C-26/12 PPG Holdings

JUDGMENT OF THE COURT (Fourth Chamber)

18 July 2013 ( *1 )

‛Value added tax — Sixth Directive 77/388/EEC — Articles 17 and 13B(d)(6) — Exemptions — Deduction of input tax — Pension fund — Concept of ‘management of special investment funds’’

In Case C-26/12,

REQUEST for a preliminary ruling under Article 267 TFEU from the Gerechtshof te Leeuwarden (Netherlands), made by decision of 3 January 2012, received at the Court on 18 January 2012, in the proceedings

Fiscale eenheid PPG Holdings BV cs te Hoogezand

v

Inspecteur van de Belastingdienst/Noord/kantoor Groningen,

THE COURT (Fourth Chamber),

composed of L. Bay Larsen, President of the Chamber, J. Malenovský, U. Lõhmus, M. Safjan (Rapporteur) and A. Prechal, Judges,

Advocate General: E. Sharpston,

Registrar: M. Ferreira, Principal Administrator,

having regard to the written procedure and further to the hearing on 6 February 2013,

after considering the observations submitted on behalf of:

Fiscale eenheid PPG Holdings BV cs te Hoogezand, by E.M. van Kasteren, O.L. Mobach and C. Evers, belastingadviseurs,

the Netherlands Government, by B. Koopman and C. Wissels, acting as Agents,

the United Kingdom Government, by H. Walker, O. Thomas and L. Christie, acting as Agents, and R. Hill, Barrister,

the European Commission, by L. Lozano Palacios and W. Roels, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 18 April 2013,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Articles 13B(d)(6) and 17 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, ‘the Sixth Directive’).

2The request has been made in proceedings between Fiscale eenheid PPG Holdings BV cs te Hoogezand (‘PPG’) and the Inspecteur van de Belastingdienst/Noord/kantoor Groningen (‘the Inspecteur’) concerning an additional assessment to value added tax (VAT) for the period from 1 January 2001 to 31 December 2002.

Legal context

European Union law

3Article 4(1) and (2) of the Sixth 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.’

4Under Article 6(4) of the Sixth Directive:

‘Where a taxable person acting in his own name but on behalf of another takes part in a supply of services, he shall be considered to have received and supplied those services himself.’

5Article 11A(1)(a) of the Sixth Directive defines the taxable amount, in respect of supplies of goods, as everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party.

6Article 13B of the Sixth Directive provides:

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

insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents;

…

the following transactions:

…

6. management of special investment funds as defined by Member States;

…’.

7Article 17 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:

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

…

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

…’

Netherlands law

8Article 2 of the Law on turnover tax of 1968 (Wet op de omzetbelasting 1968, ‘the Law’) states:

‘From the tax due on supplies of goods and services, there shall be deducted the tax on the supplies of goods and services made to the trader, on the acquisitions of goods by him within the Community, and on the import of goods intended for him.’

9Under Article 11 of the Law:

‘1. Subject to conditions to be determined by general administrative measures, there shall be exempt from tax:

…

the following … services:

…

3. the management of assets assembled by investment funds and investment companies for the purposes of collective investment:

…’.

10Article 15 of the Law provides:

‘1. The tax referred to in Article 2 which is deducted by the trader is:

the tax which, in the declaration period, has been invoiced by other traders, in an invoice drawn up in the prescribed manner, on supplies of goods and services made by them to the trader;

…

the tax which has become due in the declaration period:

…

on supplies of goods and services made to the trader;

…’.

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

11Pursuant to a statutory obligation, PPG set up pension schemes for the employees of its undertakings with Stichting Pensioenfonds PPG Industries Nederland (‘the pension fund’). In accordance with Netherlands legislation, that pension fund is separate from PPG from a legal and fiscal point of view. The contributions relating to the pension schemes are paid in full not by the employees but by PPG.

12As PPG and the Netherlands Government confirmed at the hearing, Netherlands law in force at the material time left it to employers to choose whether to set up such a fund themselves or to entrust the performance of their obligations to an insurance company, to which they would pay their contributions and which would be responsible for paying pensions to retired employees. There was no option, however, for them to retain an internal pension scheme.

