C-173/88 Skatteministeriet v Henriksen

Judgment of the Court (Third Chamber) of 13 July 1989. - Skatteministeriet v Morten Henriksen. - Reference for a preliminary ruling: Højesteret - Denmark. - Turnover tax - Exemption. - Case 173/88. European Court reports 1989 Page 02763

Summary Parties Grounds Decision on costs Operative part

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

( Council Directive 77/388, Art . 13 B ( b ) )

Article 13B(b ) of the Sixth Directive ( 77/388 ) on the harmonization of the laws of the Member States relating to turnover taxes must be interpreted as meaning that the phrase "premises and sites for parking vehicles", which introduces an exception to the exemption laid down in that provision in regard to the leasing or letting of immovable property, covers the letting of all places designed to be used for parking vehicles, including closed garages, but that such lettings cannot be excluded from the exemption if they are closely linked to lettings of immovable property for another purpose which are themselves exempt from value-added tax . Member States may not exempt from value-added tax lettings of premises and sites for parking which are not covered by the exemption .

In Case 173/88

REFERENCE to the Court under Article 177 of the EEC Treaty by the Hoejesteret ( Danish Supreme Court ) for a preliminary ruling in the proceedings pending before that court between

Skatteministeriet ( Ministry of Fiscal Affairs )

and

Morten Henriksen

on the interpretation of Article 13B(b ) of the Sixth Council Directive ( 77/388 ) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value-added tax : uniform basis of assessment ( Official Journal L 145, p . 1 ),

THE COURT ( Third Chamber )

composed of : F . Grévisse, President of the Chamber, J.C . Moitinho de Almeida and M . Zuleeg, Judges,

Advocate General : F.G . Jacobs

Registrar : H.A . Ruehl, Principal Administrator

after considering the observations submitted on behalf of

Mr Henriksen, by Mr Henriksen himself,

the Danish Government, by J . Molde, Legal Adviser, and by O . Fentz and F . Mejnertzen, of the Copenhagen Bar,

the Commission of the European Communities, by its Legal Adviser, J.F . Buhl, acting as Agent,

having regard to the Report for the Hearing and further to the hearing on 18 April 1989,

after hearing the Opinion of the Advocate General delivered at the sitting on 17 May 1989,

gives the following

Judgment

Grounds

1By a decision of 21 June 1988, which was received at the Court on 27 June 1988, the Hoejesteret referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions on the interpretation of Article 13B(b ) of the Sixth Council Directive ( 77/388 ) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value-added tax : uniform basis of assessment ( Official Journal L 145, p . 1 ).

2Those questions arose in proceedings between Morten Henriksen and the Danish Ministry of Fiscal Affairs dealing essentially with the question whether the letting of garages situated in blocks of garages belonging to Mr Henriksen is exempt from value-added tax under the Sixth Directive .

3The blocks of garages consist of two buildings, each containing 12 garages erected in conjunction with a building development consisting of 37 linked one-family houses . Some of the garages are let to residents of that development and some to other people resident in the neighbourhood . The garages are all closed and separated from each other by a wall, and each has a door .

4At first instance, the case came before the OEstre Landsret ( Eastern Division of the High Court ) which held that the letting of the garages at issue was not subject to value-added tax . The OEstre Landsret considered that the exception to the principle of exemption normally applied to the letting of immovable property did not encompass garages such as those at issue, since such garages could not be regarded as "sites for ... parking" within the meaning of the Danish legislation on that subject . Furthermore, Article 13B(b ) of the Sixth Directive did not support the contrary interpretation .

5In order to assess those arguments, the Hoejesteret, before which the case came appeal, stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling :

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

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

6Reference is made to the Report for the Hearing for a fuller account of the facts of the main proceedings, the Community and national provisions at issue, the course of the procedure and the observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .

First question

7Having regard to the documents contained in the file, the first question must be understood as seeking in substance to know whether Article 13B(b ) of the Sixth Council Directive of 17 May 1977 ( 77/388 ) must be interpreted as meaning that the "letting of premises and sites for parking vehicles" also encompasses closed garages connected with immovable property the letting of which is exempt from value-added tax .

8Article 13B(b ) of the Sixth Directive provides that, without prejudice to other Community provisions, Member States are to exempt under conditions which they are to lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse, "the leasing or letting of immovable property excluding ... the letting of premises and sites for parking vehicles .... Member States may apply further exclusions to the scope of this exemption ."

