C-25/03 HE

JUDGMENT OF THE COURT (Second Chamber)

21 April 2005 *

In Case C-25/03,

REFERENCE for a preliminary ruling under Article 234 EC from the Bundesfinanzhof (Germany), made by decision of 29 August 2002, received at the Court on 23 January 2003, in the proceedings

Finanzamt Bergisch Gladbach

v

HE,

THE COURT (Second Chamber),

composed of C.W.A. Timmermans, President of the Chamber, R. Silva de Lapuerta, R. Schintgen (Rapporteur), G. Arestis and J. Klučka, Judges,

* Language of the case: German.

Advocate General: A. Tizzano, Registrar: K. Sztranc, Administrator,

having regard to the written procedure and further to the hearing on 23 September 2004,

after considering the observations submitted on behalf of:

— the Finanzamt Bergisch Gladbach, by A. Eich, acting as Agent,

— HE, by C. Fuhrmann, Rechtsanwalt, and K. Korn, Steuerberater,

— the Commission of the European Communities, by E. Traversa and K. Gross, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 11 November 2004,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Articles 2, 4, 17, 18 and 22 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), both in their original version and following their amendment by Council Directive 91/680/EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388/EEC with a view to the abolition of fiscal frontiers (OJ 1991 L 376, p. 1) (hereinafter 'the Sixth Directive').

2The reference was made in proceedings between the Finanzamt Bergisch Gladbach ('the Tax Office') and HE, and seeks to ascertain whether, and if so to what extent, HE, who with his spouse co-owns a residential building in which he alone uses one of its rooms exclusively for business purposes, is entitled to deduct the value added tax ('VAT') charged on the construction of the building.

Legal framework

Community legislation

3Article 2, which forms Title II, entitled 'Scope', of the Sixth Directive, provides:

'The following shall be subject to value added tax:

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

2. the importation of goods.'

4Article 4, which forms Title IV, entitled 'Taxable persons', of the directive, provides:

'1. "Taxable person" shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.

2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.

...'

5Article 5, 'Supply of goods', in Title V, entitled 'Taxable transactions', of the Sixth Directive provides in paragraph 1:

'"Supply of goods" shall mean the transfer of the right to dispose of tangible property as owner.'

6 Article 17, 'Origin and scope of the right to deduct', which forms part of Title XI, entitled 'Deductions', of the Sixth Directive, provides:

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

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

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

6Before a period of four years at the latest has elapsed from the date of entry into force of this directive, the Council, acting unanimously on a proposal from the Commission, shall decide what expenditure shall not be eligible for a deduction of value added tax. Value added tax shall in no circumstances be deductible on expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment.

Until the above rules come into force, Member States may retain all the exclusions provided for under their national laws when this directive comes into force.

7Directive 91/680 was adopted during the period at issue in the main proceedings. Article 3 thereof required the Member States to adapt their value added tax systems to the provisions laid down by the directive and to take the measures necessary for those adaptations to enter into force on 1 January 1993. Article 17(2), as amended by Directive 91/680, provides:

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

(a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person liable for the tax within the territory of the country;

...'

8Article 18, entitled 'Rules governing the exercise of the right to deduct' and likewise forming part of Title XI of the Sixth Directive, is worded as follows:

'1. To exercise his right to deduct, the taxable person must:

(a) in respect of deductions under Article 17(2)(a), hold an invoice drawn up in accordance with Article 22(3);

9Under Article 22, Obligations under the internal system', in Title XIII, entitled Obligations of persons liable for payment', of the Sixth Directive:

3. (a) Every taxable person shall issue an invoice, or other document serving as invoice, in respect of all goods and services supplied by him to another taxable person, and shall keep a copy thereof.

(b) The invoice shall state clearly the price exclusive of tax and the corresponding tax at each rate as well as any exemptions.

(c) The Member States shall determine the criteria for considering whether a document serves as an invoice.

8. ... Member States may impose other obligations which they deem necessary for the correct levying and collection of the tax and for the prevention of fraud.

10Article 22 was amended as follows by Directive 91/680:

3. (a) Every taxable person shall issue an invoice, or other document serving as invoice, in respect of goods and services which he has supplied or rendered to another taxable person or to a non-taxable legal person. ... A taxable person shall keep a copy of every document issued.

(b) The invoice shall state clearly the price exclusive of tax and the relevant tax at each rate as well as any exemptions.

(c) Member States shall lay down the criteria that shall determine whether a document may be considered an invoice.

8. Member States may impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, subject to the requirement of equal treatment for domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.

National legislation

11The relevant provisions of the German Law on turnover tax (Umsatzsteuergesetz, 'the UStG'), in the versions applicable during the tax years 1991 to 1993 (see BGBl. 1991 I, p. 351, and BGBl. 1993 I, p. 566, respectively), at issue in the main proceedings, were worded as follows:

'Paragraph 14

Issue of invoices

1. When a taxable person supplies goods or services which are taxable under Paragraph 1(1), points 1 and 3, he may, and to the extent to which he is carrying out these transactions for the purposes of the undertaking of another taxable person must, at the latters request, issue invoices which show separately the amount of the tax. The invoices must contain the following information:

1. the name and address of the taxable person making the supply of goods or services;

2. the name and address of the recipient of the supply of goods or services;

3. the amount and the usual commercial description of the goods sold or the nature and extent of the services supplied;

4. the date of the supply of goods or services;

5. the sum paid for the supply of goods or services (Paragraph 10), and

6. the amount of tax on the sum paid (point 5).

Paragraph 15

Deduction of input tax

1. A taxable person may deduct the following amounts of input tax:

1. the tax shown separately on invoices within the meaning of Paragraph 14 issued by other taxable persons for supplies of goods or services made for the purposes of his undertaking. When the amount of the tax shown separately relates to payment for transactions of that kind before completion, it is deductible from the time when the invoice is issued and payment has been made;

12Since the Bundesfinanzhof (Federal Finance Court) mentioned in its reference the relevant legal situation in the Republic of Austria, it should be stated that in Austria Paragraph 12(2), point 2, of the 1994 Law on turnover tax (Umsatzsteuergesetz, BGBl. 663/1994) provides as follows:

'The following supplies of goods and services and imports are not treated as made for the purposes of the undertaking:

(a) those in respect of which the consideration is not principally expenses (costs) which are deductible for the purposes of Paragraph 20(1), points 1 to 5, of the 1988 Law on income tax (Einkommensteuergesetz, BGBl. 100/1988)

13The latter provision is worded as follows:

'The following may not be deducted from individual receipts:

2. ...

(d) costs or expenses relating to a home office and to its equipment as well as to fixed installations in the home. If a home office is the centre for all the undertaking's business and for the taxable person's professional activity, the costs and expenses relating to it, including fitting out costs, are deductible.'

The case before the national court and the questions referred for a preliminary ruling

14It appears from the case-file in the main proceedings that during 1990 HE and his spouse acquired co-ownership of a plot of land. Ownership was shared as to one quarter for the husband and three quarters for his spouse. The spouses subsequently commissioned various undertakings to construct a dwelling on their plot of land. At the hearing before the Court, HE's lawyer stated that ownership of the building was likewise shared as to one quarter for the husband and three quarters for the spouse. All the invoices relating to construction were addressed to Mr and Mrs HE and made no distinction by reference to the share of each of the co-owners.

