDGMENT OF THE COURT (First Chamber)

28 April 2016 ( *1 )

‛Reference for a preliminary ruling — Taxation — VAT — Taxable transactions — Application for the purposes of the business of goods acquired ‘in the course of the business’ — Treatment as supplies effected for consideration — Taxable amount’

In Case C‑128/14,

REQUEST for a preliminary ruling under Article 267 TFEU from the Hoge Raad der Nederlanden (Supreme Court of the Netherlands, Netherlands), made by decision of 21 February 2014, received at the Court on 18 March 2014, in the proceedings

Staatssecretaris van Financiën

v

Het Oudeland Beheer BV,

THE COURT (First Chamber),

composed of A. Tizzano, Vice-President of the Court, acting as President of the First Chamber, F. Biltgen, A. Borg Barthet, E. Levits (Rapporteur) and M. Berger, Judges,

Advocate General: P. Mengozzi,

Registrar: M. Ferreira, Principal Administrator,

having regard to the written procedure and further to the hearing on 16 July 2015,

after considering the observations submitted on behalf of:

Het Oudeland Beheer BV, by A.J. de Ruiter, belastingadviseur,

the Netherlands Government, by K. Bulterman, C.S. Schillemans and M. Noort, acting as Agents,

the European Commission, by W. Roels and C. Soulay, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 15 October 2015,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Article 5(3)(b) and (7)(a) and Article 11A(1)(b) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), as amended by Council Directive 95/7/EC of 10 April 1995 (OJ 1995 L 102, p. 18) (‘the Sixth Directive’).

2The request has been made in proceedings between the Staatssecretaris van Financiën (Secretary of State for Finance, Netherlands) and Het Oudeland Beheer BV (‘Oudeland’) concerning the taxable amount of a supply, within the meaning of Article 5(7)(a) of the Sixth Directive, made by Oudeland.

Legal context

EU law

3Although the Sixth Directive was repealed and replaced, from 1 January 2007, by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), having regard to the date of the facts at issue in the case in the main proceedings, the case continues to be governed by the Sixth Directive.

4Under Article 2 of the Sixth Directive:

‘The following shall be subject to value added tax:

1the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such ...’

5Article 5 of the Sixth Directive, entitled ‘Supply of goods’, provides:

‘1. “Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.

...

3. Member States may consider the following to be tangible property:

...

rights in rem giving the holder thereof a right of [use] over immovable property;

...

5. Member States may consider the handing over of certain works of construction to be supplies within the meaning of paragraph 1.

…

7. Member States may treat as supplies made for consideration:

the application by a taxable person for the purposes of his business of goods produced, constructed, extracted, processed, purchased or imported in the course of such business, where the value added tax on such goods, had they been acquired from another taxable person, would not be wholly deductible;

...’

6Article 11 of the Sixth Directive states:

1. The taxable amount shall be:

in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;

in respect of supplies referred to in Article 5 (6) and (7), the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined a[t] the time of supply;

...’

7Article 13 of that directive, headed ‘Exemptions within the territory of the country’, states:

Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

...

the supply of buildings or parts thereof, and of the land on which they stand, other than as described in Article 4(3)(a);

...

C. Options

Member States may allow taxpayers a right of option for taxation in cases of:

letting and leasing of immovable property;

...

Member States may restrict the scope of this right of option and shall fix the details of its use …’

8Article 17 of the Sixth Directive, headed ‘Origin and scope of the right to deduct’, provides:

‘1. The right to deduct shall arise at the time when the deductible tax becomes chargeable.

2. In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person;

...

value added tax due under Articles 5(7)(a) and 6(3).

...

5. As regards goods and services to be used by a taxable person both for transactions covered by paragraphs 2 and 3, in respect of which value added tax is deductible, and for transactions in respect of which value added tax is not deductible, only such proportion of the value added tax shall be deductible as is attributable to the former transactions.

...’

Netherlands law

9Article 3 of the Wet op de Omzetbelasting 1968 (Law on turnover tax 1968), in the version applicable to the case in the main proceedings (‘the Wet OB’), provides:

‘1. The following shall be considered to be supplies of goods:

...

the supply of items of immovable property by the person who completed them, with the exception of land which has not been built on other than building land …

...

the use for business purposes of goods produced in-house in cases where, had the goods been acquired from a trader, the tax on the goods would not have been deductible or would not have been wholly deductible; goods which are produced to order, with the materials, including land, being provided, shall be treated as goods produced in-house; land which has not been built on other than building land is excluded from the application of this subsection ...

...

2. The grant, transfer, modification, waiver or termination of limited rights over immovable property, with the exception of mortgages and ground rent, must also be viewed as a supply of goods, save where the total consideration plus turnover tax amounts to less than the economic value of those rights. The economic value shall not be less than the cost price of the immovable property to which the right relates, including turnover tax, which would be produced were that right to be created by an independent third party at the time of the transaction’.

10Article 8(3) and (5) of the Wet OB provides:

‘3. With regard to the supply of goods as described in Article 3(1)(g) and (h), and Article 3a(1), the consideration shall be the amount, exclusive of turnover tax, which would have to be paid for the goods if, at the time of supply, they were to be acquired or produced in the condition in which they are at that time.

...

5. An order of general application may determine the extent to which:

...

costs relating to title encumbered by a rentcharge, a long leasehold, a right of superficies, an easement, apartments, shares in a company holding land (lidmaatschapsrechten) and other similar rights form part of the consideration;

...’

11Article 5 of the Uitvoeringsbesluit omzetbelasting 1968 (Turnover Tax Implementation Order, ‘the Implementation Order’) states:

‘1. Upon the grant, transfer, waiver or termination of a long leasehold, of a right of superficies or easement, the value of the ground rent, of the remuneration or of the rent forms part of the consideration, provided that this is not higher than the fair market value of the property to which the right relates. The economic value shall not be less than the cost price of the immovable property to which the right relates, including turnover tax, which would be produced were that right to be created by an independent third party at the time of the transaction.

...

5. The value of ground rent, remuneration, rent or compensation shall be determined in accordance with Annex A of the present order.

...’

12Annex A of the Implementation Order states:

‘...

The value of ground rent, remuneration, rent or compensation which expires after a certain period is the annual amount multiplied by the number of years during which the payments must be made ...’

The dispute in the main proceedings and the questions referred for a preliminary ruling

13On 8 March 2004, Oudeland concluded, as lessee, a long leasehold agreement over a plot of land and an office building under construction on that land (‘the office building in question’), in return for payment of rent due in advance of each year (‘the annual ground rent’). The term of the lease was set at 20 years for an annual ground rent of EUR 330000.

14In accordance with Article 3(2) of the Wet OB, a provision based on Article 5(3)(b) of the Sixth Directive, the grant of a long leasehold was treated as the supply of immovable property for the purposes of levying value-added tax (VAT) and therefore subject to that tax. Under Article 8(5)(b) of that law, read in conjunction with Article 5(5) of the Implementation Order, the taxable amount of a supply such as that at issue in the main proceedings includes the value of the long leasehold, calculated in accordance with Annex A(b) of the Implementation Order, that is, the capitalised value of the ground rent as a whole. In the present case, the value of the long leasehold was set at EUR 3844500.

15As a result, VAT was charged on the grant of the long leasehold at issue in the main proceedings. Oudeland paid the tax in the amount of EUR 730455 to the trader with which it concluded the long leasehold agreement in question and deducted that amount in its VAT return for March 2004.

16Following the grant of the long leasehold, Oudeland had the construction of the office building in question completed, whereupon it was delivered to Oudeland as completed office premises. The cost of completing the office premises was EUR 1571749. Of that amount, Oudeland paid and immediately deducted EUR 298632 in VAT. During the completion of the building, the first annual ground rent fell due and was paid by Oudeland.

17Oudeland granted ordinary leases over the office building in question from 1 June 2004. In accordance with the applicable national legislation, which is based on Article 13C(a) of the Sixth Directive, Oudeland opted, for part of the office building and with the agreement of its lessees, to waive the VAT exemption available for the leasing of immovable property. The remainder of the building leased was exempted from VAT.

