C-281/91 Muys’ en De Winter’s Bouw- en Aannemingsbedrijf

Judgment of the Court (Fifth Chamber) of 27 October 1993. - Muys' en De Winter's Bouw- en Aannemingsbedrijf BV v Staatssecretaris van Financiën. - Reference for a preliminary ruling: Hoge Raad - Netherlands. - Adjustment of turnover tax - Sixth VAT Directive. - Case C-281/91. European Court reports 1993 Page I-05405

Summary Parties Grounds Decision on costs Operative part

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Tax provisions ° Harmonization of laws ° Turnover taxes ° Common system of value added tax ° Exemptions provided for by the Sixth Directive ° Exemptions in respect of transactions relating to the granting of credit ° Grant, by the supplier of goods or services, of deferral of payment of the price in return for the payment of interest ° Exemption ° Grant of deferral until delivery ° Taking account of the interest as part of the consideration ° Taxation

(Council Directive 77/388, Arts 11(A)(1)(a) and 13(B)(d)(1))

Article 13(B)(d)(1) of the Sixth Directive (77/388) on the harmonization of the laws of the Member States relating to turnover taxes must be interpreted as meaning that a supplier of goods or services who authorizes his customer to defer payment of the price, in return for payment of interest, is in principle making an exempt grant of credit within the meaning of that provision. However, where a supplier of goods or services grants his customer deferral of payment of the price, in return for payment of interest, only until delivery, that interest does not constitute consideration for the grant of credit but part of the consideration obtained for the supply of goods or services within the meaning of Article 11(A)(1)(a) of the Sixth Directive.

In Case C-281/91,

REFERENCE to the Court under Article 177 of the EEC Treaty by the Hoge Raad der Nederlanden (Third Chamber) for a preliminary ruling in the proceedings pending before that court between

Muys' en De Winter' s Bouw- en Aannemingsbedrijf BV

and

Staatssecretaris van Financiën

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

THE COURT (Fifth Chamber),

composed of: J.C. Moitinho de Almeida, President of the Chamber, R. Joliet, G.C. Rodríguez Iglesias, F. Grévisse and M. Zuleeg, Judges,

Advocate General: F.G. Jacobs,

Registrar: D. Louterman-Hubeau, Principal Administrator,

after considering the written observations submitted on behalf of:

° the appellant in the main proceedings, by S.T.M. Beelen and Mariken E. van Hilten, Coopers & Lybrand, Tax Advisers, Rotterdam, the Netherlands,

° the Netherlands Government, by B.R. Bot, Secretary-General of the Ministry of Foreign Affairs, acting as Agent,

° the Government of the Federal Republic of Germany, by E. Roeder and C.-D. Quassowski, acting as Agents,

° the Spanish Government, by A.J. Navarro González, Director-General for Community Legal and Institutional Coordination, and A.H. Hernández-Mora, Abogado del Estado, of the Department for Community Contentious Proceedings, acting as Agents,

° the Greek Government, by N. Mavrikas, Assistant Legal Adviser to the State Legal Counsel, acting as Agent,

° the Commission of the European Communities, by J.F. Buhl, Legal Adviser, and B.J. Drijber, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of the appellant in the main proceedings, represented by S.T.M. Beelen and E.J. Janzen, Tax Advisers, Rotterdam, the Government of the Netherlands, represented by J.W. de Zwaan, Assistant Legal Adviser in the Ministry of Foreign Affairs, acting as Agent, the German Government, the Danish Government, represented by J. Molde, Legal Adviser in the Ministry of Foreign Affairs, acting as Agent, the Greek Government, and the Commission of the European Communities, at the hearing on 21 January 1993,

after hearing the Opinion of the Advocate General at the sitting on 3 March 1993,

gives the following

Judgment

Grounds

1By judgment of 30 October 1991, which was received at the Court on 6 November 1991, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question on the interpretation of Article 13(B)(d)(1) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ° Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, hereinafter "the Sixth VAT Directive").

2That question was raised in proceedings between the company Muys' en De Winter' s Bouw- en Aannemingsbedrijf (hereinafter "the appellant in the main proceedings") and the Staatssecretaris van Financiën (State Secretary for Finance) in the matter of an adjustment of value added tax ("VAT") notified by the latter.

