C-153/17 Volkswagen Financial Services (UK)

JUDGMENT OF THE COURT (Sixth Chamber)

18 October 2018 ( *1 )

(Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Articles 168 and 173 — Deduction of input tax — Vehicle hire purchase transactions — Goods and services used for both taxable transactions and exempt transactions — Origin and scope of the right to deduct — Proportional deduction)

In Case C‑153/17,

REQUEST for a preliminary ruling under Article 267 TFEU from the Supreme Court of the United Kingdom, made by decision of 22 March 2017, received at the Court on 27 March 2017, in the proceedings

Commissioners for Her Majesty’s Revenue and Customs

v

Volkswagen Financial Services (UK) Ltd,

THE COURT (Sixth Chamber),

composed of E. Regan, President of the Fifth Chamber, acting as President of the Sixth Chamber, C.G. Fernlund (Rapporteur) and S. Rodin, Judges,

Advocate General: M. Szpunar,

Registrar: L. Hewlett, Principal Administrator,

having regard to the written procedure and further to the hearing on 8 February 2018,

after considering the observations submitted on behalf of:

Volkswagen Financial Services (UK) Ltd, by N. Shaw QC, and M. Jones, Barrister, instructed by A. Brown, Solicitor,

the United Kingdom Government, by S. Brandon, acting as Agent, O. Thomas QC, and A. Mannion, Barrister,

the European Commission, by N. Gossement and R. Lyal, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 3 May 2018,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Articles 168 and 173 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’).

2The request has been made in proceedings between the Commissioners for Her Majesty’s Revenue and Customs (‘the tax authority’) and Volkswagen Financial Services (UK) Ltd (‘VWFS’) concerning the method applicable for determining the recoverable part of the input value added tax (VAT) incurred by that company in the context of its business consisting inter alia in offering supplies of motor vehicles by hire purchase.

Legal context

European Union law

3The first and second subparagraphs of Article 1(2) of the VAT Directive provide:

‘The principle of the common system of VAT entails the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, however many transactions take place in the production and distribution process before the stage at which the tax is charged.

On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components.’

4According to Article 135(1)(b) of that directive, Member States are to exempt ‘the granting and the negotiation of credit and the management of credit by the person granting it’.

5Article 168 of that directive provides:

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;

the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18(a) and Article 27;

the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);

the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;

the VAT due or paid in respect of the importation of goods into that Member State.’

6Article 173 of that directive provides:

‘1. In the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible pursuant to Articles 168, 169 and 170, and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible.

The deductible proportion shall be determined, in accordance with Articles 174 and 175, for all the transactions carried out by the taxable person.

2. Member States may take the following measures:

authorise the taxable person to determine a proportion for each sector of his business, provided that separate accounts are kept for each sector;

require the taxable person to determine a proportion for each sector of his business and to keep separate accounts for each sector;

authorise or require the taxable person to make the deduction on the basis of the use made of all or part of the goods and services;

authorise or require the taxable person to make the deduction in accordance with the rule laid down in the first subparagraph of paragraph 1, in respect of all goods and services used for all transactions referred to therein;

provide that, where the VAT which is not deductible by the taxable person is insignificant, it is to be treated as nil.’

United Kingdom law

7The provisions of the VAT Directive in relation to the deduction of input VAT have been implemented in the UK by section 26 of the Value Added Tax Act 1994 and regulations 101 and 102 of the Value Added Tax Regulations 1995. Regulation 101(2)(d) of those regulations provides for the standard method of determining the right to deduction.

8A derogation from that standard method is laid down in regulation 102 of those regulations, which allows the tax authority to adopt a special method of determining the deductible proportion of input VAT.

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

9VWFS is a financial company which is wholly owned by Volkswagen Financial Services AG and which is part of the Volkswagen AG Group. That group manufactures and sells motor vehicles under various brands, such as Volkswagen, Audi and Škoda.

10The finance offered by VWFS is intended solely for the purchase of vehicles of that group’s brands. In addition to finance options, that company supports the marketing of those brands’ cars by the training of dealers’ sales forces. However, the costs associated with that support are generally amortised across VWFS’s whole operating budget and are not charged to the other group undertakings which, whilst belonging to the same group of companies, did not accede with VWFS to a group tax scheme for the purposes of VAT.

11VWFS’s business comprises several different sectors, in particular the retail sector. In that sector, that company offers three types of products, to both professionals and individuals, including the hire purchase of motor vehicles. When it concludes a hire purchase agreement, VWFS purchases the vehicle from the dealer and supplies it to the customer, that agreement providing that ownership of the vehicle does not pass to the customer until all payments due under the terms of the agreement have been made.

12According to the legislation applicable in the United Kingdom, when it concludes such an agreement, VWFS is regarded as the supplier of the vehicle concerned by that agreement, which must inter alia contain a contractual condition that the vehicle is of satisfactory quality. Thus, the service provided by VWFS is not limited to the provision of credit, but extends to the provision of support in terms of the vehicle itself, such as dealing with complaints regarding its quality.

13According to the terms of such a hire purchase agreement, the price paid to VWFS in respect of the purchase of the vehicle is equal to the price paid by VWFS to the dealership, without any profit margin. However, when setting the interest rate relating to the ‘finance’ aspect of the transaction, VWFS applies a margin for overheads, a profit margin and an allowance for bad debts to its own cost of financing the vehicle. Thus, according to the accounting system that VWFS uses for that type of transaction, the part of the repayments corresponding to interest is included in the turnover, unlike the part corresponding to the repayment of the purchase price of the vehicle.

14It is agreed between the parties that whilst it is a single commercial transaction, a hire purchase agreement, as a matter of United Kingdom VAT law, comprises a number of separate supplies, including, on the one hand, a taxable supply of a vehicle, and, on the other, exempt supplies of credit.

15As regards the input VAT incurred by VWFS on its entire business, some of it is used only for making taxable or exempt supplies and some of it is used for both types of supplies. This latter VAT is described in the United Kingdom as ‘residual’. Specifically, that residual VAT concerns general costs relating to everyday administration, such as those associated with staff training and recruitment, staff meals and drinks, maintenance and enhancement of IT infrastructure, and premises- and stationery-related overheads. In the light of VWFS’s status as a partially exempt trader, the parties disagree on the extent to which VWFS is entitled to deduct that residual VAT.

16In order to determine the amount of input tax that it could deduct, VWFS agreed a ‘partial exemption special method’ with the tax authority. Under that method, the input tax on costs incurred solely for the making of taxed supplies is deductible, while the tax on costs incurred solely for the making of exempt supplies is not.

17On 2 February 2007, VWFS wrote to the tax authority to suggest that, in the context of that special method, the residual input VAT be apportioned between its business sectors in particular in proportion to the turnover of each sector, which would however be calculated without taking into account the value of vehicles sold on under hire purchase agreements. A particular methodology would then be applied to quantify the deductible residual VAT for each sector.

18The dispute between the tax authority and VWFS relates to the extent to which the residual VAT thus allocated to the retail sector must be regarded, according to such a particular methodology, as ‘used or to be used’ by VWFS to make taxable supplies within that sector.

19In that regard, VWFS suggests relying on the proportion of the number of taxable transactions to the total number of transactions in that sector. According to its methodology, the hire purchase transactions should be regarded as two separate transactions, one of them taxable and the other exempt, and the number of transactions is related not to the number of contracts, but to the number of payments, usually monthly, made under those contracts.

20For its part, the tax authority submits that each amount of residual VAT allocated to the hire purchase agreements must be apportioned between the taxable and the exempt supplies based on the value of those supplies, but excluding the initial value of the vehicle when it is supplied. Given that the value of the hire purchase transaction is thus largely attributable to the grant of finance, which is an exempt supply, only the portion of the residual VAT relating to the value of the other taxable supplies made under such contracts, such as settlement charges and option to purchase fees, is recoverable.

21On 16 June 2008, the tax authority issued a notice of assessment in respect of the VAT due by VWFS, on the basis of its interpretation of the right to deduct. Subsequently, on 30 September 2008, the tax authority issued a decision setting out the basis for its assessment.

22VWFS challenged that notice of assessment before the First-tier Tribunal (Tax Chamber) (United Kingdom), which upheld that complaint by judgment of 18 August 2011.

23The tax authority brought an appeal against that judgment before the Upper Tribunal (Tax and Chancery Chamber) (United Kingdom). On 12 November 2012, that court delivered a judgment upholding that appeal.

24VWFS’s appeal before the Court of Appeal ((England & Wales) (Civil Division), United Kingdom) was upheld by the latter, by judgment of 28 July 2015.

25The referring court, the Supreme Court of the United Kingdom, granted the tax authority permission to appeal on 23 December 2015, and it heard the appeal on 3 November 2016.

26In those circumstances, the Supreme Court of the United Kingdom decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

Where general overhead costs attributed to hire purchase transactions (which consist of exempt supplies of finance and taxable supplies of cars), have been incorporated only into the price of the taxable person’s exempt supplies of finance, does the taxable person have a right to deduct any of the input tax on those costs?

What is the proper interpretation of paragraph 31 of [the judgment of 8 June 2000, Midland Bank (C‑93/98, EU:C:2000:300)], and specifically the statement that overhead costs “are part of the taxable person’s general costs and are, as such, components of the price of an undertaking’s products”?