18Oudeland assumed that the grant of a lease over the office building in question had to be treated as a supply, for the purposes of its business, of goods produced in the course of such business, within the meaning of Article 3(1)(h) of the Wet OB and of Article 5(7)(a) of the Sixth Directive. It paid VAT on the part of the building covered by the VAT exemption, in respect of which it therefore had no right of deduction. In its VAT return, Oudeland had calculated the taxable amount of the supply at issue in the main proceedings as the whole cost, excluding VAT, of completing the building plus the annual ground rent already due at the time of the supply.

19The tax authorities took the view that the taxable amount of the grant of the lease over the office building at issue had to be based on the cost of completing the building plus the capitalised value of the ground rent as a whole. A notice of additional assessment, for the period of 1 to 30 June 2004, was issued to Oudeland for an amount equal to the difference between the taxable amount calculated by Oudeland and the taxable amount calculated by the tax authorities. Despite the objection lodged by Oudeland, the notice was maintained.

20Since the action brought by Oudeland against the decision rejecting its objection was dismissed as unfounded in a judgment of the Rechtbank te ’s-Gravenhage (District Court, The Hague, Netherlands), Oudeland brought an appeal against that judgment before the Gerechtshof te ’s-Gravenhage (Regional Court of Appeal, The Hague, Netherlands).

21That appellate court held that, under Article 8(3) of the Wet OB, the taxable amount of the supplies, within the meaning of Article 3(1)(h) of that law, included the cost price of the land that Oudeland held under the long leasehold agreement concluded and that, in that regard, it was necessary to take as a basis the value that the land had for Oudeland at the time of the supply referred to in Article 3(1)(h) of the Wet OB. In addition, according to that court, that value could not be equated to the value that the land would have represented at that time to an owner but had to be limited to the annual ground rent paid prior to completion of the office building in question.

22The Gerechtshof te ’s-Gravenhage (Regional Court of Appeal, The Hague) therefore set aside the judgment of the Rechtbank te ’s-Gravenhage (District Court, The Hague), annulling the decision of the tax authorities to reject Oudeland’s objection and the notice of additional assessment issued to that company.

23The Secretary of State for Finance brought an appeal on a point of law before the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) against the judgment of the regional court of appeal.

24The appeal on a point of law concerning the parties in the main proceedings relates to how the taxable amount of a supply, within the meaning of Article 5(7)(a) of the Sixth Directive, should be calculated. Whereas Oudeland submits that only those costs incurred by the date of supply, namely the amount of the annual ground rent which had fallen due by that date, and the cost of completing the office building in question, should be included in the taxable amount, the Secretary of State for Finance submits that the taxable amount of the value of the long leasehold should be based on the capitalised value of the ground rent as a whole.

25The referring court wishes to know whether, in accordance with the judgment of 8 November 2012 in Gemeente Vlaardingen (C‑299/11, EU:C:2012:698), the elements of the cost price on which VAT has been paid, namely the value of the long leasehold and the cost of completing the office building in question, should be excluded from the taxable amount and whether the same applies where a taxable person has, on the basis of the national legislation, deducted immediately and in full the VAT paid.

26If the elements of the cost price referred to in the previous paragraph must be included in the taxable amount referred to in Article 8(3) of the Wet OB, read in conjunction with Article 11A(1)(b) of the Sixth Directive, the referring court wishes to know how that taxable amount must be calculated in relation to a long leasehold and, in particular, how the value of ground rent due over time under a long leasehold is included in the taxable amount of a supply, within the meaning of Article 5(7)(a) of the Sixth Directive.

27In those circumstances, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

Must Article 11A(1)(b) of the Sixth Directive be interpreted as meaning that the cost price of land or other substances or materials in respect of which the taxable person has paid VAT in respect of their acquisition, in this case through the grant of a right in rem to use immovable property, is not part of the taxable amount in respect of a supply within the meaning of Article 5(7)(a) of the Sixth Directive? Is the position different if the taxable person has deducted this VAT on the basis of national law — whether or not in conflict with the Sixth Directive in that respect — upon that acquisition?

In a case such as the present one, in which land with a building under construction is acquired with the grant of a right in rem referred to in Article 5(3)(b) of the Sixth Directive, must Article 11A(1)(b) of the Sixth Directive be interpreted as meaning that the value of the ground rent, that is to say the value of the annual amounts to be paid for the duration or remainder of the duration of the right in rem, is part of the taxable amount of a supply within the meaning of Article 5(7)(a) of the Sixth Directive?’

The questions referred for a preliminary ruling

The first question

28By its first question, the referring court asks, in substance, whether Article 11A(1)(b) of the Sixth Directive must be interpreted as meaning that the value of a right in rem granting its holder a right of use over immovable property and the cost of completing the office building built on the land in question may be included in the taxable amount of a supply, within the meaning of Article 5(7)(a) of the Sixth Directive, where the taxable person has already paid VAT on that value and on those costs, but also deducted the VAT immediately and in full.

29Under Article 5(7)(a) of the Sixth Directive, Member States may treat as supplies made for consideration the application by a taxable person for the purposes of his business of goods produced, constructed, extracted, processed, purchased or imported in the course of such business, where the VAT on such goods, had they been acquired from another taxable person, would not be wholly deductible.

30That option allows Member States to develop their tax law in such a way that businesses which, owing to the fact that they are engaged in an activity which is exempt from VAT, cannot deduct the VAT that they have paid on acquiring their business goods are not placed at a disadvantage as compared with competitors engaged in the same activity who use goods which they have obtained without paying VAT, by producing the goods themselves or, more generally, by obtaining them in the course of their business (judgment of 8 November 2012 in Gemeente Vlaardingen, C‑299/11, EU:C:2012:698, paragraph 26).

31As a preliminary point, it should be recalled that, as the Advocate General has noted in paragraph 42 of his Opinion, the application of Article 5(7)(a) of the Sixth Directive is subject to three cumulative conditions.

32In the first place, the relevant goods must be ‘goods produced, constructed, extracted, processed, … in the course of [the] business [of a taxable person]’. The Court has held that, for the option of treating such goods as supplies made for consideration to be applied so that any inequality relating to VAT is actually eliminated between taxable persons which have acquired their goods from another taxable person and those who have acquired them in the course of their business, Article 5(7)(a) of the Sixth Directive covers not only goods entirely produced, constructed, extracted or processed by the business concerned itself, but also goods produced, constructed, extracted or processed by a third party with materials provided by that business, since the option of treating such goods as supplies made for consideration must be capable of being extended to all goods completed or improved by the third party (see, to that effect, judgments of 8 November 2012 in Gemeente Vlaardingen, C‑299/11, EU:C:2012:698, paragraphs 27 and 28, and 10 September 2014 in Gemeente ’s-Hertogenbosch, C‑92/13, EU:C:2014:2188, paragraph 28).

33In the second place, the taxpayer must have applied the goods for the purposes of his business.

34In the third place, the acquisition of the goods from another taxable person must not have given rise to a right of the first taxable person to deduct the VAT in full.

35Having regard to the foregoing, it must be noted that, in the present case, having, first, acquired, through the conclusion of a long leasehold agreement, a right over the land in question and the office building under construction on that land, paid VAT on that acquisition and deducted the VAT in its VAT return for March 2004, and, second, had the construction of that building completed, paid VAT on the cost of completing the building and deducted the VAT, Oudeland leased the office building, waiving only part of the VAT exemption available for leases of immovable property.

36Since the leasing by Oudeland of the building once completed was regarded as the application, for the purposes of its business, of goods acquired in the course of such business and since the building had, in part, been used for purposes other than taxable transactions, the grant of the leases was accordingly treated as a supply, within the meaning of Article 5(7)(a) of the Sixth Directive and subject to VAT.

37In accordance with Article 11A(1)(b) of the Sixth Directive, the taxable amount, in respect of the transactions referred to, inter alia, in Article 5(7)(a) of the Sixth Directive, is to be ‘the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined a[t] the time of supply’.

38The Court has stated, in that regard, that it clearly follows from Article 11A(1)(b) that it is only in the absence of a purchase price for the goods or similar goods that the taxable amount is the ‘cost price’ (judgment of 23 April 2015 in Property Development Company, C‑16/14, EU:C:2015:265, paragraph 37).

39In that regard, the referring court states that it is agreed between the parties in the present case that there is no purchase price of goods similar to the office building in question. Consequently, regard must be had to the cost price.