15It is not disputed that HE used one room in that house as an office in order to pursue, in parallel with his paid employment, an ancillary activity as a specialist writer.

16In his VAT returns for the period covering the tax years 1991, 1992 and 1993, HE deducted, on the basis of the invoices relating to construction of the building, proportionate amounts in respect of which he took the deductible proportion to be 12%, corresponding to the ratio between the area of the office and the total living area of the house.

17The Tax Office refused those deductions, however, on the ground that the owner of the building and the recipient of the construction services was the community comprising both spouses and not HE alone.

18HE's appeal against the decision refusing to allow the deductions succeeded in part at first instance before the Finanzgericht (Finance Court).

19According to that court, as a matter of civil law HE was the customer and recipient of the construction work attributable to the office only in respect of one quarter. In the absence of any other factors, the court based its finding on the division as between the spouses of ownership of the building. In view of the fact that his spouse owned a three-quarter share, the Finanzgericht found that HE was entitled to deduct input VAT attributable to the office only to the extent of one quarter, in other words one quarter of 12% of the total input tax. In that court's view, the fact that the invoices were made out to both spouses without differentiating between them was immaterial in that context.

20Both the Tax Office and HE appealed on a point of law against the judgment to the Bundesfinanzhof.

21The Tax Office maintains that a distinction must be drawn according to whether the supplies at issue in the main proceedings were made to the community formed by the spouses or to just one of the co-owners. If the identity of the customer is not clear from the order made for the work, the community is deemed to be the recipient of the work. The way in which ownership of the building is shared between HE and his spouse is irrelevant in this regard. In any event, the fact that there was no apportionment of the input VAT between the spouses and the fact that the invoices were issued to both spouses without distinction between them preclude HE from any entitlement to deduction.

22By contrast, HE submits that since he alone has a right of user over the part of the building used as an office, he must be regarded as the sole customer so far as the construction work in relation to that part of the building is concerned. In his submission, to refuse the deduction purely on the basis of national civil law is incompatible with the common system of VAT. Contrary to the finding of the court at first instance, the right to deduct should extend to all the VAT relating to construction of the office, that is to say 12% of all the VAT relating to the house.

23The Bundesfinanzhof notes that, under German law, when an order is placed by a number of persons acting not as an autonomous legal person — a partnership or company — but simply as a de facto community, each member of the community is the recipient of the supply to the extent of the proportion stipulated as his. For the purposes of VAT, in the case at issue in the main proceedings the community as such did not act and therefore the two spouses must be regarded as the recipients of the supply concerned.

24The Bundesfinanzhof also notes that, according to the findings of the Finanzgericht, only HE carried on a business activity in the office located in the building which the spouses had jointly built. Under its case-law, where property is acquired in common, each party who has acquired an asset in order to use it for business purposes is entitled to make a deduction not exceeding his interest in the community. In a case in which spouses had rented business premises but only one spouse used the premises for business purposes, the Bundesfinanzhof relied, in the absence of any other factors, on Paragraph 742 of the German Civil Code (Bürgerliches Gesetzbuch), under which the rights and obligations are to be divided as to half between the members of the community, and consequently held that the member using the asset for business purposes was entitled to deduct only to the extent of one half of the total input tax.

25That was also the conclusion reached in this instance by the Finanzgericht, which rightly held that that reasoning was not called into question by the fact that the invoices had been made out to the two spouses.

26The Bundesfinanzhof is none the less in doubt as to whether that result is compatible with the Sixth Directive.

27First of all, it observes, it is not possible to conclude with certainty either that the supplies relating to the construction of a residential building, in which an office has been fitted out, were obtained by HE 'as a taxable person' and 'for the purposes of his taxable transactions' within the meaning of Article 17(2) of the Sixth Directive, or that they were obtained for private residential purposes, a fortiori because, for example, the Austrian authorities exclude the right to deduct in such a case.

28In that context, it is also necessary to ascertain whether or not expenditure on the construction of a home office is 'strictly business expenditure': if not, it is itself ineligible for deduction by virtue of the second sentence of Article 17(6) of the Sixth Directive.

29If there is in principle a right to deduct in such a case, it is then necessary to decide how that right is to be exercised under Community law where a community by undivided shares or a marital community, which does not itself act as a taxable person, acquires a capital item.

30Finally, there is some doubt as to how the conditions set out in Articles 18(l)(a) and 22(3) (a) and (c) of the Sixth Directive should be applied, in the light of national case-law according to which the requirements relating to the additional particulars to be given on the invoice as regards the respective shares are of little importance.

31It was in those circumstances that the Bundesfinanzhof decided to stay the proceedings and refer the following questions to the Court of Justice for a preliminary ruling:

'(1) Is a person who purchases or builds a house for his own residential purposes acting as a taxable person in the purchasing or building of that residence if he intends to use one of its rooms as a "home office" for engaging in an ancillary activity as a self-employed person?

(2) If Question 1 is answered in the affirmative:

Where a community by undivided shares or a marital community which does not itself operate as a business places an order in common for a capital item, should it be assumed that the purchase concerned is made by a non-taxable person who is not entitled to deduct the value added tax charged on the purchase as input tax, or are the members of that community the recipients of the transaction?

(3) If Question 2 is answered in the affirmative:

Where spouses in a community by undivided shares purchase a capital item but that item is used by only one of them for the purposes of his business:

(a) is that spouse entitled to effect only a pro rata deduction in respect of the input tax attributable to his share as purchaser, or

(b) is that spouse entitled under Article 17(2)(a) of the Sixth Directive to deduct as input tax the proportion attributable to his business use of the item as a whole (subject to the invoicing requirements set out in Question 4)?

(4) For that spouse/co-owner to exercise his right to deduct in accordance with Article 18 of the Sixth Directive, must he hold an invoice, as provided for under Article 22(3) of the directive, which has been issued to him alone and states the proportion of the payments and corresponding tax attributable to him, or is it sufficient for the spouses/co-owners to be issued with the invoice without any such apportionment of the amounts due?'

Preliminary observations

32It should be noted at the outset that the documents before the Court show that:

— the spouses HE acquired a plot of land as co-owners, on which they built a dwelling house for themselves which they also co-owned;

— in the community thus formed by them as a result of their marriage, the husband's share in both the land and the house is one quarter and that of his spouse three quarters;

— as well as his salaried employment, HE has an ancillary activity as a self-employed specialist author;

— for the purpose of that activity, he has exclusive use of one room in the house as an office; it is not disputed that that room represents 12% of the total living area of the building;

— his spouse does not carry out an economic activity within the meaning of the Sixth Directive and at no time makes use of the office;

— nor does the community formed by the spouses HE as a result of their marriage carry out an economic activity within the meaning of the Sixth Directive: it does not have legal personality, nor does it have any independent power to act;

— since they do not have the status of taxable persons, neither the wife nor the community is entitled to make deductions under the Sixth Directive;

— the invoices relating to the construction of the house were made out to the spouses without distinguishing between them and did not state the proportions of the price and VAT corresponding to the share of ownership of each of the spouses;

— HE claims deduction of input VAT in respect of the whole of the office used by him exclusively for business purposes, namely 12%, whereas he holds a 25% share in the ownership of the property.

33It is in the light of those particular features of the case before the national court that the questions referred for a preliminary ruling must be answered.