In particular:

Should this passage be interpreted to mean that a Member State must always attribute some input tax to every supply in any special method adopted under Article 173(2)(c) of the Directive?

Is this the case even if the factual circumstances are that the overhead costs are not incorporated in the price of taxable supplies made by the undertaking?

Does the fact that the overhead costs have been actually used, at least to some extent, in making taxable supplies of cars,

entail that some proportion of the input tax on those costs must be deductible;

is this the case even if the factual circumstances are that overhead costs are not incorporated in the price of the taxable supplies of cars?

Can it be legitimate in principle to ignore the taxable supplies of cars (or their value) for the purposes of arriving at a special method under Article 173(2)(c) of the Directive?’

Consideration of the questions referred

27By its four questions, which it is appropriate to consider together, the referring court seeks, in essence, to ascertain whether Article 168 and Article 173(2)(c) of the VAT Directive must be interpreted as meaning that, first, even where the general costs relating to supplies of moveable goods by hire purchase, such as the supplies at issue in the main proceedings, are passed on not in the amount due by the customer in respect of the supply of the goods concerned, that is to say the taxable part of the transaction, but in the amount of the interest due in respect of the ‘finance’ part of the transaction, that is to say the exempt part thereof, those general costs must nonetheless be considered, for the purposes of VAT, to be a component of the price of that supply and, second, Member States may apply a method of apportionment which does not take account of the initial value of the goods concerned when they are supplied.

Preliminary observations

28As a preliminary point, it is appropriate to determine whether, for VAT purposes, the various transactions relating to hire purchase supplies, such as those at issue in the main proceedings, namely the grant of finance and the supply of vehicles, must be treated as distinct transactions which are taxable separately or as single complex transactions, composed of several elements.

29According to the Court’s case-law, where a transaction comprises a bundle of elements and acts, regard must be had to all the circumstances in which the transaction in question takes place in order to determine whether that operation gives rise, for the purposes of VAT, to two or more distinct supplies or to one single supply (judgment of 18 January 2018, Stadion Amsterdam, C‑463/16, EU:C:2018:22, paragraph 21 and the case-law cited).

30The Court has also held, first, that it follows from the second subparagraph of Article 1(2) of the VAT Directive that every transaction must normally be regarded as distinct and independent and, secondly, that a transaction which comprises a single supply from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system. There is a single supply where two or more elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split (see, to that effect, order of 14 April 2016, Gabarel, C‑555/15, not published, EU:C:2016:272, paragraph 44, and judgment of 4 October 2017, Federal Express Europe, C‑273/16, EU:C:2017:733, paragraphs 37 and 38 and the case-law cited).

31There is also a single supply where one or more elements are to be regarded as constituting the principal supply, while other elements are to be regarded, by contrast, as one or more ancillary supplies which share the tax treatment of the principal supply. In particular, a supply must be regarded as ancillary to a principal supply if it does not constitute for customers an end in itself but a means of better enjoying the principal service supplied (judgment of 18 January 2018, Stadion Amsterdam, C‑463/16, EU:C:2018:22, paragraph 23 and the case-law cited).

32In the context of the cooperation established by Article 267 TFEU, it is for the national courts to determine whether that is the situation in a particular case and to make all definitive findings of fact in that regard (judgment of 10 March 2011, Bog and Others, C‑497/09, C‑499/09, C‑501/09 and C‑502/09, EU:C:2011:135, paragraph 55 and the case-law cited).

33Thus, in order to determine whether a commercial transaction constitutes independent services or a single service for the purposes of VAT, it is for the national court to examine the characteristic elements of the transaction concerned, taking into account the economic objective of that transaction and the interests of the recipients thereof (see, to that effect, judgment of 8 December 2016, Stock ‘94, C‑208/15, EU:C:2016:936, paragraphs 28 and 29 and the case-law cited).

34In this case, the referring court takes the view that each car hire purchase agreement consists of several separate supplies, namely, on the one hand, the supply of a vehicle, and, on the other, supplies of credit. In that regard, it must be stated that there is nothing in the order for reference or the observations submitted to the Court to show that that categorisation was not carried out in accordance with the abovementioned criteria.

35In particular, as the United Kingdom Government contended, that breakdown of the hire purchase transaction appears to be compatible with the Court’s case-law, according to which although the exemptions laid down in Article 135 of the VAT Directive must be interpreted strictly, the fact remains that, in the absence of any precision as to the identity of the lender or the borrower, the expression ‘the granting and the negotiation of credit, within the meaning of paragraph 1(b) of that article, cannot refer solely to loans and credit granted by banking and financial institutions.

36Accordingly, deferred payment of the purchase price of goods, in return for payment of interest, may be regarded as a grant of credit, which constitutes an exempt transaction under that provision, provided that the payment of interest does not constitute part of the consideration obtained for the supply of goods or services, but consideration for the grant of that credit (see, to that effect, judgment of 27 October 1993, Muys’ en De Winter’s Bouw- en Aannemingsbedrijf, C‑281/91, EU:C:1993:855, paragraphs 12, 13 and 19).

The method for calculating the deductible proportion of VAT

37In order to answer the questions referred, as reformulated in paragraph 27 of this judgment, it is necessary to recall the case-law of the Court relating to the origin and scope of the right to deduct VAT.

38The Court has already held that it is apparent from Article 168 of the VAT Directive that a taxable person is, in principle, entitled to deduct input tax where it is established that the goods and services relied on to give entitlement to that right are used by that taxable person for the purposes of his own taxed transactions, and that, as inputs, those goods or services are supplied by another taxable person (see, to that effect, judgment of 22 June 2016, Gemeente Woerden, C‑267/15, EU:C:2016:466, paragraphs 34 and 35).

39According to settled case-law of the Court, that right of taxable persons is a fundamental principle of the common system of VAT established by EU law, so that that right is an integral part of the VAT scheme and in principle may not be limited (see, to that effect, judgment of 22 June 2016, Gemeente Woerden, C‑267/15, EU:C:2016:466, paragraphs 30 and 31 and the case-law cited).

40The deduction system is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures complete neutrality of taxation of all economic activities, whatever the purpose or results of those activities, provided that they are themselves subject to VAT (judgment of 22 June 2016, Gemeente Woerden, C‑267/15, EU:C:2016:466, paragraph 32).

41In accordance also with the Court’s settled case-law, the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to the right to deduct is necessary, in principle, before the taxable person is entitled to deduct input VAT and in order to determine the extent of such entitlement. The right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them was a component of the cost of the output transactions that gave rise to the right to deduct (judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 28 and the case-law cited).

42A taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct, where the costs of the services in question are part of his general costs and are, as such, components of the price of the goods or services which he supplies. Such costs do have a direct and immediate link with the taxable person’s economic activity as a whole (judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 29 and the case-law cited).

43In this case, it is apparent from the order for reference that the general costs at issue in the main proceedings have a direct and immediate link with the activities of VWFS as a whole, and not merely with some of them. In that regard, the fact that VWFS decided to include those costs not in the price of the taxable transactions, but solely in the price of the exempt transactions, can have no effect whatsoever on such a finding of fact.

44Thus, in so far as those general costs were in fact incurred, at least to a certain extent, for the purpose of the supply of vehicles, which are taxed transactions, those costs are, as such, components of the price of those transactions. Accordingly, a right to deduct VAT arises, in principle, in accordance with the considerations set out in paragraphs 38 to 42 of this judgment.

45So far as concerns the fact that the general costs at issue in the main proceedings are not clearly reflected in the price of the taxed transactions of supplies of vehicles, it should be recalled that the result of those economic transactions is irrelevant for the right to deduct provided that the activity itself is subject to VAT (judgment of 22 June 2016, Gemeente Woerden, C‑267/15, EU:C:2016:466, paragraph 40 and the case-law cited).

46As the Court has already held, the right to deduct VAT must be guaranteed, without it being subjected to a criterion relating, inter alia, to the result of the economic activity of the taxable person, in accordance with Article 9(1) of the VAT Directive under which a taxable person ‘shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity’ (judgment of 5 July 2018, Marle Participations, C‑320/17, EU:C:2018:537, paragraph 44).

47Nevertheless, the extent of the right to deduct varies according to the intended use of the goods and services at issue. Whilst, for goods and services intended to be used exclusively for the carrying out of taxable transactions, taxable persons are entitled to deduct all the tax that has been charged on their acquisition or supply, for goods and services intended for a mixed use, it is apparent from Article 173(1) of the VAT Directive that the right to deduct is limited to such proportion of the VAT as is attributable to the transactions in respect of which VAT is deductible that are carried out by means of those goods or services (see, to that effect, judgment of 9 June 2016, Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft, C‑332/14, EU:C:2016:417, paragraph 25).

48In this case, given that the general costs allocated to VWFS’s retail sector concern goods and services used to effect both transactions giving rise to a right to deduct and transactions not giving rise to a right to deduct, a deductible proportion must be established, in accordance with the relevant provisions of that directive.

49As a general rule, under the second paragraph of Article 173(1) of the VAT Directive, the deductible proportion is to be determined, in accordance with Articles 174 and 175 of that directive, for all the transactions carried out by the taxable person by reference to turnover.

50Nevertheless, under Article 173(2)(c) of that directive, Member States may authorise or require the taxable person to make the deduction on the basis of the use made of all or part of the goods and services.