13A subsidiary of PPG, PPG Industries Fiber Glass BV, entered into contracts with suppliers of services established in the Netherlands relating to the administration of the pensions and the management of the assets of the pension fund. The costs associated with those contracts were paid by that subsidiary and not passed on to the pension fund. PPG deducted the amounts of VAT relating to those costs incurred in 2001 and 2002, namely EUR 139 304.23, as input tax.

14PPG was issued with an additional assessment to VAT for the period from 1 January 2001 to 31 December 2002. The additional assessment was upheld by the Inspecteur in a decision on a complaint. The Rechtbank Leeuwarden (District Court, Leeuwarden) (Netherlands) dismissed the action brought against the decision of the Inspecteur. PPG appealed against that judgment to the Gerechtshof te Leeuwarden (Regional Court of Appeal, Leeuwarden).

15Before that court, the parties are in dispute as to whether the Inspecteur was entitled to issue the additional assessment in respect of the VAT deducted by PPG.

16PPG answers that question in the negative, submitting that the costs relating to the pensions of its members’ employees are general costs of the undertaking, and the VAT invoiced to it is therefore eligible for deduction under Article 15(1) of the Law. In the alternative, PPG argues that the exemption in Article 11(1)(i)(3) of the Law applies to the services supplied to it in respect of the employees’ pensions.

17The Inspecteur submits that PPG cannot be regarded as itself being the recipient of the services which it transferred to the pension fund without invoicing any consideration, and is not therefore entitled to deduct the VAT invoiced to it in that connection. On the alternative issue of exemption from VAT, the Inspecteur argues that the pension funds cannot be classified as ‘special investment funds’.

18In those circumstances, the Gerechtshof te Leeuwarden decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

Can a taxable person who, pursuant to national pensions legislation, has established a separate pension fund for the purpose of safeguarding the pension rights of his employees and former employees, as participants in the fund, deduct the tax which he [has paid] on the basis of services supplied to him in respect of the implementation of the pension provision and the operation of the pension fund, pursuant to Article 17 of [the Sixth Directive]?

Can a pension fund, established with the objective of providing a pension for the participants in the pension fund at the lowest possible cost, where assets are brought to and invested in the pension fund by or on behalf of the participants, and where the resulting proceeds are shared, be classified as a “special investment fund” within the terms of Article 13B[(d)](6) of [the Sixth Directive]?’

Consideration of the questions referred

Question 1

19By its first question, the referring court asks essentially whether Article 17 of the Sixth Directive must be interpreted as meaning that a taxable person who has set up a pension fund in the form of a legally and fiscally separate entity, in order to safeguard the pension rights of his employees and former employees, is entitled to deduct the VAT he has paid on services relating to the management and operation of the fund.

20To answer that question, it should be recalled at the outset that the deduction system established by the Sixth Directive is meant to relieve the operator entirely of the burden of the VAT paid or payable in the course of all his economic activities. Thus the common system of VAT seeks to ensure complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject, in principle, to VAT (see Case C-153/11 Klub [2012] ECR, paragraph 35, and Case C-550/11 PIGI [2012] ECR, paragraph 21).

21For a taxable person to be accorded the right to deduct input VAT, and in order to determine the extent of that right, the existence of a direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct is, in principle, necessary (see Case C-98/98 Midland Bank [2000] ECR I-4177, paragraph 24, and Case C-408/98 Abbey National [2001] ECR I-1361, paragraph 26).

22However, a taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct, where the costs of the services in question are part of his general costs and are, as such, components of the price of the goods or services he supplies. Such costs have a direct and immediate link with the taxable person’s economic activity as a whole (see Case C-104/12 Becker [2013] ECR, paragraph 20).

23In either case, whether there is a direct and immediate link will depend on whether the cost of the input services is incorporated either in the cost of particular output transactions or in the cost of the goods or services supplied by the taxable person as part of his economic activities (see Case C-29/08 SKF [2009] ECR I-10413, paragraph 60; Case C-118/11 Eon Aset Menidjmunt [2012] ECR, paragraph 48; and Case C-651/11 X [2013] ECR, paragraph 55).