3The appellant in the main proceedings is a building company which concludes "purchasing and works contracts" under which it essentially undertakes either to supply a plot of land and construct a dwelling or, in certain cases, complete the construction of a dwelling, or else to construct a building divided into flats and supply to the customer part of the building and of the land associated therewith together with a right to the exclusive user of that part of the building for the purposes of habitation.

4Under those contracts, the price of constructing the building is paid by instalments depending on the progress of the work. The price of the land is paid either when the contract is concluded or shortly thereafter or else by instalments concurrently with the price of the construction.

5However, under those contracts a customer may defer payment of the amount due in respect of the land and/or the construction until the date when property in the land and the completed building is transferred to him. Such deferral of payment is generally made conditional on the customer' s paying a deposit of 10% of the total price of the land and the construction. In such case, the purchaser has to pay interest on the amount of the deferred payment.

6As far as concerns the interest payable on instalments of the price of the construction which fell due, the Netherlands tax authorities applied Article 11(1)(j)(1) of the Wet op Omzetbelasting 1968 (Law on Turnover Tax 1968), transposing Article 13(B)(d)(1) of the Sixth VAT Directive, which exempts "the granting and the negotiation of credit and the management of credit by the person granting it".

7However, they refused to apply the exemption to the interest due on the price of the land at the date of delivery where it was stipulated that the price should be paid at that date. Consequently, they notified to the appellant in the main proceedings an adjustment of turnover tax amounting, after an abatement, to HFL 37 269.86 for the period from 1 January 1981 to 31 December 1984.

8The appellant in the main proceedings brought an action against that decision in the Gerechtshof (Regional Court), The Hague. That court confirmed the view taken by the tax authorities on the ground that, in this case, the interest charged between the conclusion of the contract and the transfer of property in the land could not be regarded as consideration for the granting of credit but was part of the actual consideration for the supply of the land.

9The appellant in the main proceedings thereupon appealed on a point of law to the Hoge Raad der Nederlanden, which stayed the proceedings and referred the following question to the Court of Justice for a preliminary ruling:

"Where a purchase and construction agreement between a building contractor and a buyer provides that payment for the supply of the land pursuant to the agreement must be made on or shortly after conclusion of the agreement, but may be deferred to the time of the supply on payment of interest, is that interest to be regarded as being in the nature of consideration for a loan, as provided for in Article 13(B)(d)(1) of the Sixth Directive, or is that interest part of the payment for the supply of the land?"

10Reference is made to the Report for the Hearing for a fuller account of the facts and legal background of the main proceedings, the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

11Article 13(B)(d)(1) of the Sixth VAT Directive provides:

"... 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:

...

(d) ...

1. the granting and the negotiation of credit and the management of credit by the person granting it."

12It should be held in limine that deferred payment of the purchase price of goods, in return for payment of interest, may in principle be regarded as a grant of credit which is exempt within the meaning of that provision.

13Although the exemptions provided for in Article 13 are to be interpreted strictly (see Case 348/87 Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiën [1989] ECR 1737), nevertheless, in the absence of any specification of the identity of the lender or the borrower, the expression "the granting and the negotiation of credit" is in principle sufficiently broad to include credit granted by a supplier of goods in the form of deferral of payment. Contrary to the Commission' s view, the wording of that provision in no way suggests that there is any limitation on the scope of Article 13(B)(d)(1) only to loans and credits granted by banking and financial institutions.

14That interpretation is borne out by the objective of the common system introduced by the Sixth VAT Directive, which aims in particular to secure equal treatment for taxable persons. That principle would be disregarded if a purchaser were to be taxed on credit granted by his supplier, whereas a purchaser seeking credit from a bank or another lender received an exempted credit.

15The national court' s question refers to the specific situation in which a supplier of goods, in this case land, grants his customer the possibility, in return for payment of interest, of deferring payment of the price until delivery only. The Court must therefore assess whether that situation is also a grant of credit.

16The first subparagraph of Article 10(2) of the Sixth VAT Directive provides:

"The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed ...".

Consequently, the taxable amount has to be determined only at the time of delivery.

17Under Article 11(A)(1)(a) of the Sixth VAT Directive, the taxable amount is:

"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 ...".