9Mr Henriksen contends that the phrase "premises and sites for parking vehicles" in Article 13B(b ) encompasses only open spaces for the short-term parking of vehicles . On the other hand, the Danish Government considers that that phrase, given its normal meaning, encompasses any space in which motor vehicles may be placed or parked regardless of whether it is open, covered or situated in a building . For its part, the Commission argues that, taken in its context, that phrase includes closed garages, with the exception of those which form an undivided part of a letting of immovable property which is itself exempt .

10A comparison of the various language versions of Article 13B(b ) of the Sixth Directive shows that there are differences of terminology in regard to the scope of the phrase "the letting of premises and sites for parking vehicles ". Although certain versions suggest that only open spaces for the parking of vehicles are encompassed by that phrase, others suggest that it also encompasses enclosed garages such as those which are the subject of the main proceedings .

11In view of those differences, the scope of the contested phrase cannot be determined exclusively on the basis of an interpretation of its terms . In order to determine its meaning, recourse must therefore be had to the context in which it occurs and to the structure of the Sixth Directive .

12Account should be taken in that regard of the fact that the phrase "excluding ... the letting of premises and sites for parking vehicles" in Article 13B(b ) of the directive introduces an exception to the exemption laid down in that provision in regard to the leasing or letting of immovable property . It thus places the transactions which it encompasses under the general rules of the directive, which make all taxable transactions subject to tax, except where exemptions are expressly provided for . That provision thus cannot be interpreted restrictively as meaning that only open parking places, to the exclusion of closed garages, come within its scope .

13That interpretation is also in conformity with the view common to all the Member States, none of which has adopted legislation for the implementation of the common system of value-added tax which makes liability to that tax in respect of sites for parking vehicles dependant on whether or not the parking places are open .

14However, it should be pointed out that the phrase "leasing or letting of immovable property", which is the subject of the exemption laid down in Article 13B(b ) of the Sixth Directive, necessarily also encompasses, in addition to the letting of the property which is the principal subject of the transaction, the letting of all property which is accessory to it .

15Thus, the letting of premises and sites for parking vehicles cannot be excluded from the exemption where the letting thereof is closely linked to the letting of immovable property to be used for another purpose, such as residential or commercial property, which is itself exempt, so that the two lettings constitute a single economic transaction .

16That is so, on the one hand, if the parking place and the immovable property to be used for another purpose are part of a single complex and, on the other, if both properties are let to the tenant by the same landlord .

17The answer to the first question should therefore be that Article 13B(b ) of the Sixth Council Directive ( 77/388/EEC of 17 May 1977 ) must be interpreted as meaning that the phrase "premises and sites for parking vehicles" covers the letting of all places designed to be used for parking vehicles, including closed garages, but that such lettings cannot be excluded from the exemption in favour of the "leasing or letting of immovable property" if they are closely linked to lettings of immovable property for another purpose which are themselves exempt from value-added tax .

18In the context of the cooperation between the national courts and the Court of Justice provided for in Article 177 of the Treaty it is for the former to make the findings of fact necessary to establish whether the lettings in question meet that criterion .

Second question

19The second question seeks essentially to determine whether Article 13B(b ) of the Sixth Directive must be interpreted as meaning that the Member States are entitled to exempt the letting of premises and sites for parking vehicles from value-added tax .

20It should be pointed out, on the one hand, that although, according to the opening words of Article 13 B of the Sixth Directive, the Member States are to lay down the conditions for exemptions for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse, those "conditions" cannot define the content of the exemptions provided for .

21On the other hand, it should be pointed out that according to the last subparagraph of Article 13B(b ), "Member States may apply further exclusions to the scope of this exemption ". The terms of that provision show that although the Member States are free to limit the scope of the exemption by providing for additional exclusions, they may not exempt from tax liability transactions which are excluded from the exemption .

22It follows that the Member States are required to impose value-added tax on "the letting of premises and sites for parking vehicles", which is excluded from the exemption provided for in Article 13B(b ) of the Sixth Directive as interpreted in the answer to the first question .

23The answer to the second question should therefore be that Article 13B(b ) of the Sixth Council Directive ( 77/388/EEC of 17 May 1977 ) must be interpreted as meaning that Member States may not exempt from value-added tax lettings of premises and sites for parking which are not covered by the exemption provided for in that provision, that is to say, those which are not closely linked to lettings of immovable property for another purpose which are themselves exempt from value-added tax .