34It should be added that, for the purpose of those answers, there is no need to distinguish between Articles 17 and 22 of the Sixth Directive as originally enacted and those articles as amended by Directive 91/680, as their scope is to be regarded as identical in substance for the purpose of the interpretation which the Court is required to give in the present case.

The first question

35By this question the referring court is essentially asking whether, where a person acquires a house, or has a house built, in order to live in it with his family, he is acting as a taxable person and is therefore entitled to make deductions under Article 17 of the Sixth Directive in so far as he uses one room in that building as an office for the purposes of carrying on, as an ancillary activity, an economic activity within the meaning of Articles 2 and 4 of the directive.

36In that regard, it is to be remembered first of all that the Sixth Directive establishes a common system of VAT based, inter alia, on a uniform definition of taxable transactions (see Case C-305/01 MKG-Kraflfahrzeuge-Factoring [2003] ECR I-6729, paragraph 38).

37It follows from Article 2 of the directive, which defines the scope of VAT, in conjunction with Article 4 thereof, that only activities of an economic nature, provided that they are carried out within the territory of the Member State by a taxable person acting as such, are subject to VAT.

38Under Article 4(1) of the Sixth Directive, 'taxable person' means any person who independently carries out one of the economic activities mentioned in Article 4(2).

39'Economic activity' is defined in Article 4(2) as encompassing 'all' activities of producers, traders and persons supplying services including the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis. 'Exploitation' in that context refers, in accordance with the requirements of the principle that the common system of VAT should be neutral, to all those transactions, whatever their legal form may be (see Case C-8/03 BBL [2004] ECR I-10157, paragraph 36).

40It is settled case-law that Article 4 of the Sixth Directive thus gives VAT a very wide scope, comprising all stages of production, distribution and the provision of services (see, inter alia, Case C-186/89 Van Tiem [1990] ECR I-4363, paragraph 17, and MKG-Kraftfahrzeuge-Factoring, cited above, paragraph 42).

41On the basis of the criteria set out in Article 4 of the directive, which are the sole point of reference for assessing a person's status as a taxable person (see Van Tiem, paragraph 25, and BBL, paragraph 36), a person such as HE must be regarded as a taxable person.

42According to the documents before the Court, at the material time, which stretches from 1991 to 1993, HE did in fact independently cany out an economic activity — albeit an ancillary one — for the purposes of Article 4 of the directive.

43Furthermore, it follows from Article 17(2) of the Sixth Directive that, in so far as the taxable person, acting as such, uses the asset for the purposes of his taxable transactions, he is entitled to deduct VAT due or paid in respect of the asset. Conversely, where the asset is not used for the taxable person's economic activities within the meaning of Article 4 of the directive but is used by him for private consumption, no right to deduct can arise (see, to that effect, Case C-97/90 Lennartz [1991] ECR 1-3795, paragraphs 8 and 9).

44On that point, it appears from the documents before the Court that, at the material time, for the purpose of carrying out his independent economic activity as a specialist author HE had exclusive use of one room in the building which he and his spouse had had built and of which he is a co-owner.

45The fact that in this instance HE used only a part of that building for the purpose of his economic activity is irrelevant.

46The Court has consistently held that where a capital item is used both for business and for private purposes the taxpayer has the choice, for the purposes of VAT, of (i) allocating that item wholly to the assets of his business, (ii) retaining it wholly within his private assets, thereby excluding it entirely from the system of VAT, or (iii) — as in the case before the national court — integrating it into his business only to the extent to which it is actually used for business purposes (see, to that effect, Case C-415/98 Bakcsi [2001] ECR I-1831, paragraphs 24 to 34, and Case C-269/00 Seeling [2003] ECR I-4101, paragraphs 40 and 41).

47In the latter case, it must therefore be held that, to the extent to which the item was used for business purposes, the person concerned acted as a taxable person in the purchasing or construction of the building, which, to that extent, must be regarded as being used for the purposes of that person's taxable transactions under Article 17 (2) (a) of the Sixth Directive.

48That interpretation is borne out by the principle of neutrality, by virtue of which the person concerned must bear the burden of VAT only when it relates to goods or services which are used by him for his private consumption and not for his taxable business activities.

49As the Commission has rightly pointed out, the doubts expressed by the referring court as to whether a transaction such as that at issue in the main proceedings is within the scope of the Sixth Directive are groundless.

50The fact that another Member State (as in this instance the Republic of Austria) excludes the right to deduct in the case of a home office is irrelevant, in the light of the common nature of the system of VAT and the fact that it seeks to achieve harmonisation, as a result of which derogations to the right to deduct are permitted only in the cases expressly laid down by the Sixth Directive with a view to ensuring that they are applied in the same way throughout the Member States.

51Furthermore, in so far as the referring court relies on Article 17(6) of the Sixth Directive, it must be stated, first, that there is as yet in Community law no Council measure which excludes from the right to deduct expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment. Further, the German legislation applicable when the directive entered into force did not exclude the right to deduct for home offices. Finally, the Federal Republic of Germany has not been authorised to introduce any special measures for derogation from the directive under Article 27 thereof.

52In the light of the foregoing considerations, the answer to the first question must be that where a person purchases a house, or has a house built, in order to live in it with his family he is acting as a taxable person, and is thus entitled to make deductions under Article 17 of the Sixth Directive in so far as he uses one room in that building as an office for the purposes of carrying out an economic activity, albeit an ancillary one, within the meaning of Articles 2 and 4 of the directive and allocates that part of the building to the assets of his business.

The second question

53The essential issue raised by this question is whether, where a marital community which does not have legal personality and does not itself carry out an economic activity within the meaning of the Sixth Directive places an order for a capital item, the co-owners forming the community must be regarded as recipients of the transaction for the purposes of the directive.

54In that regard, according to the documents available to the Court the community formed by the spouses HE as a result of their marriage did not itself carry out an economic activity either as a civil-law partnership with its own legal personality or in a form which, although without legal personality, was in fact able to act independently. The spouses merely acted jointly in fact in purchasing the land and building the property.

55Thus, for the purposes of VAT the community did not act in the transactions at issue in the main proceedings and cannot therefore be regarded as a taxable person within the meaning of the Sixth Directive.

56In those circumstances and in the absence of any other relevant factors, it must be held that the spouses HE, in their capacity as co-owners of the capital item, are recipients of the supply of that item for the purposes of the Sixth Directive.

57That result is also in keeping with the principle of neutrality. Given that the community formed by the spouses is not a taxable person and, on that account, cannot deduct input tax, any such entitlement to deduct must be granted to the spouses taken individually in so far as they have the status of taxable person.

58Therefore, the answer to the second question must be that where a marital community which does not have legal personality and does not itself carry out an economic activity within the meaning of the Sixth Directive places an order for a capital item, the co-owners forming that community are to be regarded as recipients of the transaction for the purposes of the directive.

The third question

59By this question, the referring court is asking in substance whether, where spouses in a community by marriage purchase a capital item, part of which is used exclusively for business purposes by one of the co-owning spouses, that spouse is entitled to deduct in respect of all the input VAT attributable to the share of the item which he uses for the purposes of his business or only in respect of the proportion of input VAT corresponding to his share as purchaser.

