C-243/23 Drebers

JUDGMENT OF THE COURT (Second Chamber)

12 September 2024 ( *1 )

(Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 187 – Adjustment of deductions – Extended adjustment period for immovable property acquired as capital goods – Concept of ‘capital goods’ – Article 190 – Option for Member States to treat as capital goods services with characteristics similar to those normally associated with those goods – Building extension and renovation works – Possibility under national law of treating such works as the construction or acquisition of immovable property – Restrictions – Direct effect of Article 190 – Margin of discretion)

In Case C‑243/23 [Drebers], ( i )

REQUEST for a preliminary ruling under Article 267 TFEU from the hof van beroep te Gent (Court of Appeal, Ghent, Belgium), made by decision of 28 June 2022, received at the Court on 18 April 2023, in the proceedings

Belgische Staat/Federale Overheidsdienst Financiën

v

L BV,

THE COURT (Second Chamber),

composed of A. Prechal (Rapporteur), President of the Chamber, F. Biltgen, N. Wahl, J. Passer and M. L. Arastey Sahún, Judges,

Advocate General: A.M. Collins,

Registrar: A. Lamote, Administrator,

having regard to the written procedure and further to the hearing on 13 March 2024,

after considering the observations submitted on behalf of:

L BV, by H. Casier and S. Gnedasi, advocaten,

the Belgian Government, by S. Baeyens, P. Cottin and C. Pochet, acting as Agents,

the European Commission, by A. Armenia, M. Björkland, and C. Zois, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 6 June 2024,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Articles 187 and 189 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 Belgische Staat/Federale Overheidsdienst Financiën (Belgian State/Federal Public Finance Service) (‘the tax authority’) and L BV concerning the adjustment period applicable to the deductions of the value added tax (VAT) paid in relation to work carried out on a building used by L BV for its economic activity.

Legal context

European Union law

The Sixth Directive

3Article 20(2) and (4) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), as amended by Council Directive 95/7/EC of 10 April 1995 (OJ 1995 L 102, p. 18) and by Council Directive 2006/69/EC of 24 July 2006 (OJ 2006 L 221, p. 9) (‘the Sixth Directive’), which was repealed and replaced by the VAT Directive, stated:

‘2. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured. The annual adjustment shall be made only in respect of one-fifth of the tax imposed on the goods. The adjustment shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired or manufactured.

…

In the case of immovable property acquired as capital goods, the adjustment period may be extended up to 20 years.

…

4. For the purposes of applying [paragraph 2], Member States may:

define the concept of capital goods,

…

Member States may also apply [paragraph 2] to services which have characteristics similar to those normally attributed to capital goods.’

4Article 1(4) of Directive 95/7 amended the third subparagraph of Article 20(2) of the Sixth Directive. The fifth recital of Directive 95/7 reads as follows:

‘Whereas it is appropriate that the period serving as a basis for calculating the adjustments provided for by Article 20(2) of the [Sixth] Directive should be extended up to 20 years by Member States for immovable property acquired as capital goods, bearing in mind the duration of their economic life’.

5Article 1(6) of Directive 2006/69 added a second subparagraph to Article 20(4) of the Sixth Directive. Recital 5 of Directive 2006/69 stated:

‘It should be emphasised that certain services with the nature of capital items may be included in the scheme which allows the adjustment of deductions for capital items over the lifetime of the asset, according to its actual use.’

The VAT Directive

6Article 2(1) of the VAT Directive reads as follows:

‘The following transactions shall be subject to VAT:

the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;

…

the supply of services for consideration within the territory of a Member State by a taxable person acting as such;

…’

7Article 12 of that directive states:

‘1. Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:

the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;

…

2. For the purposes of paragraph 1(a), “building” shall mean any structure fixed to or in the ground.

Member States may lay down the detailed rules for applying the criterion referred to in paragraph 1(a) to conversions of buildings and may determine what is meant by “the land on which a building stands”.

…’

8Article 14(1) of that directive provides:

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

9Under Article 24(1) of the VAT Directive:

‘“Supply of services” shall mean any transaction which does not constitute a supply of goods.’

10Article 135(1) of that directive provides:

‘Member States shall exempt the following transactions:

…

the supply of a building or parts thereof, and of the land on which it stands, other than the supply referred to in point (a) of Article 12(1);

…’

11Article 168 of that directive is worded as follows:

‘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;

…’

12Article 184 of the VAT Directive states:

‘The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.’

13Article 185(1) of that directive provides:

‘Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.’

14Under Article 187 of that directive:

‘1. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured.

…

In the case of immovable property acquired as capital goods, the adjustment period may be extended up to 20 years.

2. The annual adjustment shall be made only in respect of one-fifth of the VAT charged on the capital goods, or, if the adjustment period has been extended, in respect of the corresponding fraction thereof.

The adjustment referred to in the first subparagraph shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired, manufactured or, where applicable, used for the first time.’

15Article 189 of that directive provides:

‘For the purposes of applying Articles 187 and 188, Member States may take the following measures:

define the concept of capital goods;

…’

16Article 190 of the VAT Directive states:

‘For the purposes of Articles 187, 188, 189 and 191, Member States may regard as capital goods those services which have characteristics similar to those normally attributed to capital goods.’

Belgian law

17Article 1(9)(1) of the wet tot invoering van het Wetboek van de belasting over de toegevoegde waarde (Law establishing the Value Added Tax Code) of 3 July 1969 (Belgisch Staatsblad, 17 July 1969, p. 7046), in the version applicable to the dispute in the main proceedings (‘the VAT Code’), is worded as follows:

‘For the purposes of that Code, the following definitions shall apply:

1° building or parts of a building means any structure fixed to or in the ground’.

18Article 48(2) of the VAT Code provides:

‘In the case of capital goods and services which have characteristics similar to those normally attributed to capital goods, the deduction of taxes which were charged on them shall be subject to adjustment for a period of five years. The adjustment shall be effected each year up to one fifth of the amount of those taxes, where there are variations in the factors which were taken into account in calculating the deductible taxes.

However, for the tax charged on immovable property acquired as capital goods as determined by the King, the adjustment period shall be 15 years and the adjustment shall take place each year up to one fifteenth of the amount of that tax.’

19Article 49 of that code states that the King is to lay down the conditions for the application of Articles 45 to 48 of that code.

20Article 9 of the Koninklijk besluit nr. 3 met betrekking tot de aftrekregeling voor de toepassing van de belasting over de toegevoegde waarde (Royal Decree No 3 on deductions for the application of value added tax) of 10 December 1969 (Belgisch Staatsblad, 12 December 1969, p. 12006), in the version applicable to the dispute in the main proceedings (‘Royal Decree No 3’), provides:

‘1. For taxes charged on capital goods, the initial deduction effected by the taxable person shall be subject to adjustment for a period of five years which begins to run on 1 January of the year in which the right to deduct arose.

However, for taxes charged on immovable property acquired as capital goods, that period shall be extended to 15 years.

Taxes charged on immovable property acquired as capital goods shall mean taxes charged on:

1° transactions which seek or contribute to the construction of goods referred to in Article 1(9)(1) of the [VAT Code];

2° the acquisition of goods referred to in Article 1(9) of the [VAT Code];

3° the acquisition of a right in rem within the meaning of Article 9(2)(2) of the [VAT Code] relating to goods referred to in Article 1(9) of the [VAT Code].

…’

21Point 2 of the first subparagraph of Article 21bis(1) of Royal Decree No 3 provides that a taxable person who carries on an exempt activity without the right of deduction and who becomes, in respect of the same activity, a taxable person who carries on transactions in respect of which VAT is deductible may exercise its right of deduction by way of adjustment in respect of, inter alia, the capital goods remaining at the time of that change, provided that those goods are still usable and the period laid down in Article 48(2) of the VAT Code has not expired.

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

22L BV is a law firm. For the purposes of that economic activity, L BV has an immovable property, which is also used for residential purposes by its owner.

23Between 2007 and 2015, significant works were carried out on that building, as a result of which it now consists of a main building and a renovated adjoining building as well as a newly built basement, glass annex and lift shaft. The various spaces are connected to one another by corridors on the ground floor and on the first floor, the lift shaft also enabling all floors of the main and adjoining buildings to be accessed. In mid-2015, the works were fully completed and the building was again put into service.

24A single ‘cadastral income’ was allocated to the entire building, amounting, before the works were started, to EUR 2456 and, after the works had been carried out, to EUR 3850. 40% of the converted building was intended for private use and 60% for professional use.

25On 1 January 2014, the Kingdom of Belgium abolished the VAT exemption previously applicable to the exercise of the profession of lawyer, so that L BV has since been registered as a taxable person for VAT purposes.

26L BV subsequently adjusted the VAT deductions by deducting part of the VAT which it had paid on the costs of the works concerned and which it had not been able to deduct when its activity was exempt, since as it took the view that the adjustment period applicable to those works was still ongoing.