18Under those provisions, where the supplier of goods agrees that the purchaser, in return for payment of interest, should defer payment of the price until delivery, the total value of the goods must be regarded as including that interest, even if the contract treats it as distinct from the price.

19Accordingly, the reply to be given to the national court' s question is that Article 13(B)(d)(1) of the Sixth VAT Directive must be interpreted as meaning that a supplier of goods or services who authorizes his customer to defer payment of the price, in return for payment of interest, is in principle making an exempt grant of credit within the meaning of that provision. However, where a supplier of goods or services grants his customer deferral of payment of the price, in return for payment of interest, only until delivery, that interest does not constitute consideration for the grant of credit but part of the consideration obtained for the supply of goods or services within the meaning of Article 11(A)(1)(a) of the Sixth VAT Directive.

Costs

Costs

20The costs incurred by the Netherlands, German, Danish, Spanish and Greek Governments and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since 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.

Operative part

On those grounds,

THE COURT (Fifth Chamber),

in answer to the question referred to it by the Hoge Raad der Nederlanden, by judgment of 30 October 1991, hereby rules:

Article 13(B)(d)(1) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ° Common system of value added tax: uniform basis of assessment, must be interpreted as meaning that a supplier of goods or services who authorizes his customer to defer payment of the price, in return for payment of interest, is in principle making an exempt grant of credit within the meaning of that provision. However, where a supplier of goods or services grants his customer deferral of payment of the price, in return for payment of interest, only until delivery, that interest does not constitute consideration for the grant of credit but part of the consideration obtained for the supply of goods or services within the meaning of Article 11(A)(1)(a) of the Sixth VAT Directive.

OPINION OF ADVOCATE GENERAL E G. JACOBS delivered on 3 March 1993 * My Lords,

1In this case the Hoge Raad der Nederlanden seeks a ruling on the interpretation of the Sixth VAT Directive (Council Directive 77/388/EEC; OJ 1977 L 145, p. 1). The issue in the case is whether, where a builder concludes a contract with a customer for the supply of land and construction of a building, interest payable by the customer on account of the deferment of payment of the purchase price of the land until the date when the legal title is transferred constitutes part of the taxable consideration for the supply of the land, or consideration for a separate supply of credit exempt from VAT under Article 13(B)(d)(l) of the Sixth Directive.

2Article 13(B) of the Sixth Directive provides as follows:

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

Original language: English.

(d)...

1. the granting and the negotiation of credit and the management of credit by the person granting it.'

3The appellant in the main proceedings, Muys' en De Winter's Bouw-en Aannemingsbedrijf BV, is a building firm in Rotterdam which, in the course of its business, enters into 'purchase and construction agreements' with customers. It appears from the Order for Reference that the agreements provide either:

for the supply of a plot of land and the construction of a dwelling (or in some cases the completion of a partly constructed dwelling); or

for the construction of a building subdivided into apartments, and the supply to the customer of a share in the building and the accompanying land, together with the right to the exclusive use of part of the building as a dwelling.

4Under the agreements, the price of the construction of the building is payable by instalments, which fall due according to the progress of the construction. The price of the land is normally payable upon conclusion of the agreement or shortly thereafter, although it is sometimes payable in instalments together with the construction price. The agreements allow the customer to defer payment of the amount due for the land, or of the instalments making up that amount, until the date of the transfer to the customer of the legal title to the land and building, provided generally that the customer pays a deposit of 10% of the total purchase and construction price. In such cases the customer must pay interest on the amount deferred. The arrangements regarding deferred payment and interest also apply to the instalments payable in respect of the construction price.

5The Netherlands tax authorities take the view that, although the interest payable in respect of the overdue instalments of the construction price qualifies for exemption under the Netherlands provisions implementing Article 13(B)(d)(1), the interest payable in respect of the purchase price of the land does not. From the explanation given by the Agent of the Netherlands Government at the hearing it seems that the distinction made is based on the fact that the construction work involves the performance of services throughout the period of the contract whereas the supply of the land is a single transaction occurring on completion of the building. The tax authorities' view was upheld at first instance, on the ground that in the circumstances of this particular case the interest charged between the conclusion of the agreement and the transfer of the land formed part of the consideration charged for the land. On appeal the Hoge Raad has put the following question to the Court:

'Where a purchase and construction agreement between a building contractor and a buyer provides that payment for the supply of the land pursuant to the agreement must be made on or shortly after conclusion of the agreement, but may be deferred to the time of the supply on payment of interest, is that interest to be regarded as being in the nature of consideration for a loan, as provided for in Article 13(B)(d)(1) of the Sixth Directive, or is that interest part of the payment for the supply of the land?'