24It must therefore be ascertained whether, despite the fact that the fund set up by PPG is an entity that is legally separate from PPG, the existence of such a link is apparent, in the present case, from all the circumstances of the transactions in question.

25It is common ground that in the case in the main proceedings PPG acquired the services in question for the purpose of the administration of its employees’ pensions and the management of the assets of the pension fund set up to safeguard those pensions. By setting up the fund, PPG complied with a legal obligation imposed on it as an employer, and, in so far as the costs of the services acquired by PPG in that connection form part of its general costs, which is for the referring court to verify, they are, as such, component parts of the price of PPG’s products (see, to that effect, Case C-465/03 Kretztechnik [2005] ECR I-4357, paragraph 36).

26In those circumstances, it may be considered that the exclusive reason for the acquisition of the input services lies in the taxable person’s taxable activities, and that there is a direct and immediate link.

27If there were no right to deduct the input tax paid, not only would the taxable person be deprived, by reason of the legislative choice to protect pensions by a legal separation of the employer from the pension fund, of the tax advantage resulting from the application of the deduction system, but the neutrality of VAT would also no longer be guaranteed.

28That consideration is not called into question by the possibility, raised at the hearing, of complying with the legal obligation of providing a pension scheme for the taxable person’s employees by other means than setting up a fund in the form of a legally and fiscally separate entity. The contrary view would amount to restricting the freedom of taxable persons to choose the organisational structures and the form of transactions which they consider to be most appropriate for their economic activities and for the purposes of limiting their tax burdens (see, on this point, Case C-277/09 RBS Deutschland Holdings [2010] ECR I-13805, paragraph 53).

29In the light of the foregoing, the answer to Question 1 is that Article 17 of the Sixth Directive must be interpreted as meaning that a taxable person who has set up a pension fund in the form of a legally and fiscally separate entity, such as that at issue in the main proceedings, in order to safeguard the pension rights of his employees and former employees, is entitled to deduct the VAT he has paid on services relating to the management and operation of that fund, provided that the existence of a direct and immediate link is apparent from all the circumstances of the transactions in question.

Question 2

30By its second question, the referring court asks essentially whether Article 13B(d)(6) of the Sixth Directive must be interpreted as meaning that a pension fund set up with the objective of providing a pension for the participants in the pension fund at the lowest possible cost, where assets are brought to and invested in the pension fund by or on behalf of the participants, and where the resulting proceeds are shared, may be classified as a ‘special investment fund’ within the meaning of that provision.

31It is apparent from the order for reference that the second question arises only if the first question is answered in the negative. The second question is, moreover, identical in substance to the question answered by the Court in Case C-424/11 Wheels Common Investment Fund Trustees and Others [2013] ECR.

32In those circumstances, there is no need to answer the second question.

Costs

33Since 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 (Fourth Chamber) hereby rules:

Article 17 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment must be interpreted as meaning that a taxable person who has set up a pension fund in the form of a legally and fiscally separate entity, such as that at issue in the main proceedings, in order to safeguard the pension rights of his employees and former employees, is entitled to deduct the value added tax he has paid on services relating to the management and operation of that fund, provided that the existence of a direct and immediate link is apparent from all the circumstances of the transactions in question.

Signatures

[Signatures]

( *1 ) Language of the case: Dutch.

OPINION OF ADVOCATE GENERAL

SHARPSTON

delivered on 18 April 2013 ¹

‛VAT — Pension fund set up by an employer as a separate legal entity — VAT on management services relating to the pension fund, invoiced to the employer — Whether deductible — Whether such services exempt from VAT as ‘management of special investment funds’’

Introduction

1A taxable person for VAT purposes has set up a pension fund for its employees. As required by law, the fund is a separate legal entity. In connection with its operation, the employer has contracted and paid for certain management services on which VAT has been invoiced.

2Two questions arise: is the VAT invoiced to the employer deductible as being directly linked to its taxable activity; in the alternative, is the pension fund a special investment fund, management of which is exempt from VAT?