40However, the referring court wishes to know whether the elements of the cost price on which VAT has been paid, namely the value of the long leasehold and the cost of completing the office building in question, must be excluded from the taxable amount, even if the taxable person has, on the basis of the national legislation, deducted immediately and in full the VAT paid on the grant of the long leasehold and on the completion of the building.

41In that regard, the Court has stated that the option of treating certain applications as supplies made for consideration cannot be used in order to charge VAT on the value of goods on which the taxable person has already, in the context of an earlier tax period, paid VAT (see, to that effect, judgment of 8 November 2012 in Gemeente Vlaardingen, C‑299/11, EU:C:2012:698, paragraph 32).

42Such repeated taxation would be incompatible both with the essential characteristic of VAT that it be imposed on the added value of the goods or services concerned, since the tax payable on a transaction is calculated after the tax paid on the preceding transaction has been deducted (see, inter alia, judgments of 16 December 1992 in Beaulande, C‑208/91, EU:C:1992:524, paragraph 14; 17 September 1997 in UCAL, C‑347/95, EU:C:1997:411, paragraph 34, and 29 April 2004 in GIL Insurance and Others, C‑308/01, EU:C:2004:252, paragraph 33), and with the aim of the above option, which is, it is true, intended to enable Member States to charge VAT on the application of goods for the purposes of activities exempt from VAT, but in no way authorises Member States to levy VAT several times on the same element of the value of those goods (judgment of 8 November 2012 in Gemeente Vlaardingen, C‑299/11, EU:C:2012:698, paragraph 32).

43As, in essence, the Advocate General noted in paragraph 49 of his Opinion, where VAT paid on the elements of the cost price has subsequently been deducted, the taxation resulting from treating goods as supplies made for consideration does not lead to repeated taxation of the same value. Only where the VAT on such elements remains chargeable to the taxable person because he has not deducted them are those elements not to be included in the taxable amount on the basis of Article 5(7)(a) of the Sixth Directive.

44In that regard, the Court has held that, in no case, may the taxable amount referred to in Article 11A(1)(b) of the Sixth Directive include an element of value on which the taxable person has already paid VAT without subsequently being able to deduct it (see judgment of 23 April 2015 in Property Development Company, C‑16/14, EU:C:2015:265, paragraph 42 and the case-law cited).

45It follows, as the Advocate General noted in paragraph 50 of his Opinion, that elements of value on which the taxable person has already paid VAT, but deducted it, may be included in the taxable amount referred to in Article 11A(1)(b) of the Sixth Directive.

46Accordingly, having regard to all of the foregoing considerations, the answer to the first question is that Article 11A(1)(b) of the Sixth Directive must be interpreted as meaning that the value of a right in rem granting its holder a right of use over immovable property and the cost of completing an office building built on the land in question may be included in the taxable amount of a supply, within the meaning of Article 5(7)(a) of the Sixth Directive, where the taxable person has already paid VAT on that value and on that cost, but also deducted the VAT immediately and in full.

The second question

47By its second question, the referring court asks, in essence, whether, in a situation such as that at issue in the main proceedings, where land and a building under construction on that land have been acquired with the grant of a right in rem granting its holder a right of use over such immovable property, must Article 11A(1)(b) of the Sixth Directive be interpreted as meaning that the value of that right in rem to be taken in account in calculating the taxable amount of a supply, within the meaning of Article 5(7)(a) of the Sixth Directive, corresponds to the value of the amount to be paid in consideration each year for the whole term of the long leasehold agreement granting the right in rem or to the value of the amount to be paid during the remainder of the lease.

48In the first place, as has been stated in paragraphs 38 and 39 above, it is only in the absence of a purchase price for the goods or similar goods that the taxable amount is the ‘cost price’ and, in the present case, there is no purchase price of goods similar to the office building in question.

49Accordingly, the taxable amount of a supply, within the meaning of Article 5(7)(a) of the Sixth Directive, is, in the case in the main proceedings, to be the cost price.

50In the second place, it is clear on the face of the wording of Article 11A(1)(b) of the Sixth Directive that the cost price, and the purchase price of the goods or similar goods, must be determined at the time of supply, within the meaning of Article 5(7)(a) of that directive.

51In the third place, under the national legislation implementing the option laid down in Article 5(3)(b) of the Sixth Directive, the grant of the long leasehold at issue in the present case has been treated as the supply of goods. As regards the grant of a long leasehold for a term of 20 years, such as that at issue in the main proceedings, in accordance with the applicable national legislation, the consideration for that supply is determined on the basis of a fixed annual amount multiplied by the number of years during which the payments must be made, the resulting sum being then corrected or capitalised at the time of the grant of the right, in accordance with the requirements of the national legislation. In the present case, the grant of a long leasehold gave rise to a single payment of the VAT chargeable on the total amount of the consideration thereby determined.

52It must be added that the detailed rules for determining that consideration are not the subject of the questions posed by the referring court, since the value of that consideration has not been contested in the case in the main proceedings.

53Since it follows from the answer to the first question that the payment of VAT on the value of a long leasehold does not prevent that value from being taken into account in the taxable amount of a supply, within the meaning of Article 5(7)(a) of the Sixth Directive, in so far as the VAT was deducted immediately and in full, and it is not contested that that value forms one of the elements of the cost price, it must be determined whether the value of the long leasehold as a whole should be taken into account, as submitted by the Netherlands Government, or only part of the value of the long leasehold.

54In that regard, it should be noted that a long leasehold is limited in time and that, as has been stated in paragraph 51 above, the value of the consideration for the grant of a long leasehold is determined according to the term stipulated in the long leasehold agreement.

55If the supply, within the meaning of Article 5(7)(a) of the Sixth Directive, does not take place at the same time as the grant of the long leasehold, but later, the value of that right to be taken into account in the taxable amount corresponds to the residual value of the right at the time of its supply (see, by analogy, judgments of 17 May 2001 in Fischer and Brandenstein, C‑322/99 and C‑323/99, EU:C:2001:280, paragraph 80, and 8 May 2013 in Marinov, C‑142/12, EU:C:2013:292, paragraph 32).

56The residual value of a long leasehold is determined according to the remainder of the lease and includes the value of the annual amounts yet to be paid under the lease as corrected or capitalised according to the same method used to determine the value of the long leasehold.

57This interpretation is supported by the aim of the option that Article 5(7)(a) of the Sixth Directive grants the Member States, as stated in paragraph 30 above.

58If, at the time that the supply, within the meaning of Article 5(7)(a) of the Sixth Directive, takes place, a competitor were, for the remainder of the long leasehold agreement concluded by Oudeland, granted a long leasehold agreement over the same property, in order to apply the office building in question for the purposes of the same business as that of Oudeland, the cost price of the long leasehold would correspond, for the competitor, to the value of that right at the time of its grant and therefore to its residual value.

59To consider, as submitted by the Netherlands Government, that the full value of the long leasehold corresponding to the consideration at the time of its grant should be taken into account, would ignore the fact, as noted by the Advocate General in paragraph 70 of his Opinion, that the value of a long leasehold decreases, in general, proportionally with the passage of time, and would, in effect, ignore the rule that the cost price must be determined at the time the supply takes place, within the meaning of Article 5(7)(a) of the Sixth Directive.

60Similarly, although the amount of annual rent already due represents the amount paid by Oudeland under the long leasehold, that amount does not represent the value of the leasehold at the time of its supply, within the meaning of Article 5(7)(a) of the Sixth Directive.

61Having regard to the foregoing considerations, the answer to the second question is that in a situation such as that at issue in the main proceedings, where land and a building under construction on that land have been acquired with the grant of a right in rem granting its holder a right of use over such immovable property, Article 11A(1)(b) of the Sixth Directive must be interpreted as meaning that the value of that right in rem to be taken into account in calculating the taxable amount of a supply, within the meaning of Article 5(7)(a) of the Sixth Directive, corresponds to the value of the amount to be paid in consideration each year during the remainder of the long leasehold agreement granting the right in rem, as corrected or capitalised according to the same method used to determine the value of the grant of the long leasehold.

Costs

62Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (First Chamber) hereby rules:

Article 11A(1)(b) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995 must be interpreted as meaning that the value of a right in rem granting its holder a right of use over immovable property and the cost of completing the office building built on the land in question may be included in the taxable amount of a supply, within the meaning of Article 5(7)(a) of that directive, as amended, where the taxable person has already paid value added tax on that value and that cost, but also deducted the value added tax immediately and in full.