60In order to reply to that question, it must be borne in mind that the national court at first instance held that, from the point of view of German civil law, HE was a recipient of the construction work attributable to the office only in respect of one quarter. It took as its basis for that finding the division of ownership of the land between the co-owning spouses, the husbands interest amounting to only a 25% share of ownership. That court therefore held that HE was entitled to deduct only one quarter of the input tax relating to the office used for the purposes of the business, in other words one quarter of 12% of the total input VAT.

61HE contends that he is entitled under the Sixth Directive to deduct the amount of input VAT corresponding to the share represented by his business use of the item in its entirety, namely 12% of the total amount of input tax.

62In that regard, it must be observed at the outset that, as the title itself shows, the Sixth Directive seeks to establish a common system of VAT by defining in a uniform manner, and in accordance with Community rules, taxable transactions (see paragraph 36 of this judgment and the case-law cited).

63Furthermore, it is settled case-law that the terms of a provision of the Sixth Directive which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope must normally be given an autonomous and uniform interpretation throughout the Community, in order to prevent differences from one Member State to another in the way the VAT system is applied (see Case C-497/01 Zita Modes [2003] ECR I-14393, paragraph 34).

64As regards more specifically Article 5(1) of the Sixth Directive, by virtue of which the transfer of the right to dispose of tangible property as owner is regarded as a supply of goods, it follows from the case-law of the Court that 'supply of goods' does not refer to the transfer of ownership in accordance with the procedures prescribed by the applicable national law but covers any transfer of tangible property by one party which empowers the other party actually to dispose of it as if he were the owner of the property. The purpose of the directive might be jeopardised if the requirements for there to be a supply of goods, which is one of the three taxable transactions, were to differ according to the civil law of the Member State concerned (see, to that effect, Case C-320/88 Shipping and Forwarding Enterprise Safe [1990] ECR I-285, paragraphs 7 and 8; Case C-291/92 Armbrecht [1995] ECR 1-2775, paragraphs 13 and 14; and Case C-185/01 Auto Lease Holland [2003] ECR I-1317, paragraphs 32 and 33).

65Consequently, the Court cannot accept either the position taken by the national court of first instance, which bases its reasoning on the rules of ownership under German civil law, or that adopted by the Commission in its written observations, according to which HE's claim could not be upheld if, under the national rules concerning the system of matrimonial property, he was not entitled to dispose of the capital item in its entirety.

66Moreover, the question as to which of the co-owners in fact settled the invoices relating to the construction of the building is irrelevant for the purposes of replying to the question referred to the Court, since it is clear from Article 11.A(l)(a) of the Sixth Directive that consideration may also be provided by a third party.

67In order to reply to the third question, it is necessary instead to bear in mind that in this instance the home office is used by HE personally and wholly for the purposes of his business and that he has decided to allocate this room entirely to his business. Hence it is evident that he in fact disposes of this room as owner and therefore fulfils the condition deriving from the case-law referred to at paragraph 64 of this judgment.

68It should be added that HE is seeking to deduct input VAT in an amount equivalent to that relating to the share in the item which he uses exclusively for business purposes and which he has decided to treat as an asset of the business.

69Moreover, in circumstances such as those of the main proceedings, the office is not liable to give rise to an entitlement to deduct on the part of any operator other than HE and consequently there is unlikely to be any fraud or abuse in the present case.

70HE's claim for deduction of all the VAT attributable to the office must, in those circumstances, be regarded as in conformity with the deduction system, which is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT thus ensures neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT (see, inter alia, Zita Modes, cited above, paragraph 38).

71It follows that an operator who, like HE, has allocated the whole of the room used as an office to the assets of his business must be entitled to deduct all the VAT directly attributable to the cost of the various constituents of the price of that part of the building. If the operator could deduct only a proportion of the VAT which he has paid in respect of that room, which is used entirely for his taxable transactions — a proportion calculated by reference to his interest in the co-ownership of the building as a whole — he would not be relieved entirely of the burden of the tax relating to the item which he uses for the purposes of his economic activity, contrary to the requirements of the principle of neutrality.

72That interpretation is also in keeping with the principle of equal treatment, the corollary of the principle of neutrality.

73Thus, two taxable persons who objectively are in the same situation in that each of them has exclusive use of the same percentage of a building as an office which he has allocated to his business are treated in the same way, since they are entitled to deduct the same amount of input VAT. However, account is taken of the difference inherent in their situation — one having sole ownership of the building whilst the other owns only a share in it — by virtue of the fact that the first person is entitled to deduct 100% of the input VAT as long as he chooses to integrate the mixed-use building in its entirety into his business, whilst the second person can never be relieved of VAT in excess of the amount which he has actually borne, namely the amount relating to his share in the co-ownership (25% in the main proceedings).

74In the light of all of those considerations, the answer to the third question must be that where spouses forming a community by marriage purchase a capital item, part of which is used exclusively for business purposes by one of the co-owning spouses, that spouse is entitled to deduct in respect of all the input VAT attributable to the share of the item which he uses for the purposes of his business, in so far as the amount deducted does not exceed the limits of the taxable person's interest in the co-ownership of the item.

The fourth question

75This question seeks in essence to ascertain whether Articles 18(l)(a) and 22(3) of the Sixth Directive require a taxable person, in order to be able to exercise the right to deduct in circumstances such as those of the case before the national court, to hold an invoice issued in his name stating the proportions of the payments and VAT corresponding to his interest in the property held in co-ownership, or whether an invoice issued to the co-owning spouses without distinguishing between them and without reference to such apportionment is sufficient for that purpose.

76In that regard, it follows in particular from Article 22(3)(b) of the Sixth Directive, both in its original version and following its amendment by Directive 91/680, that for the purposes of exercising the right to deduct the invoice must state clearly the price exclusive of tax and the corresponding tax at each rate as well as, where appropriate, any exemptions.

77It follows that, apart from those minimum requirements, the Sixth Directive does not prescribe any other obligatory particulars, such as those referred to in the fourth question referred to the Court.

78Under Article 22(3)(c) of the Sixth Directive, the Member States are of course permitted to determine the criteria for considering that a document serves as an invoice and, under paragraph 8 of the same article, they have the power to impose other obligations which they deem necessary for the correct levying and collection of the tax and for the prevention of fraud.

79The Federal Republic of Germany has used that option. Thus, in Germany, the UStG provides that invoices must include the name and address of the recipient of the transaction and the quantity and the usual commercial description of the goods supplied or the nature and extent of the services supplied, as well as the consideration for the transaction.

80However, as the Commission has observed, it is settled case-law that the requirement of particulars on the invoice other than those set out in Article 22(3) (b) of the Sixth Directive, as a condition for the exercise of the right to deduct, must be limited to what is necessary to ensure the correct levying of VAT and permit supervision by the tax authorities. Moreover, such particulars must not, by reason of their number or technical nature, render the exercise of the right to deduct practically impossible or excessively difficult (Joined Cases 123/87 and 330/87 Jeunehomme and EGI [1988] ECR 4617, paragraph 17). Thus, the measures which the Member States may adopt under Article 22(8) of the directive in order to ensure the correct levying and collection of the tax and for the prevention of fraud must not go further than what is necessary to attain such objectives. They may not therefore be used in such a way that they would have the effect of undermining the neutrality of VAT, which is a fundamental principle of the common system of VAT established by the relevant Community legislation (Joined Cases C-110/98 to C-147/98 Gabalfrisa and Others [2000] ECR I-1577, paragraph 52, and Case C-454/98 Schmeink & Cofreth and Strobel [2000] ECR I-6973, paragraph 59).