6The Hoge Raad's question raises two main issues:

(1) As a matter of principle, where a supplier of goods allows his customer to defer payment of the purchase price of the goods in return for the payment of interest, can he be regarded as making a separate supply consisting in the grant of credit exempted under Article 13(B)(d)(1) of the Sixth Directive?

(2) If so, does it make any difference if, as in this case, the supplier purports to grant the credit before he supplies the goods to the customer?

The first issue

7With respect to the first issue, the appellant and the Danish, German and Netherlands Governments consider that Article 13(B)(d)(1) does apply in principle to the grant of credit by a supplier to his customer in connection with a supply of goods such as land (which as tangible property falls to be classified as goods for the purposes of Article 5 of the Directive). The Danish and German Governments emphasize that a clear contractual distinction must be made between the main supply and the credit transaction if the latter is not to be regarded as incidental to, and forming part of, the main transaction; thus, the German rules require that the consideration for the two transactions should be separately agreed and accounted for and the annual interest rate specified; the Danish rules similarly require the interest element to be clearly identified in the contract for sale itself or in a separate schedule concerning payment.

8The Commission and the Greek Government, on the other hand, take the view that Article 13(B)(d)(1) does not apply to the grant of credit in connection with a contract for the supply of goods or services. The Commission considers that Article 13(B)(d)(1) only covers interest on loans stricto sensu and not interest on credit which is incidental to the supply of goods or services; in its view the purpose of the provision is to exempt the banking sector. The Greek Government considers that there must be a separate loan agreement in order for the exemption to apply.

9As exceptions to the general scheme of the Sixth Directive the exemptions provided for by Article 13 fall to be construed strictly: see for example the Court's judgment in Case 348/87 Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiën [1989] ECR 1737, in particular paragraph 13. The exemptions in Article 13 are for the most part closely defined in terms of the nature of the supplies and often the identity of the supplier or recipient. The Court has paid particular attention to this. Thus, for example, in Case 107/84 Commission v Germany [1985] ECR 2655 the Court held that the exemption in Article 13(A)(1)(a) relating to the supply of services by 'the public postal services' applied only to services provided directly by the public postal authority and did not extend to the activities performed under statute by transport undertakings on behalf of that authority.

10However, Article 13(B)(d)(1), which exempts 'the granting of credit and the negotiation of credit and the management of credit by the person granting it', does not specify the identity of the lender or the borrower. It merely defines the nature of the exempt transaction. Whilst it seems likely that, as the Commission suggests, the exemption was primarily intended to apply to loans and credit granted by banking and financial institutions, its wording provides no basis for restricting its scope solely to such transactions. I therefore agree with the appellant and the Danish, German and Netherlands Governments that the term 'granting of credit' is sufficiently broad to encompass credit granted by a supplier of goods in the form of deferment of payment. Moreover, there is no economic justification for excluding credit granted by suppliers from the scope of the exemption. It has become a widespread practice of suppliers to make their own financing arrangements, and a limitation of the exemption would lead to distortion of trade and of competition. There is no reason why a customer should be charged tax on credit granted by his supplier but receive an exempt supply of credit if instead he has recourse to finance from a bank or other lender. From the viewpoint of the customer, both arrangements involve the grant of credit; a customer is unlikely to view the interest which he pays to his supplier as part of the price of the goods or services any more than if he finances his purchase by means of a bank loan.

11I see no merit in requiring that the credit should be granted under a special loan agreement which is independent of any contract for the supply of goods or by a person other than the supplier of the goods. The fragility of such requirements is demonstrated by the fact that a supplier might in any event be able, without altering the substance of a transaction, to draw up a separate loan agreement or provide credit through a separate finance company set up for that purpose. One consequence of this would be to discriminate unfairly between firms which have sufficient resources or trade to set up an independent finance company and firms which do not. That would hardly be consistent with the fundamental principle of neutrality.