In a situation such as that at issue in the main proceedings, where land and a building under construction on that land have been acquired with the grant of a right in rem granting its holder a right of use over such immovable property, Article 11A(1)(b) of Sixth Directive 77/388, as amended, must be interpreted as meaning that the value of that right in rem to be taken in account in calculating the taxable amount of a supply, within the meaning of Article 5(7)(a) of that directive, corresponds to the value of the amount to be paid in consideration each year for the remainder of the long lease granting the right in rem, as corrected or capitalised according to the same method used to determine the value of the grant of the long leasehold.

Signatures

[Signatures]

( *1 ) Language of the case: Dutch.

OPINION OF ADVOCATE GENERAL

MENGOZZI

delivered on 15 October 2015 ¹

‛Request for a preliminary ruling — Taxation — Sixth VAT Directive — Article 5(7)(a) — Taxable transactions — Application for business purposes of goods obtained in the course of business — Treatment as a supply for consideration — Taxable amount — Article 11(A)(1)(b) — Cost price — Value added tax paid and deducted — Long lease — Annual ground rent’

1In this case, which concerns a request for a preliminary ruling from the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) relating to the interpretation of Sixth Directive 77/388/EEC, ² the Court is again asked to provide clarification on the determination of the taxable amount of ‘internal supplies’.

2These are transactions whereby taxable persons apply for business purposes goods in respect of which no value added tax (VAT) has been paid, since those goods were produced by the taxable persons themselves or, more generally, were obtained ‘internally’ in the course of the business. ³ In order to avoid placing these taxable persons at a tax advantage, the Sixth Directive gave Member States the option — also included in Directive 2006/112/EC ⁴ — to treat internal supplies as a supply of goods for consideration, where the goods were applied to business activities exempt from VAT, and thus to make such application subject to VAT. The Court has already had several occasions to consider questions concerning the VAT system for transactions of this kind. ⁵

3The questions referred for a preliminary ruling in this case form part of a dispute between an undertaking, Het Oudeland Beheer BV (‘Oudeland’) and the Staatssecretaris van Financiën (tax authorities) regarding a notice of additional assessment in respect of VAT relating to the taxation of a complex property transaction involving the grant of a long lease over land and a building under construction on that land, completion of the building and the letting of the building.

4The national court essentially asks whether the grant of the long lease and the costs of completing the building, on which Oudeland already paid VAT, subject to, however, a right of deduction, may be included in the taxable amount of the internal supply, comprising the letting of the building as office premises. If the answer is in the affirmative, the national court also asks how the value of the long lease should be calculated for the purposes of such taxation.

I – Legal framework

A – EU law

5Although Directive 2006/112 repealed and replaced the Sixth Directive from 1 January 2007, the latter still applies to the main proceedings, in view of the date of the relevant facts.

6In general terms, the supply of goods effected for consideration within the territory of a country by a taxable person acting as such is subject to VAT. ⁶

7Article 5(1) of the Sixth Directive defines the supply of goods as ‘the transfer of the right to dispose of tangible property as owner’. Article 5(3)(b) of that directive gives Member States the option to consider as tangible property ‘rights in rem giving the holder thereof a right of user over immovable property’. Under Article 5(5), Member States may consider the handing over of certain works of construction to be supplies.

8Article 5(7)(a) of the Sixth Directive, namely the provision concerning the taxation of internal supplies, provides that Member States may treat as supplies made for consideration ‘the application by a taxable person for the purposes of his business of goods produced, constructed, extracted, processed, purchased or imported in the course of such business, where the [VAT] on such goods, had they been acquired from another taxable person, would not be wholly deductible’.

9The second sentence of Article 10(2) of the Sixth Directive provides that deliveries of goods other than those referred to in Article 5(4)(b) thereof and supplies of services which give rise to successive statements of account or payments are to be regarded as being completed at the time when the periods to which such statements of account or payments pertain expire.

10Article 11(A)(1)(b) of the Sixth Directive concerns the calculation of the taxable amount for VAT in respect of the transactions referred to, inter alia, in Article 5(7)(a) thereof. As set out in that provision, the taxable amount in respect of such transactions is ‘the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined [at] the time of supply’.

11Under Article 17(1) of the Sixth Directive, the right to deduct arises at the time when the deductible tax becomes chargeable. Paragraph 2 thereof states that, in so far as the goods are used for the purposes of his taxable transactions, the taxable person is entitled to deduct from the tax which he is liable to pay, inter alia, the VAT due or paid in respect of goods supplied or to be supplied to him by another taxable person (Article 17(2)(a)) as well as the VAT due under Article 5(7)(a) (Article 17(2)(c)). As regards goods used by a taxable person both for transactions in respect of which VAT is deductible and for transactions in respect of which VAT is not deductible, Article 17(5) of the Sixth Directive provides that ‘only such proportion of the [VAT] shall be deductible as is attributable to the former transactions’.

12Article 20 of the Sixth Directive provides for adjustments of deductions, if necessary, in particular where the deduction was higher or lower than that to which the taxable person was entitled or where some change occurs in the factors used to determine the amount to be deducted. As regards capital goods, Article 20(2) states that adjustment is to be spread over five years. In the case of immoveable property, the adjustment period may be extended up to 20 years.

B – Netherlands law

13Pursuant to Article 3(1) of the 1968 Law on turnover tax (Wet op de omzetbelasting 1968), in the version applicable in the main proceedings (‘Law on VAT’), the supply of goods includes ‘the supply of immovable properties by those who produced them with the exception of land which has not been built on other than building land’ (subparagraph (c)) and ‘the use for business purposes of goods produced in-house in cases where, had the goods been acquired from a trader, the tax on the goods would not have been deductible or would not have been wholly deductible; goods which are produced to order, with the materials, including land, being provided, shall be treated as goods produced in-house’ (subparagraph (h)).

14Under Article 3(2) of the Law on VAT, the following, among others, is also treated as the supply of goods: the grant of rights over immovable property, ’save where the sum paid therefor plus turnover tax amounts to less than the economic value of those rights. The economic value shall be, at least, the cost price, including VAT, of the immovable property subject to the right, as it was upon creation by an independent third party at the time of the act’.

15As set out in Article 8(3) of the Law on VAT, with regard to supplies such as those referred to in, in particular, Article 3(1)(h), ‘the consideration shall be the amount, exclusive of turnover tax, which would have to be paid for the goods if, at the time of supply, they were to be acquired or produced in the condition in which they are at that time’.

16As regards the taxable amount, Article 8(5)(b) of the Law on VAT provides that a public administrative regulation may determine the extent to which, in the case of property encumbered by, inter alia, a long lease, the charges pertaining thereto form part of the consideration.

17This provision was implemented by the 1968 Decree on turnover tax (Uitvoeringsbesluit omzetbelasting 1968, ‘the Decree’), Article 5(1) of which states, ‘[u]pon the grant, transfer, waiver or termination of a long lease right …, the value of the ground rent … forms part of the consideration, provided that this is not higher than the fair market value of the property to which the right relates’. Under Article 5(5), the value of, in particular, a ground rent is calculated in accordance with Annex A to the Decree. Annex A(b) to the Decree provides that the value of a ground rent ‘which expires after a certain period is the annual amount multiplied by the number of years during which the payments must be made’, whereby every euro is calculated in accordance with a percentage stipulated in that annex.

II – Facts in the main proceedings, national procedure and questions referred for a preliminary ruling

18On 8 March 2004, Oudeland, in return for an annual payment in advance (‘the ground rent’), acquired a long lease over a plot of land which included a building on-site that was under construction. The term of the long lease was set at 20 years. The annual ground rent was EUR 330000.

19Since, in the Netherlands, the grant of a long lease is treated as the supply of immovable property for the purposes of levying VAT ⁷ and is thus subject to that tax, Oudeland was charged EUR 730 455 in VAT for the grant of the lease. In accordance with Annex A(b) to the Decree, this amount was calculated by applying the relevant percentage of 19% to the capitalised value (corresponding to EUR 3844550) of the total consideration agreed upon for the grant of the long lease, received in the form of annual ground rents. Oudeland paid this amount to the trader who granted the long lease and subsequently deducted it in its VAT return for March 2004.