27On that basis, L BV relied on the premiss that those works constituted immovable property acquired as capital goods subject to an extended adjustment period of 15 years, and not to the normal adjustment period of 5 years applicable to capital goods other than immovable property.

28On 28 August and 1 December 2015, the tax authority carried out an unannounced tax inspection at L BV’s registered office in relation to the period from 1 January 2014 to 30 September 2015. Following that inspection, that tax authority, while acknowledging that L BV had, in principle, the right to adjust the VAT deductions for the construction works concerned, concluded that those works had not resulted in the construction of a new building, but had merely given rise to the improvement and renovation of the existing building, with the result that the adjustment period of five years had to be applied.

29Taking the view, accordingly, that the adjustment of deductions relating to that work carried out by L BV should be corrected, the tax authority notified L BV, on 25 October 2017, of an order requiring it to pay an amount of VAT relating to those deductions.

30The rechtbank van eerste aanleg Oost-Vlaanderen, afdeling Gent (Court of First Instance, East Flanders, Ghent Division, Belgium), ruling on an action brought by L BV, held, by judgment of 10 March 2020, that the entirety of the glass annex and the lift shaft constructed by that company and the adjoining building renovated by that company had to be regarded as newly constructed parts of a building, constituting immovable property acquired as capital goods, with the result that, according to that court, L BV was entitled to deduct 60% of the VAT relating to those works.

31The tax authority brought an appeal against that judgment before the hof van beroep te Gent (Court of Appeal, Ghent, Belgium), the referring court. L BV lodged a cross-appeal.

32That court considers, first, that the tax authority’s appeal is well founded in so far as the lift shaft and the two constructions at the rear of the main building cannot each be regarded as a ‘part of a building’ within the meaning of Article 1(9)(1) of the VAT Code.

33It states, however, secondly, as regards L BV’s cross-appeal, that, under Belgian law, where works are carried out on an existing building, the extended adjustment period of 15 years is applied in respect of the VAT charged on those works only if, after they have been carried out, there is a ‘new construction’ for VAT purposes. Thus, that period of 15 years is not applicable to construction works which do not entail a conversion involving, in fact, the construction of a ‘new’ building for VAT purposes, even if, having regard to their nature and their significance, those works confer on the building on which they were carried out a duration of economic life as long as that of new buildings.

34The referring court questions, as L BV does, whether that scheme is compatible with the VAT Directive, and in particular with Articles 187 and 189 thereof.

35First, that scheme does not, in essence, fall within the concept of ‘immovable property acquired as capital goods’ other than the construction of a building or part of a building, whereas Articles 187 or 189 of the VAT Directive, for their part, lay down no restriction whatsoever as to the meaning of that concept. Nor do those articles refer, moreover, to the concept of ‘supply, before first occupation, of a building or parts of a building’, in Article 12(1)(a) of that directive, that latter provision serving only to explain the conditions under which the transfer of a property may be subject to VAT. There is therefore no justification for transposing the concept of ‘immovable property acquired as capital goods’ so strictly into national law as the Belgian legislature has done.

36Secondly, where buildings undergo significant conversions which give them a useful economic life as long as that of new buildings, as is shown in the present case by the fact that the works at issue are depreciated over a period of 33 years, they are comparable to new buildings and they should be treated in the same way as new buildings for VAT purposes, and so in accordance with the principle of fiscal neutrality as a specific expression of the principle of equal treatment. In that context, it could be argued that the concept of ‘immovable property acquired as capital goods’ must apply to all property for which the duration of the economic life is considerably longer than the normal adjustment period of five years.

37If that were the case, the referring court accepts that L BV may rely on the VAT Directive in order to preclude national legislation that is contrary to the VAT Directive and the principles underlying it.

38In those circumstances, the hof van beroep te Brussel (Court of Appeal, Ghent) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Do Articles 187 and 189 of [the VAT Directive] preclude legislation such as that at issue in the main proceedings (namely Article 48(2) and Article 49 WBTW, read in conjunction with Article 9 [of Royal Decree No 3], relating to the deduction facility for the application of value added tax), according to which the extended adjustment period (of 15 years) in the case of the renovation of an existing building is applied only if, after completion of the works, on the basis of the criteria under national law, there is a “new building” within the meaning of Article 12 of the aforementioned Directive, whereas the useful economic life of a substantially renovated building (which, however, on the basis of the administrative criteria under national law does not qualify as a ‘new building’ within the meaning of the aforementioned Article 12) is identical to the useful economic life of a new building, which is considerably longer than the period of [5] years referred to in the aforementioned Article 187, which is shown, inter alia, by the fact that the works carried out are depreciated over a period of 33 years, which is also the period over which new buildings are depreciated?

Does Article 187 of [the VAT Directive] have direct effect, so that a taxable person who has carried out works on a building without those works leading to the renovated building being classified as a “new building” within the meaning of Article 12 of that directive on the basis of criteria under national law, but where those works have a useful economic life which is identical to that of such new buildings to which a 15-year adjustment period does apply, may rely on the application of the 15-year adjustment period?’

Consideration of the questions referred

The first question

39As a preliminary point, it should be observed that the first question concerns the adjustment period, within the meaning of Article 187(1) of the VAT Directive, that should be applied to the deduction of the VAT paid by L BV in relation to the supply of the construction works at issue, namely, either the period of 5 years laid down in that provision for capital goods in general or the longer period, of up to 20 years, which the Member States may, under that provision, apply in the case of immovable property acquired as capital goods, and which, in Belgium, was fixed, pursuant to Article 48(2) of the VAT Code and Article 9(1) of Royal Decree No 3, at 15 years.

40It is apparent from the documents before the Court and from the information provided by the Belgian Government at the hearing, first, that the construction works at issue in the main proceedings were subject to VAT as a supply of services within the meaning of Article 2(1)(c) of the VAT Directive, read in conjunction with Article 24 thereof, and not as supplies of goods.

41Secondly, in order to apply to those works the adjustment period of five years laid down in the first subparagraph of Article 187(1) of that directive, the tax authority made use of the option, now conferred on the Member States by Article 190 of that directive and implemented in Belgian law by the first subparagraph of Article 48(2) of the VAT Code, to treat as capital goods those services which have characteristics similar to those normally attributed to capital goods.

42Thus, in order to provide the referring court with a useful answer to the first question, account must also be taken of Article 190 of the VAT Directive.

43In those circumstances, it must be considered that, by its first question, the referring court asks, in essence, whether Articles 187, 189 and 190 of the VAT Directive must be interpreted as precluding national legislation on the adjustment of deductions of VAT under which the extended adjustment period laid down in accordance with Article 187 for immovable property acquired as capital goods is applicable to construction works only where they are of such significance that they result in a conversion of the property, within the meaning of Article 12(2) of that directive, and is not applicable to construction works, subject to VAT as a supply of services within the meaning of that directive, which, without resulting in such a conversion, involve a significant extension and/or a substantial renovation of the building and the duration of the economic life of which corresponds to that of a new building.

44In order to answer that question, it should be borne in mind, in the first place, that, according to settled case-law, the right of taxable persons to deduct the VAT due or already 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 established by EU legislation (judgment of 25 July 2018, Gmina Ryjewo, C‑140/17, EU:C:2018:595, paragraph 28 and the case-law cited).

45The deduction rules are intended to relieve the taxable person entirely of the burden of the VAT payable or paid in the course of all its economic activities. The common system of VAT therefore ensures neutrality of taxation of all economic activities, whatever their purpose or results, provided that those activities are themselves, in principle, subject to VAT (judgment of 25 July 2018, Gmina Ryjewo, C‑140/17, EU:C:2018:595, paragraph 29 and the case-law cited).

46Similarly, the adjustment mechanism provided for by the VAT Directive, which forms an integral part of that system of deductions, is intended to enhance the precision of deductions so as to ensure fiscal neutrality, so that transactions effected at an earlier stage continue to give rise to the right of deduction only to the extent that they are used to make supplies subject to VAT (judgment of 9 July 2020, Finanzamt Bad Neuenahr-Ahrweiler, C‑374/19, EU:C:2020:546, paragraph 20).

47In that regard, Articles 184 and 185 of the VAT Directive set out in general the conditions under which the national tax authority must require initially deducted VAT to be adjusted, whereas Articles 187 to 192 of that directive provide for certain detailed rules for the adjustment of deductions of VAT applicable in the specific case of capital goods (see, to that effect, judgment of 17 September 2020, Stichting Schoonzicht, C‑791/18, EU:C:2020:731, paragraphs 27 and 29 and the case-law cited).

48Accordingly, the first subparagraph of Article 187(1) of the VAT Directive provides, in the case of those capital goods, that the adjustment of deductions is to be made for a period of five years, including that in which the capital goods were acquired or manufactured.