51According to the Court’s case-law, Member States may, as a result of that provision, apply, for a given transaction, a method or allocation key other than the turnover-based method, on condition that the method used guarantees a more precise determination of the deductible proportion of the input VAT than that arising from the application of the turnover-based method (judgment of 8 November 2012, BLC Baumarkt, C‑511/10, EU:C:2012:689, paragraph 24).

52Thus, any Member State which decides to authorise or compel the taxable person to make the deduction on the basis of the use made of all or part of the goods and services must ensure that the method for calculating the right to deduct makes it possible to ascertain with the greatest possible precision the portion of VAT relating to transactions in respect of which VAT is deductible. The principle of neutrality, which forms an integral part of the common system of VAT, requires that the method by which the deduction is calculated objectively reflects the actual share of the expenditure resulting from the acquisition of mixed use goods and services that may be attributed to transactions in respect of which VAT is deductible (see, to that effect, judgment of 10 July 2014, Banco Mais, C‑183/13, EU:C:2014:2056, paragraphs 30 and 31).

53In that regard, the Court has nevertheless specified that the method chosen must not necessarily be the most precise possible, but that, as is apparent from paragraph 51 of this judgment, it must be able to guarantee a more precise result than the result which would arise from the application of the turnover-based allocation key (see, to that effect, judgment of 9 June 2016, Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft, C‑332/14, EU:C:2016:417, paragraph 33).

54Admittedly, the Court, in paragraph 33 of the judgment of 10 July 2014, Banco Mais (C‑183/13, EU:C:2014:2056), held, with respect to a bank carrying out leasing transactions in the automotive sector, that, subject to verification by the national court, while the carrying out by a bank of such transactions may require the use of certain mixed use goods or services, such as buildings, electricity consumption or certain cross-cutting services, most often that use is primarily a consequence of the financing and management of the contracts entered into by the lessor and its customers, not of the provision of the vehicles.

55It was in those particular circumstances that, in paragraph 34 of that judgment, the Court held that calculating the right of deduction by applying the turnover-based method, which takes account of the amounts relating to the part of the rental payments that customers make to offset the provision of the vehicles, leads to a determination of the deductible proportion of the input VAT that is less accurate than that arising from the method based on just the part of the rental payments representing the interest that constitutes the consideration for the lessor’s costs of financing and managing the contracts, since those two activities occasion the major part of the mixed use goods and services used with a view to carrying out leasing transactions in the automotive sector.

56However, it cannot be inferred from the Court’s reasoning in relation to the leasing transactions at issue in the case that gave rise to the judgment of 10 July 2014, Banco Mais (C‑183/13, EU:C:2014:2056), that Article 173(2)(c) of the VAT Directive enables Member States, generally, to apply to all similar types of transactions in the automotive sector, such as the hire purchase transactions at issue in the main proceedings, a method of apportionment which does not take account of the value of the vehicle when it is supplied.

57In particular, in the light of the fundamental nature of the right to deduct, recalled in paragraph 39 of this judgment, where the method by which the deduction is calculated does not take account of an actual and non-negligible allocation of a share of the general costs to transactions giving rise to a right to deduct, such a method cannot be regarded as objectively reflecting the actual share of the expenditure resulting from the acquisition of mixed use goods and services that may be attributed to those transactions. Consequently, such a method is not capable of ensuring a more precise apportionment than that which would arise from the application of the turnover-based allocation key.

58Thus, in this case, as regards the method applied by the tax authority for calculating the deductible proportion of VAT, it is for the national court to ascertain whether that method takes account of the actual and non-negligible allocation of a share of the general costs for the purposes of the transaction giving rise to a right to deduct.

59In the light of all the foregoing considerations, the answer to the questions referred is that Article 168 and Article 173(2)(c) of the VAT Directive must be interpreted as meaning that, first, even where the general costs relating to supplies of moveable goods by hire purchase, such as the supplies at issue in the main proceedings, are passed on not in the amount due by the customer in respect of the supply of the goods concerned, that is to say the taxable part of the transaction, but in the amount of the interest due in respect of the ‘finance’ part of the transaction, that is to say the exempt part thereof, those general costs must nonetheless be considered, for the purposes of VAT, to be a component of the price of that supply and, second, Member States may not apply a method of apportionment which does not take account of the initial value of the goods concerned when they are supplied, since that method is not capable of ensuring a more precise apportionment than that which would arise from the application of the turnover-based allocation key.

Costs

60Since 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 (Sixth Chamber) hereby rules:

Article 168 and Article 173(2)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that, first, even where the general costs relating to supplies of moveable goods by hire purchase, such as the supplies at issue in the main proceedings, are passed on not in the amount due by the customer in respect of the supply of the goods concerned, that is to say the taxable part of the transaction, but in the amount of the interest due in respect of the ‘finance’ part of the transaction, that is to say the exempt part thereof, those general costs must nonetheless be considered, for the purposes of value added tax (VAT), to be a component of the price of that supply and, second, Member States may not apply a method of apportionment which does not take account of the initial value of the goods concerned when they are supplied, since that method is not capable of ensuring a more precise apportionment than that which would arise from the application of the turnover-based allocation key.

Signatures

Regan

Fernlund

Rodin

Delivered in open court in Luxembourg on 18 October 2018.

A. Calot Escobar

Registrar

K. Lenaerts

President

( *1 ) Language of the case: English.

OPINION OF ADVOCATE GENERAL

SZPUNAR

delivered on 3 May 2018 ¹

(Reference for a preliminary ruling — Common system of value added tax — Directive 2006/112/EC — Articles 168 and 173 — Deduction of input tax — Vehicle hire purchase transactions — Goods and services used for both taxable transactions and exempt transactions — Origin and scope of the right to deduct — Proportional deduction)

Introduction

1The parties to the main proceedings are in disagreement as to the defendant’s right to deduct input value added tax (‘VAT’) paid on goods and services used for the purposes of its hire purchase transactions. ²

2In the context of this dispute, both parties seem to have very good arguments in support of their views. However, it seems to me that this discussion is taking place without seeing what is referred to by the well-known English expression as ‘the elephant in the room’. That ‘elephant’ is the United Kingdom’s classification for tax purposes of hire purchase contracts, which is, in my view, incorrect.

3Under the legislation of that Member State, such contracts are to be treated as two distinct transactions, one being the taxable supply of a vehicle, and the other, an exempt supply of credit. Given that the price of the vehicle charged to the customer must be limited to the exact purchase price of that vehicle, paid by the lessor to the dealer, the amount of output VAT collected is also exactly equal to the input VAT on that vehicle and fully deductible in respect of that supply. The remainder of the lessor’s costs, as well as his profit margin, are, on the other hand, covered by the revenue from the exempt supply of credit. The referring court is therefore uncertain as to the correct approach for the deduction of input VAT on the lessor’s overhead costs, used to an extent for the purposes of the taxable supply of the vehicle, but which are in fact covered by the revenue from the supply of credit, which, as an exempt transaction, is not subject to output VAT.

4It therefore seems impossible to give a correct response to this question without addressing the issue of the splitting of hire purchase contracts into two distinct transactions, which I very much doubt is consistent with EU legislation on VAT.

Legal framework

EU law

5The first and second subparagraphs of Article 1(2) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ³ provide:

‘The principle of the common system of VAT entails the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, however many transactions take place in the production and distribution process before the stage at which the tax is charged.

On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components.’

6Article 73 of Directive 2006/112 provides:

‘In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, [ ⁴] the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.’

7Under Article 135(1)(b) of that directive:

‘1. Member States shall exempt the following transactions:

…

the granting and the negotiation of credit and the management of credit by the person granting it;’

8In accordance with Article 168(a) of Directive 2006/112:

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;’

9Finally, according to the first subparagraph of Article 173(1) of that directive:

‘1. In the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible pursuant to Articles 168, 169 and 170, and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible.’

10The different methods for calculating the proportion mentioned in that provision (‘proportional deduction’) are governed by Article 173(2) and Article 174 of Directive 2006/112.

United Kingdom law

11The provisions transposing Directive 2006/112 into UK law are to be found primarily in the Value Added Tax Act 1994 (‘the VAT Act 1994’) and the Value Added Tax Regulations 1995 (‘the VAT Regulations 1995’). The right to deduct input VAT is governed by Article 26 of the VAT Act 1994 and by Articles 101 and 102 of the VAT Regulations 1995. Notably, Article 102 of the VAT Regulations 1995 allows the Commissioners for Her Majesty’s Revenue and Customs (‘the tax authority’) to adopt a special method of determining the proportional deduction of input VAT for taxable persons performing both taxable transactions and exempt transactions.

12Under Article 31(1) of the VAT Act 1994, the supplies of goods and services listed in Schedule 9 of that act are exempt. Group 5 concerns financial services, which include:

‘2. The making of any advance or the granting of any credit.

…

3. The provision of the facility of instalment credit finance in a hire-purchase, conditional sale or credit sale agreement for which facility a separate charge is made and disclosed to the recipient of the supply of goods.’

According to an explanatory note contained in that schedule, group 5:

‘Item 2 includes the supply of credit by a person, in connection with a supply of goods or services by him, for which a separate charge is made and disclosed to the recipient of the supply of goods or services.’

13In UK law, hire purchase agreements are subject to the Consumer Credit Act 1974. According to the defendant in the main proceedings, UK legislation requires the lessor to disclose separately on the hire purchase agreement, to the lessee, the price of the vehicle, as paid by the lessor to purchase it. Any additional amount charged to the lessee is to be considered as the price of the granting of credit.