20Oudeland had the building completed after the grant of the long lease, whereupon it was delivered to Oudeland as completed office premises. The costs of completing the office premises were EUR 1571749. Oudeland paid EUR 298632 in VAT and immediately deducted this amount in full. During the completion of the building, the first of the annual ground rents for the long lease fell due and was paid by Oudeland.

21After delivery of the building, Oudeland proceeded to let it from 1 June 2004. In respect of a section of the building (corresponding to 12.5% of its area, according to information provided by the Kingdom of the Netherlands), Oudeland, together with the tenants, opted to waive the VAT exemption available for the letting of immovable property. ⁸ The remainder of the building, corresponding to 87.5% of its area, was let and this transaction was exempt from VAT.

22Oudeland assumed that the letting of the building had to be treated as an internal supply, for the purposes of Article 3(1)(h) of the Law on VAT, a provision that is based on Article 5(7)(a) of the Sixth Directive. It therefore paid VAT on the letting of the section of the office premises covered by the VAT exemption, in respect of which it therefore had no right of deduction. Oudeland calculated the taxable amount by including all the costs, excluding VAT, of completing the building plus the annual ground rent already due at the time of the supply, that is, EUR 330000.

23However, the tax authorities did not endorse that approach and took the view that the taxable amount of the letting of the building had to be based on the costs of completing the building plus the capitalised value of the ground rents as a whole, that is, EUR 3844500, calculated in accordance with Annex A(b) to the Decree. Accordingly, they issued a notice of additional assessment to Oudeland for an amount equal to the difference between the taxable amount as calculated by Oudeland and the taxable amount as calculated by the tax authorities. Oudeland lodged an objection against the notice of additional assessment, which was subsequently rejected by decision of the tax authorities.

24Oudeland brought an action against that decision before the Rechtbank te ’s-Gravenhage (Court of First Instance, The Hague), which was dismissed. Oudeland then lodged an appeal against that dismissal ruling before the Gerechtshof te ’s-Gravenhage (Court of Appeal, The Hague). The Gerechtshof te ’s-Gravenhage upheld the appeal and thus annulled the ruling of the Rechtbank te ’s-Gravenhage, the decision of the tax authorities and the additional assessment. The appeal court held that, under Article 8(3) of the Law on VAT, the taxable amount of the internal supply included the cost price of the land that Oudeland held under the long lease and that, in this connection, it was necessary to take as a basis the value that the land had for Oudeland at the time of the internal supply. That value could not be equated to the value that the land would represent at that time to an owner and had to be limited to the ground rent paid prior to completion of the building.

25The tax authorities lodged an appeal on a point of law against that decision before the referring court.

26The appeal pending before that court concerns the question of how the taxable amount for VAT purposes of the internal supply at issue in the main proceedings should be calculated. This case specifically concerns the question whether such amount only includes the annual ground rents relating to the grant of the long lease paid as of the date of the internal supply, or whether it includes the total value of the grant of that lease, corresponding to the capitalised value of the rents.

27Against that background, the referring court observes that, according to the judgment in Gemeente Vlaardingen, ⁹ in a case such as this, the taxable amount for VAT comprises the total sum of the value of the land, the value of the building on it (if any) and the costs of production, in so far as the taxable person has not yet paid any VAT on those values and costs. However, it asks whether this judgment must be interpreted as meaning that the cost price factors on which VAT has been paid should be excluded from the taxable amount, even where the taxable person has subsequently deducted the VAT paid on such factors in full, in accordance with national law.

28Furthermore, if these cost price factors have to be included in the taxable amount, the referring court asks how that amount should be determined as regards the calculation of the value of the long lease. It also asks, in particular, how the value of the ground rents payable consecutively forms part of the taxable amount of an internal supply.

29In those circumstances, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) decided to stay proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Must Article 11(A)(1)(b) of the Sixth Directive be interpreted as meaning that the cost price of land or other substances or materials in respect of which the taxable person has paid VAT in respect of their acquisition, in this case through the grant of a right in rem to use immovable property, is not part of the taxable amount in respect of a supply within the meaning of Article 5(7)(a) of the Sixth Directive? Is the position different if the taxable person has deducted this VAT on the basis of national law — whether or not in conflict with the Sixth Directive in that respect — upon that acquisition?

In a case such as the present one, in which land with a building under construction is acquired with the grant of a right in rem referred to in Article 5(3)(b) of the Sixth Directive, must Article 11(A)(1)(b) of the Sixth Directive be interpreted as meaning that the value of the ground rent, that is to say the value of the annual amounts to be paid for the duration or remainder of the duration of the right in rem, is part of the taxable amount of a supply within the meaning of Article 5(7)(a) of the Sixth Directive?’

III – Procedure before the Court of Justice

30The Court received the decision to refer on 18 March 2014. Oudeland, the Netherlands Government and the European Commission submitted observations and appeared at the hearing held on 16 July 2015.

IV – Legal analysis

A – Preliminary remarks

31Before replying to the questions referred by the national court, it is necessary first of all to give an overview of the VAT system applying to internal supplies as well as the raison d’être and objective of this system, as they derive from the case-law of the Court.

32It is apparent from Article 5(7)(a) of the Sixth Directive, now Article 18(a) of Directive 2006/112, that the Member States may treat the following transactions as a supply for consideration and, therefore, make them subject to VAT: ‘internal supplies’ where a taxable person applies for the purposes of his business goods produced, constructed, extracted, processed, purchased or imported in the course of such business, where the VAT on such goods, had they been acquired from another taxable person, would not be wholly deductible.

33In those circumstances, under Article 11(A)(1)(b) of the Sixth Directive, now Article 74 of Directive 2006/112, the taxable amount of such transactions is either the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined at the time of supply. It follows from the decision to refer that it is not disputed that, in the present case, the taxable amount is calculated on the basis of the cost price. The parties also agree that the cost price includes the price of the grant of the long lease and the price of the works to complete the building.

34It is apparent from the case-law of the Court that Article 5(7)(a) of the Sixth Directive concerns situations in which the mechanism for deduction provided for, by way of a general rule, under the Sixth Directive and Directive 2006/112 cannot apply. Pursuant to this mechanism, in so far as goods are used for the purposes of an economic activity which is subject to output tax, it is necessary to deduct the input tax on those goods in order to avoid double taxation. On the other hand, where goods acquired by a taxable person are used for the purposes of transactions which are exempt, no input tax can be deducted. The provision in question concerns this latter case, namely a situation in which no deduction can be made, from the output VAT charged, of an amount paid by way of input VAT, since the output economic activity was exempt from VAT. ¹⁰

35In particular, that provision allows Member States to develop their tax law in such a way that businesses which, owing to the fact that they are engaged in an activity which is exempt from VAT, cannot deduct the VAT that they have paid on acquiring their business goods are not placed at a disadvantage as compared with competitors engaged in the same activity who use goods which they have obtained without paying VAT, by producing the goods themselves or, more generally, by obtaining them in the course of their business. In order to make those competitors subject to the same tax burden as businesses which have acquired their goods from a third party, the provision in question gives Member States the option of treating the application, for the purposes of the exempt activities of the business, of goods obtained in the course of business as a supply of goods made for consideration, and of making that application subject to VAT. ¹¹

36It follows from these considerations that the aim of the provision allowing Member States to make internal supplies subject to VAT is to prevent distortion of competition by ensuring the equal treatment of taxable persons, in accordance with the principle of fiscal neutrality, which is inherent in the VAT system. ¹² This provision specifically aims to eliminate all inequalities in relation to VAT between taxable persons who have acquired their goods from another taxable person and those who have acquired them in the course of their business. It seeks to ensure that a taxable person who, for the purposes of an activity exempt from VAT, applies goods obtained in the course of his business is subject to the same tax burden as competitors engaged in the same exempt activity using goods which they have acquired in their entirety from a third party. ¹³

37The questions referred for a preliminary ruling by the national court are to be answered in the light of these case-law principles.

B – The first question referred

38By its first question, the national court essentially asks whether Articles 5(7)(a) and 11(A)(1)(b) of the Sixth Directive must be interpreted as meaning that the application by a taxable person, for the purposes of an economic activity exempt from VAT, of immoveable property built on land over which the taxable person has acquired a right in rem entitling him to use that land and immoveable property, property which he had a third party complete, can be subject to VAT calculated on the basis of a taxable amount comprising the value of the right in rem acquired and the costs of completing the property, where the taxable person has already paid the VAT relating to that value and those costs, VAT which he has also already deducted in full.

