C-269/03 Vermietungsgesellschaft Objekt Kirchberg

VERMIETUNGSGESELLSCHAFT OBIEKT KIRCHBERG JUDGMENT OF THE COURT (First Chamber)

9 September 2004 *

In Case C-269/03,

REFERENCE for a preliminary ruling under Article 234 EC from the Cour d'appel (Luxembourg), made by decision of 18 June 2003, received on 20 June 2003, in the proceedings:

Administration de l'enregistrement et des domaines,

État du grand-duché de Luxembourg

v

Vermietungsgesellschaft Objekt Kirchberg SARL,

* Language of tlie case: French.

THE COURT (First Chamber),

composed of: P. Jann, President of the Chamber, A. Rosas and S. von Bahr (Rapporteur), Judges,

Advocate General: L.A. Geelhoed, Registrar: M. Mugica Arzamendi, Principal Administrator,

having regard to the written procedure,

after considering the observations submitted on behalf of:

— the Administration de l'enregistrement et des domaines and the Luxembourg Government, by F. Kremer, avocat,

— Vermietungsgesellschaft Objekt Kirchberg SARL, by P. Kinsch, avocat,

— the Commission of the European Communities, by E. Traversa and G. Berscheid, acting as Agents,

having regard to the Report of the Judge-Rapporteur,

after hearing the Opinion of the Advocate General at the sitting on 25 March 2004, gives the following

Judgment

Legal context and the dispute

1This reference for a preliminary ruling concerns the interpretation of the provisions of Article 13(C) 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, hereinafter 'the Sixth Directive').

2That question was raised in the course of proceedings between the Administration de l'enregistrement et des domaines (Registration and Land Authority, hereinafter 'the Authority') and the État du grand-duché de Luxembourg (State of the Grand Duchy of Luxembourg), on the one hand, and Vermietungsgesellschaft Objekt Kirchberg SARL (hereinafter 'VOK'), a company with limited liability established in Luxembourg (Luxembourg), on the other, regarding the amount of value added tax (hereinafter 'VAT') deducted by VOK in connection with the letting of immovable property.

Community legislation

3Articles 13(B)(b) and (C) of the Sixth Directive provide:

'B. Other exemptions

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:

(b) the leasing or letting of immovable property ... :

C. Options

Member States may allow taxpayers a right of option for

(a) letting and leasing of immovable property;

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

National legislation

4Article 44(1)(g) of the Law of 12 February 1979 (Mémorial A 1979, p. 451) on value added tax, as amended, provides:

'The following are exempted from value added tax within the limits and under the conditions to be laid down by Grand-Ducal Regulation:

(g) the leasing or letting of immovable property ..."

5Article 45 of that law provides for the possibility of waiving that exemption subject to complying with the provisions of the regulation implementing that law.

6The Grand-Ducal Regulation of 7 March 1980 laying down the limits and conditions for the exercise of the right of option to apply value added tax to transactions in immovable property (Mémorial A 1980, p. 242, hereinafter 'the Grand-Ducal Regulation') was adopted in implementation of the Law of 12 February 1979. Article 1 thereof permits taxpayers to 'opt to apply value added tax to the transactions in immovable property referred to hereafter:

(b) any person who, by written privately negotiated contract, leases or lets immovable property to a taxable person'.

7Article 3, first paragraph, of the Grand-Ducal Regulation provides:

'The right of option can be exercised only in respect of immovable property which is used exclusively or, in the case of mixed use, mainly by ... the tenant for the pursuit of activities permitting it to deduct input tax.'

8Under Article 5 of the Grand-Ducal Regulation:

Any person exercising the right of option must lodge a written declaration of option for approval by the Registration Authority.

In the case of a supply for consideration, the approval must have been obtained prior to the formal completion of the official document evidencing the transaction. The Authority shall decide on the declaration of option by the end of the month in which it is submitted.