12I do, however, agree with the Danish and German Governments that the contractual arrangements and terms must be such that the credit transaction is clearly dissociable from the main supply of goods. Although it seems unnecessary to consider this point in detail in the present case, I think that requirement would generally be satisfied where, for example, a contract for the supply of goods contained one or more specific clauses offering the customer a credit facility and setting out in full the terms on which the credit was granted, including a specified rate of interest. As the German Government points out, by virtue of the introductory words of Article 13(B) Member States may lay down any further conditions that are necessary to ensure the correct and straightforward application of the exemption and to prevent evasion, avoidance or abuse. This may be of particular importance in the case of transactions between connected parties who might seek artificially to convert the consideration for a taxable supply of goods or services into consideration for an exempt grant of credit by inflating the interest rate; this is much less likely to occur in the case of an arm's length transaction. Like the German Government, I consider that the risk of evasion or abuse may be satisfactorily counter acted by suitable measures adopted by the Member States and does not justify an across-the-board inclusion of credit interest in the taxable amount as suggested by the Commission.

13In its written observations the Commission referred to two judgments of the Court in support of its view that interest payments in respect of credit granted by a supplier of goods form part of the taxable consideration for the goods. The first of those is the judgment in Case 222/81 Bausystem v Finanzamt München für Körperschaften [1982] ECR 2527. In that case the Court held that statutory interest awarded to an undertaking by a court in respect of an unpaid debt for services rendered did not constitute consideration for those services for the purposes of the Second Council Directive on VAT (OJ, English Special Edition 1967, p. 16). The Commission points out that in the body of its judgment the Court emphasized that the undertaking in question was compelled to agree to a delay in payment not provided for in the contract and that the interest did not constitute the consideration for a commercial transaction, but was fixed by a court pursuant to the relevant provisions of German commercial law and was only remotely connected with the main services provided. The Commission concludes, by a process of a contrario reasoning, that interest paid pursuant to a contract for the supply of goods forms part of the consideration for the goods. It seems to me, however, that the Court's words were directed towards explaining why the statutory interest in question could not form part of the taxable amount for the services rendered; the Court did not rule out the possibility that a taxable person supplying goods or services might, if he so wished, provide a wholly distinct service to his customers consisting in the grant of credit in return for the payment of interest.

14The Commission refers secondly to the judgment in Case 126/78 Nederlandse Spoor wegen v Staatssecretaris van Financiën [1979] ECR 2041. In that case the Court held that a cash-collection service undertaken by a transport company when delivering goods to consignees was a service ancillary to transport within the meaning of Annex B, item 5, of the Second Directive and hence, like the transport service, was compulsorily taxable under Article 6 of that Directive. That judgment is, however, only of apparent relevance to this case. The issue was not whether the consideration for the collection service should be treated as part of the consideration for the transport service. The issue was whether the collection service, which was acknowledged to be a separate service, was so inextricably linked to the transport service that it was to be regarded as 'ancillary' to it for the purposes of Annex B, item 5 of the Second Directive and hence as falling into the category of services which were compulsorily taxable.

15The Commission contends further that it may be concluded from Article 11(A)(3)(a), which provides that the taxable amount does not include 'price reductions by way of discount for early payment', that price supplements in respect of deferred payment must be included in the taxable amount. It seems to me that Article 11(A)(3)(a) does no more than clarify the application of the general rule in Article 11(A)(1)(a), according to which the taxable amount is the consideration received or to be received for the supply. Let us suppose, for example, that a taxable person makes a supply of goods to a customer on terms whereby the customer is granted a discount if he pays for the goods within thirty days of the date of the invoice. If the customer takes advantage of the discount, the taxable amount is the purchase price less the discount. If, on the other hand, he does not make the payment within the thirty-day period and is obliged to pay the full invoice price of the goods, the consideration received or to be received, as measured at the moment when the chargeable event occurs under Article 10(2), is the full price of the goods. However, that situation is quite different from one in which a taxable person who supplies goods or services makes a contractually distinct grant of credit in respect of all or part of the purchase price for a certain period and at a specified interest rate. The interest then constitutes consideration for a separate supply of credit.