49Such an adjustment period makes it possible to avoid inaccuracies in the calculation of deductions and unjustified advantages or disadvantages for a taxable person where, inter alia, changes in the factors initially taken into consideration to determine the amount of deductions occur after the declaration has been made. According to settled case-law, the likelihood of such changes is particularly significant in the case of capital goods, which are often used over a number of years, during which the purposes to which they are put may alter, the cost of acquiring them being depreciated accordingly over several financial years (see, to that effect, judgment of 16 June 2016, Mateusiak, C‑229/15, EU:C:2016:454, paragraphs 30 and the case-law cited).

50In that context, Article 187 of Directive 2006/112 is applicable in cases of adjustment of deductions in which capital goods the use of which is not eligible for deduction are then put to a use which is so eligible (judgment of 25 July 2018, Gmina Ryjewo, C‑140/17, EU:C:2018:595, paragraph 31).

51As regards, more specifically, immovable property acquired as capital goods, the third subparagraph of Article 187(1) of the VAT Directive authorises the Member States to extend the adjustment period up to 20 years.

52That provision corresponds, in essence, to that of the third subparagraph of Article 20(2) of the Sixth Directive, which was replaced by the VAT Directive. As is apparent from the fifth recital to Directive 95/7, by which that provision had been amended to extend the maximum adjustment period for immovable property acquired as capital goods – previously 10 years – to 20 years, such an extended period was adopted ‘bearing in mind the duration of [the] economic life’ of that property.

53It follows that the possibility for the Member States to fix, for immovable property acquired as capital goods, an extended adjustment period, is consistent with the same logic as that underlying the detailed adjustment rules applicable to capital goods in general, namely that seeking to enhance the precision of deductions, while adapting those detailed rules to the particular characteristics of immovable property acquired as capital goods, which concern inter alia the duration of their economic life, which is much longer than that of other capital goods.

54In the second place, as to whether construction works, such as those at issue in the main proceedings, are capable of falling within the concept of ‘immovable property acquired as capital goods’ within the meaning of the third subparagraph of Article 187(1) of the VAT Directive, and consequently being subject to the extended adjustment period that may be laid down in national law for such property, it must be recalled, as stated in paragraph 40 above, that the construction works at issue in the main proceedings were subject to VAT as a supply of services within the meaning of Article 2(1)(c) of that directive, and not as a supply of goods, within the meaning of Article 2(1)(a) of that directive.

55Accordingly, although, it cannot be ruled out that, in principle, the performance of such work may be analysed, where appropriate, as constituting a supply of goods, within the meaning of Article 2(1)(a) of the VAT Directive, that is not the case with regard to the facts of the dispute in the main proceedings.

56It follows that those works cannot, as such, fall within the concept of ‘immovable property acquired as capital goods’, in Article 187(1) of the VAT Directive, since they constitute services and not goods, irrespective of the way in which capital goods have, as the case may be, been defined in national law in accordance with Article 189(a) of that directive.

57In those circumstances, the detailed rules for adjustment laid down in Article 187(1) of the VAT Directive, which relate to capital goods, are not, in themselves, applicable to the adjustment of the deduction of the VAT paid in relation to the performance of those works.

58That assessment is not called into question by the fact, referred to at the hearing by the European Commission, that the construction works at issue in the main proceedings physically altered an immovable property, namely the old building as it was before the start of the works, or incorporated into it other tangible elements capable of being regarded once incorporated, as forming part of an immovable property.

59That said, it should be noted, in the third place, that, in accordance with Article 190 of the VAT Directive, the Member States may, for the purposes, inter alia, of Article 187 of that directive, regard as capital goods those services which have characteristics similar to those normally attributed to capital goods.

60As has been stated in paragraph 41 above, it is precisely by making use of that option, as implemented in Belgian law, that the tax authority, in the present case, treated the construction works at issue in the same way as capital goods, within the meaning of the first subparagraph of Article 187(1) of the VAT Directive.

61In those circumstances, it is necessary, first, to determine whether Article 190 of the VAT Directive allows the Member States to treat certain services not only as capital goods but also as immovable property acquired as capital goods.

62In that regard, the wording of Article 190 of the VAT Directive, which refers in a general and non-restrictive manner to the concept of ‘capital goods’, without, therefore, excluding immovable property acquired as capital goods, permits, a priori, the view to be taken that such is the case.

63Where the Member State concerned has decided, pursuant to the third subparagraph of Article 187(1) of that directive, to accord specific treatment, within the general category of capital goods, to that of immovable property acquired as capital goods, in order to apply an extended adjustment period to that category, those goods, while thus being treated differently from capital goods other than immovable property, nevertheless continues to fall within the general category of capital goods.

64The interpretation in paragraph 62 above is supported by the aim pursued by Article 190 of the VAT Directive, as can be seen from recital 5 of Directive 2006/69, which gave rise to the third subparagraph of Article 20(4) of the Sixth Directive, a provision which is reproduced, in essence, in Article 190 of the VAT Directive.

65According to recital 5, the grant of the option provided for in those two provisions is intended to permit the inclusion of ‘certain services with the nature of capital items … in the scheme which allows the adjustment of deductions for capital items over the lifetime of the asset, according to its actual use.’

66It follows that the aim of that option consists in enabling the Member States to treat, for the purposes of the adjustment mechanism, certain services in the same way as capital goods in so far as those services – having regard in particular to the duration of the economic life of their effects and to the concomitant possibility of a change in the actual use of the goods concerned – are similar to those capital goods.

67Given that, within the general category of capital goods referred to in paragraph 63 above, immovable property acquired as capital goods are characterised by the much longer duration of their economic life, as noted in paragraph 53 above, it would be inconsistent, in the light of that aim, if, when exercising the option provided for in Article 190 of the VAT Directive, the Member States could not in turn differentiate the services concerned according to the duration of the economic life of their effects and, where appropriate, treat them as immovable property acquired as capital goods, provided that the Member State concerned has adopted a longer adjustment period for deductions for that category of goods pursuant to the third subparagraph of Article 187(1) of the VAT Directive.

68By contrast, an interpretation of Article 190 of the VAT Directive as meaning that that article enables the Member States to treat, for the purposes of the adjustment mechanism for deductions, certain services, as the case may be, as capital goods or immovable property acquired as capital goods, makes it possible to enhance the precision of the deductions of VAT paid in relation to those services according to the duration of the economic life of their effects, as do the detailed rules laid down, for that purpose, in respect of capital goods, referred to in paragraphs 46, 49 and 53 above.

69Secondly, although the Member States are indeed free to implement or not implement the option, thus delimited, conferred on them by Article 190 of the VAT Directive and, moreover, they enjoy a margin of discretion, if they decide to do implement that option, as regards the similarity of the characteristics of the services and goods concerned, the fact remains that, when exercising that discretion, the Member States must comply with EU law and, in particular, with the aim of that article and, in particular, the principle of fiscal neutrality (see, by analogy, judgment of 17 September 2020, Stichting Schoonzicht, C‑791/18, EU:C:2020:731, paragraph 49).

70In that context, in the light of the aim of Article 190 of the VAT Directive, as set out in paragraph 66 above, the Member States cannot disregard, when implementing that provision, the duration of the economic life of the effects of the services that are to be treated as capital goods, given that, for the reasons set out in paragraph 67 above, the similarity of the characteristics of the services and goods concerned for the purposes of the adjustment mechanism for deductions depends, inter alia, on the duration of their economic life. The service in question may, from the point of view of the duration of the economic life of its effects, prove to be closer to immovable property acquired as capital goods than to capital goods other than immovable property.

71As regards the principle of fiscal neutrality, which was intended by the EU legislature to reflect, in matters relating to VAT, the general principle of equal treatment, the Court has held that that principle precludes, first, treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes and, secondly, economic operators who carry out the same activities from being treated differently as far as the levying of VAT is concerned (judgments of 29 October 2009, SKF, C‑29/08, EU:C:2009:665, paragraph 67 and the case-law cited, and of 30 June 2022, Direcţia Generală Regională a Finanţelor Publice Bucureşti – Administraţia Sector 1 a Finanţelor Publice, C‑146/21, EU:C:2022:512, paragraph 45 and the case-law cited).

72Accordingly, in implementing Article 190 of the VAT Directive, Member States must ensure that, for VAT purposes, a taxable person who has enjoyed certain services is not treated differently to another taxable person who, engaged in the same economic activity, has purchased goods whose economic characteristics are essentially equivalent to the economic characteristics of those services.

73In the present case, it will be for the referring court to assess whether the national legislation at issue in the main proceedings complies with the conditions set out in paragraphs 69 to 72 above.

74That being said, in order to provide the referring court with a useful answer, it should be noted, as the referring court itself has also pointed out, that it appears to be common ground that, assessed as a whole, the construction works at issue in the main proceedings, which took place over several years, led to a significant renovation of the building concerned and also extended it by adding, inter alia, a glass annex and a lift shaft. The significance of that work appears, furthermore, to be supported by the figures provided by L BV, according to which they had a total cost of approximately EUR 1937104.