In the case of letting, application of the tax shall be authorised from the first day of the month following that in which the declaration of option was approved. The administrative decision must be made during the month within which that declaration is received.'

The main proceedings and the question referred for a preliminary ruling

9VOK had an office building constructed in Luxembourg which it let to a firm of auditors from 1 January 1993, the date of completion of the building's construction. Since the commencement of the letting, VOK has sent that firm monthly invoices subject to VAT.

10VOK exercised its right to opt for VAT by submitting to the Authority, on 29 June 1993, a declaration of option for approval. The approval was granted to VOK on 30 June 1993 with effect from 1 July 1993.

11VOK submitted its VAT returns deducting all the VAT which it had paid on account of the construction works.

12Pursuant to Article 5 of the Grand-Ducal Regulation, the Authority however refused the deduction of 50% of the input VAT paid, on the ground that the letting during the six months from January to June 1993 was exempt from VAT because it was not covered by the approval. As a result it issued notices correcting, of its own motion, the VAT returns.

13VOK made a complaint to the Authority's Director.

14The latter adopted a decision in January 1998 on the basis of which new corrective notices were issued in the following February. He decided, first, that the date of commencement of the building's use was 1 January 1993. Since the option took effect only from 1 July 1993, the letting of the building was not subject to VAT during half of 1993 and the input VAT could be deducted only up to 50%, which justified the correction of the 1993 return. He decided, secondly, that the exercise of the option should entail a second correction in 1994, namely that 9/10ths of the VAT which was not deductible in 1993 should be corrected in VOK's favour. In the result 5% of the input VAT paid was not deductible and therefore payable by VOK.

15VOK brought proceedings in March 1998 against the decision of the Director of the Authority. By judgment of 7 November 2001, the Tribunal d'arrondissement de Luxembourg (District Court, Luxembourg) upheld VOK's claim by overruling the application of Article 5 of the Grand-Ducal Regulation and holding that VOK had carried on an activity subject to VAT during the whole of 1993.

16The Authority and the État du grand-duché de Luxembourg lodged an appeal against that judgment on 14 March 2002.

17Since it was uncertain about the lawfulness of an approval procedure such as that provided for by the Luxembourg legislation in the light of the provisions of Article 13(C) of the Sixth Directive relating to the leasing or letting of immovable property, considered in the light of the principle of the right of deduction, the Cour d'appel (Court of Appeal) decided, by judgment of 18 June 2003, to stay proceedings and to refer the following question to the Court for a preliminary ruling:

'Does subparagraph (a) of the first paragraph of Article 13(C) of the Sixth ... Directive ... permit a Member State which has exercised the power to allow taxpayers a right of option for taxation in cases of letting and leasing of immovable property to make full deduction of the input VAT conditional upon non-retroactive approval of the tax authorities first being obtained?'

The question referred for a preliminary ruling

18VOK and the Commission maintain that the provisions of Article 13(C) of the Sixth Directive relating to the letting or leasing of immovable property cannot be interpreted as meaning that they permit the Member States to adopt legislation, such as that in issue in the main proceedings, involving a process of prior approval leading, in certain cases, to the impossibility of deducting all input VAT.

19In that regard, it is appropriate to note that the right to deduct is a fundamental principle of the VAT system. It is important to scrutinise whether an approval process, such as that adopted by the Grand Duchy of Luxembourg, is an improper implementation of the right to opt for taxation provided for by the provisions of Article 13(C) of the Sixth Directive, in that it adversely affects that principle.

20It is clear from those provisions that the taxation of leasing and letting transactions is a power which the legislature has conferred on the Member States in derogation from the general rule established in Article 13(B)(b) of the Sixth Directive, according to which leasing and letting transactions are, as a rule, exempt. The right to deduct does not therefore operate automatically in that context but only if the Member States have made use of the power under Article 13(C) of the Sixth Directive and subject to the taxpayers exercising the right of option allowed to them.