Facts, procedure and questions referred for a preliminary ruling

14Volkswagen Financial Services (UK) Ltd (‘VWFS’) is a company established in the United Kingdom, which is part of the German group Volkswagen AG. Its activities include, inter alia, hire purchase transactions whereby Volkswagen AG vehicles are supplied to individuals.

15In that context, VWFS offers various types of contract which may result in the acquisition of ownership of the vehicle by the customer, or simply allow the customer to use the vehicle for a given period. For the purposes of those hire purchase transactions, VWFS purchases vehicles from dealerships and then supplies those vehicles, in its own name, to customers to whom it also provides certain related services. The consideration paid by the customer under a hire purchase agreement is divided into two parts: the price of the vehicle, which is equal to the price paid by VWFS to the dealership, and the ‘finance charges’, which include all the other fees and provisions as well as a profit margin.

16For VAT purposes, those hire purchase agreements are treated as two distinct transactions: a taxable supply of goods and an exempt supply of credit. In the context of the supply of goods, only the price of the vehicle, as paid by VWFS and charged to the customer, is regarded as consideration. That price therefore includes VAT, the amount of which is equal to the input VAT paid by VWFS on the purchase of the vehicle. The remainder of the amount charged to the customer does not include VAT.

17The input VAT paid by VWFS on the purchase of the vehicles is fully deducted from the output VAT charged to customers. The dispute between VWFS and the tax authority concerns the right to deduct the input VAT on VWFS’ various overhead costs in so far as the goods and services in respect of which those costs were incurred have been used for the purposes of VWFS’ taxable transactions, namely, supplies of vehicles.

18According to VWFS, supplies of vehicles to customers and the services directly linked to those supplies necessarily require the use of certain resources, in particular, in the form of the purchase of goods and services which are part of the overhead costs it incurs in running its business. The input VAT paid on those goods and services should therefore be deductible from the VAT payable to the Treasury by VWFS on its taxable transactions, or be refunded if there is no sufficient output VAT. VWFS has therefore proposed a method for the calculation of that deductible proportion of input VAT on its overhead costs. That method is based on the number of output transactions carried out, with each hire purchase agreement counting as two transactions, one of which is taxable. A proportion of the overhead costs is therefore attributed to that taxable transaction relating to a hire purchase agreement.

19For its part, the tax authority adopted a method for calculating the deductible proportion of VAT on overhead costs, based on the value of the taxable transactions and the exempt transactions. Since the price of the vehicle charged to the customer is excluded from the calculation of the value of the transactions relating to hire purchase agreements, ⁵ the remaining value of the transactions relating to hire purchase agreements is virtually zero, ⁶ as is the deductible proportion of VAT on overhead costs.

20Applying that method of calculating the deductible VAT, the tax authority, by decisions of 16 June and 30 September 2008, set the amount of VAT payable by VWFS.

21VWFS challenged that decision before the First-tier Tribunal (Tax Chamber) (United Kingdom), which upheld the action brought by VWFS by judgment of 18 August 2011. The tax authority brought an action before the Upper Tribunal (Tax and Chancery Chamber) (United Kingdom). That court delivered a judgment upholding that action on 12 November 2012. VWFS’ appeal before the Court of Appeal (United Kingdom) was upheld by the latter, by judgment of 28 July 2015.

22The referring court granted the tax authority permission to appeal on 23 December 2015, and it heard the appeal on 3 November 2016. In the course of considering that appeal, the Supreme Court of the United Kingdom decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

Where general overhead costs attributed to hire purchase transactions (which consist of exempt supplies of finance and taxable supplies of cars), have been incorporated only into the price of the taxable person’s exempt supplies of finance, does the taxable person have a right to deduct any of the input tax on those costs?

What is the proper interpretation of paragraph 31 of the judgment of 8 June 2000, Midland Bank (C‑98/98, EU:C:2000:300), and specifically the statement that overhead costs “are part of the taxable person’s general costs and are, as such, components of the price of an undertaking’s products”?

In particular:

Should this passage be interpreted to mean that a Member State must always attribute some input tax to every supply in any special method adopted under Article 173(2)(c) of Directive [2006/112]?

Is this the case even if the factual circumstances are that the overhead costs are not incorporated in the price of taxable supplies made by the undertaking?

Does the fact that the overhead costs have been actually used, at least to some extent, in making taxable supplies of cars,

entail that some proportion of the input tax on those costs must be deductible?

Is this the case even if the factual circumstances are that overhead costs are not incorporated in the price of the taxable supplies of cars?

Can it be legitimate in principle to ignore the taxable supplies of cars (or their value) for the purposes of arriving at a special method under Article 173(2)(c) of Directive [2006/112]?’

23The request for a preliminary ruling was received by the Court on 27 March 2017. Written observations have been submitted by VWFS, the United Kingdom Government and the European Commission. The same parties were represented at the hearing on 8 February 2018.

Analysis

Preliminary observations

24The question of law raised in the reference for a preliminary ruling in this case may be summarised as follows: does a taxable person, who carries out both taxable transactions and exempt transactions which are closely connected to those taxable transactions, have the right to deduct a proportion of the input VAT paid on goods and services used indissociably for the purposes of both the taxable and the exempt transactions, despite the fact that the costs of purchasing those goods and services are not incorporated into the price of taxable transactions, but are covered entirely by revenue from the exempt transactions?

25That question draws a contrast between two fundamental principles of the VAT system: the principle that any transaction which falls within the scope of the system and is not expressly exempt should be taxed at each stage of the economic cycle until delivery to the consumer, who bears the full burden of that tax, and the principle that that tax must be wholly neutral for all operators other than the consumer, in other words, that operators must only collect tax at the stage (of production or distribution) in which they are involved, without bearing the economic burden thereof.

26Accordingly, as regards the overhead costs incurred by VWFS in connection with its taxable transactions, the VAT attributable thereto would ordinarily be payable to the Treasury. At the same time, VWFS should be relieved of the economic burden of that VAT. It does not seem to me to be possible to achieve that result in a situation such as that in the main proceedings. Any answer given to the referring court will therefore be flawed from the point of view of the coherence of the VAT system.

27In my opinion, that contradiction is the result of the incorrect transposition into UK law of the provisions of Directive 2006/112 and the incorrect application of those provisions to hire purchase agreements. Indeed, there are several arguments, stemming from the logic of the VAT system, from the purpose of its provisions and from the case-law of the Court, which show, in my view, that these agreements constitute single transactions that should not be split into several transactions, each of which is treated differently for VAT purposes. Splitting hire purchase transactions in this way is contrary to the principle of fiscal neutrality for taxable persons, reduces tax revenue and distorts competition.

28In the present Opinion. I shall therefore propose that, in addition to carrying out an analysis of the questions referred for a preliminary ruling as they have been framed, the Court should address the issue of the tax treatment of hire purchase agreements.

29I am well aware that that analysis is beyond the scope of the request for a preliminary ruling in the present case. It is, nonetheless, within the ambit of the dispute in the main proceedings, the subject matter of which is the taxation of hire purchase transactions carried out by VWFS. According to the Court’s settled case-law, in the procedure laid down by Article 267 TFEU, providing for cooperation between national courts and the Court of Justice, it is for the latter to provide the national court with an answer which will be of use to it and enable it to determine the case before it. With this in mind, the Court may, where necessary, have to reformulate the questions referred to it. Furthermore, the Court may decide to take into consideration rules of EU law to which the national court has made no reference in the wording of its question. ⁷ In my view, the present case requires such an approach.

The questions referred for a preliminary ruling

30To recap, by the questions referred for a preliminary ruling, the national court asks, in essence, whether taxable persons making supplies which, for the purposes of applying VAT, are split into two distinct transactions, one of which is taxable and the other exempt, and the overhead costs of those supplies are fully incorporated in the price of the exempt transactions, have the right to deduct part of the input VAT on those overhead costs because they are partly used for the purposes of taxable transactions. As I have already stated in my preliminary observations, that question must be assessed in the light of two fundamental principles of VAT: the principle of fiscal neutrality for taxable persons and the principle of the general application of tax.

Fiscal neutrality and the right to deduct

31VAT is a tax on consumption. Although taxable persons collect and pay tax to the Treasury, they should not bear the economic burden thereof, as that must be borne entirely by the consumer. That is what fiscal neutrality is in the field of VAT. That neutrality is achieved through two mechanisms: the addition of VAT by a taxable person to the price of its supplies or provisions (input VAT) and the deduction of VAT paid by that taxable person on the price of the goods and services it has purchased for the purposes of its taxable supplies (output VAT). Those mechanisms are repeated at each stage of the production and distribution process (or the provision of services) until reaching the consumer who, not being entitled to deduct VAT, bears the full burden of the tax. If the taxable person is unable to deduct input VAT, the chain is broken, and it is that taxable person which bears the burden. In most cases, that taxable person would then incorporate that tax (as ‘hidden’ VAT) in the price of its own supplies. Thus, that VAT, which has been incorporated in the value of the goods or services, artificially increases the VAT on goods and services further downstream of the production or distribution chain, creating the cascade effect (or ‘tax on tax’), which is common in other systems of indirect taxation, and which is precisely what the VAT system should eliminate. The absence of a right to deduct VAT is therefore detrimental not only to the taxable person in question, but more broadly to all the operators concerned and to the functioning of the whole system. Although that negative effect is assumed in the case of exemptions, ⁸ it must be avoided as far as possible in the case of taxable transactions.