Costs

Costs

24The costs incurred by the Danish Government and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable . Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court .

Operative part

On those grounds,

THE COURT ( Third Chamber )

in answer to the questions submitted to it by the Hoejesteret by a decision of 21 June 1988, hereby rules :

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

Signatures

² Article 13B(b ) of the Sixth Council Directive ( 77/388/EEC of 17 May 1977 ) must be interpreted as meaning that Member States may not exempt from value-added tax lettings of premises and sites for parking which are not covered by the exemption provided for in that provision, that is to say, those which are not closely linked to lettings of immovable property for another purpose which are themselves exempt from value-added tax .

OPINION OF MR ADVOCATE GENERAL JACOBS delivered on 17 May 1989 * My Lords, (b) the leasing or letting of immovable

1In this reference from the Højesteret (Danish Supreme Court) the question arises whether VAT should be charged on the letting of individual, closed garages under the terms of Article 13B(b) of the Sixth VAT Directive (Council Directive 77/388/ EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment, Official Journal 1977, L 145, p. 1)·

2Article 13 of the Sixth VAT Directive is entitled 'Exemptions within the territory of the country'. Article 13A is headed 'Exemptions for certain activities in the public interest'. Article 13B is headed 'Other exemptions' and provides as follows:

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

property excluding:

1. the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;

2. the letting of premises and sites for parking vehicles;

3. lettings of permanently installed equipment and machinery;

4. hire of safes.

Member States may apply further exclusions to the scope of this exemption;

(a) ... ; (c) ... '.

* Original language: English.

3Article 13C is headed Options' and reads as follows:

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

(a) letting and leasing of immovable property;

(b) the transactions covered in B(d)(g) and (h) above.

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

4Article 13B must be read in the light of the seventeenth recital of the preamble to the Directive:

'Whereas Memi er States should be able, within certain limits and subject to certain conditions, to take or retain special measures derogating from this Directive in order to simplify the levying of tax or to avoid fraud or tax avoidance.'

5The Sixth VAT Directive was implemented in Denmark by Law No 204 of 10 May 1978, which incorporated the substance of the provisions of, among others, Article 13B(b) of the Directive.

6The point at issue between the parties to the main action, Mr Henriksen and the Ministry of Fiscal Affairs, is whether the letting by Mr Henriksen of garages situated in a garage complex owned by him is the letting of 'immovable property' or the 'letting of premises and sites for parking vehicles'. If it is the former it will in principle fall within the exemption from VAT (subject to the power of Member States to apply further exclusions under the final words of Article 13B(b) cited above). If it is the latter it will be excluded from the exemption and therefore subject to VAT.

7It appears from the documents in the case that the garage complex concerned comprises two buildings each with 12 garages which were erected at the same time as a building development of 37 terraced houses. Some of the garages are let to residents of the housing development whilst others are let to residents in the same neighbourhood. They are lock-up garages which are partitioned and each has its own door. Similar sorts of garages may be seen behind houses or blocks of flats throughout Europe. Mr Henriksen made it clear at the oral hearing that he owned only the garages and not any of the houses.

8In the national proceedings, at first instance the Østre Landsret (Eastern Division of the High Court) held that the letting of such garages was not subject to tax. The Court considered that, in accordance with the natural linguistic meaning of 'site for parking' in the Danish law, the exclusion from the exemption concerning the letting of immovable property did not encompass garages such as those in issue; and that it was not sufficiently clear from the wording of Article 13B(b)(2) of the Directive, either in the Danish or in the other versions, that the interpretation adopted by the defendant was correct. When the matter came before the Supreme Court on an appeal by the defendant Ministry, that court referred two questions to this Court by an order lodged at the Registry on 27 June 1988. The questions referred are as follows:

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

2. If the above question is answered in the affirmative, a clarification is requested as to whether the said Article is to be interpreted as meaning that the Member States are under a duty to subject the letting of garages of the type in question in the case to tax.'

9Both the Danish Government and the Commission have submitted written observations to this Court. In respect of the first

2772 question, the Danish Government argues that any place for parking vehicles, whether it is open, covered or situated in a building, is covered by the term 'premises and sites for parking vehicles'. It relies on the various language versions of Article 13B(b)(2) of the Directive, arguing that the English version ('premises and sites') is particularly helpful since it shows the all-encompassing nature of the concept intended by the Community legislator. It argues that all exemptions from VAT should be narrowly construed since the purpose of the Directive is to apply a general system of taxation and exemptions should be 'correct and straightforward [in] application'. To permit this form of garage to be exempted would create an anomaly since it would then be more profitable to let this form of garage rather than any other form of parking.