21As the Court has previously held, Member States may, by virtue of this power, allow persons benefiting from the exemptions provided for by the Sixth Directive to waive the exemption in all cases or within certain limits or subject to certain detailed rules. It follows that the Member States have a wide discretion under Article 13(B) and (C) of the Sixth Directive (see Case C-381/97 Belgocodex [1998] ECR I-8153, paragraphs 16 and 17).

22The Grand Duchy of Luxembourg, exercising the power under the second paragraph of Article 13(C) of the Sixth Directive, has limited the right of option to cases where the tenant is himself a taxpayer with the right to deduct and has made the exercise of that option subject to a process of prior approval.

23It must be held that that approval process is, as is clear from the Advocate General's Opinion, a detail of the use of the right of option within the meaning of the second paragraph of Article 13(C) of the Sixth Directive.

24It is appropriate to review whether that detailed procedure enables the right of option to be implemented without improperly undermining the right to deduct.

25According to the État du grand-duché de Luxembourg and the Authority, the approval process is necessary in order to enable the Authority to check that the statutory conditions relating, in particular, to the tenant's VAT status are fulfilled. Those two appellants in the main proceedings state that that process contributes to legal certainty by enabling a lessor to be made aware as soon as possible of the impossibility of making a letting of immovable property subject to VAT. They add that the said process is intended, in particular, to avoid evasion or abuse and is not intended in any way to restrict the right to deduct.

26In that regard, it can be accepted, first, that where a Member State makes the right of option for taxation subject to certain statutory conditions, a process of prior approval enables the fulfilment of those conditions to be established.

27It should be noted, secondly, that in the main proceedings it is not disputed that it would have been sufficient if the party concerned, VOK, had submitted its declaration of option prior to the commencement of the letting, in practice before the end of December 1992, in order to obtain the approval in the course of that month and to be able to exercise fully its right to deduct, from the commencement of the lease on 1 January 1993.

28It thus appears that such approval process is not intended adversely to affect the right to deduct, but, on the contrary, enables that right to be fully exercised, subject to compliance with certain requirements, in particular, the submission of a declaration of option and the attaining of the approval within certain time-limits.

29The lack of retroactivity of the approval process does not make it disproportionate. On the contrary, it may be regarded as useful in order to encourage lessors to submit their declaration of option in advance. It cannot be excluded, indeed, that a retroactive approval process is likely to produce the opposite effect by leading lessors to submit their declaration of option late and that it would therefore be less appropriate for the purpose of ensuring the proper implementation of the exercise of the right of option and attaining the objective of legal certainty mentioned in paragraph 25 of this judgment.

30In those circumstances, the answer to the question referred must be that the provisions of subparagraph (a) of the first paragraph and of the second paragraph of Article 13(C) of the Sixth Directive do not preclude a Member State, which has exercised the power to allow taxpayers a right of option for taxation on leasing or letting transactions of immovable property, from adopting legislation which makes full deduction of the input VAT paid conditional upon non-retroactive, prior approval of the tax authorities.

Costs

31Since 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 (First Chamber) hereby rules:

The provisions of subparagraph (a) of the first paragraph and of the second paragraph of Article 13(C) 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 do not preclude a Member State, which has exercised the power to allow taxpayers a right of option for taxation on leasing or letting transactions of immovable property, from adopting legislation which makes full deduction of the input VAT paid conditional upon non-retroactive, prior approval of the tax authorities.

Signatures.

VERMIETUNGSGESELLSCHAFT OBIEKT KIRCHBERG

OPINION OF ADVOCATE GENERAL GEELHOED delivered on 25 March 2004 1

I — Introduction

1The present case concerns the interpretation of Article 13(C) 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 2 (hereinafter 'the Sixth Directive'). More particularly, the Cour d'appel (Court of Appeal), Luxembourg, asks whether it is compatible with Article 13(C) of the Sixth Directive to make the right of deduction, arising on the exercise of the right of option provided for by that article, conditional upon non-retroactive approval first being obtained. In other words, the national court asks the Court whether the freedom given to Member States to lay down the conditions for the exercise of the right of option ('Member States may restrict the scope of this right of option and shall fix the details of its use') is limited by the VAT principle which consists in the right to deduct.