32Accordingly, the Court attaches particular importance to a taxable person’s right to deduct. According to settled case-law, the right of taxable persons to deduct the VAT due or paid on goods purchased and services received as inputs from the VAT which they are liable to pay is a fundamental principle of the common system of VAT, is an integral part of the VAT scheme and, in principle, may not be limited. VAT applies to each transaction by way of production or distribution, so each transaction must be the subject of a specific evaluation, independently of the VAT due on previous or subsequent transactions. The goods and services relied on to give entitlement to that right must be used by the taxable person for the purposes of his own taxable transactions, and, as inputs, those goods or services must be supplied by another taxable person. Provided those two conditions are met, a taxable person is, in principle, entitled to deduct input tax. The result of an economic transaction is irrelevant for the right to deduct, provided that the activity itself is subject to VAT. Therefore, if the supply price is lower than the cost price, the deduction cannot be limited in proportion to the difference between the supply price and the cost price, even if the supply price is considerably lower than the cost price, unless it is purely symbolic. ⁹

33The Court has also held that the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to a right to deduct is, in principle, necessary before the taxable person is entitled to deduct input VAT and in order to determine the extent of such entitlement. Nevertheless, the Court has held that a taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct, where the expenditure incurred is part of its overhead costs. Such expenditure does have a direct and immediate link with the taxable person’s economic activity as a whole. Conversely, where goods or services acquired by a taxable person are used for the purposes of transactions which are exempt or which do not fall within the scope of VAT, no output tax may be collected and no input tax may be deducted. ¹⁰

34In the main proceedings, it is common ground that some of the goods and services constituting VWFS’ overhead costs are used for the purposes of its taxable transactions, namely, supplies of vehicles. This appears logical because these transactions cannot be carried out without the involvement of VWFS, and that involvement inevitably requires the use of certain resources. It therefore seems clear that VWFS should enjoy the right to deduct the input VAT on its overhead costs in so far as they are used for the purposes of the supplies of vehicles made by VWFS.

35However, given that those overhead costs are not incorporated in the price of those taxable transactions, but in the price of the exempt supplies of credit, the right to deduct is incompatible with the principle of the general application of tax

The right to deduct, the price of supplies and the general application of tax

36Under the first and second subparagraphs of Article 1(2) of Directive 2006/112, VAT is a general tax. It is chargeable on each transaction and calculated on the price of the goods or services which are the subject of the transaction. In order for each transaction to be subject to a tax calculated on the price, and for the input tax paid to be deducted at the same time, the costs of earlier transactions must necessarily be incorporated in that price. This is explicitly stated in the second subparagraph of Article 1(2) of Directive 2006/112, which provides that VAT ‘shall be chargeable after deduction of the amount of VAT borne directly by the various cost components’. ¹¹

37The only transactions which are not subject to tax ¹² are those which are exempt under the provisions of Directive 2006/112. However, exempt transactions do not, in principle, give rise to the right to deduct. The only exceptions are transactions with a cross-border element: intra-Community supplies (which will, nonetheless, be taxed in the Member State of acquisition), exports and certain transactions in the context of international transport, transactions with international organisations or embassies, etc. However, as regards transactions carried out in the territory of a Member State which do not relate to international trade, Directive 2006/112 does not provide for exemptions with the right to deduct, except in the case of the temporary continuation of certain exemptions already in force in different Member States pursuant to Articles 109 to 129 of that Directive.

38Although the Court has not explicitly imposed the condition that, in order for taxable persons to exercise the right to deduct, the cost of the goods and services used for the purposes of their taxable transactions must be among the cost components of the output transactions, it is because that requirement stems from the very logic of the VAT system.

39The Court treats that requirement as self-evident, as rightly noted by the national court in its second question referred for a preliminary ruling. Therefore, according to the case-law, the right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them was a cost component of the output transactions that gave rise to the right to deduct. ¹³ The same applies where the expenditure incurred is part of the taxable person’s overhead costs and is, as such, a component of the price of the goods or services which it supplies. ¹⁴

40Of course, the reality in economic activities is that prices may sometimes, in certain specific situations, not cover all costs. Those situations cannot arise as a rule, otherwise the activity would not be profitable. However, they are fairly common, particularly when the activity is just beginning and the amount being invested by an undertaking exceeds the amount of its sales. It would then have the right to deduct and the right to recover input VAT on those investments, but that recovery would then be covered by the output VAT on the undertaking’s future transactions. An undertaking at the end of its economic life may also be required to sell its goods below their cost price, for example, in the event of liquidation. This is, therefore, merely a temporary situation. A non-profit-making taxable person, such a municipality, may, for various reasons, sell goods for a price lower than the purchase cost. ¹⁵ In such situations, the Court fully recognises the taxable person’s right to deduct. ¹⁶

41However, those situations cannot be compared to the situation which has arisen in the present case, where a hybrid taxable person, on a consistent and regular basis, and in accordance with the provisions of the national law of its Member State, finances the costs of its taxable activity with the revenue from an exempt activity. To recognise a right to deduct in such a case would be tantamount to subsidising that taxable person, or even the entire sector of activity, by means of systematic refunds of input VAT, which is deductible in principle, but not in practice, where there is no output VAT.

42I disagree, in that regard, with the idea, expressed by VWFS in its observations, that the Treasury does not incur any financial loss, because the input VAT in question is paid by VWFS and accounted for by the dealers. That VAT has been paid and accounted for, because it is payable under tax provisions. It is true that the VAT mechanism, which is rather complicated, makes the application of VAT into a ‘to-and-fro’ between taxable persons and the tax authorities, but at the end of the process, the Treasury must ordinarily always have a positive balance: this is the nature of all taxation. Consequently, if the Treasury must refund input VAT, and this is not compensated by output VAT, it undoubtedly incurs a loss in the form of reduced tax revenue.

43In its observations, the Commission seeks to explain the situation of VWFS, suggesting that VWFS may be making a loss on its supplies of vehicles, which, being part of a group, it can afford, since the rest of the group can compensate for that loss. Thus, according to the Commission, the proportion of VWFS’ overhead costs relating to supplies of vehicles is incorporated in the price of those supplies, which establishes the right to deduct input VAT on that proportion of the overhead costs, in accordance with the case-law of the Court set out above. ¹⁷

44That artificial proposal is irrelevant for at least two reasons.

45First, that proposal is contrary to the UK legislation as set out by the parties to the main proceedings, which requires that the price charged to the customer as the price of the supply of the vehicle must be equal to the exact purchase price of the vehicle, paid by the lessor to the dealer, excluding any other costs. The lessor is therefore not at liberty to include an additional amount in the price of the supply, even if he reduces the price of the vehicle to less than the price that he paid himself. The purpose of that requirement is to ensure the proper disclosure of information to the client, and that purpose could not be fulfilled if the lessor manipulated the purchase price of the vehicle.

46Secondly, the Commission’s proposal is factually inaccurate. It is common ground in the main proceedings that VWFS does not make any supply at a loss, but finances the overhead costs attributed to the supply with the revenue from the exempt supply of credit, of which those overhead costs are a component of the price. The fact that VWFS is part of a group has no bearing on the profitability of the hire purchase supplies.

47Ultimately, it appears that granting VWFS the right to deduct input VAT on overhead costs financed with the revenue from exempt transactions would be tantamount to applying to those transactions, in part, an exemption with the right to deduct, which is contrary to the first subparagraph of Article 1(2) of Directive 2006/112.

Conclusion on this part

48On the one hand, there is no doubt that VWFS uses some of the goods and services constituting its overhead costs for the purposes of its taxable transactions, so it must be able to benefit from the right to deduct the input VAT levied on the purchase of those goods and services. On the other hand, this right to deduct is contrary to other fundamental principles of the VAT system. It therefore seems to me to be impossible to find a proper solution to the problem raised by the questions referred in the present case without more closely analysing the tax treatment, under UK law, of hire purchase agreements in the light of Directive 2006/112.

The classification of hire purchase agreements for the purposes of VAT

49The provisions of EU law concerning VAT have already been interpreted by the Court on several occasions in the context of hire purchase agreements or leasing contracts. However, most of those cases involved determining whether such a contract should be classified as a supply of goods or a supply of services. As regards the question whether such a contract constitutes a single transaction or several distinct transactions, it is necessary, first, to refer to the Court’s case-law on complex transactions.

The case-law of the Court concerning complex transactions

50Directive 2006/112 contains no specific rules governing complex transactions. On the contrary, it follows from the second subparagraph of Article 1(2) of Directive 2006/112, that each transaction should, in principle, be treated as distinct and independent. However, a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system. ¹⁸ This distortion of the VAT system would be even more serious if one of the elements of a complex transaction were exempt, as is the case here.