Relevant EU law

3In 2001 and 2002, the tax years in issue in the main proceedings, Article 2 of the First VAT Directive ² defined the VAT system as follows:

‘The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.

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

…’

4The Sixth Directive ³ was also applicable at the material time. Article 4 ⁴ provided, in particular:

‘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 17 of the Sixth Directive ⁵ read, in so far as is relevant:

‘Origin and scope of the right to deduct

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

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

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

…

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

…’

6Article 13B of the Sixth Directive ⁶ provided, in so far as is relevant:

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

…

the following transactions:

…

6management of special investment funds as defined by Member States;

…’

Facts, procedure and questions referred

7PPG Industries Fiber Glass BV (‘PPG Fiber Glass’) was, at the material time in the main proceedings (tax years 2001 and 2002), part of the Netherlands tax grouping PPG Holdings BV (‘PPG Holdings’).

8Netherlands law required employers to make provision for retirement pensions for their employees. Any fund set up for that purpose was required by law to be separate from PPG for all legal purposes ⁷ and thus, necessarily, for VAT purposes. It could not form part of the PPG Holdings tax group. It transpired at the hearing that, under Netherlands law as it applied at the material time, employers were able to choose between setting up such a fund themselves or outsourcing their obligations to an insurance company, into which they would pay their contributions and which would assume responsibility for paying pensions to retired staff. There was, however, no option whereby they could have retained pension provision in-house.

9For that purpose, the companies in PPG Holdings set up a fund ⁸ (‘the fund’) into which they paid contributions. Pensions and financing costs were covered by those contributions and by investment income. The employees made no contributions. It appears from the observations that the fund was a defined-benefit scheme, that is to say, one in which the amount of benefits is determined by a pre-established formula and does not vary according to investment returns.

10PPG Fiber Glass contracted with various service providers for administration, asset management, auditing and consultancy services to be provided to the fund. It assumed responsibility for paying for those services, including the VAT charged.

11The amounts of VAT invoiced in 2001 and 2002 were: for administration of the pension fund, EUR 18 102.19; for asset management, EUR 61 843.61; for auditing, EUR 5 572.58; for administration advice, EUR 19 950; for consultancy, EUR 33 835.85 – a total of EUR 139 304.23.

12In its VAT returns, PPG Holdings deducted all those amounts from its output tax. The tax authority considered they were not deductible and issued a reassessment. A challenge to the reassessment was dismissed and the dispute is now before the Gerechtshof te Leeuwarden (Leeuwarden Regional Court). PPG Holdings contends (i) that the expenditure, being for the benefit of its employees, formed part of the overheads of its taxable economic activity and should thus be deductible pursuant to Article 17(2) of the Sixth Directive and (ii), in the alternative, that the fund is a special investment fund within the meaning of Article 13B(d)(6), so that its management must be exempted from VAT.

13The Gerechtshof seeks a preliminary ruling on two questions:

Can a taxable person who, pursuant to national pensions legislation, has established a separate pension fund for the purpose of safeguarding the pension rights of his employees and former employees, as participants in the fund, deduct the tax which he [has paid] on the basis of services supplied to him in respect of the implementation of the pension provision and the operation of the pension fund, pursuant to Article 17 of [the Sixth Directive]?

Can a pension fund, established with the objective of providing a pension for the participants in the pension fund at the lowest possible cost, where assets are brought to and invested in the pension fund by or on behalf of the participants, and where the resulting proceeds are shared, be classified as a “special investment fund” within the terms of Article 13B[(d)]6 of [the Sixth Directive]?’

14Written observations have been submitted by PPG, the Netherlands, the United Kingdom and the European Commission, all of whom presented oral argument at the hearing on 6 February 2013.

Assessment

Question 2

15It is clear from the order for reference that, in the national proceedings, question 2 arises only if question 1 is answered in the negative. Moreover, question 2 has now essentially been answered by the Court’s recent judgment in Wheels Common Investment Fund. ⁹

16In that judgment, the Court held that an investment fund pooling the assets of a retirement pension scheme is not a ‘special investment fund’ within the meaning of Article 13B(d)(6) of the Sixth Directive and Article 135(1)(g) of Directive 2006/112, management of which may be exempted from VAT in the light of the objective of those directives and the principle of fiscal neutrality, where the members of the scheme do not bear the risk arising from the management of the fund and the contributions which the employer pays into the scheme are a means by which he complies with his legal obligations towards his employees.