II — Legal background

A — Community Legislation

2Articles 13(B)(b) and (C) of the Sixth Directive provide:

'B. Other exemptions

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:

(b) the leasing or letting of immovable property excluding:

C. Options

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

(a) letting and leasing of immovable property;

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

B — National Legislation

3Article 1 of the Grand-Ducal Regulation of 7 March 1980 laying down the limits and conditions for the exercise of the right of option to apply value added tax to transactions in immovable property (hereinafter 'the Grand-Ducal Regulation') 3 permits taxpayers to:

'opt to apply value added tax to the transactions in immovable property referred to hereafter:

(b) any person who, by written privately negotiated contract, leases or lets immovable property to a taxable person.'

4Under Article 3 of the Grand-Ducal Regulation:

'The right of option can be exercised only in respect of immovable property which is used exclusively or, in the case of mixed use, mainly by ... the tenant for the pursuit of activities permitting it to deduct input tax ...'

5Article 5 of the Grand-Ducal Regulation provides:

'Any person exercising the right of option must lodge a written declaration of option for approval by the Registration Authority.

In the case of letting, application of the tax shall be authorised from the first day of the month following that in which the declaration of option was approved. The administrative decision must be made during the month within which that declaration is received.'

6Article 7, second paragraph, of the Grand-Ducal Regulation provides:

'In the case of construction of immovable property, the owner may deduct input tax only after the approval of the declaration of option in respect of... the subsequent letting ... of the immovable property. However, the authorities may authorise the owner to deduct input tax as invoices are received, where it is established with certainty that the condition laid down in Article 3 of this Regulation will be complied with and where the owner has undertaken to lodge a declaration of option on completion of the construction.'

HI — Facts

7The private limited company Vermietungsgesellschaft Objekt Kirchberg (hereinafter 'VOK') deducted, in respect of the years 1993 and 1994, input tax relating to a building which it had let, invoicing VAT, from January 1993.

8On 29 June 1993, VOK sent to the Registration and Land Authority (hereinafter 'the Authority') a declaration with a view to exercising the right of option for taxation. Approval was given to it on 30 June 1993 with effect from 1 July 1993, but VOK considered that VAT should have been deductible from the start of the letting, that is from 1 January 1993.

9Pursuant to Article 5 of the Grand-Ducal Regulation, the Authority however refused the deduction of 50% of the input tax paid, on the ground that the right to deduct could be exercised at the earliest only from the date of approval.

10The Authority accordingly issued notices correcting of its own motion the VAT declarations.

11Following VOK's complaint to the Director of the Authority, the Director adopted a decision in January 1998 by virtue of which new corrective notices were issued in the month of February following. The Director considered, first, that 1 January 1993 marked the start of the use of the building.

12Since the option had been effective only from 1 July 1993, the letting was not subject to VAT during the first half of 1993. Only 50% of the input VAT could therefore be deducted, which was the reason for the correction of the 1993 declaration. The Director considered, second, that the exercise of the option should lead to a second correction in 1994, namely that 9/10ths of the VAT which was not deductible in 1993 should be the subject of a correction in VOK's favour. In the result, 50% of 1/10th of the input VAT paid, that is 5% of the tax, remained non-deductible and therefore payable by VOK.

13VOK subsequently brought proceedings against the Authority and the État du grand-duché de Luxembourg (State of the Grand Duchy of Luxembourg) before the Tribunal d'arrondissement (District Court), Luxembourg, for annulment of the rectification made by the Authority of its own motion of the declarations of 1993 and 1994. By judgment of 7 November 2001, the Tribunal found in favour of VOK.

14The Authority and the État du grand-duché de Luxembourg then appealed to the Cour d'appel.