75In addition, it appears to be established that the effects of those construction works, having regard in particular to their significance, have an economic life identical in duration to that of a new building.

76In the light of those factors, the same work appears, for the purposes of the adjustment mechanism for deductions, to be much more similar to immovable property acquired as capital goods than to capital goods other than immovable property.

77In view of that similarity, treating those works nevertheless as capital goods other than immovable property and thus applying to them the adjustment period of five years, reserved for that category of goods, is liable to lead to a different tax treatment of a taxable person who, like L BV, has invested in a significant extension and substantial renovation works in an existing building and paid the VAT due on those works, to which the adjustment period of five years would apply, as compared with a similar taxable person who has invested in the construction of a new building, to which an extended adjustment period is applicable, even though, in view of their economic characteristics, those investments are similar, or even functionally identical.

78By contrast, the fact that the construction works concerned do not constitute a conversion of a building within the meaning of Article 12(2) of the VAT Directive, read in conjunction with Article 135(1)(j) of that directive, is irrelevant in that context, since the purpose of those provisions differs from that of Article 190 of that directive.

79The purpose of the first provisions consists in identifying, having regard to their added value, the immovable property transactions liable to be taxed as a supply of a new (immovable) property which are therefore subject to VAT on that basis (see, to that effect, judgments of 16 November 2017, Kozuba Premium Selection, C‑308/16, EU:C:2017:869, paragraphs 32 and 55, and of 9 March 2023, État belge and Promo 54, C‑239/22, EU:C:2023:181, paragraph 23), whereas the purpose of Article 190 of that directive, which forms part of the adjustment mechanism applicable to capital goods, consists in setting out the detailed rules according to which the deductions of the VAT paid in relation to services similar to such goods must be adjusted.

80In those circumstances, national legislation such as that at issue in the main proceedings is liable to be contrary to Article 190 of the VAT Directive, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality.

81In the light of all of the foregoing, the answer to the first question is that Article 190 of the VAT Directive, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality, must be interpreted as meaning that it precludes national legislation on the adjustment of deductions of VAT under which the extended adjustment period laid down in accordance with that Article 187 for immovable property acquired as capital goods does not apply to construction works, subject to VAT as a supply of services within the meaning of that directive, which involve a significant extension and/or substantial renovation of the building concerned by that work and the effects of which have a duration of economic life which corresponds to that of a new building.

The second question

82By its second question, the referring court seeks to ascertain, in essence, whether Article 190 of the VAT Directive, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality, must be interpreted as having direct effect with the result that the taxable person may rely on it before the national court against the competent tax authority in order to have the extended adjustment period laid down for immovable property acquired as capital goods applied to the construction works which were carried out for that taxable person, subject to VAT as a supply of services within the meaning of that directive, where that authority has refused to apply that period by relying on national legislation such as that referred to in the first question.

83It should be recalled, in the first place, that, in the event that the referring court were to consider that the tax authority’s refusal to apply the extended adjustment period to the construction works at issue in the main proceedings is contrary to Article 190 of the VAT Directive, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality, the question of the direct effect of the first of those articles would arise only if no compatible interpretation of the legislation on which that refusal is based proved possible, as L BV and the Commission rightly pointed out (see, to that effect, judgment of 24 January 2012, Dominguez, C‑282/10, EU:C:2012:33, paragraphs 23 and 32 and the case-law cited).

84In that regard, in applying national law, national courts called upon to interpret that law are required to consider the whole body of rules of law and to apply methods of interpretation that are recognised by those rules in order to interpret it, so far as possible, in the light of the wording and the aim of the directive concerned in order to achieve the result sought by the directive and consequently to comply with the third paragraph of Article 288 TFEU (see, to that effect, judgment of 7 August 2018, Smith, C‑122/17, EU:C:2018:631, paragraph 39 and the case-law cited).

85However, the Court has held that the principle of interpreting national law in conformity with EU law has certain limits. Thus, the obligation on a national court to refer to EU law when interpreting and applying the relevant rules of domestic law is limited by general principles of law and cannot serve as the basis for an interpretation of national law that is contra legem (see, to that effect, judgment of 7 August 2018, Smith, C‑122/17, EU:C:2018:631, paragraph 40 and the case-law cited).

86Thus, in the second place, in the event that the referring court considers that it is unable to interpret national law in conformity with EU law, it is necessary to examine whether Article 190 of the VAT Directive, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality, is capable of having direct effect, such that L BV may rely on that provision against the tax authority in order to have the extended adjustment period – which, in Belgium, was fixed, under Article 48(2) of the VAT Code and Article 9(1) of Royal Decree No 3, at 15 years – applied to the construction works at issue in the main proceedings.

87It follows from settled case-law that, whenever the provisions of a directive appear, so far as their subject matter is concerned, to be unconditional and sufficiently precise, they may be relied upon before the national courts by individuals against a Member State where that State has failed to implement the directive in national law by the end of the period prescribed, or where it has failed to implement the directive correctly (judgment of 14 May 2024, Stachev, C‑15/24 PPU, EU:C:2024:399, paragraph 51 and the case-law cited).

88Such provisions may thus be relied on by individuals against, inter alia, all the organs of the administration of that State (see, to that effect, judgment of 10 October 2017, Farrell, C‑413/15, EU:C:2017:745, paragraph 33 and the case-law cited).

89As regards, in that context, the unconditional nature of Article 190 of the VAT Directive, it is true that that provision merely confers on the Member States an option which they are free to implement or not, and that the implementation of that option, in so far as it concerns the possibility of treating services as immovable property acquired as capital goods, is, moreover, subject to the prior implementation by the Member State concerned of the option provided for in the third subparagraph of Article 187(1) of that directive to distinguish such goods from capital goods as a whole.

90However, the freedom of choice granted to the Member States as to whether or not to implement an option such as that provided for in Article 190 of the VAT Directive does not prevent the national court from reviewing whether a Member State which has taken the decision to implement that option has complied with the conditions governing that implementation and, in particular, has remained within the limits of its margin of discretion (see, to that effect, judgment of 1 February 1977, Verbond van Nederlandse Ondernemingen, 51/76, EU:C:1977:12, paragraphs 27 and 29).

91Furthermore, where, as in the present case, a Member State has decided to exercise the option provided for in the third subparagraph of Article 187(1) of the VAT Directive and has thus fully exhausted the discretion available to it in that regard, there is no longer any obstacle to the judicial review referred to in the preceding paragraph.

92It is therefore necessary, in circumstances such as those at issue in the main proceedings, to review whether, in the light of the analysis set out in paragraphs 70 to 72 above, the Member State concerned which has also exercised the option provided for in Article 190 of the VAT Directive has, in so doing, complied with its obligation to remain within the limits of the margin of discretion which it enjoys in that regard, as that margin results from the content of that provision, read in conjunction with Article 187(1) of that directive and in the light of the principle of fiscal neutrality.

93Similarly, so far as concerns the sufficiently precise nature of Article 190 of the VAT Directive, read in conjunction with Article 187(1) thereof and in the light of the principle of fiscal neutrality, the fact, referred to in the preceding paragraph and also pointed out in paragraph 69 above, that the Member States enjoy a margin of discretion when implementing those provisions, does not preclude judicial review in order to verify whether the Member State concerned has exceeded that margin of discretion (see, to that effect, judgments of 24 October 1996, Kraaijeveld and Others, C‑72/95, EU:C:1996:404, paragraph 59, and of 28 November 2013, MDDP, C‑319/12, EU:C:2013:778, paragraph 51).

94Article 190 of the VAT Directive, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality, is sufficiently precise to allow such judicial review, as also appears, moreover, from the answer given to the first question.

95In those circumstances, Article 190 of the VAT Directive is capable of having direct effect, so that that article, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality, may be relied on directly by a taxable person in the situation referred to in paragraph 88 above.

96Accordingly, where the referring court, relying on such direct effect, finds that the Member State has exceeded its discretion by failing to regard certain construction works, subject to VAT as supplies of services, as immovable property acquired as capital goods, the taxable person may rely directly on Article 190 of the VAT Directive, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality, before that court in order to have those works regarded as such goods and to have the extended adjustment period laid down in national law applied to them, pursuant to the third subparagraph of Article 187(1) of that directive (see, by analogy, judgments of 28 November 2013, MDDP, C‑319/12, EU:C:2013:778, paragraph 52, and of 15 April 2021, Administration de l’Enregistrement, des Domaines et de la TVA, C‑846/19, EU:C:2021:277, paragraph 81).