17Consequently, since the fund in the present case appears to meet all three criteria in that ruling – it pools the assets of a retirement pension scheme (or schemes), the members do not bear the risk arising from management and the employer makes contributions in order to comply with his legal obligations towards his employees – the services in issue in the main proceedings are not to be exempted from VAT under Article 13B(d)(6) of the Sixth Directive.

Question 1

18From what was said at the hearing, it appears that the fund was set up jointly by all the companies in PPG Holdings to provide pensions for their employees, but that, within that grouping, PPG Fiber Glass was the company which contracted and paid for the services in issue. Moreover, the wording of the question makes it clear that, from the referring court’s point of view, no distinction is to be drawn between the grouping and its members. I shall therefore address the issue on the basis that a single employer set up a single pension fund for its own employees, with contributions paid in, and costs assumed, only by the employer, which I shall refer to henceforth simply as ‘PPG’.

19I further note that setting up a pension fund and arranging for its management necessarily involve various costs. In the present case those costs were borne directly by PPG but, if they had been borne directly by the fund, they would still have been borne indirectly by PPG as the sole contributor to the fund.

20The question is whether the services in issue in the main proceedings – namely, administrative, management, consultancy and auditing services relating to the fund but obtained and paid for by PPG – were used for the purposes of PPG’s taxable transactions within the meaning of Article 17(2) of the Sixth Directive.

21It is settled case-law that the right of deduction provided for in Article 17 of the Sixth Directive is an integral part of the VAT scheme and in principle may not be limited. It must be exercised immediately in respect of all the taxes charged on transactions relating to inputs. 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 VAT consequently ensures complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT. ¹⁰

22That case-law is none the less subject to certain provisos. For VAT to be deductible, the input transactions must have a direct and immediate link with the output transactions giving rise to a right of deduction. Thus, the right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them was a component of the cost of the output transactions that gave rise to the right to deduct. A taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct, where the costs of the services in question are part of his general costs and are, as such, components of the price of the goods or services which he supplies. Such costs do have a direct and immediate link with the taxable person’s economic activity as a whole. There must always be such a link between the goods and services acquired and the output transactions in respect of which VAT is deductible. The ultimate aim pursued by the taxable person is irrelevant in that respect. ¹¹ However, to the extent that input VAT relating to expenditure incurred by a taxpayer is connected with activities which, in view of their non-economic nature, do not fall within the scope of the Sixth Directive, it cannot give rise to a right to deduct. ¹²

23In the present case, it may be argued that the costs involved in setting up a pension fund for employees and arranging for its management and administration have no direct and immediate link with the economic activity or taxable output transactions of an employer such as PPG, whose business is to sell a variety of products. That is, essentially, the position of the Netherlands Government. On another view, however, PPG is legally required to make pension provision for its employees, without whom it could not carry on business or make taxable output transactions, so that the costs of doing so are necessarily components of the price of the goods which it supplies. That view is put forward by PPG and the Commission. The United Kingdom submits that some of the costs involved (those of setting up the fund and ongoing administrative costs relating to employees’ membership of the fund) are attributable to PPG’s business and thus give rise to a right of deduction. However, the remainder relate solely to the fund, a separate entity for tax purposes, and are therefore not relevant to PPG’s right of deduction.

24I have considerable sympathy with the view put forward by PPG and the Commission. If an employer’s outputs are all subject to VAT, his payroll costs are by that token components of the costs of those outputs, without its being necessary to establish a direct and immediate link between specific costs and specific outputs. The same is true of any sums paid to provide retirement pensions, which are a form of deferred salary. However, such costs do not themselves bear VAT, so that there is no input tax which could be deducted from output tax. In that regard, it was accepted by all those present at the hearing that, if PPG had contracted out its pension arrangements to an insurance company and if that company had invoiced PPG for any connected services which bore VAT, ¹³ that tax would have been deductible from PPG’s output tax. That being so, the fact that ‘the principle of fiscal neutrality, which is a fundamental principle of the common system of VAT, precludes treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes’ ¹⁴ would seem to require that VAT on the services in issue in the present case should be similarly deductible.