51Thus, in a line of case-law which is now well established, the Court reached the conclusion that, in certain circumstances, several formally distinct services, which could be supplied separately and thus give rise, in turn, to taxation or exemption, must be considered to be a single transaction when they are not independent. There is a single supply where two or more elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. In order to determine whether a transaction that comprises several supplies constitutes a single transaction for the purposes of VAT, the Court takes into account the economic objective of that transaction and the interests of the recipients of the supplies. ¹⁹

52Moreover, the fact that a single price is charged, or that separate prices have been contractually stipulated, has no decisive significance for the purposes of determining whether it is necessary to find that there are two or more distinct and independent transactions or only a single economic transaction. The transaction can thus be regarded as a single transaction, even if separate prices for the different components of that transaction are charged to customers. ²⁰

53Therefore, in order to know whether a supply constitutes a single complex transaction or distinct transactions, it is necessary to determine whether each component of that supply is, economically, an end in itself for the customer, or whether his interest relates only to the complex supply in its entirety. ²¹

54Finally, although it is for the national courts to determine whether the taxable person makes a single supply in a particular case and to make all definitive findings of fact in that regard, it is for the Court to provide the national courts with all the guidance as to the interpretation of European Union law which may be of assistance in adjudicating on the case pending before them. ²²

55As regards hire purchase agreements such as those at issue in the main proceedings, it seems to me, contrary to what the United Kingdom Government and the Commission state in their written pleadings, that, in the light of the case-law cited above, those agreements should be regarded as single transactions, which it would be artificial to split.

56Neither the obtaining of credit nor the purchase or hire of a vehicle constitutes an end in itself for a lessee who enters into a hire purchase agreement. That lessee is seeking to use the vehicle under conditions which are specific to a hire purchase agreement and which would not be satisfied by any other method of acquiring the vehicle. Accordingly, on the one hand, the lessee receives a new vehicle, the features of which he has specified, because the lessor has purchased the vehicle to meet that customer’s requirements. The lessee can then make autonomous and exclusive use of the vehicle (save for a few minor restrictions) and normally, moreover, has the option to acquire ownership of it at the end of the agreement. Those are the features that distinguish a hire purchase agreement from an operating lease. On the other hand, the lessee is not obliged to pay the full price of the vehicle, because payment is made in instalments. Moreover, he does not bear the economic risks arising from ownership of the vehicle, such as the risk of breakdown or accident, or the need to dispose of the vehicle at the end of its useful economic life, because provided that the lessee has not exercised the option to purchase the vehicle, those risks are to be borne by the lessor. Finally, the lessee often benefits from ancillary services, such as vehicle maintenance services. A hire purchase agreement is thus also different from the mere purchase of the vehicle from the point of view of the lessee.

57I do not, therefore, share the Commission’s view that a hire purchase agreement is equivalent to purchasing a vehicle by obtaining a loan for that purpose, which should lead to the conclusion that a hire purchase agreement should be regarded as two distinct transactions, namely a supply of credit and a supply of a vehicle. It is true that a vehicle may be purchased in different ways, including by obtaining a bank loan.

58However, first of all, that would not involve the same parties, since, according to information provided in its own observations, VWFS does not supply vehicles by any means other than hire purchase agreements and does not provide financing for the purchase of such vehicles other than under such agreements. The customer would, first, have to apply to a credit institution, and then go to a vehicle dealership.

59Secondly, as the Court has already held, the fact that a third party could, in principle, provide similar services is not decisive for the purpose of classifying the transaction as complex. The possibility that elements of a single supply may, in other circumstances, be supplied separately is inherent in the concept of a single composite transaction. ²³

60Thirdly, purchasing a vehicle, with or without a bank loan, does not enable the buyer to use the car under the same, in many respects more favourable, conditions as those granted by a hire purchase agreement, as described in point 56 of this Opinion.

61Finally, fourthly, according to the recent case-law of the Court, ²⁴ and in accordance with the statements made by the United Kingdom Government in its reply to the written question of the Court in the present case, some types of hire purchase agreements offered by VWFS should be treated not as supplies of goods, but as services, thus more closely resembling operating leases. According to the rationale behind the split, each leasing transaction can be treated as including a supply of credit, in so far as the lease payments made by the lessee normally cover not only the depreciation of the leased asset, but also the owner’s other costs, including any financing costs.

62Moreover, I do not share the Commission’s concern that classifying a hire purchase agreement as a single taxable transaction gives rise to an inequality of treatment in relation to supplies of credit, which are exempt. Providers of financial services that are exempt from VAT are in a different situation from that of providers of services such as the supply of vehicles under hire purchase agreements. ²⁵ Taxing them is therefore not an infringement of the principle of fiscal neutrality — quite the opposite, since taxable persons who are taxed may benefit from the right to deduct. ²⁶

63The conclusion that a hire purchase agreement must be classified as a single transaction, rather than two distinct transactions, is corroborated by the case-law of the Court concerning the tax treatment of supplies which include the provision of finance.

The case-law concerning supplies which include the provision of finance

64It is true, as observed by the United Kingdom Government, that the Court has held, in a case concerning a contract for the purchase of land and the construction of a building, that a supplier of goods or services who authorises his customer to defer payment of the price, in return for payment of interest, is in principle making an exempt grant of credit within the meaning of the provisions on VAT. ²⁷ That interpretation is based primarily on the requirement for equal treatment of a buyer who obtains a credit (in the form of deferred payment) from his supplier, and a buyer who obtains a bank loan. ²⁸

65However, the risk of such unequal treatment does not appear to be present in the case of hire purchase agreements such as those at issue in the main proceedings. According to the distributive property of multiplication over addition, with non-variable financing costs (in terms of the percentage of the value of the goods financed), the cost to the buyer will be the same whether he finances the purchase of the goods with an exempt loan, and pays VAT on the purchase price, or he pays the price of the goods exclusive of VAT, plus the financing costs, and the VAT is then added to the total cost. ²⁹ In my view, the Court’s reasoning in the abovementioned judgment is not, therefore, directly applicable to the present case.

66Moreover, the case-law has evolved considerably since the abovementioned judgment was delivered. Two judgments seem to be to be particularly relevant.

67The first is the judgment in Stock ’94. ³⁰ In that case, the Court held that ‘[a transaction] providing that an economic operator delivers goods to a farmer and grants him a loan intended for purchasing those goods constitutes a single transaction for the purposes of [Directive 2006/112], in which the supply of the goods is the principal supply. The taxable amount of that single transaction is made up of both the price of those goods and the interest paid on the loans granted to the farmers’. ³¹ What was at issue in that case was an agricultural cooperation in which an operator granted a loan to farmers, who could use it only to purchase, from that operator, seeds and other resources for agricultural production. The farmers paid, in addition to the price of the goods purchased, interest on the loan granted. The question was, as in this case, whether that service constituted two distinct transactions (a taxable supply of goods and an exempt supply of credit), or a single complex transaction.

68The Court held, first, that the grant of the loans did not constitute a supply with an independent interest from the perspective of the farmers, inasmuch as those financial resources could not be used freely; secondly, that the operator in question, not having authorisation to act as a credit institution, could not grant loans to the farmers without their being intended for the purchase of goods from that operator ³² and, thirdly, that the supply of goods and the loan pursued the same economic objective. ³³ In those circumstances, according to the Court, the supply as a whole constituted a single transaction for the purposes of VAT.

69In response to a question at the hearing, the Commission stated that it found the judgment ‘curious’. However, I do not find it curious at all: the Court simply adopted a functional approach in examining the relationship at issue in order to determine its actual nature.

70If the Court was able to make such a ruling in a situation where, in addition to the supply of goods, there was a real financial flow between the supplier and the buyer, the same must apply, a fortiori, to the case of a hire purchase agreement, where the only ‘flow’ is the supply of the vehicle, and where the lessee pays the price of that vehicle using his own funds. Thus, as in the abovementioned judgment, in the hire purchase agreements at issue in the main proceedings, there is no supply of credit which is independent from the supply of the vehicle, the lessor is not offering financing outside the context of hire purchase agreements, and all the elements of those agreements pursue the same economic objective, namely, that of supplying the vehicle under the conditions of a hire purchase agreement. The Court’s reasoning in Stock ‘94 is therefore fully applicable to the present case.

71The second is the judgment in Part Service, ³⁴ which concerns even more directly hire purchase agreements and the splitting of those agreements into distinct transactions. In that case, the contracts at issue were vehicle leasing contracts split into several transactions, so that the leasing company received from the lessee, as part of a taxable transaction, an amount essentially equal to the purchase price of the vehicle paid to the dealer. The remainder was paid by the lessee to another operator, belonging to the same group as the leasing company, under an insurance and guarantee contract, which is an exempt transaction. Those amounts were subsequently transferred to the leasing company. The Italian tax authority held that, although the different agreements signed by the interested parties were contained in separate contracts, they together constituted a single contract concluded between three parties. According to that authority, the consideration paid by the customer for the leasing arrangement had been artificially divided to reduce the taxable amount, as the role of lessor was split between the leasing company itself and the other operator. ³⁵

72The Court carried out an analysis of the contracts at issue in the light of its case-law on complex transactions. ³⁶ It pointed out, in particular, that the transactions at issue had the following characteristics:

the two companies taking part in the leasing transaction were part of the same group;

the service supplied by the leasing company was subject to a division, the financing element being entrusted to another company to be split into a credit service, an insurance service and a brokerage service;

the service of the leasing company was therefore reduced to a vehicle rental service;

the lease payments made by the customer were of an amount which was only slightly higher than the purchase cost of the vehicle;

that service, considered in isolation, therefore seemed to be economically unprofitable, so that the viability of the business could not be ensured solely by means of contracts concluded with the customers;

the leasing company received the consideration of the leasing transaction only through the cumulative lease payments made by the customer and the amounts transferred from the other company of the same group. ³⁷

73The Court then held that practice to be contrary to the objective of Article 11A(1) of the Sixth Directive, ³⁸ namely the taxation of everything which constitutes consideration received or to be received from the customer. Since the leasing of vehicles under leasing contracts constitutes a supply of services within the meaning of Article 6 of the Sixth Directive, ³⁹ such a transaction is normally subject to VAT, for which the taxable amount is determined in accordance with Article 11A(1) of the Sixth Directive. Accordingly, the anticipated result was the accrual of a tax advantage linked to the exemption, pursuant to Article 13B(a) and (d) of the Sixth Directive, ⁴⁰ of the services entrusted to the co-contracting company of the leasing company. ⁴¹

74In Part Service, the questions referred for a preliminary ruling were raised from the point of view of the abuse of rights, so the Court did not give a definite response, leaving the assessment of any possible abuse to the referring court. In the case in the main proceedings, VWFS cannot be accused of any abuse because, apparently, the splitting of hire purchase agreements is permitted, if not required, under UK law. The fact remains that the analysis of such a practice, made by the Court in paragraph 57 of the judgment in Part Service, ⁴² is perfectly applicable to the situation at issue in the main proceedings, except that here, it is not even a matter of two suppliers and two contracts, but a single contract and a single supplier, the split occurring only when the lease payments are disclosed to the lessee. The artificial nature of that split is even more obvious.