16Finally on this first issue, I do not consider that interest on credit falls within the term 'incidental expenses' which are included in the taxable amount by virtue of Article 11(A)(2)(b) of the Sixth Directive. The expenses mentioned in that provision, such as those relating to commission, packing, transport and insurance, are costs which are inextricably linked to the sale and transport of goods to the customer. There is no such link in the case of interest on credit granted by a supplier, which is an optional service offered in addition to the supply of goods.

The second issue

17I now turn to the second issue, namely whether it is possible for there to be a grant of credit consisting in deferment of payment of the purchase price of goods before the goods have been supplied.

18Before considering this issue, I should point out that the Hoge Raad's question has been put to the Court on the basis that no supply of goods (i. e. of the land) within the meaning of Article 5(1) of the Directive occurs at the moment when the builder concludes the building contracts with its customers. I accordingly propose to answer the question on the basis that the supply takes place when the building is completed and the legal title transferred to the customer.

19The appellant takes the view that the parties to a contract for the supply of goods are entitled to agree that the purchase price is wholly or partly payable at a date before the goods are supplied. It is at that date that the right to demand payment arises under the Netherlands civil law. By allowing the customer to defer payment until the date of the supply the supplier therefore makes a grant of credit to the customer.

20The Netherlands Government, on the other hand, considers that there is no genuine grant of credit in circumstances such as those of the present case, where the purchase price is payable before the supply is made but payment may be, and in practice invariably is, deferred until the supply is actually made. The Spanish Government shares the Netherlands Government's view. It observes that the chargeable event arises and the tax becomes chargeable when the land and building are finally supplied and the customer pays the purchase price. It is at that moment that the chargeable event occurs under Article 10(2) and the taxable amount falls to be determined under Article ll(l)(a). Since the interest is a component of the total price payable at that point, it forms part of the taxable consideration for the supply of the land and building.

21In my opinion the solution proposed by the Netherlands and Spanish Governments is correct. Whilst in principle the moment at which credit is granted by a supplier of goods must be determined by reference to the date at which the purchase price would otherwise become payable in national law, that is to say, normally, the date specified in the contract, it would be inconsistent with the wording and scheme of the Sixth Directive to extend that rule to credit which a supplier purports to grant before the supply of the goods in question takes place.

22The first subparagraph of Article 10(2) of the Directive provides inter alia that:

'The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed.'

It is at that moment, therefore, that the taxable amount falls to be determined under Article 11(A)(1)(a) of the Directive. By virtue of that provision the taxable amount is: '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 ...'.

The Directive thus ensures that VAT is imposed on the full value of goods or services determined at the moment when they are supplied.

23In the case of a normal credit sale where, for example, a taxable person supplies goods to a customer on terms allowing payment of the purchase price to be deferred for up to six months after the date of the supply in return for the payment of interest, the taxable amount, determined at the moment when the goods are supplied, is the purchase price of the goods. Tax becomes chargeable on the supply of goods at that moment. If the customer takes advantage of the supplier's offer of credit, the interest received by the supplier constitutes consideration for a separate supply of credit which takes place subsequently to the supply of goods and must be excluded from the taxable value of the goods as determined at the moment when they are supplied.

24The peculiar feature of the present case is that the builder purports to grant credit in respect of an instalment of the purchase price (corresponding to the price of the land) payable before the supply is made and hence before the chargeable event occurs under the first subparagraph of Article 10(2). It seems to me that in such circumstances the full value of the goods at the moment when they are supplied must be taken to include any finance costs incurred by the supplier up to the moment when the supply is made which the supplier passes on to the customer, even if he purports in the contract to pass them on as interest charges distinct from the purchase price of the goods. In this respect finance costs are no different from any other overheads incurred by the supplier up to the moment of the supply and passed on in the price of the goods.

25The situation in the present case is in substance no different from one in which a builder refrains from demanding any payments on account and finances the construction himself or by means of a bank loan. In such a case he would be obliged to take account of his finance costs in fixing the taxable purchase price of the completed building.