25However, the submissions of the two Member States, in particular those of the United Kingdom, appear to me to be correct in their emphasis on the legal and fiscal separation between the fund and PPG, leading to the conclusion that the VAT in issue cannot be deducted in circumstances such as those of the main proceedings.

26The reasons for requiring such legal and fiscal separation are obvious – to protect beneficiaries not only against the employer’s insolvency but also against any possibility that the fund’s assets might be ‘raided’ to deal with even a temporary cashflow problem or might be otherwise diverted from their intended purpose. Separation is now required by EU legislation, but it was already imposed by Netherlands law at the material time. The need for impregnable firewalls between the respective assets of PPG and the fund pleads strongly in favour of avoiding also any kind of fiscal osmosis between the two.

27It can, of course, be argued that it was PPG which contracted and paid for the services in issue, so that they should be linked to PPG’s economic activity (which appears to be principally, if not exclusively, taxable) rather than to the activity of the fund (which, consisting as it does essentially of receiving pension contributions from PPG and income from investments, and of making pension payments to beneficiaries, appears not to comprise any taxable element).

28However, I find it impossible to ignore or dismiss the fact that the services were acquired for the fund’s purposes of obtaining income from its investments, and were thus directly and immediately linked to the fund’s activity, and only indirectly and ultimately to that of PPG. Even if PPG’s economic activity is the taxable activity with which the services are most closely (albeit only indirectly) connected, the fact remains that there is a direct and immediate link with the fund’s (non-taxable) activity, which stands between the services acquired and PPG’s economic activity. And whether input tax can be deducted or not depends on the nature of the activity with which the goods or services on which it is due have a direct and immediate link. What counts must be the closest link, not the closest taxable link. If that were not so, the principle that input tax cannot be deducted when the inputs are used for exempt transactions or transactions falling outside the scope of VAT might easily be circumvented.

29The situation may be more clearly illustrated by the example given by the United Kingdom at the hearing. If, instead of investing solely in securities or other financial products, the fund were to invest in immovable property in order to obtain rental income (and that is not an implausible hypothesis) then its leasing activity would be subject to VAT if (as is also plausible) it were to opt for taxation under Article 13C(a) of the Sixth Directive. ¹⁵ In that event, any auditing, consultancy, management or administration services which the fund used for the purposes of its leasing activity would be directly attributable to that taxable activity, and VAT charged on those services would be deductible from the VAT for which the fund had to account on its outputs. It would not be deductible from PPG’s output tax, because the services would have been used for the purposes of the fund’s – and not PPG’s – taxable transactions, even if PPG had paid for them. As regards the chain of attribution, I cannot see that the situation can be any different simply because the fund’s activity is not subject to VAT.

30Thus, it seems to me that the fact that the services were used by the fund for the purposes of its own activity, which is not only radically different but also legally and fiscally separate from that of PPG, must be decisive. The fact that PPG paid for the services cannot be relevant. That circumstance may be regarded in three possible ways: as a double transaction of receipt and supply of services, as contemplated in Article 6(4) of the Sixth Directive, ¹⁶ in which case PPG would have to pass on the tax to the fund; as consideration obtained from a third party, constituting the taxable amount for the purposes of the fund’s acquisition of the services, as contemplated in Article 11A(1)(a) of the Sixth Directive; ¹⁷ or as a gift from PPG to the fund, which would fall outside the scope of VAT. It cannot, however, mean that PPG acquired the services for the purposes of its own taxable transactions.