39It is apparent from the decision to refer that, by this question, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) essentially seeks clarification on the implications of the judgment in Gemeente Vlaardingen. ¹⁴ That judgment concerned a case similar to the present case, in which a municipality had commissioned third parties to transform sports pitches owned by it which it subsequently let, an activity exempt from VAT. In its judgment, the Court held that the two abovementioned provisions of the Sixth Directive did not prevent the application by a taxable person, for the purposes of an economic activity exempt from VAT, of land owned by it and which it had a third party transform from being subject to VAT, calculated on the basis of the sum of the value of the ground on which the pitches lay and the costs of transforming the pitches, to the extent that the taxable person has not yet paid the VAT relating to that value or to those costs. ¹⁵

40The question referred by the national court essentially seeks to clarify the meaning of the expression ‘has not yet paid the VAT relating to that value or to those costs’ used by the Court in that judgment and, in particular, ascertain whether the taxable amount for VAT should exclude cost price factors — in this instance, the value of the long lease and the costs of completing the building — on which the taxable person has already paid VAT, VAT which he has also already deducted in full.

41Whilst Oudeland and the Netherlands Government agree that, if the VAT paid on the cost price factors for the internal supply has been deducted, there is no substantive double taxation or repeated taxation, with the result that these factors can be included in the taxable amount of the supply, the Commission submits, on the other hand, that Articles 5(7)(a) and 11(A)(1)(b) of the Sixth Directive do not even apply to the facts of the present case, since Oudeland had already paid the VAT relating to the supply and to the works to complete the building. According to the Commission, in order to correct Oudeland’s VAT situation, recourse would have to be had to the mechanism for the adjustment of deductions, set out in Article 20 of the Sixth Directive.

42It is necessary, as a preliminary point, to address the question of the applicability, which the Commission disputes, of the provisions on the taxation of internal supplies in circumstances such as those of this case. In the light of Article 5(7)(a) of the Sixth Directive and the relevant case-law, the application of these provisions is subject to three cumulative conditions. ¹⁶ First, the taxable person must have obtained the goods in the course of his business, including where he has provided materials or land, for the production of immovable property by a third party. Secondly, the taxable person must have used the goods for the purposes of his business. Thirdly, the VAT on those goods would not have been wholly deductible if they had been acquired entirely from another taxable person. If these three conditions are met, the use of the goods for business purposes must be treated as a taxable supply. ¹⁷

43It falls to the national court to determine specifically whether, in the present case, these conditions are met. However, there is nothing in the documents before the Court which appears to contradict that conclusion and both the national court and the parties to the main dispute agree that the provision in question applies to the present case. First, the building was obtained in the course of the business, after being completed by a third party on land and using materials provided by Oudeland. ¹⁸ Secondly, by being let, the building was applied for the purposes of the business. Thirdly, because the building was used also for purposes other than taxable transactions, the input VAT would not have been wholly deductible if it had been acquired entirely from another taxable person.

44Whilst this transaction may be subject to the provisions on the taxation of internal supplies, the case-law of the Court shows that the VAT thereon is to be levied as follows.

45First of all, the entire amount of the input VAT paid by the taxable person in respect of the acquisition of the goods for the purposes of the subsequent application must give rise to a right to deduct that VAT, in accordance with Article 17(2) of the Sixth Directive. ¹⁹ Accordingly, Oudeland was right to pay and subsequently to deduct the VAT on the costs associated with the grant of the long lease and the completion of the building.

46Secondly, the application of the goods is itself subject to VAT and the amount for which the taxable person is liable as a result of that application must be calculated, in accordance with Article 11(A)(1)(b) of the Sixth Directive, on the basis of the overall value of each of those elements, it being understood that VAT must not have been previously charged on those elements. ²⁰

47It is precisely at this stage that the national court’s question arises. Since Oudeland already paid VAT on the grant of the long lease and on the works to complete the building, but also deducted such VAT, can these cost price factors of the applied goods be taken into account for the purposes of calculating the taxable amount for VAT of the application of the goods forming the subject matter of the internal supply?

48In the judgment in Gemeente Vlaardingen, the Court stated that the option of treating an internal supply as a supply made for consideration cannot be used in order to charge VAT on the value of the goods which the taxable person concerned has made available to the third party who completed or improved them, to the extent that the taxable person has already, in the context of an earlier tax period, paid VAT on that value. ²¹ The Court explained that such repeated taxation would be incompatible with the essential characteristic of VAT, namely that it is imposed on the added value of the goods or services concerned, since the tax payable on a transaction is calculated after the tax paid on the preceding transaction has been deducted. Furthermore, such repeated taxation would also be incompatible with the aim of the above option, which is intended to enable Member States to make subject to VAT the application of goods for the purposes of activities exempt from VAT, but in no way authorises Member States to levy VAT several times on the same element of the value of those goods. ²²

49As submitted, in essence, by Oudeland and the Netherlands Government, it follows from this line of reasoning that the Court’s aim was to prevent concurrent taxation, namely double taxation of a substantive, not simply technical, nature. Repeated taxation does not arise if, in accordance with the essential characteristic of the VAT system, to which the Court refers, the VAT paid on the cost price factors included in the taxable amount of the internal supply has been deducted. Only where the VAT relating to such factors remains chargeable to the taxable person because he has not deducted them are the factors not to be included in the taxable amount of the internal supply.

50This interpretation is, moreover, borne out by the case-law of the Court. In its judgment in Gemeente ’s-Hertogenbosch, the Court no longer used the term ‘paid’, but stated that VAT must not have been previously ‘charged’ on the elements to be included in the taxable amount. ²³ In addition, more recently, in its judgment in Property Development Company, ²⁴ the Court stated that ‘in no case, may the taxable amount referred to in Article 11A(1)(b) of the Sixth Directive include an element of value on which the taxable person has already paid VAT without subsequently being able to deduct it’. ²⁵ Therefore, elements of value on which the taxable person has already paid VAT, VAT which it has deducted, can be included in the taxable amount.

51Consequently, the fact that, in the main proceedings, the amounts relating to the VAT on the grant of the long lease and the completion of the building were paid does not prevent these cost price factors from being taken into account in the taxable amount of the supply for the purposes of Article 5(7)(a) of the Sixth Directive, in so far as the VAT on these elements has been deducted.

52It should also be noted that, since only part of the immoveable property (87.5% of the area of the building at issue in the main proceedings) was applied to activities exempt from VAT, the VAT deduction will be excluded only in that proportion. As regards the remainder, to the extent that the goods concerned are used for the purposes of taxable transactions, corresponding to 12.5% of the area of the building, then under Article 17(2) and (5) of the Sixth Directive Oudeland is, in principle, authorised to deduct from the tax for which it is liable the VAT paid in respect of the internal supply. ²⁶

53It is also necessary to dismiss the Commission’s argument by which it submits, by expressly referring to the judgment in Gemeente Leusden and Holin Groep, ²⁷ that, in order to correct Oudeland’s VAT situation, recourse would have to be had to the mechanism for the adjustment of deductions set out in Article 20 of the Sixth Directive, particularly paragraph 2 thereof.

54In its judgment in Gemeente Leusden and Holin Groep, the Court stated that treatment as supplies made for consideration under Article 5(7)(a) of the Sixth Directive and the VAT adjustment for capital goods referred to in Article 20(2) thereof are two mechanisms with the same economic effect, that is to say, they oblige a taxable person to pay amounts equivalent to the deductions to which he was not entitled, however, the arrangements for payment are different. Whereas Article 5(7)(a) of the Sixth Directive entails a single payment, Article 20(2) of that directive provides for adjustments, in respect of capital goods, spread out over several years. ²⁸

55However, it also follows from that judgment that, although both mechanisms have the same economic effect, they do not pursue the same aim. Indeed, only Article 5(7)(a) of the Sixth Directive relates to the application by a taxable person of goods for the purposes of his business. Accordingly, in cases in which this provision applies, only Article 5(7)(a) of the Sixth Directive may serve as a basis for requiring a taxable person to pay sums originally deducted in respect of immoveable property which was subsequently let under an exempt lease. ²⁹

56In the light of all of the above considerations, I propose that the Court reply to the first question referred for a preliminary ruling as follows: Articles 5(7)(a) and 11(A)(1)(b) of the Sixth Directive must be interpreted as meaning that the application by a taxable person, for the purposes of an economic activity exempt from VAT, of immoveable property built on land over which the taxable person has acquired a right in rem entitling him to use that land and immoveable property, property which he had a third party complete, can be subject to VAT calculated on the basis of a taxable amount comprising the value of the right in rem acquired and the costs of completing the property, where the taxable person has already paid the VAT relating to that value and those costs, VAT which he has also already deducted in full.