15By judgment of 18 June 2003, the Cour d'appel decided to stay proceedings and to refer the following question to the Court for a preliminary ruling:

'Does subparagraph (a) of the first paragraph of Article 13(C) 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, permit a Member State which has exercised the power to allow taxpayers a right of option for taxation in cases of letting and leasing of immovable property to make full deduction of the input VAT conditional upon non-retroactive approval of the tax authorities first being obtained?'

16In accordance with Article 20 of the Statute of the Court of Justice, written observations were lodged by the Authority, the Luxembourg Government, VOK and the Commission.

IV — Appraisal

17Is it open to a Member State which has exercised the power to allow taxpayers the right, provided for in Article 13(C) of the Sixth Directive, of option for taxation in cases of leasing or letting of immovable property to make taxation of those transactions conditional upon obtaining the prior approval of the tax authorities?

18The reply to this question depends in essence on the interpretation of Article 13 (C), second paragraph, of the Sixth Directive. Does the power given to Member States to restrict the scope of the right of option and to fix the details of its use also include the power to limit the optional application of VAT to transactions taking place after approval is granted?

19VOK and the Commission, on the one hand, and the Authority and the Luxembourg Government, on the other, have stated views which seem at first sight to be diametrically opposed.

20The arguments put forward by VOK and the Commission are based on the line of cases decided by the Court according to which the principle of the right to deduct input VAT immediately and fully is one of the basic principles of the VAT system.

21In this connection, they refer inter alia to Molenheide and Others, Schlossstrasse and Breitsohl. 4

22VOK infers from this case-law that the system of prior checks and approval laid down by the Grand-Ducal Regulation is not needed to combat abuse and tax evasion, given that review after the event could be as effective as, or even more effective than, such ex ante control. It follows that this procedure is in breach of the principle of proportionality as reiterated, in particular, in paragraphs 45 and 46 of the judgment in Molenheide and Others, cited above.

23Specifically, VOK submits that Article 13 (C) of the Sixth Directive does not allow Member States to introduce a system of approval such as that at issue in the main proceedings.

24Member States are indeed authorised by Article 13(C) to fix the substantive conditions for the right of option in cases of letting and leasing, but when those conditions are satisfied, as in the present case, the basic principles of VAT, such as the principles of the deductibility of input tax and of proportionality, come into play.

25VOK therefore submits that Article 13 (C), first paragraph, subparagraph (a), does not allow Member States which have exercised the power to allow taxpayers a right of option for taxation in cases of letting and leasing of immovable property to make full deduction of the input VAT conditional upon non-retroactive approval of the tax authorities first being obtained.

26The Commission comes to the same conclusion as VOK. The Commission submits in particular that the right envisaged by Article 13(C) of the Sixth Directive is not absolute but must comply with the wording and the spirit of the Sixth Directive. The Commission refers, in this regard, to Becker and Armbrecht. 5

27The Commission concludes from this that prior approval, which allows the national authorities to check whether the conditions prescribed by the State and permitting the exercise of the option are satisfied, seems at first sight legitimate and does not conflict with any principle of the Sixth Directive.

28By contrast, the rule which states that, when the Authority has found that the right of option may legitimately be exercised, the start of the taxable activity may nevertheless not be the same as the actual start of the activity seems to the Commission clearly to be a disproportionate provision. Thus, in cases such as the present where the declaration is sent to the Authority after the date of the start of the taxable activity, the non-retroactivity of the approval results in the taxpayer being deprived of some of his rights to deduct.

29The refusal to apply normal tax rules from the actual start of the taxable activity by denying the approval retroactive effect is therefore an unjustified measure. Such a measure creates a situation in which the input tax continues to be borne by the taxpayer, which should be avoided.