81In a case such as that in the main proceedings, there is no risk of fraud or abuse, since the case concerns a very specific type of community of property, namely co-ownership in fact as between spouses, a community which does not itself have the status of taxable person and within which only one of the spouses carries out an economic activity. Thus, there is no possibility of the invoices, even if they are issued to 'Mr and Mrs HE' without stating the proportions of the price and the VAT corresponding to the interest of each of the spouses in the property they co-own, being used by the spouse who is not a taxable person, or by the community, in order to obtain a further deduction of the same amount of VAT.

82In those circumstances it would be incompatible with the principle of proportionality to deny the spouse who is a taxable person the right to deduct on the sole ground that the invoices do not contain the particulars prescribed by the applicable national law.

83It follows that the answer to the fourth question must be that Articles 18(1)(a) and 22(3) of the Sixth Directive do not require the taxable person, in order to be able to exercise the right to deduct in circumstances such as those at issue in the main proceedings, to hold an invoice issued in his name and stating the proportions of the payments and VAT corresponding to his interest in the property held in co-ownership. An invoice issued to the co-owning spouses without distinguishing between them and without reference to such apportionment is sufficient for that purpose.

Costs

84Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Second Chamber) rules as follows:

1. 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, both in its original version and following amendment by Council Directive 91/680/EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388/EEC with a view to the abolition of fiscal frontiers, is to be interpreted as follows:

— where a person purchases a house, or has a house built, in order to live in it with his family he is acting as a taxable person, and is thus entitled to make deductions under Article 17 of the Sixth Directive in so far as he uses one room in that building as an office for the purposes of carrying out an economic activity, albeit an ancillary one, within the meaning of Articles 2 and 4 of the directive and allocates that part of the building to the assets of his business;

— where a marital community which does not have legal personality and does not itself carry out an economic activity within the meaning of the Sixth Directive places an order for a capital item, the co-owners forming that community are to be regarded as recipients of the transaction for the purposes of the directive;

— where spouses forming a community by marriage purchase a capital item, part of which is used exclusively for business purposes by one of the co-owning spouses, that spouse is entitled to deduct in respect of all the input value added tax attributable to the share of the item which he uses for the purposes of his business, in so far as the amount deducted does not exceed the limits of the taxable person's interest in the co-ownership of the item;

— Articles 18(1)(a) and 22(3) of the Sixth Directive do not require the taxable person, in order to be able to exercise the right to deduct in circumstances such as those at issue in the main proceedings, to hold an invoice issued in his name and stating the proportions of the payments and value added tax corresponding to his interest in the property held in co-ownership. An invoice issued to the co-owning spouses without distinguishing between them and without reference to such apportionment is sufficient for that purpose.

[Signatures]

OPINION OF ADVOCATE GENERAL

TIZZANO delivered on 11 November 2004 1

Introduction

1By order of 29 August 2002, received at the Court on 23 January 2003, the Bundesfinanzhof referred to the Court for preliminary ruling four questions relating to the interpretation of the Sixth Directive 77/388/EEC of the Council 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 ('the Sixth Directive'). 2

2In substance, the referring court wishes to know whether and to what extent a person who, with his spouse, has constructed or purchased a building for residential use may deduct, from the VAT for which he is liable, the VAT paid on the purchase or construction of that part of the building which he uses for the purposes of his business.

1 — Original language: Italian.

2 — OJ 1977 L 115. p. 1.

I — Legal background

A — Community legislation

3This case involves certain provisions of the Sixth Directive which define the taxable person for VAT (Article 4), the right to deduct (Article 17) and the way that right is exercised (Articles 18 and 22).

4Article 4 provides:

'1. "Taxable person" shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.

2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.

5In relation to the right to deduct, Article 17(2) states:

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

(a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person; 3

...'.

6Finally, in relation to how the right to deduct is to be exercised, Article 18 provides:

'1. To exercise his right to deduct, the taxable person must:

(a) in respect of deductions under Article 17(2)(a), hold an invoice, drawn up in accordance with Article 22(3);

3 — Over the period of the events in this case, Article 17(2) of the Sixth Directive was amended by Council Directive 91/680/ EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388/EEC with a view to the abolition of fiscal frontiers (OJ 1991 L 376, p. 1). As a result of that amendment, which does not have any bearing on the outcome of this case but should be mentioned here for the sake of completeness, the provision cited now states: '[i]n so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay: (a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person liable for the tax within the territory of the country ...'.

7Article 22(3) states:

'(a) Every taxable person shall issue an invoice, or other document serving as invoice in respect of all goods and services supplied by him to another taxable person, and shall keep a copy thereof.

(b) The invoice shall state clearly the price exclusive of tax and the corresponding tax at each rate as well as any exemptions.

(c) The Member States shall determine the criteria for considering whether a document serves as an invoice. 4

4 — Again for the sake of reasons of procedural completeness, 9 mention should be made of the fact that Direttive 1/680/ EEC, cited above, also amended Artide 22(3) of the Sixth Directive in tire following terms: '(a) Every taxable person shall issue an involte, or other document serving as invoice, in respect of goods and servîtes which he has supplied or rendered to another taxable person or to a non-taxable legal person. .. A taxable person shall keep a copy of every dotument issued ... (b) The invoite shall state clearly the price exclusive of tax and the relevant tax at each rate as well as any exemptions . (c ) Member States shall lay down the cruena that shall determine whether a dotument mav he considered an involte .

B — National legislation

8As far as this case is concerned, Paragraphs 14 and 15 of the Umsatzsteuergesetz (Law on Turnover Tax; hereinafter 'the UStG'), in the version applicable to the years 1991 to 1993, are relevant.

9Paragraph 14, headed 'Issue of invoices', provides:

'When a taxable person supplies goods or services which are taxable under Paragraph 1 (1), points 1 and 3, he may and, to the extent to which he is carrying out these transactions with another taxable person must, at the latters request, issue invoices which show separately the amount of the tax. The invoices must contain the following information:

1. the name and address of the taxable person making the supply of goods or services;

2. the name and address of the recipient of the supply of goods or services;

3. the amount and the usual commercial description of the goods sold or the nature and extent of the services supplied;

4. the date of the supply of goods or services;

5. the sum paid for the supply of goods or services (Paragraph 10) and

6. the amount of the tax on the sum paid (point 5).

. 5

5 — Unofficial translation.

10Paragraph 15, headed 'Deduction of input tax', states:

'A taxable person may deduct, as amounts subject to input tax:

1. the tax shown separately on invoices within the meaning of Paragraph 14 issued by other taxable persons for supplies of goods or services made for the purposes of 6 his undertaking. ...'

II — Facts and procedure

11The main proceedings are concerned with the decision of the Finanzamt Bergisch Gladbach ('the Finanzamt') to refuse Mr HE ('the claimant') permission to deduct, from the VAT for which he was liable to the tax authorities, the VAT paid on the construction of the part of his house (which he had purchased together with his wife) that he had set aside for use as an office for his business.

6 — Unofficial translation.

12The order for reference shows that Mr and Mrs HE bought a plot of land in late 1990, ownership of which was shared in the following proportions: one quarter for Mr HE and three quarters for his wife.