26The appellant and the German Government have pointed out that in the present case the customer could obtain an exempt loan from a bank to make the payment on account in respect of the land. Although in economic terms the customer would then be providing a benefit to the builder in the form of an interest-free loan, under the Sixth Directive that benefit would not treated as additional consideration and included in the taxable amount. However — and this is the essential difference — the moment when tax is charged would be brought forward to the date when the payment on account is made. Thus, the second subparagraph of Article 10(2) provides:

'However, where a payment is to be made on account before the goods arc delivered or the services are performed, the tax shall become chargeable on receipt of the payment and on the amount received.'

If the customer obtained a loan from a third party, the portion of the supply represented by the payment on account (i. e. the land) would thus be valued and taxed immediately. It is therefore inappropriate to compare such a case with the case where the builder allows the customer to defer the payment on account, since in the latter case there is no immediate tax charge and the relevant portion of the supply falls to be valued and taxed in the normal manner at the moment when the supply is made. Its value must therefore be taken to include the finance costs passed on to the customer at that point. For VAT purposes there can be no deemed payment on account in advance of a supply of goods. Either there is an actual payment triggering an immediate charge to tax under the second subparagraph of Article 10(2); or there is no payment on account and the chargeable event occurs when the goods are finally supplied, in which case the full value of the goods, including any finance costs, falls to be taxed at that moment. There can be no half-way house whereby the taxable person has the benefit of both the exemption under Article 13(B)(d)(l) and postponement of the tax charge to the moment when the supply is made.

27The contrary view would enable traders and their clients, by means of a fictitious grant of credit, to avoid paying VAT on part of the price of goods or services in transactions where there is a delay between contract and supply. This point perhaps becomes easier to appreciate if a more typical supply of goods is considered. Suppose, for example, that a carpenter agrees to supply made-to-measure furniture to someone in 12 months' time, for a price of ECU 11 000. Let us suppose however that they stipulate in their contract that the price for the goods is ECU 10 000 payable immediately, but that payment may be deferred until the date of delivery, subject to an interest charge of 10% per annum. When the furniture is delivered 12 months later the customer pays ECU 11 000. It is difficult to see any reason why the taxable amount should be anything other than ECU 11 000. To pretend that the consideration paid for the furniture is ECU 10 000 and that the remaining ECU 1 000 is interest on an exempt supply of credit would be to close one's eyes to the obvious reality of the transaction.

28Finally, I do not find convincing the explanation given by the Netherlands Government at the hearing concerning the distinction drawn by the tax authorities between the purchase price of the land and

Conclusion

the instalments of the construction price. If, as I have assumed (paragraph 18 above), the land was not supplied to the customer until the building was completed, then no services can have been provided for the customer during the period of the contract. There would be a single supply of goods, namely the land and buildings, on completion of the construction. On that analysis interest payments on credit purportedly granted in respect of instalments of the construction price would fall to be included in the taxable amount for the land and the building. The position would be different if the land were supplied to the customer upon conclusion of the contract. Unless the Member State concerned chose to treat the construction work as a supply of goods pursuant to Article 5(5)(b) of the Directive, the builder would provide construction services to the customer on the latter's land. It would then be possible to take the view that, following the taxable supply of land on conclusion of the contract, a series of taxable supplies of services takes place throughout the progress of the construction. Interest on credit granted by the builder in respect of the land and the construction price could then be regarded as consideration for a series of separate supplies of credit granted after each supply of goods or services.

29I am accordingly of the opinion that the question put by the Hoge Raad should be answered as follows:

MUYS' EN DE WINTER'S BOUW EN' AANNEMINGSBEDRIJF BV v STAATSSECRETARIS VAN' FINANCIEN

(1) Where a taxable person who supplies goods or services to a customer makes a separate grant of credit to that customer on terms which clearly distinguish between the supply of goods or services and the credit transaction, the grant of credit constitutes a separate transaction which is in principle exempt under Article 13(B)(d)(1) of the Sixth Directive.

(2) However, where a purchase and construction agreement between a building contractor and a purchaser provides that payment for the supply of the land must be made on or shortly after conclusion of the agreement but may be deferred to the time of the supply in return for the payment of interest, such interest does not constitute consideration for a separate supply of credit but must be regarded as part of the consideration for the supply of the land for the purposes of Article 11(A)(1)(a) of the Directive.