10The Commission suggests in effect that the first question should be answered in the affirmative with the exception that where such a garage is let as part of the letting of immovable property (for example the letting of a house or flat together with a garage) then VAT should not be imposed on that part of the rent which relates to the garage. It argues that in such circumstances the letting of the garage or parking space is ancillary to the purpose of the lease itself. The Commission considers that the legislation of most Member States shows that VAT is imposed on the letting of premises and sites for parking vehicles only when such letting reveals a genuinely commercial character. Since, as it avers, no Member State levies VAT when that letting is part of a contract for the letting of a dwelling the Commission suggests that VAT should only be levied when a separate price is specified for the rental of the garage or parking space.

11If this case had fallen to be decided on the basis of the English language version of the Directive taken alone, I would have had little difficulty in reaching the conclusion that garages of the kind in issue in this case fall within the exclusion denoted by the words 'premises and sites for parking vehicles' and that the letting of such garages was liable to VAT, possibly subject to an exception of the kind suggested by the Commission where the letting of the garage was merely ancillary to the letting of other property such as a house or flat. I shall consider in due course the issues which might arise on that view.

12But it is clear in this case that there are variations in the different language versions of the Directive and it is necessary, therefore, to consider the several language versions, and also to seek to place the provisions in issue in the context of the Directive as a whole, seen in the light of its objectives.

13In the English language version, the term 'premises', in particular, seems sufficiently broad to cover any kind of structure placed on the land. In other language versions, however, the position is less clear. In the French version, for example, the terms used are: 'à l'exception... des locations d'emplacement pour le stationnement des véhicules'. The term 'emplacement' in this context is more apt to cover a car parking space, marked out in a car-park on open land, or provided in a purpose-built car park, such as an underground car-park of the kind found in city centres. Only by extension, perhaps, would the term 'emplacement pour le stationnement des véhicules' be apt to cover a building such as a garage.

14The other language versions seem closer to the French than to the English on this point. The Danish has 'pladser til parkering af køretøjer', literally 'places [or sites] for parking vehicles'; the Dutch has 'verhuur van parkeerruimte voor voertuigen'; the German has 'der Vermietung von Plätzen für das Abstellen von Fahrzeugen' and the Italian has 'delle locazioni di aree destinate al parcheggio dei veicoli', all of which seem to have similar connotations to the French. Thus of the six versions of the Directive authentic at the time of its adoption, all except the English one can be taken to indicate that the exclusion is at least primarily confined to the letting of places, or spaces, for parking; a meaning which, in the English text, would have been better expressed by the term 'sites', rather than 'premises and sites', for parking vehicles.

15Although these linguistic considerations must carry considerable weight, especially in a legislative instrument in the field of taxation, it must be considered whether other factors, particularly the scheme and purpose of the Directive, might lead to a different interpretation, and in particular an extension of the literal meaning such as to include closed garages of the kind at issue: see Case 139/84 v Van Dijk's Boekhuis Staatssecretaris van Financiën [1985] ECR 1405, at p. 1418.

16The history of the text is unhelpful in this respect, although it may be mentioned that the Commission's proposal for a Directive (which also went far wider in excluding from the exemption the letting of industrial and commercial property) referred only to 'contracts for the supply of parking facilities' in the English or 'des contrats de parking' in the French text {Bulletin of the European Communities, Supplement 11/73, p. 43).

17The provisions must also be seen in their context. The immediate context provides little assistance, since the other exclusions specified in Article 13B(b)(2) are a motley set, with no guiding principle apparent. On the other hand, the exemption provided for by Article 13B(b) is very broadly expressed, extending as it does to the leasing or letting of all immovable property subject to the specified exclusions. In the context of that broadly worded exemption, it would seem excessive to interpret the exclusion relating to the letting of sites for parking vehicles so widely as to extend it to a transaction which appears to fall outside its terms, and in so doing to give it a meaning which would be contrary to the prevailing sense of the text.