30This non-retroactivity, moreover, cannot be justified since, if the Member State were to abolish the rule, both the Member State's checks — through approval — and any adjustment — pursuant to Article 20 of the Sixth Directive — in the event of refusal of approval or amendment of the conditions for

31The Authority and the Luxembourg Government argue that the approval procedure, as envisaged by the Grand-Ducal Regulation, complies with Article 13(C) of the Sixth Directive. That provision confers on Member States the power to provide for their taxpayers the right to opt for taxation and to make that right subject to certain detailed rules for its application, allowing them a wide discretion.

32To substantiate their argument, they letting of the building has commenced, six months later in the case in the main proceedings, that the lessor is not able to deduct immediately and completely the input tax paid. He must wait to receive the approval of the Authority and may only subsequently request the correction of the situation.

refer to Becker, cited above, and Belgocodex. 6

33The approval procedure is a detailed rule of application, which does not go beyond what is authorised by Article 13(C) of the Sixth Directive. The procedure allows the Authority to check that taxpayer lessors who opt for taxation fulfil the essential conditions, namely, in this case, that the tenant is himself a taxpayer who can deduct the input tax paid.

34The Luxembourg system is not in breach of the basic principles of VAT, such as the principle of the deductibility of input tax, since the taxpayer has the opportunity to lodge its option declaration in advance and in that event to obtain the approval in time to be able to deduct completely and immediately the input tax paid. It is only in the event that the declaration is lodged after the

35It follows that the limitations on the opportunity for immediate and complete deduction of input VAT are but the indirect result of the right of option, as it is provided for in Article 13(C) of the Sixth Directive and the procedures for using it. Neither the object nor the effect of the approval procedure adopted by the Grand Duchy of Luxembourg is to prejudice the right to deduct VAT envisaged in the Sixth Directive.

36The Authority and the Luxembourg Government submit that this procedure is justified by the fact that it is important for the lessor to know as soon as possible that he is able to deduct fully the input VAT paid. That makes it possible to avoid financial difficulties emerging after the event. This procedure also serves the purposes of ensuring the correct collection of tax and avoiding evasion and abuse.

37It appears from the file that the Luxembourg Government wished to exercise the power provided by Article 13(C) of the Sixth Directive, that is, to waive the exemption provided for in Article 13(B) of the Directive in respect of the leasing or letting of immovable property.

38According to the wording of the Grand-Ducal Regulation, the Luxembourg Government has made the right of option for taxpayers subject to certain limits and conditions.

39Article 3 of the Regulation states the main restriction on the power to opt for taxation: the right of option can be exercised only in respect of immovable property which is used exclusively or, in the case of mixed use, mainly by the tenant for the pursuit of activities permitting it to deduct input tax.

40There is an inseparable connection between the limiting conditions of Article 7 and the prior approval procedure provided by Article 5 of the Grand-Ducal Regulation, in that the Luxembourg Authority must be in a position to check in advance whether the economic transactions for which the application of VAT is requested satisfy the conditions laid down in Article 7 of the Regulation.

41In their written observations, both the Authority and the Luxembourg Government as well as the Commission have highlighted this connection between, on the one hand, the restriction of the right of option and, on the other, the need to check whether the conditions for the exercise of the right of option are satisfied.

42They have concluded from that that since the approval procedure is the logical consequence of the competence of the Member States to restrict the scope of the right of option, it is not as such disproportionate.

43This conclusion seems to me entirely justified in the light of the scheme of Article 13(B) and (C) of the Sixth Directive, where the power to allow a right of option, provided for by Article 13(C), constitutes an exception to the wider exceptions in Article 13(B).

44The differences of opinion between the Luxembourg authorities on the one hand and VOK and the Commission on the other centre in particular on Article 5, final paragraph, of the Grand-Ducal Regulation of 7 March 1980. The application of this provision could have the effect of depriving the taxpayer of some of his rights to deduct, laid down in Article 17 of the Sixth Directive. That could happen, in particular, in cases such as the present where the declaration of option is sent to the Authority after the date of the start of the taxable transaction.