97In the light of the foregoing, the answer to the second question is that Article 190 of the VAT Directive, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality, must be interpreted as meaning that it has direct effect with the result that the taxable person may rely on it before the national court against the competent tax authority in order to have the extended adjustment period laid down for immovable property acquired as capital goods applied to the construction works which were carried out for that taxable person, subject to VAT as a supply of services within the meaning of that directive, where that authority has refused to apply the extended adjustment period to those goods by relying on national legislation such as that referred to in the first question.

Costs

98Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring 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 (Second Chamber) hereby rules:

Article 190 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality

must be interpreted as meaning that it precludes national legislation on the adjustment of deductions of value added tax (VAT) under which the extended adjustment period laid down in accordance with that Article 187 for immovable property acquired as capital goods does not apply to construction works, subject to VAT as a supply of services within the meaning of that directive, which involve a significant extension and/or substantial renovation of the building concerned by that work and the effects of which have a duration of an economic life which corresponds to that of a new building.

Article 190 of Directive 2006/112, read in conjunction with Article 187 of that directive and in the light of the principle of fiscal neutrality

must be interpreted as meaning that it has direct effect with the result that the taxable person may rely on it before the national court against the competent tax authority in order to have the extended adjustment period laid down for immovable property acquired as capital goods applied to the construction works which were carried out for that taxable person, subject to VAT as a supply of services within the meaning of that directive, where that authority has refused to apply the extended adjustment period to those goods by relying on national legislation such as that referred to in the first question.

Signatures

[Signatures]

( *1 ) Language of the case: Dutch.

( i ) The name of the present case is a fictitious name. It does not correspond to the real name of any party to the proceedings.

OPINION OF ADVOCATE GENERAL

COLLINS

delivered on 6 June 2024 ¹

(Reference for a preliminary ruling – Harmonisation of fiscal legislation – Common system of value added tax – Deduction of input tax paid – Immovable property acquired as capital goods – Adjustment period – National legislation laying down a 15-year period for certain types of renovation works – Requirement that a renovated building is considered as new – Whether permissible – Direct effect)

I. Introduction

1By this request for a preliminary ruling, the Hof van Beroep te Gent (Court of Appeal, Ghent, Belgium) asks the Court whether deductions of input VAT paid in respect of extensive renovation works carried out on a property used for both professional and residential purposes are subject to an adjustment period of five years on the basis that the works constitute ‘capital goods’, or are subject to an adjustment period of 15 years on the ground that those works are ‘immovable property acquired as capital goods’ for the purposes of Article 187 of the VAT Directive. ²

II. Legal framework

A. European Union law

Directive 2006/112/EC (‘VAT Directive’)

2Under Article 12 of the VAT Directive:

‘1. Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:

the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;

the supply of building land.

2. For the purposes of paragraph 1(a), “building” shall mean any structure fixed to or in the ground.

Member States may lay down the detailed rules for applying the criterion referred to in paragraph 1(a) to conversions of buildings and may determine what is meant by “the land on which a building stands”.

…

3. For the purposes of paragraph 1(b), “building land” shall mean any unimproved or improved land defined as such by the Member States.’

3Article 47 of the VAT Directive deals with the supply of services connected with immovable property. It provides:

‘The place of supply of services connected with immovable property, including the services of experts and estate agents, the provision of accommodation in the hotel sector or in sectors with a similar function, such as holiday camps or sites developed for use as camping sites, the granting of rights to use immovable property and services for the preparation and coordination of construction work, such as the services of architects and of firms providing on-site supervision, shall be the place where the immovable property is located.’

4Article 135(1)(j) provides:

‘1. Member States shall exempt the following transactions:

…

the supply of a building or parts thereof, and of the land on which it stands, other than the supply referred to in point (a) of Article 12(1);

…’

5By virtue of Article 167 of the VAT Directive:

‘A right of deduction shall arise at the time the deductible tax becomes chargeable.’

6According to Article 168 of the VAT Directive:

‘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;

….’

7Under Article 184 of the VAT Directive:

‘The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.’

8By virtue of Article 187 of the VAT Directive:

‘1. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured.

Member States may, however, base the adjustment on a period of five full years starting from the time at which the goods are first used.

In the case of immovable property acquired as capital goods, the adjustment period may be extended up to 20 years.

2. The annual adjustment shall be made only in respect of one-fifth of the VAT charged on the capital goods, or, if the adjustment period has been extended, in respect of the corresponding fraction thereof.

The adjustment referred to in the first subparagraph shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired, manufactured or, where applicable, used for the first time.’

9Article 189 of the VAT Directive provides:

‘For the purposes of applying Articles 187 and 188, Member States may take the following measures:

define the concept of capital goods;

specify the amount of the VAT which is to be taken into consideration for adjustment;

adopt any measures needed to ensure that adjustment does not give rise to any unjustified advantage;

permit administrative simplifications.’

10Article 190 of the VAT Directive provides:

‘For the purposes of Articles 187, 188, 189 and 191, Member States may regard as capital goods those services which have characteristics similar to those normally attributed to capital goods.’

B. Belgian law

11At the time material to the main proceedings, Belgian law subjected deductions of VAT paid in respect of ‘capital goods’ ³ and ‘services which have characteristics similar to those normally attributed to capital goods’ to a five-year adjustment period. An adjustment period of 15 years applied in respect of deductions of VAT paid on ‘immovable property acquired as capital goods’. ⁴ Deductions of VAT paid in respect of conversions of buildings that resulted in a new first occupation of the property within the meaning of Article 12(1) of the VAT Directive came within the second category. ⁵

III. The dispute in the main proceedings, the request for a preliminary ruling and the procedure before the Court

12L BV, the respondent in the main proceedings, is a law firm. It uses 60% of a property for professional purposes (offices and ancillary accommodation) and the remaining 40% for private purposes (residence of the law firm’s owner). From 2007 to 2015, L BV caused to have carried out extensive works on that property. They included the construction of an archive cellar, a new glass annex with offices and a lift shaft; stripping the building; installing new insulation and cladding; redoing pipes and connections for gas, water and electricity; remaking walls, floors and ceilings; adjusting the roof; inserting new dormer windows; and installing two roof terraces. ⁶

13On 1 January 2014, Belgium ceased to exempt the provision of legal services from the charge to VAT. L BV accordingly registered for VAT from that date. A consequence of registration for persons who provided legal services was that they could deduct, by way of adjustments, the VAT that they had paid on capital goods acquired prior to registration, provided that the applicable adjustment period had not expired. ⁷ When it calculated its liability to VAT, L BV sought to deduct the input VAT it had paid on the works that it had carried out on the property in reliance upon the extended period of 15 years applicable to ‘immovable property acquired as capital goods’ by Belgian law.

14Following a tax audit, the Belgische Staat/Federale Overheidsdienst Financiën (Belgian State/Federal Public Finance Service, Belgium; ‘the tax authority’), the appellant in the main proceedings, found that L BV had committed several infringements of Belgian law with respect to its liability to VAT for the period between 1 January 2014 and 30 September 2015. For the 15-year adjustment period to apply to works to convert buildings under Belgian law, they had to result in a new first occupation of the property for the purposes of Article 12(1) of the VAT Directive. ⁸ The tax authority was of the view that the works L BV had caused to have carried out on the property did not meet that requirement. Treating those works as capital goods, it applied a five-year adjustment period to the deduction of input VAT with respect to them.

15The tax authority made a demand of L BV for payment of unpaid VAT, fines and interest. On 10 October 2018, L BV contested that demand by way of proceedings before the rechtbank van eerste aanleg Oost-Vlaanderen, afdeling Gent (Court of First Instance, East Flanders, Ghent Division, Belgium). By judgment of 10 March 2020, that court found partly in favour of L BV. The tax authority and L BV respectively appealed and cross-appealed that judgment to the Hof van Beroep te Gent (Court of Appeal, Ghent). In the context of that appeal the Hof van Beroep te Gent (Court of Appeal, Ghent) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Do Articles 187 and 189 of [the VAT Directive] preclude legislation such as that at issue in the main proceedings (namely Article 48(2) and Article 49 WBTW [(Belgian VAT Code)], read in conjunction with Article 9 KB No 3 of 10 December 1969, relating to the deduction facility for the application of value added tax), according to which the extended adjustment period (of 15 years) in the case of the renovation of an existing building is applied only if, after completion of the works, on the basis of the criteria under national law, there is a ‘new building’ within the meaning of Article 12 of the aforementioned Directive, whereas the useful economic life of a substantially renovated building (which, however, on the basis of the administrative criteria under national law does not qualify as a ‘new building’ within the meaning of the aforementioned Article 12) is identical to the useful economic life of a new building, which is considerably longer than the period of five years referred to in the aforementioned Article 187, which is shown, inter alia, by the fact that the works carried out are depreciated over a period of 33 years, which is also the period over which new buildings are depreciated?