18It may be inferred from the scheme of the Directive as a whole and the terms of Article 2 in particular that the basic principle of the Directive is that the supply

2774 of all goods and services is subject to VAT, if effected for consideration by a taxable person acting as such, unless expressly exempted. The provisions for exemption must be interpreted restrictively since they constitute an exception to the basic principle of the Directive: see for example the judgment of 15 March 1989 in Case 51/88 Hamann v Finanzamt Hamburg-Eimsbüttel [1989] ECR 767, paragraph 19. It could be argued on that basis that the exemption from the basic rule (for the leasing or letting of immovable property) should be interpreted restrictively and that the exclusion from the exemption (for the letting of premises and sites for parking) should be interpreted broadly, since that would result in the application of the basic rule. However, even on such a broad reading, I do not consider that the terms of the exclusion can be extended to include closed garages without departing substantially from the normal meaning of the words used in most of the language versions. Moreover, in a Directive intended to be applied uniformly throughout the Community by the tax authorities of the Member States, and in which the exemptions are expressly designed to be applied in a 'straightforward' manner, it is appropriate that the terms used should be given, where possible, their ordinary meaning. Consequently the aims of the Directive in that respect support the view that the exclusion relating to the letting of sites for parking should not be interpreted as extending to the letting of closed garages.

19The Danish Government has suggested that the Directive seeks to achieve a system of VAT which is neutral from the consumer's point of view, and that it would be contrary to that objective to exempt the letting of closed garages, since it would then become more profitable to let closed garages rather than any other form of parking. The Government also argues that such an exemption would give rise to difficult problems of demarcation between different types of parking place. But similar difficulties would arise if the letting of closed garages were not exempt, since, as the Commission accepts, even if the letting of garages were to be treated as generally subject to VAT, exceptions might have to be made where the letting was ancillary to the letting of other immovable property such as a house. The anomalies that would thus arise are well illustrated by the facts of the present case, where some of the garages are let to residents of the houses which form part of the development in which the garage complex is located, while other garages in the same complex are not. The Commission proposes as a criterion that VAT should be levied in respect of a garage only when a separate price is specified for the letting of the garage, but that criterion could plainly itself give rise to anomalies or even to abuse. The Commission's view would lead to results which are no easier to reconcile with 'the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse'. The Commission also draws a distinction, based on a survey of the practice of certain Member States, between residential garages and commercial lettings. That distinction does not seem persuasive, when it is recalled that the letting of commercial property generally is exempt from VAT under the Directive. Although under Article 13C Member States may allow taxpayers a right of option for taxation in cases of letting and leasing of immovable property, the provisions of Article 13C also make no distinction between commercial and other property.

20Accordingly it seems to me from the terms of the Directive, taken in their context, that the exclusion does not apply to the letting of individual closed garages of the kind in issue in this case, and that the first question referred must be answered in the negative.

21On the view I take of the first question, the second question referred does not arise. If however the view were taken that the letting of garages of the kind in issue is excluded from the exemption, then in my view the second question would have to be answered in the affirmative. The effect of the exclusion would be that such a letting was subject to VAT, and the Directive permits of no discretion in that respect. The only possibility of discretion arises under the final words of Article 13B(b), which allow Member States to apply further exclusions to the scope of the exemption, but do not allow Member States to derogate from the exclusions specified. The discretion allows Member States to extend liability to VAT, not to restrict it.

22That raises, in my view, a further question, which has not been adverted to but which seems to me to require an answer. As I have just mentioned, the final words of Article 13B(b) allow Member States to apply further exclusions to the scope of the exemption. The discretion conferred by those words is broad, and while that discretion is no doubt subject to certain limits, there does not seem to me to be any limitation which can be read into the Article which would preclude a Member State, if it chose to do so, from extending the exclusion provided for in respect of sites for parking vehicles so as to cover also individual closed garages of the kind in issue in this case. The question whether the exclusion has been extended in that way is a question of interpretation of the national legislation and is a matter for the national courts. However, I think it is plain from the scheme and structure of the Directive that, on the proper interpretation of its provisions, the national legislation cannot have that effect unless it contains its own specific provisions to that effect. Where the national legislation does no more than reproduce the provisions of the Directive, with its specific exemptions and specific exclusions, then the legislation must be interpreted in accordance with those provisions, and it is not open to the national tax authorities to apply any further exclusions unless the Member State has adopted additional legislative measures to extend liability to VAT to such lettings.

23Accordingly in my opinion the questions referred should be answered as follows :

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