13Subsequently, they commissioned various companies to construct a building on that plot, to be used as a dwelling. Mr HE stated at the hearing that ownership of the building was divided between him and his wife in the proportions corresponding to ownership of the plot on which it was built, namely one quarter and three quarters.

14All the invoices issued by the construction companies were made out to 'Mr and Mrs HE'.

15The order for reference also shows that Mr HE, in addition to his main activity as an employee, also had an ancillary activity as a self-employed specialist writer; when engaged in the latter activity he used a room within the family house. Since that room represented 12% of the total surface area of the house, Mr HE, in his VAT returns for the years 1991 to 1993, had deducted, from the VAT due, an amount of 12% of the VAT paid on the construction of the house itself.

16However, the Finanzamt rejected those deductions on the ground that, in its view, the purchaser and recipient of the building service was not Mr HE but the community comprising the two spouses, to which the invoices had been made out. According to the Finanzamt, that community did not itself operate as a business and did not therefore have the right to any deduction.

17Mr HE brought an appeal against that decision before the Finanzgericht.

18Allowing the appeal in part, the Finanzgericht, unlike the Finanzamt, took the view that it was irrelevant to whom the invoices had been issued, and identified Mr HE as the actual recipient of the building service for the home office; the court therefore acknowledged the claimant's right to deduct a part of the VAT paid for that service. However, according to the Finanzgericht, Mr HE was the owner of the building, and therefore also of the office sited within it, in respect only of one quarter. The amount of the deduction could not therefore be fixed — as requested by Mr HE — at 12% of the VAT paid on the construction of the house, but only at one quarter of that 12%.

19That judgment was challenged both by the Finanzamt and by Mr HE before the Bundesfinanzhof, which was thus called upon to choose between two completely opposing arguments.

20According to the Finanzamt, in the absence of various pieces of information at the time the work was commissioned and subsequently when the invoices were made out, only the community comprising the spouses should be regarded, under Paragraph 15 of the UStG, as the recipient of the service consisting of the building of the house. An individual co-owner could not therefore deduct, even in part, the VAT paid on that building work.

21According to Mr HE on the other hand, he had a right to deduction; in contrast to the decision in the judgment at first instance, that right should also be extended to all the VAT paid on the construction of the office, namely 12% of the total VAT. In practice, he would have exclusive enjoyment of that part of the house and should therefore be regarded as the only purchaser thereof.

22The Bundesfinanzhof considers that national law provides a solution to this problem, since, on the basis of the case-law of the Bundesfinanzhof itself:

— where work has been commissioned by two persons who form a community but do not have the (tax) status of an independent legal person (a partnership or limited company), each of the co-owners is regarded as a recipient of the supply on a pro rata basis, unless they have agreed to the contrary; 7

— at the material time, there was no express restriction on the deduction of tax in respect of the building and fitting out of a 'room belonging to the dwelling but separate from the rest of the living area and used exclusively or almost exclusively for company and/or business purposes' (a 'home office'); 8

— in the case of purchase in co-ownership of goods which are used by one of the co-owners for the purposes of his own business, the latter may deduct the input tax corresponding to his share in the community; 9

7 — See judgments of the Bundesfinanzhof (BFH) of 1 February 2001, V R 79/99, BFHE 194, 488, BFH/NV 2001, 989, and 7 November 2000, V R 49/99, BFHE 194, 270, BFH/NV 2001, 402: and most recently the judgment of 16 May 2002, V R 15/00, BFH/NV 2002, 1346.

8 — For the definition of a 'home office', see the letter from the Federal Finance Ministry of 16 June 1998, IV. B 2-5 2145- 59/98, Paragraph 7, BStBl (Federal Tax Gazette) I 1998, 863. 9 — See judgment of the BFH of 1 October 1998, V R 31/98, BFHE 187, 78, BFH/NV 1999, 575.

— the fact that the invoices are issued to Mr and Mrs HE does not preclude 10 deduction of the input tax paid.

23However, having some doubt as to the compatibility of that solution with the interpretation of the Sixth Directive, the Bundesfinanzhof referred the following questions to the Court for a preliminary ruling under Article 234 EC:

places an order in common for a capital item, should it be assumed that the purchase concerned is made by a non taxable person who is not entitled to deduct the value added tax charged on the purchase as input tax, or are the members of that community recipients of the supply?

If Question 2 is answered in the affirmative: '1. Is a person who purchases or builds a house for his own residential purposes 3. Where spouses in a community by acting as a taxable person in the purchasing or building of that residence if he intends to use one of its rooms as a "home office" for engaging in an ancillary activity as a self-employed person?

If Question 1 is answered in the affirmative:

2. Where a community by undivided shares or marital community which does not itself operate as a business

10 — See judgments of the BFH in BFH/NV 2002, 1346, and in BFHE 194, 270, BFH/NV 2001, 402.

undivided shares purchase a capital item but that item is used by only one of those two spouses for the purposes of his business:

(a) is that spouse entitled to effect only a pro rata deduction in respect of the input tax attributable to his share as purchaser, or

(b) is that spouse entitled under Article 17(2)(a) of Directive 77/388/EEC to deduct as input tax the proportion attributable to his business use of the item as a whole (subject to the invoicing requirements set out in Question 4)?

4. For that spouse/co-owner to exercise his right to deduct in accordance with Article 18 of Directive 77/388/EEC, must he hold an invoice, as provided for under Article 22(3) of the directive, which has been issued to him alone and states the proportion of the payments and corresponding tax attributable to him, or is it sufficient for the spouses/ co-owners to be issued with the invoice without any such apportionment of the amounts due?'

24In the proceedings before this Court, the claimant, the Finanzamt and the Commission submitted written observations. The claimant and the Commission presented oral argument at the hearing on 23 September 2004.

III — Legal analysis

25As we have seen, the national court raised four questions concerning the purchase or construction, by two spouses, of a building for residential use, which is used in part by one of them as a home office for the purposes of his own business.

The positions of the parties

26In response to those questions, the Finanzamt, referring mostly to national tax provisions, observes that, in the case of purchase or construction of a building by persons forming a community but not having the status of an independent legal entity, an individual co-owner may have a right to deduct input VAT only if: (i) at the time the contract of sale or agreement is concluded, he has stated what part of the property he is setting aside for his own business; and (ii) an invoice has been issued for that transaction showing his share of the price and the tax. Only in that way will it be clear whether and to what extent an individual co-owner was the recipient of the taxable supply.

27The claimant and the Commission on the other hand take a different view: they, for the reasons I will set out in the course of my analysis, reach the conclusion that:

— a person who purchases a building or has one built for residential use is acting as a taxable person if he uses a room in that building as an office for his own business and designates that office as an asset of his company;

— when persons who form a community, but not an independent entity which itself exercises an economic activity, purchase a capital item, all the individual co-owners must be regarded as beneficiaries of the transaction;

— in the case of purchase in co-ownership by two spouses of a capital item used for business purposes by only one of them, the latter has the right to deduct the VAT paid which corresponds to the share of the capital item which he uses for his business.

28On this latter point, the opinions of the claimant and the Commission in part diverge: in the Commissions view the right to deduct the VAT corresponding to the part of the capital item used for business purposes is subject to the condition that national law allows the spouse who exercises the economic activity subject to VAT to have enjoyment of the whole of the capital item. If on the other hand — the Commission goes on — national law provides otherwise, the spouse in question has the right to deduction only in respect of an amount which corresponds to his share of the co-ownership.