45The Commission and VOK have pointed out, citing the extensive case-law of the Court, the importance of the right of deduction as one of the principles of the VAT system, which the Member States may prejudice only in cases of overriding necessity. There is no such situation of overriding necessity in this case. It follows that the non-retroactivity clause of Article 5, final paragraph, of the Grand-Ducal Regulation should be characterised as a disproportionate interference with the principle of the right of deduction and thus be regarded as contrary to Community law.

46Although I agree with the reflections of the Commission on the importance of the right to deduct, a keystone of the VAT system, I cannot support the conclusion which the Commission derives from it in this case.

47As the Court has affirmed on several occasions, 7 the Member States enjoy a wide discretion within the framework of Article 13(C).

48In general, it is permissible for Member States to limit the material and temporal scope of the right of option for taxpayers, as has been done in this case. The material limitation is prescribed in Article 7 of the Grand-Ducal Regulation, while the temporal limitation is found in Article 5 of that Regulation.

49From the point of view of legal certainty, the Grand-Ducal Regulation appears to me to be beyond reproach: taxpayers are able to ascertain in advance the types of transactions for which the right of option has been made available, the time from which the tax will be applied and, lastly, the formalities which they must fulfil for that purpose.

50Considered in the light of the principle of deduction, legislation like that in this case appears to me likewise beyond question. Any taxpayer who satisfies the clear conditions of the Grand-Ducal Regulation and fulfils in due time the formalities can be certain of being able to deduct input tax paid. As long as the approval procedure is complied with, this regulation is therefore in no way in breach of the principle of deduction.

51A provision such as the final paragraph of Article 5 of the Grand-Ducal Regulation has no objective other than to establish the time at which the right of option, once

52In those circumstances, national legisla exercised and approved, takes effect. As the tion such as that at issue does not make the Luxembourg Government has rightly right of deduction conditional on prior non observed, this provision has neither the retroactive approval. To the extent that purpose nor the effect of restricting the right compliance with the approval procedure of deduction. In cases where taxpayers effect allows the taxpayers affected to obtain the transactions which fall within the scope of immediate and complete deduction of input the tax, but fail to make the declaration of tax, the procedure cannot be described as option for the tax in good time and are disproportionate. It remains within the limits therefore without the approval provided for of what is necessary to achieve the objectives by the national legislation, the application of of ensuring the correct collection of the tax this provision does have an effect on the and avoiding evasion and abuse. Moreover, right of deduction, but that effect must not this procedure satisfies the requirements of be attributed to the national provisions but the principle of legal certainty.

rather to the conduct of the taxpayers.

Conclusion

53Having regard to the considerations set out above, I propose that the Court should reply to the question referred by the national court as follows:

Subparagraph (a) of the first paragraph of Article 13(C) 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 does not preclude a Member State which has exercised the power to allow taxpayers a right of option for taxation in cases of leasing or letting of immovable property from making the application of the tax subject to prior approval of the option where the approval procedure is directed solely at checking that the statutory conditions have been fulfilled, and it is designed in particular to prevent cases of evasion or abuse. Such an approval procedure is not in breach of the principle of the right of deduction where compliance with it guarantees to the taxpayer immediate and complete deduction of input tax.

Notes

(1) Original language: Dutch.

(2) OJ 1977 L 145, p. 1.

(3) Mémorial 1980 A, p. 242.

(4) Joined Cases C-286/94, C-340/95, C-401/95 and C-47/96 [1997] ECR I-7281, paragraph 47, Case C-396/98 [2000] ECR I-4279, paragraph 36, and C-400/98 [2000] ECR I-4321. paragraph 34.

(5) Case 8/81 [1982] ECR 53, paragraph 38, and Case C-291/92 the option would still be possible. [1995] ECR I-2775.

(6) Case C-381/97 [1998] ECR I-8153, paragraph 17.

(7) Inter alia Becker, cited in footnote 5. paragraph 38, and Belgocodex, cited in footnote 6, paragraph 17.