75The insights provided by the judgment cited in the previous paragraph are, in my opinion, perfectly valid in the circumstances of the case in the main proceedings. The fact that the practice is allowed or required under UK law does not alter this conclusion. The Court does not assess the compliance of a practice with the national law of a Member State, but with the provisions of EU law. Accordingly, if it held that splitting a leasing contract into a number of separate transactions was contrary to the principle of taxing the full amount of the consideration received in a transaction, in that it gives rise to an unfair tax advantage in the form of an exemption, that finding applies both to the abusive practices of taxable persons and to the provisions of national law requiring such a split.

76To conclude this part of my reasoning, it seems to me that the above analysis of the case-law concerning the tax treatment of complex supplies, including, more specifically, leasing contracts, is sufficient for a finding that splitting the hire purchase agreements at issue in the main proceedings into taxable supplies of goods and exempt supplies of credit, whether this is allowed or required under UK legislation, is contrary to the provisions of Directive 2006/112 as interpreted by the Court.

77Such a treatment of those agreements also appears to me to be contrary to the purpose of the exemption for supplies of credit, provided for in Article 135(1)(b) of Directive 2006/112, and to the principle that exceptions are to be interpreted restrictively.

The purpose of the exemption for supplies of credit

78The VAT system is based on the general taxation of all goods and services at every stage of production and distribution (or provision of a service). VAT is, however, a tax on consumption, which is to say that the economic burden of the tax is borne at the stage of consumption. At each stage of the economic cycle, that burden is therefore passed on to the next stage, up until the stage of consumption. As a result of the mechanism for deducting input tax, the tax burden relates only to the value added at each stage, and remains neutral for economic operators.

79Each exemption breaks that chain, thus preventing the proper functioning of the taxation mechanism and introducing distortions of competition resulting from the infringement of the principle of neutrality. Indeed, if goods or services are exempt, the input tax cannot be deducted because there is no output tax. An exempt operator is therefore treated as a consumer and bears the tax burden himself. Accordingly, all VAT exemptions must be interpreted strictly, that is, in such a way as to limit them to the minimum necessary from the point of view of their purpose or the reasons for their adoption. ⁴³

80The recitals of Directive 2006/112 do not explain the reasons that led the European Union legislature to exempt financial services, including the granting of credit. Such an exemption exists, however, in most States which have introduced VAT. In the literature, it is generally acknowledged that those services, which relate only to financial movements, are too difficult to tax because of the difficulty in determining the taxable amount. ⁴⁴

81Such difficulties to not arise in the case of hire purchase agreements. In that type of contract there is, on the one hand, a well-defined service consisting of the supply of the leased goods with, potentially, the option to acquire ownership thereof, and, on the other hand, financial consideration in the form of lease payments and any additional payments. The tax base is, therefore, easy to determine — it consists of all the payments which the lessor obtains from the lessee. The fact that those payments cover a number of the lessor’s costs in addition to the cost of purchasing the leased asset, financing costs, overhead costs or the cost of ancillary services, does not change anything because all those costs are incurred in connection with the service of supplying the goods in question.

82The classification of such a contract, even in part, as a supply of credit goes beyond the necessary scope of the exemption provided for in Article 135(1)(b) of Directive 2006/112 and fails to fulfil the purpose of that exemption. That classification thus infringes the principle of the general application of tax set out in the first subparagraph of Article 1(2) of that directive. The Court, moreover, applied the same reasoning in the judgment in Velvet & Steel Immobilien, in which it held that the purpose of the exemption for financial transactions was to alleviate the difficulties connected with determining the tax base and the amount of VAT deductible, and to avoid an increase in the cost of consumer credit. It also held that ‘since subjecting the assumption of an obligation to renovate a property to VAT does not present such difficulties, that transaction cannot be exempted’. ⁴⁵

83It should also be noted, in that regard, that the fact that a transaction is classified as a supply of credit under the national law of a Member State is not sufficient, in itself, for that transaction to be granted the exemption provided for in Directive 2006/112. According to the case-law of the Court, the exemptions laid down in Article 135(1) of Directive 2006/112 constitute autonomous concepts of EU law whose purpose is to avoid divergences in the application of the VAT system as between one Member State and another. ⁴⁶

84In my opinion, Article 135(1)(b) of Directive 2006/112 therefore does not constitute a sufficient basis for the partial exemption of a hire purchase transaction such as those at issue in the main proceedings.

Conclusion on this part

85It is, in my view, clear from those considerations that, in the light of the various provisions of Directive 2006/112, as interpreted by the Court, hire purchase transactions such as those at issue in the main proceedings should not be split into distinct supplies of goods and supplies of credit. The partial exemption which results from this split disadvantages the suppliers in question by depriving them of the right to deduct the input VAT on a part of their costs, reduces the tax revenue both in the national budget of the Member State concerned and in the European Union, and may cause distortions of competition if the same supplies are treated in different ways in different Member States. ⁴⁷

86I do not deny the right of the United Kingdom legislature to require hire purchase companies, for reasons of consumer protection, to disclose separately, to the lessee, the amounts relating to the purchase price of vehicles. This way of setting out the price is not, however, decisive and should not lead to those supplies being split for the purposes of VAT, in accordance with the case-law cited in point 52 of this Opinion. ⁴⁸

Final observations

87In my opinion, the only correct answer that can be given to the questions referred in this case is that hire purchase agreements such as those at issue in the main proceedings constitute single complex transactions which must be subject to tax, it being understood that suppliers have the right to deduct all the input VAT on the goods and services used for the purposes of those supplies.

88Of course, such an approach can be applied fully in the future. As regards past situations, including the dispute in the main proceedings, the problem is more complicated.

89On the one hand, providers of hire purchase services have benefited from the partial exemption of their supplies as a result of those supplies being split into two distinct transactions, one of which is exempt. On the other hand, since that exemption is contrary to EU law, in the normal course of events, they should have benefited from the right to deduct all the input VAT in relation to those supplies. The question therefore arises whether they should benefit from that right to deduct despite the exemption at issue.

90Guidance for answering that question can be found in the case-law of the Court. According to the Court, even where an exemption provided for by national law is incompatible with Directive 2006/112, Article 168 of that directive does not permit a taxable person both to benefit from that exemption and to exercise the right to deduct tax. ⁴⁹ Admittedly, the Court has taken that view with regard to the deduction of input VAT on goods and services used by the taxable person only for the purposes of exempt transactions. However, I think that the same approach should be followed with regard to input VAT on goods and services which, while some are used for the purposes of taxable transactions, are all a component of the price of the exempt transactions. That logic of the VAT system applies in both situations, namely, that the deduction of input taxes is linked to the collection of output taxes. ⁵⁰

91Alternatively, since the provisions of Directive 2006/112 according to which hire purchase services must be treated as single taxable transactions, in particular Article 73, are, in my opinion, unconditional and sufficiently precise for taxable persons to be able to rely on them directly, taxable persons may request that their hire purchase services be taxed in order to be able to benefit from the right to deduct input VAT. ⁵¹ It is for the referring court to ascertain whether that is possible in practice in the main proceedings.

Conclusion

92In the light of all of the foregoing, I propose that the Court should answer the questions referred for a preliminary ruling by the Supreme Court of the United Kingdom as follows:

The provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that hire purchase agreements such as those at issue in the main proceedings constitute single complex transactions which are subject to tax, the suppliers in question having the right to deduct all the input value added tax (VAT) on the goods and services used for the purpose of those supplies.

Taxable persons who have benefited from the partial exemption of those transactions under national law do not have the right to deduct the input VAT levied on the goods and services used for the purposes of those transactions, the cost of which has been incorporated into the price of the exempt transactions. It is for the referring court to ascertain whether those taxable persons may request the full taxation of those transactions in order to be able to benefit from the right to deduct.

¹ Original language: French.