29On the other hand, the claimant and the Commission coincide in the view that the right to deduction may not be denied to the spouse who exercises the activity subject to tax on the ground that he only holds an invoice which is made out to both spouses and does not show the price and tax which correspond to his share of the community.

Identification of the person who is the recipient of the supply in the case of construction or purchase in co-ownership of a property (Question 2)

30In order to reply to the national court, it is appropriate, in my opinion, to begin with the second question and establish first of all whether, when people who constitute a community by operation of law or by voluntary agreement which does not itself exercise an economic activity order a capital item, the recipient of the supply requested is the community itself or the individual co-owners.

31As we have seen, the Bundesfinanzhof has made it clear that, under its case-law, in such a case each of the co-owners is regarded, on a pro rata basis, as the recipient of the supply, unless there is an agreement to the contrary (see point 22 above).

32In my opinion, that solution is not contrary to the Sixth Directive and to the common system it establishes.

33That system provides that on every taxable transaction VAT is due only after deduction of the tax which has been paid directly on the cost of the various elements making up the price of the goods and services. In its turn, the system of deductions is so designed that only taxable persons may deduct the VAT already charged on the goods and services from the VAT for which they are liable.

34That is the context of Article 4(1) of the Sixth Directive, which defines a taxable person for VAT as 'any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity'.

35Article 17(1) of the Sixth Directive provides that '[t]he right to deduct shall arise at the time when the deductible tax becomes chargeable' and Article 17(2) entitles a taxable person,'[i]n so far as the goods and services are used for the purposes of his taxable transactions', to deduct 'from the tax which he is liable to pay ... value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person'.

36We may conclude from the above that 'the deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities'. The common system of value added tax therefore ensures 'that all economic activities, whatever their purpose or results, provided that they are themselves subject to VAT, are taxed in a wholly neutral 1 way'. 1

37That being the case, it seems to me that the Commission is right to draw the conclusion from the foregoing that the community consisting of Mr and Mrs HE may not be regarded as a taxable person for VAT who is the recipient of the supply consisting of the construction of the building.

38The reason for this is that, as the referring court also pointed out, such a community does not have legal personality and, as it does not itself exercise any independent economic activity, it does not constitute a taxable person for VAT within the meaning of Article 4(1). Consequently, from the point of view of value added tax, the community does not have independent status and does not stand between the providers of the building works and the two spouses, who must therefore be regarded as the actual recipients of the service provided.

39Such a solution, as the claimant has rightly argued, is also consistent with the principle of the neutrality of VAT referred to above, for if it were to be concluded that the recipient of the service was the community,

11 — Case 268/83 Rompelman [1985] ECR 655, paragraph 19. which does not have legal personality and is not a taxable person and cannot therefore make any deduction, the outcome would be that an individual co-owner who exercised an economic activity would be entirely prevented from making the deduction provided for and would therefore have to bear the VAT paid in connection with his business.

40For the reasons set out above, my view is that when persons forming a community, by operation of law or voluntarily, which does not have legal personality and does not itself exercise any independent economic activity, order a capital item, the recipients of the supply within the meaning of the Sixth Directive are the individual members and not the community itself.

Whether a private individual who builds or purchases a building for residential purposes and uses a part of it for business purposes has the status of taxable person (Question 1)

41By its first question, the referring court seeks to ascertain whether a private individual who builds or purchases a building for residential purposes is acting as a taxable person if he intends to use a part of that building as a 'home office' for an ancillary activity as a self-employed person.

42Here too I would observe that, under Article 4(1) of the Sixth Directive, a taxable person means 'any person who independently carries out in any place ... [an] economic activity, ... whatever the purpose or results of that activity'; and that the VAT deduction procedure is so designed that only persons who have that status 'may deduct the VAT already charged on the goods and services from the VAT for which they are 12 liable'.

43I would also refer, as does the Commission, to the fact that in the Lennartz case the Court made it clear that 'a person who acquires goods for the purposes of an economic activity within the meaning of Article 4 does so as a taxable person' and that whether, in a particular case, a taxable person has acquired goods for those purposes is to be determined in the light of 'all the circumstances of the case, including the nature of the goods concerned and the

12 — Rompelman, paragraph 16.

period between the acquisition of the goods and their use for the purposes of the taxable 13 person's economic activity'.

44The order for reference shows that in the period in dispute (1991 to 1993) the claimant exercised an ancillary business as a specialised writer and that in the exercise of that business, which was without any doubt an independent economic activity, he had exclusive use of a part of the building purchased with his spouse, from the time it 14 was handed over. On the basis of the case-law cited above and in the light of those findings of fact made by the referring court, it appears to me that, when he purchased the building, Mr HE acted in his capacity as a taxable person within the meaning of Article 4 of the Sixth Directive.

45Nor can it be argued, moreover, that the claimant's status as such was diminished by the fact that he used only a part of the building for that economic activity.

46The Commission and the claimant have rightly pointed out that the Court has held that when a taxable person 'acquires a capital item in order to use it for both business and private purposes' he may choose (i) to treat

13 — C-97/90 Lennartz [1991] ECR I-3795, paragraphs 14 and 21. 14 — See the order for reference, part I and part II, paragraph 2(a). such an item 'as business goods the VAT on which is in principle wholly deductible'; (ii) to 'retain ... it wholly within his private assets and thereby exclud [e] it in full from the system of VAT'; or (iii) (as Mr HE did in the present case) to integrate it into his business only in respect of the part which is given over to his business use. 15

47Choosing to use goods only partly for one's business does not therefore constitute a factor which is capable of causing the person who purchases them to lose the status of taxable person. On the contrary, that is one possibility which is made available to taxable persons by the system of the Sixth Directive specifically to ensure that they, in accordance with the principle of neutrality, bear 'the burden of VAT only when [such burden] relates to goods or services which [they] use ... for [their] private consumption and not 16 for [their] taxable business activities'.

48For the reasons set out above, my view is that a person who engages in an ancillary activity as a self-employed person, within the meaning of Article 4 of the Sixth Directive, is

15 — See Case C-415/98 Bahn [2001] ECR I-1831. paragraphs 25 and 26 See also Lcnnarlz, paragraph 26. and Case C' 291/92 Armbrccht [1995] ECU I-2775, paragraph 20 16 — Armbrecht, paragraph 20.

acting as a taxable person when he builds or purchases a building for residential purposes if he sets aside and uses a part of that building for the purposes of his business.

The extent of the right to deduction (Question 3)

49By its third question, the national court seeks to ascertain whether, where spouses purchase as joint owners a property which is used in part by one of them for his business, that co-owner is entitled to effect a deduction which is; (i) equal to the tax paid on the construction of that part of the item which he uses (Question 3(b)); or (ii) a proportion, corresponding to his share of the co-owner ship, of the tax paid on the construction of the part of the item used (Question 3(a)).

50As 1 understand it, if the Bundesfinanzhof were to apply its own case-law, it would follow the latter approach and would therefore allow the co-owner a deduction of the input tax paid which corresponded to his share of the community. Clearly that would involve confirmation of the judgment given at first instance in which the Finanzgericht fixed the amount of the deduction not at 12% of the VAT paid on the construction of the house (that is to say, all the VAT paid on the building of the office) but only at one quarter of that 12%.