31I have mentioned the principle of fiscal neutrality, which (in one sense) precludes treating similar supplies, in competition with each other, differently for VAT purposes. I have indicated also that, by contracting its pension scheme out to an insurance company rather than setting up its own fund, PPG might have been able to deduct any input VAT charged to it on services received in that regard (although there is no indication as to how much VAT might have been involved). However, that circumstance, viewed in the light of the principle of fiscal neutrality, does not alter the conclusion I have reached. As was pointed out in Deutsche Bank, ¹⁸ that principle is not a rule of primary law, and partly competing activities may sometimes receive different VAT treatment. The limits of the principle are apparent, moreover, from the Court’s consistent case-law to the effect that taxable persons may choose to structure their business so as to limit their VAT liability ¹⁹ – such structuring would be impossible if all competing activities received the same VAT treatment.

32However, I would stress again that my view is based on the fact that the services in issue were consumed by the fund for the purposes of its own activity, which is distinct from PPG’s economic activity, and that it is legally and fiscally separate from PPG. I accept that costs incurred by an employer in making pension provision for his staff are directly and immediately linked to his economic activity as a whole (so that VAT on those costs may be deductible in appropriate circumstances) when the costs relate to goods or services consumed by the employer. I therefore agree with the United Kingdom’s further submission that PPG may be in a position to deduct VAT on any inputs acquired for the purposes of setting up the fund, enrolling employees in the fund, ensuring that its own contributions are made timeously, and so on. Such activities fall within the sphere of PPG’s activity and not within that of the separate fund.

Conclusion

33In the light of all the foregoing considerations, I am of the opinion that the Court should rule as follows in reply to the questions raised by the Gerechtshof te Leeuwarden:

On a proper construction of Article 17 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, a taxable person who has established a pension fund as a separate entity for legal and fiscal purposes, in order to safeguard the pension rights of his employees and former employees, may not deduct the tax which he has paid on services supplied to that fund in connection with its management and operation. Such tax may be deducted only by the fund itself, from any tax which it is liable to pay on its own taxable transactions.

An investment fund pooling the assets of a retirement pension scheme is not a special investment fund within the meaning of Article 13B(d)(6) of Directive 77/388, management of which may be exempted from value added tax in the light of the objective of that directive and the principle of fiscal neutrality, where the members of the scheme do not bear the risk arising from the management of the fund and the contributions which the employer pays into the scheme are a means by which he complies with his legal obligations towards his employees.

¹ Original language: English.

² First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967, p. 14). See now Article 1(2) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) (‘Directive 2006/112’).

³ 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).

⁴ See now Article 9(1) of Directive 2006/112.

⁵ As amended by Article 28f, introduced 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) and by 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). See now Articles 167, 168 and 168a of Directive 2006/112.

⁶ See now Article 135(1)(g) of Directive 2006/112.

⁷ That requirement is now part of EU law. Article 8 of Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision (OJ 2003 L 235, p. 10) requires Member States to ensure legal separation between ‘sponsoring undertakings’ and ‘institutions for occupational retirement provision’.

⁸ Stichting Pensioenfonds PPG Industries Nederland.

⁹ Case C-424/11 [2013] ECR.

¹⁰ Case C-465/03 Kretztechnik [2005] ECR I-4357, paragraphs 33 and 34 and case-law cited.

¹¹ See Case C-496/11 Portugal Telecom [2012] ECR, paragraphs 36 to 38 and case-law cited. See also Case C-104/12 Becker [2013] ECR, paragraph 19 et seq. and case-law cited.

¹² Case C-437/06 Securenta [2008] ECR I-1597, paragraph 30.

¹³ It should, however, be remembered that Article 13B(a) of the Sixth Directive exempted ‘insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents’ (see now Article 135(1)(a) of Directive 2006/112).

¹⁴ See, for example, Case C-29/08 SKF [2009] ECR I-10413, paragraph 67 and case-law cited. On the meaning of ‘fiscal neutrality’ in the context of VAT, see my Opinion in Case C-44/11 Deutsche Bank [2012] ECR, footnote 18.

¹⁵ See now Article 137(1)(d) of Directive 2006/112.

¹⁶ See now Article 28 of Directive 2006/112.

¹⁷ See now Article 73 of Directive 2006/112.

¹⁸ Cited in footnote 14, paragraph 45 of the judgment; point 60 of my Opinion and case-law cited.

¹⁹ See, most recently, Case C-103/09 Weald Leasing [2010] ECR I-13589, paragraph 27 and case-law cited.