Does Article 187 of [the VAT Directive] have direct effect, so that a taxable person who has carried out works on a building without those works leading to the renovated building being classified as a ‘new building’ within the meaning of Article 12 of that directive on the basis of criteria under national law, but where those works have a useful economic life which is identical to that of such new buildings to which a 15-year adjustment period does apply, may rely on the application of the 15-year adjustment period?’

16L BV, the Belgian Government and the European Commission submitted written observations. At the hearing of 13 March 2024, those parties presented oral argument and replied to the Court’s questions.

IV. Assessment

A. The parties’ observations

17The Belgian Government observes that, under Article 187 of the VAT Directive, Member States are free to determine whether to extend the adjustment period applicable to ‘immovable property acquired as capital goods’ up to 20 years and, under Article 189 thereof, to define the concept of ‘capital goods’. Belgium applies a 15‑year adjustment period to the acquisition or construction of new buildings and a five-year adjustment period to all other capital goods. New buildings for those purposes include works on a building that result in it being converted to such an extent that it acquires the characteristics of a ‘new building’ for the purposes of Article 12 of the VAT Directive. The tax authority determines if that is the case by reference to national law. Where those criteria are not met, the tax authority treats such works as capital goods and applies the five-year adjustment period.

18L BV and the Commission take the view that the works that gave rise to the main proceedings should be considered as ‘immovable property acquired as capital goods’ and that the extended adjustment period of 15 years under Belgian law should apply thereto. In order to respect the principle of fiscal neutrality, where a Member State extends the adjustment period in respect of ‘immovable property acquired as capital goods’, that extended period must apply to all immovable property acquired as capital goods that share the same characteristics. That includes circumstances where a building acquires a useful economic life similar to that of a new building following significant renovation works.

B. Analysis

1. The first question

(a) The adjustment system

19The right of deduction under Article 167 of the VAT Directive is an integral part of the VAT system. It is designed to relieve traders of the entire burden of the VAT payable or paid in the course of all of their economic activities that are subject to VAT. By this means, the common system of VAT ensures that all economic activities subject to VAT, whatever their purpose or results, are taxed in a neutral way. The right to deduct is exercisable immediately in respect of all VAT charged on input transactions. ⁹ In order to establish a close and direct relationship between the right to deduct input VAT and the use of the goods and services concerned for taxable output transactions, ¹⁰ Articles 184 to 192 of the VAT Directive establish a system to facilitate the adjustment of input VAT deductions. That system aims to ensure the accuracy of deductions and hence the neutrality of the tax burden. ¹¹

20The parties in the proceedings before the Court agree that, for the purposes of the adjustment period for deductions of input VAT, the works L BV had carried out are ‘capital goods’. The dispute between them is as to whether those works are also ‘immovable property acquired as capital goods’, thereby obtaining the benefit of the longer adjustment period. In general, taxpayers seek to adjust input VAT deducted over as short a period as possible. An unusual feature of this reference is that the taxable person, L BV, seeks the application of the longer adjustment period to its circumstances.

(b) Do the ‘capital goods’ referred to in Article 187 of the VAT Directive include ‘immovable property’?

21The various language versions of the term ‘immovable property acquired as capital goods’ in Article 187 of the VAT Directive are not uniform. ¹² The French and Dutch language versions refer to ‘biens d’investissement immobiliers’ and ‘onroerende investeringsgoederen’ respectively. The English and German language versions speak of ‘immovable property acquired as capital goods’ and ‘Grundstücken, die als Investitionsgut erworben wurden’. One possible reading of the French and Dutch language versions is that the faculty Article 189 confers on Member States to define the concept of ‘biens d’investissement’ and ‘investeringsgoederen’ includes a power to define the concept of ‘biens d’investissement immobiliers’ and ‘onroerende investeringsgoederen’. The English and German language versions do not, however, readily lend themselves to that interpretation. On the contrary, they clearly suggest that since the provision applies to ‘immovable property’‘acquired as’‘capital goods’, ‘immovable property’ and ‘capital goods’ are distinct and, therefore, autonomous legal concepts.

22A divergence between various language versions of a provision of EU law requires that that provision be interpreted by reference to the general scheme and purpose of the rules of which it forms part. ¹³

23The Commission’s written observations are of some assistance in that context. The initial proposal for the Sixth Directive ¹⁴ provided for an adjustment period of five years with respect to capital goods. It made no mention of ‘immovable property acquired as capital goods’. ¹⁵ The possibility to extend the adjustment period for up to 10 years in the case of ‘immovable property acquired as capital goods’ arose out of some Member States’ concerns that the adjustment period of five years was insufficiently long, for example, with respect to purchases of land. ¹⁶ That debate tends to show that, at that time, the concept of capital goods included immovable property. In order to provide for a longer adjustment period with respect to immovable property, that concept had to be separated out from that of capital goods and treated as an autonomous notion. As a consequence, a hybrid concept, one part of which EU law defined exclusively (immovable property) and one part of which national law could define within certain parameters (capital goods), came into existence. ¹⁷ It is therefore unsurprising that all of the parties that participated at the hearing agreed that the concept of ‘immovable property’ in the VAT Directive is an autonomous concept of EU law. The permission that Article 189 of the VAT Directive gives to the Member States to define the ‘concept of capital goods’ thus does not extend to a power to define ‘immovable property’, even where such property is acquired as a capital item.

(c) Capital goods

24In its judgment in Verbond van Nederlandse Ondernemingen, the Court first observed that the term ‘capital goods’ was part of a provision of Community law that did not refer to the law of the Member States in order to determine its meaning and its scope. ¹⁸ Its interpretation therefore could not be left to the discretion of each Member State. ¹⁹ The Court proceeded to hold that capital goods covered goods used for the purposes of some business activity distinguished by their durable nature and their value such that the costs of their acquisition were normally written off over several years and not treated as current expenditure. ²⁰ The Court has since held that those considerations apply, mutatis mutandis, to the special system for the adjustment of deductions relating to capital goods in Article 20 of the Sixth Directive, ²¹ notwithstanding that, by Article 20(4) thereof, Member States may define the concept of capital goods. It follows that Member States do not enjoy an unfettered discretion when they exercise the power to define capital goods that Article 189 of the VAT Directive affords to them. In that context, it is worth mentioning that since account is taken of the text, context and objectives of a provision of EU law in determining its meaning and scope, the definition of ‘capital goods’ in one provision of EU law is not necessarily the same as that in another. ²² Whilst Member States have a certain discretion when they define ‘capital goods’ for the purposes of Article 187 of the VAT Directive, for the reasons set out in point 23 of the present Opinion, that discretion does not extend to allowing them to define immovable property acquired as such goods.

(d) Immovable property acquired as capital goods

25The VAT Directive defines neither ‘immovable property’ ²³ nor ‘immovable property acquired as capital goods’. Nor does it afford Member States the possibility to define those concepts in a manner akin to that which Article 189 of the VAT Directive permits in respect of capital goods. The Court’s case-law accordingly requires that the meaning and scope of those terms is to be given an autonomous and uniform interpretation that takes into account the context of that provision and the purpose of the legislation in which it appears. ²⁴

26Council Implementing Regulation (EU) No 1042/2013 of 7 October 2013 amending Implementing Regulation (EU) No 282/2011 as regards the place of supply of services ²⁵ introduced a definition of ‘immovable property’ for the purposes of the application of the VAT Directive. Under that definition, ‘immovable property’ includes any building or construction fixed to or in the ground above or below sea level which cannot be easily dismantled or moved; any item that has been installed and makes up an integral part of a building or construction without which the building or construction is incomplete, such as doors, windows, roofs, staircases and lifts; and any item, equipment or machine permanently installed in a building or construction which cannot be moved without destroying or altering the building or construction. ²⁶

27While Implementing Regulation No 1042/2013 applied from 1 January 2015, the provisions that define ‘immovable property’ and ‘supply of services connected with immovable property’ only applied from 1 January 2017. According to recital 18 to Implementing Regulation No 1042/2013, the introduction of the concept of immovable property, which sought to ensure a uniform tax treatment by Member States of supplies of services connected with immovable property, could have had a considerable impact on Member State legislative and administrative practices. To facilitate a smooth transition its introduction was delayed.

28The Court has held that a conferral of implementing powers upon the Commission requires that institution to provide further detail in relation to the content of a legislative act in order to ensure its uniform implementation in all Member States. An implementing measure must, therefore, comply with the essential aims of the legislative act which it is expected to clarify and be necessary or appropriate for the uniform implementation of that act without supplementing or amending it, even as to non-essential elements. ²⁷ The Court has also held that Implementing Regulation No 282/2011, which Implementing Regulation No 1042/2013 amends, is in the nature of a codifying measure. ²⁸

29From this case-law, I draw the conclusion that, in the absence of any indications to the contrary, Implementing Regulation No 1042/2013 complies with the essential aims of the VAT Directive and both codifies and clarifies its provisions. That implementing regulation is also necessary or appropriate for the uniform implementation of the VAT Directive without supplementing or amending its provisions, even as to non-essential elements. Notwithstanding the moratorium on the application of the provisions of Implementing Regulation No 1042/2013 that define ‘immovable property’ and ‘supply of services connected with immovable property’ until 2017, I advise the Court that it can take them into account when it interprets Article 187(1) of the VAT Directive.