C – The second question referred

57By its second question, the national court essentially asks whether, in circumstances such as those of the present case, in which the taxable person has acquired land with a building under construction through the grant of a right in rem, Article 11(A)(1)(b) of the Sixth Directive is to be interpreted as meaning that the value of the right in rem, which has to be included in the taxable amount of a supply for the purposes of Article 5(7)(a) thereof, must correspond to the overall value of the annual ground rents — that is to say the total value of the annual amounts to be paid for the entire duration of the right in rem — or the value of the amounts outstanding for payment under the annual ground rent for the remainder of the long lease, or even the value of the annual ground rents already due.

58The national court notes, first of all, that the Sixth Directive contains no rules on the taxable amount of the rights in rem referred to in Article 5(3)(b) thereof. It submits that it can be argued that the value of the amounts payable consecutively for the acquisition of a long lease do not form part of the cost price of the building, because those amounts constitute the consideration for a temporary right of use and are not due from the acquirer at once upon acquisition of the right, but are instead due over a term of years.

59However, where a Member State, such as the Netherlands, has made use of the possibility of treating a right in rem as tangible property and where, under national legislation, the grant and the transfer of such a right in rem during its term results not in tax due depending on the period of use of the immoveable property and periodic payments to be made, but tax due in one payment on the total of the amounts stipulated for the whole or remaining period (in the form of a ‘capitalised ground rent’), this could mean that, at the time of the supply under Article 3(1)(h) of the Law on VAT, the cost price must include the value of the amounts to be paid as ground rent. The national court also raises the question of the compatibility of such legislation with Article 10(2) of the Sixth Directive.

60Oudeland asserts that future ground rents cannot be taken into account for the purposes of calculating the cost price for the taxable person, since Article 11(A)(1)(b) of the Sixth Directive expressly provides that the cost price is to be determined at the time of the internal supply. By contrast, the Netherlands Government argues that account must be taken of the capitalised value of the ground rents for the entire duration of the long lease which constitutes the value of the total consideration of the lease, as agreed by the parties when it was granted.

61It should be recalled, first of all, that the rule laid down in Article 11(A)(1)(b) of the Sixth Directive, according to which the taxable amount of the transactions referred to, in particular, in Article 5(7)(a) thereof is to be ‘the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined [at] the time of supply’, derogates from the general rule laid down in Article 11(A)(1)(a) of the directive, according to which the taxable amount of transactions subject to VAT is to be the consideration for the supplies of goods and services forming the subject matter of such transactions. ³⁰

62Furthermore, Article 11(A)(1)(b) clearly shows that it is only in the absence of a purchase price for the goods or for similar goods that the taxable amount of an application within the meaning of Article 5(7)(a) of the Sixth Directive is the ‘cost price’, determined at the time of the transaction. ³¹ The criterion of the cost price is therefore a criterion for determining the taxable amount which could be defined as ‘dually residual’, as it only applies if both the general criterion of consideration and the secondary criterion of the purchase price of the goods or of similar goods do not apply. ³²

63As observed in point 33 of this Opinion, according to the referring court, since it is common ground that, in the present case, the purchase price of goods similar to the building is absent, the relevant criterion for determining the taxable amount of the application at issue is the cost price.

64The case-law provides some guidance on how this criterion is to be applied. Thus, in order to calculate the cost price, all elements of the value which gave rise to that price must be examined in detail. ³³ In addition, the calculation of the taxable amount, as set out in Article 11(A)(1)(b) of the Sixth Directive, should be based on the overall value of each of the elements that must be taken into account. ³⁴ Furthermore, it is apparent from the wording of this provision that the cost price must be calculated at the time of the taxable transaction, namely when the goods are applied for the purposes of the exempt activity. ³⁵

65As the Netherlands Government correctly points out, Article 11(A)(1)(b) of the Sixth Directive, where it is used to calculate the taxable amount of an application within the meaning of Article 5(7)(a) thereof, must be read in the light of the specific aim pursued by the latter provision, as set out in points 34 to 36 of this Opinion, namely to prevent distortion of competition by ensuring the equal treatment of taxable persons, in accordance with the principle of fiscal neutrality.

66It should also be borne in mind that, in the present case, pursuant to the national provision based on Article 5(3)(a) of the Sixth Directive, ³⁶ the grant of a long lease is treated as the supply of goods.

67It follows from all of these considerations that, in order to ensure the equal treatment of taxable persons, the calculation of the total cost price for the taxation of the application to an exempt activity of goods acquired in the course of business should seek to make the interested party, in this case Oudeland, subject to the same tax burden as a reference competitor engaged in the same exempt activity who uses goods (in this case, the land and completed building) over which he has acquired a long lease and on which he has paid VAT, VAT which he cannot, however, deduct because the activity for which the goods are used is exempt.

68In a case such as this, the total cost price is the overall value of the price of the works to complete the building plus the overall value of the cost price of the grant of the long lease (over the land and the building under construction), calculated at the time the building is applied to the exempt activity. In my view, this second value corresponds to the (capitalised) value of the amounts outstanding for payment under the annual ground rent at the time of the application of the goods. Indeed, this value corresponds to the cost that the reference competitor would have to bear ‐ for the purposes of engaging in the same exempt activity ‐ in order to be able to grant a long lease over the goods with the same duration as the right in rem held by the interested party over the goods at the time of their application to the exempt activity.

69The grant of a long lease — a right in rem deriving from Roman law — is characterised by the conferment on the acquirer, for a stipulated term and for consideration, of the same right to enjoy the property as that held by the owner, excluding all others from any entitlement to that right, and by the fact that the lessor takes ownership of the improvements made and structures erected by the acquirer during the term of the lease. ³⁷ The consideration payment method may be agreed upon by the parties and may take the form of a single payment or instalments (as in the present case, by way of annual ground rents).

70Since one of the key aspects of long leases is the fact that the temporal effect of their conferment is limited, it is therefore clear that the overall value of the grant of such leases is proportionate to their duration. Consequently, this value decreases with the passage of time.

71Thus, if, for example, Oudeland had applied the completed building to the exempt activity, 10 years after the grant of the long lease with a term of 20 years, the reference competitor, mentioned in paragraph 67 of this Opinion, would be represented by a taxable person who, in order to engage in the exempt letting activity, would have to have acquired the long lease (on which he would pay VAT, without being able to deduct it thereafter) for a term of only 10 years. In those circumstances, there would be no justification for making the interested party, who applies goods as provided in Article 5(7)(a) of the Sixth Directive (Oudeland in this case), pay VAT on the value of all of the ground rents stipulated for the entire term of the long lease. This value would not actually correspond to the cost price of the long lease determined at the time of the application.

72On the basis of these considerations, I do not think — in contrast to the Netherlands Government — that the capitalised value of the ground rents for the entire duration of the long lease corresponds to the overall value of the cost price of that lease, as determined at the time of the application of the goods. ³⁸ That would only be the case if the application of the goods takes place at the time of the grant of the long lease.

73Furthermore, based on the same considerations and contrary to Oudeland’s arguments, I do not think that the cost price of the long lease could possibly correspond entirely to the value of the ground rents already paid. This value does not correspond to the value of the long lease determined at the time of the application of the goods. In this connection, in contrast to Oudeland’s assertions, the fact that the cost price has not yet been paid in full is not relevant for the purposes of determining that price, which must be understood as the cost that the reference competitor mentioned in point 67 of this Opinion would bear.