51In that connection I would mention again that, according to the case-law of the Court, '[a] taxable person who acquires a capital item in order to use it for both business and private purposes' has three options: (i) to 'treat ... [that capital item] as business goods the VAT on which is in principle wholly deductible'; (ii) to 'retain it wholly within his private assets', in which case 'no portion of the input VAT ... paid on the acquisition of the item is ... deductible'; and (iii) to assign it only in part — as the claimant did in this case — to the business, in which case it would seem correct to take the view that the right to deduction provided for by Article 17(2)(a) applies only to that portion of the property which is intended for the business on the basis of the proportions of business use and private use of the item 1 itself. 7

52If this last solution, which is proposed for the situation where a property for mixed use is owned exclusively by the taxable person, is correct, then in the different situation we are discussing here, where the taxable person is only a co-owner, it would seem to me reasonable to take the view, as proposed by the Bundesfinanzhof, that he has the right to a deduction corresponding to the share of the co-ownership of the portion of the item which is partly used for the business.

53There are two reasons for this. In the first place, that solution seems to me to be consistent with the principle of neutrality to which I have referred above. A co-owner is assumed to pay the VAT on the construction or purchase of the share of the capital item used for business purposes only on a pro rata basis. In the light of that principle, he should therefore only be relieved pro rata of the burden of the VAT paid on that part of the property

54In the present case, Mr HE has stated that he is the co-owner of the building and therefore also of the part thereof that is used for business purposes (the office) in respect of one quarter only. It may therefore be assumed that he paid the VAT due on the construction of the office only on a pro rata basis (that is, one quarter), and that the remaining three quarters was paid by his spouse. Likewise, he must have paid the VAT due on the construction of the remaining part of the house used for residential purposes on a pro rata basis (again, one 17 — Bakcsi, paragraphs 25 and 26, Lennartz, paragraph 26, and Armbrecht, paragraphs 20 and 21.

quarter).

55If that is the case, then my view is that, in accordance with the principle of neutrality, the claimant cannot deduct all the VAT paid (by him and by his spouse) on the office, but only a quarter of it, for otherwise Mr HE would be deducting more VAT than he had actually paid on the office and he would thus in fact be exempted from a part of the VAT he had paid to the tax authorities, not in his capacity as a person exercising an independent economic activity but rather as a private consumer, for the remainder of the building intended for residential purposes.

56In the second place, the proposed solution seems to me to be consistent with the principle of equal treatment. If, by virtue of the case-law referred to above, an individual who has exclusive ownership of a capital item for mixed use and assigns part of it to his business may deduct the VAT paid on the purchase (or construction) thereof, in proportion to the business use he makes of it, it would be discriminatory to apply the same solution also in the converse situation, where, as in the present case, he is only a part-owner of the property.

57One might also argue, as does the Commission, that the extent of the deduction might depend on the rules adopted by the spouses for their joint ownership arrangements or property regime and that therefore the solution described above should be disregarded when, on the basis of those rules, an individual co-owner had unrestricted enjoyment of the entire property used. However, my fear is that, if such were the case, there would be risk of frustrating the purpose of the directive, which is specifically aimed at establishing a 'common system of value added tax'. If that course were followed, the outcome would be that the extent of the deduction would ultimately differ from to on the basis of the relevant national civil-law provisions.

58In the light of the considerations set out above, I propose that the Court rule in reply to the third question that a taxable person who purchases a property in co-ownership with his spouse and uses it in part for the purposes of his own independent business is entitled, under Article 17(2)(a) of the Sixth Directive, to deduct from the VAT for which he is liable the proportion of the VAT paid for the purchase of the part of the property used for business purposes which corresponds to his share of ownership.

The requirements for the invoice (Question 4)

59By its fourth question, the national court seeks to ascertain whether Articles 18and 22 of the Sixth Directive require that a taxable person who builds or purchases a capital asset in joint ownership with his spouse and uses it in part for his business as a self-employed person can only exercise his right to deduction if he is in possession of an invoice made out to himself which shows the proportion of the price and the tax which correspond to his share of ownership, or whether under those provisions an invoice made out to the spouses/co-owners which does not contain that information is sufficient.

60The Bundesfinanzhof considers that, under its own case-law, an invoice like the one issued to the claimant and his wife, made out to 'Mr and Mrs HE', does not preclude deduction of the VAT paid by the claimant 18 himself. However, that court wonders whether the relevant provisions of the Sixth Directive might constitute an obstacle to such deduction.

61In that connection I would mention that under Article 18(1)(a), '[t]o exercise his right to deduct, the taxable person must ... hold an invoice, drawn up in accordance with Article 22(3)'. The latter provision in turn lays down that '[t]he invoice shall state clearly the price exclusive of tax and the corresponding tax at each rate as well as any exemptions' (b), and that '[t]he Member

18 — See the order for reference, part II, paragraph 3.

States shall determine the criteria for considering whether a document serves as an 19 invoice'.

62Those provisions therefore do no more than to fix, as the Commission has also rightly observed, three minimum requirements (an indication of the price exclusive of tax, the corresponding tax at each rate and, where appropriate, any exemptions) which an invoice must always contain to give the right to deduction. However, they do not lay down any additional requirement for purchases in co-ownership of a capital item and in particular they do not require a statement on the invoice of the proportion of the price and tax corresponding to the purchasers' respective shares of ownership.

63Therefore, if in such a case, as the referring court believes, the national rules do not require a statement of that type, there is, in my opinion, no reason to regard an invoice which meets the abovementioned requirements as inadequate and thus to deny a taxable person who uses the property purchased partly for business purposes the right to deduct granted to him by Article 17 (2)(a).

19 — See footnote 3.

64For the reasons set out above, I therefore purchases a capital item in co-ownership propose that the Court should rule in reply with his spouse, using a part thereof in the to the fourth question that Articles 18(1) and exercise of his business as a self-employed 22(3) of the Sixth Directive do not require person, must hold an invoice issued to him that, in order to exercise the right to deduct which indicates the proportion of the price referred to in Article 17(2)(a) of that and tax that corresponds to his share of directive, a taxable person who builds or ownership.

IV — Conclusion

65In the light of the foregoing considerations I propose that the Court should give the following answers to the questions on which the Bundesfinanzhof seeks a preliminary ruling:

(1) A person who engages in an ancillary activity as a self-employed person, within the meaning of Article 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, is acting as a taxable person when he builds or purchases a building for residential purposes if he sets aside and uses a part of that building for the purposes of his business.

(2) When persons forming a community, by operation of law or voluntarily, which does not have legal personality and does not itself exercise any independent economic activity, order a capital item, the recipients of the supply within the meaning of the Sixth Directive are the individual members and not the community itself.

(3) A taxable person who purchases a property in co-ownership with his spouse and uses it in part for the purposes of his own independent business is entitled, under Article 17(2) (a) of the Sixth Directive, to deduct from the VAT for which he is liable the proportion of the VAT paid for the purchase of the part of the property used for business purposes which corresponds to his share of ownership.

(4) Articles 18(1) and 22(3) of the Sixth Directive do not require that, in order to exercise the right to deduct referred to in Article 17(2)(a) of that directive, a taxable person who builds or purchases a capital item in co-ownership with his spouse, using a part thereof in the exercise of his business as a self-employed person, must hold an invoice issued to him which indicates the proportion of the price and tax that corresponds to his share of ownership.