30The Court also provides guidance as to the content of the concept of immovable property in the interpretations it has delivered on other provisions of the VAT Directive. It has deemed land, buildings and parts of buildings to be ‘immovable property’. ²⁹ Caravans, tents, mobile homes, and light-framed leisure dwellings, being movable, are not. ³⁰ Buildings made from prefabricated components, with a concrete base erected on concrete foundations sunk into the ground, have been considered as immovable property, despite the fact that eight persons working over the course of ten days could dismantle them for subsequent reuse. The Court observed that, in order to constitute immovable property, those buildings did not need to be inseverably fixed to, or in, the ground. ³¹ Land and water-based moorings for boats have been regarded as immovable property where the water-covered area of land is clearly delimited and cannot be moved. ³² A permanently immobilised houseboat fixed by attachments to the bank and bed of a river and exclusively used as a restaurant and discotheque has also been treated as immovable property. ³³

31Are works, such as those in respect of which L BV seeks to deduct input VAT, ‘immovable property’? The examples of ‘immovable property’ in the Court’s case-law on the interpretation of the VAT Directive indicate that the notion of tangibility – the item in question can be seen and touched – and that of its fixation to the ground lie at the core of that concept. Article 13b of Implementing Regulation No 282/2011 refers to installed items that make up an integral part of a building or construction without which the building or construction is incomplete. Neither the Court’s case-law, nor Article 13b of Implementing Regulation No 282/2011, refer to the processes or services whereby those items are installed in, or make up part of, a building.

32It follows that the works with respect to which L BV seeks to deduct input VAT paid are not ‘immovable property acquired as capital goods’ for the purposes of Article 187(1) of the VAT Directive. What, then, did L BV acquire in the circumstances described in the order for reference?

(e) Supply of services connected to immovable property

33The VAT Directive contains a number of provisions relating to the supply of services connected with immovable property. Article 47 thereof provides that the place of supply of services connected with immovable property shall be the location of the property. In the context of this reference for a preliminary ruling, it is noteworthy that that provision brings the preparation and coordination of construction work, such as the services of architects and of firms providing on-site supervision, within its ambit. ³⁴ Article 199 of the VAT Directive refers to the supply of construction work, including repair, cleaning, alteration and demolition services in relation to immovable property. Those provisions of the VAT Directive thus distinguish between immovable property and services connected to immovable property. The works and the services which are the subject matter of the main proceedings appear to encompass those described in Articles 47 and 199 of the VAT Directive. Article 31a of Implementing Regulation No 282/2011, which provides that services connected with immovable property include the drawing up of plans for a building; the construction of a building on land, as well as construction and demolition work performed on a building; and maintenance, renovation and repair of a building, appears to confirm that interpretation. As point 26 of the present Opinion explains, Article 13b of Implementing Regulation No 282/2011 excludes services provided in connection with immovable property from the definition of immovable property.

34I further observe that, prior to July 2006, ³⁵ the Sixth Directive did not contain a provision equivalent to Article 190 of the VAT Directive, which explicitly allows Member States to treat as capital goods services which have characteristics similar to those normally attributed to capital goods. Recital 5 of Directive 2006/69 explains the introduction of that measure by emphasising that ‘services with the nature of capital items may be included in the scheme which allows the adjustment of deductions for capital items over the lifetime of the asset, according to its actual use’. It follows from the rationale for that amendment that it was not intended that such services constituted ‘immovable property acquired as capital goods’ for which the Sixth Directive had made special provision.

35By reason of the foregoing I am of the view that works, such as those which are the subject matter of the main proceedings, are, as Belgium observed at the hearing, a supply or a series of supplies of services connected to immovable property. It follows that, for the purposes of Article 187 of the VAT Directive, L BV acquired services connected to immovable property, which Belgium treats as capital goods, and not ‘immovable property acquired as capital goods’.

(f) Conversions under Article 12 of the VAT Directive

36In the light of the referring court’s question, I address this issue for the sake of completeness. As a rule, the sale of old buildings is not subject to VAT because of the relative lack of added value that such sales generate. Since a conversion adds value to a building in the same way as its initial construction, the VAT Directive facilitates the taxation of supplies of converted buildings. ³⁶ Article 12(2), read in conjunction with Article 135(1)(j), of the VAT Directive therefore provides that the ‘conversion’ of an ‘old’ building may be assimilated to the supply of a ‘new’ building before first occupation and thereby become subject to VAT.

37The VAT Directive does not appear to draw a link between Article 12 and Article 135(1)(j) thereof, in so far as they concern ‘conversions’ of buildings, and the concept of ‘immovable property acquired as capital goods’ to which Article 187 thereof refers. Nor does it follow from Article 12 of the VAT Directive, which provides that Member States may lay down detailed rules to treat the supply of a building following a ‘conversion’ as a supply of a building before first occupation, that such conversions are to be considered as ‘immovable property acquired as capital goods’.

38Since Belgium does not have the power to treat conversions as ‘immovable property acquired as capital goods’, L BV’s and the Commission’s arguments as to that Member State’s failure to observe the principle of fiscal neutrality fall away. In any event, it may be observed that since works carried out for the purposes of renovations or conversions are treated as ‘capital goods’ for the purposes of Article 187 of the VAT Directive, they are subjected to the same five-year adjustment period such that the principle of fiscal neutrality appears to be respected.

39In the light of all of the above considerations, I propose that the Court answer the first question as follows:

Articles 187 and 189 of the VAT Directive must be interpreted as precluding legislation according to which an extended adjustment period within which input VAT payable or paid with respect to ‘immovable property acquired as capital goods’ may be adjusted applies to supplies of services connected to immovable property, such as works carried out for the renovation or conversion of a building.

2. The second question

40By its second question, the referring court asks whether Article 187 of the VAT Directive has direct effect so that a taxable person who has carried out works on a building, where those works have a useful economic life identical to that of new buildings, may rely on the 15-year adjustment period that applies to the latter.

41In the light of my proposed answer to the first question, there is no need to reply to the second question since the latter is based upon a supposition that it is lawful to apply an extended adjustment period to input VAT payable or paid in respect of services connected to immovable property. In the event that the Court does not agree with that analysis, I will address the question as to whether the first sentence of Article 187 has direct effect.

42According to the Court’s settled case-law, whenever the provisions of a directive appear, so far as their subject matter is concerned, to be unconditional ³⁷ and sufficiently clear and precise, individuals may rely upon them against the State before national courts where the State has failed to implement that directive by the end of the period prescribed or has not done so correctly. ³⁸ When exercising their discretion as to the form or methods for implementing a directive, Member States must exercise that discretion within the limits set out therein. ³⁹

43The Court has held that Article 187 of the VAT Directive is binding in nature. The imposition of a requirement to afford an adjustment period for the deduction of input VAT on capital goods enables the avoidance of inaccuracies in the calculation of deductions and unjustified advantages or disadvantages for a taxable person, thereby ensuring the neutrality of the tax burden. ⁴⁰ As point 24 of the present Opinion makes clear, the discretion Member States enjoy under Article 189 of the VAT Directive to define the concept of ‘capital goods’ for the purposes of applying Article 187 thereof is limited by the Court’s judgment in Verbond van Nederlandse Ondernemingen. ⁴¹ In any event, the first sentence of Article 187 of the VAT Directive is not subject to Member States taking measures to define ‘capital goods’, since it is for the Member States to decide whether to adopt such measures. The obligation to afford an adjustment over five years for input VAT paid in respect of capital goods is clear, precise and unconditional. As a result, the first sentence of Article 187 of the VAT Directive fulfils the conditions for direct effect. ⁴²

44In the light of the above considerations, I propose that the Court answer the second question as follows:

The first sentence of Article 187(1) of the VAT Directive has direct effect.

V. Conclusion

45I therefore propose that the Court answer the questions referred for a preliminary ruling by the Hof van Beroep te Gent (Court of Appeal, Ghent, Belgium) as follows:

Articles 187 and 189 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

must be interpreted as precluding legislation according to which an extended adjustment period within which input VAT payable or paid with respect to ‘immovable property acquired as capital goods’ may be adjusted applies to supplies of services connected to immovable property, such as works carried out for the renovation or conversion of a building.

The first sentence of Article 187(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax has direct effect.

¹ Original language: English.

( i ) The name given to the present case is fictitious and does not correspond to the real name of any party to the proceedings.

² Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), as amended (‘the VAT Directive’).

³ The French and Dutch language versions of the relevant Belgian legislation refer, respectively, to ‘biens d’investissement’ and ‘bedrijfsmiddelen’.