74Lastly, as regards the national court’s concerns as to the compatibility of Netherlands legislation — which provides that the grant or transfer of a right in rem results in a single payment of VAT on the total of the amounts stipulated for the entire period — with Article 10(2) of the Sixth Directive, I note that the national court itself states that the case pending before it does not concern a situation to which that question directly relates. Consequently, I do not think it is strictly necessary for the Court to deal with this question in the context of the present case. In that connection, I merely point out that, in any event, the criterion laid down in the provision which the national court asks to be interpreted in its second question, namely Article 11(A)(1)(b) of the Sixth Directive, is the criterion of the cost price, so that the value that must be included in the taxable amount set out in that provision is the overall value of the cost price factor, irrespective of the payment arrangements agreed upon.

75To conclude, I consider that the following reply should be given to the second question referred for a preliminary ruling: in a case such as that at issue in the main proceedings, in which the taxable person has acquired land with a building under construction through the grant of a right in rem, Article 11(A)(1)(b) of the Sixth Directive is to be interpreted as meaning that the value of this right in rem, which has to be included in the taxable amount of a supply, for the purposes of Article 5(7)(a) thereof, must correspond to the overall value of the amounts outstanding for payment under the annual ground rent at the time of the application of the goods.

V – Conclusion

Conclusion

76In the light of the foregoing considerations, I propose that the Court give the following replies to the questions referred by the Hoge Raad der Nederlanden (Supreme Court of the Netherlands):

Articles 5(7)(a) and 11(A)(1)(b) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation 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 meaning that the application by a taxable person, for the purposes of an economic activity exempt from value added tax, of immoveable property built on land over which the taxable person has acquired a right in rem entitling him to use that land and immoveable property, property which he had a third party complete, can be subject to value added tax calculated on the basis of a taxable amount comprising the value of the right in rem acquired and the costs of completing the property, where the taxable person has already paid the value added tax relating to that value and those costs, value added tax which he has also already deducted in full.

In a case such as that at issue in the main proceedings, in which the taxable person has acquired land with a building under construction through the grant of a right in rem, Article 11(A)(1)(b) of Directive 77/388 is to be interpreted as meaning that the value of this right in rem, which has to be included in the taxable amount of a supply, for the purposes of Article 5(7)(a) thereof, must correspond to the overall value of the amounts outstanding for payment under the annual ground rent at the time of the application of the goods.

¹ Original language: French.

² Council Directive of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, ‘the Sixth Directive’).

³ Transactions of this kind are known by different names, such as ‘self supplies’, ‘deemed supplies’, ‘integration supplies’ and ‘supplies for business purposes’. However, since the goods are obtained and applied internally, within the undertaking, I prefer to use the term ‘internal supplies’.

⁴ Council Directive of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), which repealed and replaced the Sixth Directive as from 1 January 2007 (see, in particular, Article 18(a) of Directive 2006/112).

⁵ See judgments in Gemeente Leusden and Holin Groep (C‑487/01 and C‑7/02, EU:C:2004:263, paragraphs 90 et seq.); Gemeente Vlaardingen (C‑299/11, EU:C:2012:698); Gemeente ’s-Hertogenbosch (C‑92/13, EU:C:2014:2188); and Property Development Company (C‑16/14, EU:C:2015:265).

⁶ See Article 2 of the Sixth Directive and Article 2(1)(a) of Directive 2006/112.

⁷ See Article 3(2) of the Law on VAT (mentioned in point 14 of this Opinion). This provision is based on Article 5(3)(b) of the Sixth Directive.

⁸ This was possible under Article 11(5) of the Law on VAT, which is based on Article 13(C)(a) of the Sixth Directive.

⁹ C‑299/11, EU:C:2012:698.

¹⁰ Judgment in Gemeente Vlaardingen (C‑299/11, EU:C:2012:698, paragraph 25).

¹¹ Ibidem (paragraph 26).

¹² Opinion of Advocate General Mazák in Gemeente Vlaardingen (C‑299/11, EU:C:2012:561, points 45 and 47 as well as the case-law cited).

¹³ Judgment in Gemeente Vlaardingen (C‑299/11, EU:C:2012:698, paragraphs 27 and 28).

¹⁴ Ibidem.

¹⁵ Ibidem (paragraph 37 and the operative part of the judgment).

¹⁶ See, in this connection, the Opinion of Advocate General Sharpston in Gemeente ’s-Hertogenbosch (C‑92/13, EU:C:2014:267, points 60 to 62), to which the Court expressly referred in paragraph 32 of its judgment in Gemeente ’s-Hertogenbosch (C‑92/13, EU:C:2014:2188).

¹⁷ Ibidem (point 61).

¹⁸ This situation is comparable to that giving rise to the judgments in Gemeente Vlaardingen (C‑299/11, EU:C:2012:698) and Gemeente ’s-Hertogenbosch (C‑92/13, EU:C:2014:2188).

¹⁹ Judgment in Gemeente ’s-Hertogenbosch (C‑92/13, EU:C:2014:2188, paragraph 34).

²⁰ Judgment in Gemeente ’s-Hertogenbosch (C‑92/13, EU:C:2014:2188, paragraph 35), which refers to the judgment in Gemeente Vlaardingen (C‑299/11, EU:C:2012:698, paragraphs 28 to 33).

²¹ C‑299/11, EU:C:2012:698, paragraph 32. Emphasis added.

²² Ibidem.

²³ Judgment in Gemeente ’s-Hertogenbosch (C‑92/13, EU:C:2014:2188, paragraph 35, cited and referred to in point 46 of this Opinion).

²⁴ C‑16/14, EU:C:2015:265.

²⁵ Ibidem (paragraph 42).

²⁶ Judgment in Gemeente ’s-Hertogenbosch (C‑92/13, EU:C:2014:2188, paragraph 36).

²⁷ C‑487/01 and C‑7/02, EU:C:2004:263, particularly paragraphs 90 et seq.

²⁸ Ibidem (paragraphs 90 and 91). Emphasis added.

²⁹ Ibidem (paragraph 92 and, a contrario, paragraph 93).

³⁰ See judgment in Property Development Company (C‑16/14, EU:C:2015:265, paragraphs 33 and 34) as well as, by analogy, as regards Articles 73 and 74 of Directive 2006/112, judgment in Marinov (C‑142/12, EU:C:2013:292, paragraph 31). The transactions referred to in Article 5(7)(a) of the Sixth Directive consist of, in particular, applications of goods acquired in the course of business to an economic activity exempt from VAT. In all cases of treatment as a supply made for consideration, the taxable person does not receive any actual consideration that can serve as a taxable amount for calculating VAT, with the result that the general rule laid down in Article 11(A)(1)(a) of the Sixth Directive cannot apply.

³¹ Judgment in Property Development Company (C‑16/14, EU:C:2015:265, paragraph 37).

³² See, as regards the criterion of the cost price, the considerations set out in point 39 of the Opinion of Advocate General Sharpston in Finanzamt Freistadt Rohrbach Urfahr (C‑219/12, EU:C:2013:152).

³³ Judgment in Property Development Company (C‑16/14, EU:C:2015:265, paragraph 40 in fine).

³⁴ See, by analogy, judgments in Gemeente Vlaardingen (C‑299/11, EU:C:2012:698, paragraph 28) and Gemeente ’s-Hertogenbosch (C‑92/13, EU:C:2014:2188, paragraph 35).

³⁵ See judgment in Gemeente Vlaardingen (C‑299/11, EU:C:2012:698, paragraph 30).

³⁶ That is, Article 3(2) of the Law on VAT (see point 14 of this Opinion).

³⁷ See judgment in ‘Goed Wonen’ (C‑326/99, EU:C:2001:506, paragraph 55), which concerned a usufructuary right, which is also a right in rem like a long lease. Without it being necessary, in my opinion, to consider the differences or similarities between long leases and the letting of immovable property, I merely note that a fundamental difference between these two legal situations, which might warrant different tax treatment, is that the grant of a long lease as a right in rem is comparable to, as set out in Article 5(3)(b) of the Sixth Directive, a supply for consideration, while letting is not.

³⁸ As mentioned in point 67 of this Opinion, I cannot endorse the approach suggested by the Netherlands Government, according to which the reference competitor is a taxable person who engages in the same non-exempt activity and who acquired ownership of the immoveable property entirely from a third party. The acquisition value of a long lease over property is necessarily lower than the acquisition value of ownership over the same property. These two values are not, therefore, comparable.