² These are contracts, referred to by different names in different legal systems (‘hire purchase’ in English, ‘location-vente’ or ‘crédit-bail’ in French, the English term ‘leasing’ being used in a number of systems, including the German and Polish systems), whereby specialist companies purchase capital goods to their customers’ specifications and, while retaining ownership of those goods, lease them out to those customers in return for the payment of fees calculated to cover the costs of depreciation of the goods and the financing costs. The contracts usually contain an option for the lessee to purchase the goods leased, which the lessee may exercise at the end of the lease subject to the payment of an amount corresponding to the estimated residual value of the goods.

³ OJ 2006 L 347, p. 1.

⁴ Those articles are not relevant to the present case.

⁵ That price reflects only the value of the vehicle, and the input VAT on the purchase of the vehicle is fully deducted from the output VAT on the same vehicle.

⁶ That value is zero, with the exception that some payments not included in the price of the vehicle, such as allowances for early payment or option to purchase fees, are considered to relate to taxable transactions.

⁷ See, most recently, judgment of 13 October 2016, M. and S. (C‑303/15, EU:C:2016:771, paragraph 16 and the case-law cited).

⁸ See, as regards the purpose of exemption for financial transactions, point 78 et seq. of this Opinion.

⁹ See, most recently, judgment of 22 June 2016, Gemeente Woerden (C‑267/15, EU:C:2016:466, paragraphs 30 to 35, 40 and 41).

¹⁰ See, most recently, judgment of 22 October 2015, Sveda (C‑126/14, EU:C:2015:712, paragraphs 27, 28 and 32).

¹¹ Emphasis added.

¹² Apart from the activities which fall outside the scope of the VAT system, because, for example, they are devoid of pecuniary interest.

¹³ See, in particular, judgments of 29 October 2009, SKF (C‑29/08, EU:C:2009:665, paragraph 57 and the case-law cited), and of 22 October 2015, Sveda (C‑126/14, EU:C:2015:712, paragraph 27).

¹⁴ See, in particular, judgments of 29 October 2009, SKF (C‑29/08, EU:C:2009:665, paragraph 58 and the case-law cited), and of 22 October 2015, Sveda (C‑126/14, EU:C:2015:712, paragraph 28).

¹⁵ That was the case in the main proceedings in the case which gave rise to the judgment of 22 June 2016, Gemeente Woerden (C‑267/15, EU:C:2016:466).

¹⁶ See point 32 of this Opinion.

¹⁷ See points 32 and 33 of this Opinion.

¹⁸ See judgment of 25 February 1999, CPP (C‑349/96, EU:C:1999:93, paragraph 29).

¹⁹ See, inter alia, judgment of 8 December 2016, Stock ‘94 (C‑208/15, EU:C:2016:936, paragraphs 26, 27 and 29 and the case-law cited).

²⁰ See, inter alia, judgment of 2 December 2010, Everything Everywhere (C‑276/09, EU:C:2010:730, paragraphs 29 and 30 and the case-law cited).

²¹ See judgments of 27 October 2005, Levob Verzekeringen and OV Bank (C‑41/04, EU:C:2005:649, paragraph 24); of 2 December 2010, Everything Everywhere (C‑276/09, EU:C:2010:730, paragraph 30); and of 27 September 2012, Field Fisher Waterhouse (C‑392/11, EU:C:2012:597, paragraph 25).

²² See, inter alia, judgment of 8 December 2016, Stock ‘94 (C‑208/15, EU:C:2016:936, paragraph 30).

²³ Judgment of 27 September 2012, Field Fisher Waterhouse (C‑392/11, EU:C:2012:597, paragraph 26).

²⁴ See judgment of 4 October 2017, Mercedes-Benz Financial Services UK (C‑164/16, EU:C:2017:734).

²⁵ Judgment of 2 December 2010, Everything Everywhere (C‑276/09, EU:C:2010:730, paragraph 31).

²⁶ See, as regards the impact of exemptions on VAT neutrality, points 78 et seq. of this Opinion.

²⁷ Judgment of 27 October 1993, Muys’ en De Winter’s Bouw- en Aanemingsbedrijf (C‑281/91, EU:C:1993:855, operative part).

²⁸ Judgment of 27 October 1993, Muys’ en De Winter’s Bouw- en Aanemingsbedrijf (C‑281/91, EU:C:1993:855, paragraph 14), and Opinion of Advocate General Jacobs in Muys’ en De Winter’s Bouw- en Aanemingsbedrijf (C‑281/91, EU:C:1993:81, points 10 and 11).

²⁹ Let us take, for example, goods at EUR 1000 exclusive of tax, with VAT at 20% and total financing costs at 30%. In the case of financing by means of a bank loan: the price of goods including VAT is EUR 1200, financing costs are EUR 360, making a total of EUR 1560. In the case of hire purchase: the price of goods exclusive of tax, plus financing costs is EUR 1300, plus EUR 260 VAT, making a total of EUR 1560. Schematically: (a + ta) + s(a + ta) = (a + sa) + t(a + sa), or a = price of the goods exclusive of tax, t = VAT rate, s = financing costs. These calculations were made by reference to Pardon, J., ‘La TVA et les opérations bancaires’, Droit bancaire et financier, V, 2006, p. 274.

³⁰ Judgment of 8 December 2016 (C‑208/15, EU:C:2016:936).

³¹ Judgment of 8 December 2016, Stock ‘94 (C‑208/15, EU:C:2016:936, first indent of the operative part).

³² This represents a clear reversal of what was held in paragraph 13 of the judgment of 27 October 1993, Muys’ en De Winter’s Bouw- en Aannemingsbedrijf (C‑281/91, EU:C:1993:855), according to which the expression ‘the granting and the negotiation of credit’, used to define the scope of the exemption, is sufficiently broad to include credit granted by a supplier of goods in the form of deferral of payment. According to the judgment of 8 December 2016, Stock ‘94 (C‑208/15, EU:C:2016:936), such a credit is normally to be treated as ancillary to the supply of the goods and therefore it could not benefit from exemption.

³³ Judgment of 8 December 2016, Stock ‘94 (C‑208/15, EU:C:2016:936, paragraphs 32 to 34).

³⁴ Judgment of 21 February 2008, Part Service (C‑425/06, EU:C:2008:108).

³⁵ Judgment of 21 February 2008, Part Service (C‑425/06, EU:C:2008:108, paragraphs 8 to 17).

³⁶ Judgment of 21 February 2008, Part Service (C‑425/06, EU:C:2008:108, paragraphs 48 to 53).

³⁷ Judgment of 21 February 2008, Part Service (C‑425/06, EU:C:2008:108, paragraph 57).

³⁸ 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), which has been recast by Directive 2006/112. Article 11A(1) of the Sixth Directive is now Article 73 of Directive 2006/112.

³⁹ Now Articles 24 to 29 of Directive 2006/112. It should be noted that certain leasing contracts can be classified as supplies of goods within the meaning of Article 14(2)(b) of Directive 2006/112, which does not change anything in terms of their being subject to tax.

⁴⁰ Now Article 135(1)(a) and (b) of Directive 2006/112.

⁴¹ Judgment of 21 February 2008, Part Service (C‑425/06, EU:C:2008:108, paragraphs 59 to 61).

⁴² Judgment of 21 February 2008, Part Service (C‑425/06, EU:C:2008:108).

⁴³ See, as regards the exemption provided for in Article 135(1)(d) of Directive 2006/112, judgment of 26 May 2016, Bookit (C‑607/14, EU:C:2016:355, paragraph 34).

⁴⁴ See, inter alia, Tait, A., Value Added Tax. International Practice and Problems, International Monetary Fund, Washington 1988, pp. 92-100. See also, Parolini, A., Exemptions in VAT Law — Recent Case Law of the CJEU, in: Lang, M. (ed.), CJEU — Recent Developments in Value Added Tax 2015, Vienna, 2016, p. 285, and Pardon, J., ‘La TVA et les opérations bancaires’, Droit bancaire et financier, V, 2006, p. 274.

⁴⁵ Judgment of 19 April 2007, Velvet & Steel Immobilien (C‑455/05, EU:C:2007:232, paragraph 24).

⁴⁶ Judgment of 26 May 2016, Bookit (C‑607/14, EU:C:2016:355, paragraph 33 and the case-law cited).

⁴⁷ I note, in that regard, for example, that, as it appears from the case which gave rise to the judgment of 19 September 2017, Commission v Ireland (C‑552/15, EU:C:2017:698), providers of vehicle rental or leasing services established in Northern Ireland are in direct competition with providers of the same services established in Ireland.

⁴⁸ At the hearing, the parties noted that this obligation arises from Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC (OJ 2008 L 133, p. 66). However, first, under Article 2(2)(d) of that directive, the directive does not apply to ‘hiring or leasing agreements where an obligation to purchase the object of the agreement is not laid down either by the agreement itself or by any separate agreement’. According to the information provided by the United Kingdom Government in response to a written question from the Court, the types of hire purchase agreements used by VWFS do not contain an obligation to purchase, but only an option to purchase. Secondly, although the obligation in question could be inferred from Article 10(2)(e) of Directive 2008/48, the obligation laid down there in concerns the provision of information to the lessee, which cannot determine the tax treatment of the supply.

⁴⁹ Judgment of 28 November 2013, MDDP (C‑319/12, EU:C:2013:778, paragraph 45).

⁵⁰ Judgment of 28 November 2013, MDDP (C-319/12, EU:C:2013:778, paragraph 43).

⁵¹ See judgment of 28 November 2013, MDDP (C-319/12, EU:C:2013:778, paragraphs 47 and, by analogy, 56, second and third subparagraphs).