⁴ The French language version of the relevant Belgian legislation refers to ‘biens d’investissement immobiliers’ and the Dutch language version refers to ‘onroerende goederen’ or ‘onroerende bedrijfsmiddelen’.

⁵ See, in particular, Articles 48 and 49 of the Belgian VAT Code and Royal Decree No 3 of 10 December 1969 on deductions for the purposes of value added tax.

⁶ According to L BV, the magnitude of the works and various delays in their execution explain the length of time taken to finish them. Upon completion of the works, which cost in excess of EUR 1900000, excluding VAT, the property was valued at EUR 2750000, with a corresponding increase in the ‘cadastral income’ – the net normal average income of a property as established by the Belgian tax authorities – from EUR 2456 to EUR 3850.

⁷ Article 21a of Royal Decree No 3 of 10 December 1969 on deductions for the purposes of value added tax, as inserted by Royal Decree of 9 January 2012 amending Royal Decree No 3 of 10 December 1969 on deductions for the purposes of value added tax.

⁸ Article 135(1)(j) of the VAT Directive exempts from VAT the supply of a building or parts thereof, and of the land on which it stands, other than supplies ‘before first occupation’ under Article 12(1)(a). Such supplies include ‘conversions of buildings’ as determined in accordance with detailed rules to be laid down by Member States.

⁹ Judgment of 7 March 2024, Feudi di San Gregorio Aziende Agricole (C‑341/22, EU:C:2024:210, paragraph 27 and the case-law cited).

¹⁰ See, for example, judgment of 18 October 2012, TETS Haskovo (C‑234/11, EU:C:2012:644, paragraph 31).

¹¹ See, for example, judgment of 30 March 2006, Uudenkaupungin kaupunki (C‑184/04, EU:C:2006:214, paragraph 26).

¹² Which are equally authentic: judgment of 6 October 1982, Cilfit and Others (283/81, EU:C:1982:335, paragraph 18). The Spanish, Greek, Italian, Portuguese, Slovak and Finnish language versions align with the French and Dutch language versions, which do not include the words ‘acquired as’. The Bulgarian, Czech, Estonian, Croatian, Latvian, Lithuanian, Hungarian, Maltese, Polish, Romanian and Slovenian language versions align with the German and the English language versions. The Danish and Swedish language versions distinguish ‘immovable property’ from ‘capital goods’, but do not contain words equivalent to ‘acquired as’.

¹³ See, for example, judgment of 30 September 2021, Icade Promotion (C‑299/20, EU:C:2021:783, paragraph 30 and the case-law cited).

¹⁴ 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) (‘the Sixth Directive’).

Conclusion

¹⁵ The initial proposal did not propose to give Member States a power to define the concept of capital goods.

¹⁶ See Council document bearing reference R/2/74 (FIN 2), the English version of which is dated 9 January 1974. It records that, at a meeting of the Working Party on Financial Questions held on 22 and 23 November 1973 to examine the proposal for the Sixth Directive, three delegations considered that, in the case of building plots, for example, the adjustment period was inadequate and should be extended to at least 10 years.

¹⁷ Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to value added tax – scope of certain exemptions and practical arrangements for implementing them (OJ 1995 L 102, p. 18) permitted Member States to extend the adjustment period for the deduction of input VAT in respect of immovable property acquired as capital goods by up to 20 years. Its fifth recital states that that was appropriate given the duration of the economic life of immovable property acquired as capital goods.

¹⁸ Judgment of 1 February 1977, Verbond van Nederlandse Ondernemingen (51/76, EU:C:1977:12, paragraph 10). The Court interpreted ‘capital goods’ in the context of the third indent of Article 17 of Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes – Structure and procedures for application of the common system of value added tax (OJ, English Special Edition 1967, p. 16).

¹⁹ Ibid., paragraph 11.

²⁰ Ibid., paragraph 12.

²¹ See judgment of 15 December 2005, Centralan Property (C‑63/04, EU:C:2005:773, paragraph 55).

²² As is clear from judgment of 6 March 2008, Nordania Finans and BG Factoring (C‑98/07, EU:C:2008:144, paragraphs 17 to 30).

²³ The VAT Directive refers to the term ‘immovable property’ in the context, for example, of the ‘supply of services connected with immovable property’ (Article 47), and the ‘leasing or letting of immovable property’ (Articles 135(1)(l) and 137(1)(d)).

²⁴ See, for example, judgment of 16 November 2017, Kozuba Premium Selection (C‑308/16, EU:C:2017:869, paragraph 38).

²⁵ OJ 2013 L 284, p. 1; ‘Implementing Regulation No 1042/2013’.

²⁶ Article 13b of Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax (OJ 2011 L 77, p. 1; ‘Implementing Regulation No 282/2011’).

²⁷ See judgment of 28 February 2023, Fenix International (C‑695/20, EU:C:2023:127, paragraphs 44 and 45 and the case-law cited).

²⁸ See judgment of 2 July 2020, Veronsaajien oikeudenvalvontayksikkö (Colocation centre services) (C‑215/19, EU:C:2020:518, paragraph 60). It follows that identical considerations apply to measures that amend it.

²⁹ See, for example, the Opinion of Advocate General Jacobs in Maierhofer (C‑315/00, EU:C:2002:344, point 36).

³⁰ See judgment of 3 July 1997, Commission v France (C‑60/96, EU:C:1997:340) concerning the provisions on the leasing or letting of immovable property in the Sixth Directive. In his Opinion in Maierhofer (C‑315/00, EU:C:2002:344, point 36), Advocate General Jacobs observed that since France did not contest the infringement proceedings that gave rise to Case C‑60/96, the precedent value of that judgment may be limited.

³¹ See judgment of 16 January 2003, Maierhofer (C‑315/00, EU:C:2003:23) interpreting Article 13B(b) of the Sixth Directive on the leasing or letting of immovable property.

³² See judgment of 3 March 2005, Fonden Marselisborg Lystbådehavn (C‑428/02, EU:C:2005:126, paragraph 34) interpreting Article 13B(b) of the Sixth Directive on the leasing or letting of immovable property.

³³ See judgment of 15 November 2012, Leichenich (C‑532/11, EU:C:2012:720) interpreting Article 13B(b) of the Sixth Directive on the leasing or letting of immovable property.

³⁴ The word ‘including’ makes it clear that the list of services is not exhaustive: judgment of 2 July 2020, Veronsaajien oikeudenvalvontayksikkö (Colocation centre services) (C‑215/19, EU:C:2020:518, paragraph 57).

³⁵ By the insertion of a subparagraph in Article 20(4) of the Sixth Directive, point 6 of Article 1 of Council Directive 2006/69/EC of 24 July 2006 amending Directive 77/388/EEC as regards certain measures to simplify the procedure for charging value added tax and to assist in countering tax evasion or avoidance, and repealing certain Decisions granting derogations (OJ 2006 L 221, p. 9; ‘Directive 2006/69’), introduced such a provision.

³⁶ See judgment of 16 November 2017, Kozuba Premium Selection (C‑308/16, EU:C:2017:869, paragraphs 30 to 32), and judgment of 9 March 2023, État belge and Promo 54 (C‑239/22, EU:C:2023:181, paragraph 23).

³⁷ A provision of EU law is unconditional where it sets forth an obligation unqualified by any condition, or subject, in its implementation or effects, to any measure the institutions of the European Union or the Member States might take: see, for example, judgment of 15 May 2014, Almos Agrárkülkereskedelmi (C‑337/13, EU:C:2014:328, paragraph 32 and the case-law cited).

³⁸ See, for example, judgment of 3 March 2011, Auto Nikolovi (C‑203/10, EU:C:2011:118, paragraph 61 and the case-law cited).

³⁹ See, for example, judgment of 1 February 1977, Verbond van Nederlandse Ondernemingen (51/76, EU:C:1977:12, paragraph 24); judgment of 24 October 1996, Kraaijeveld and Others (C‑72/95, EU:C:1996:404, paragraph 59); and judgment of 7 September 2004, Waddenvereniging and Vogelbeschermingsvereniging (C‑127/02, EU:C:2004:482, paragraph 66).

⁴⁰ See, for example, the order of 5 June 2014, Gmina Międzyzdroje (C‑500/13, EU:C:2014:1750, paragraphs 24 and 29). As for the corresponding provisions in Article 20(2) of the Sixth Directive, see judgment of 30 March 2006, Uudenkaupungin kaupunki (C‑184/04, EU:C:2006:214, paragraphs 26 and 58).

⁴¹ Judgment of 1 February 1977, Verbond van Nederlandse Ondernemingen (51/76, EU:C:1977:12, paragraphs 10 to 12).

⁴² See, to that effect, judgment of 15 May 2014, Almos Agrárkülkereskedelmi (C‑337/13, EU:C:2014:328, paragraph 34).