C-284/03 Temco Europe

JUDGMENT OF THE COURT (First Chamber)

18 November 2004 *

In Case C-284/03,

REFERENCE for a preliminary ruling under Article 234 EC from the Cour d'appel de Bruxelles (Belgium), by decision of 19 June 2003, received at the Court on 2 July 2003, in the proceedings

État belge

v

Temco Europe SA,

THE COURT (First Chamber),

composed of: P. Jann, President of the Chamber, A. Rosas (Rapporteur), R. Silva de Lapuerta, K. Lenaerts and S. von Bahr, Judges,

* Language of the case: French.

Advocate General: D. Ruiz-Jarabo Colomer, Registrar: M.-F. Contet, Principal Administrator,

having regard to the written procedure and further to the hearing on 1 April 2004,

after considering the observations submitted on behalf of:

— the État belge, by E. Dominkovits, acting as Agent, and by B. van de Walle de Ghelcke and C. Louveaux, avocats,

— Temco Europe SA, by J.-P. Magremanne, avocat,

— the Commission of the European Communities, by E. Traversa and C. Giolito, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 4 May 2004,

gives the following

Judgment

Legal context and the dispute

1The reference for a preliminary ruling relates to the interpretation of Article 13B(b) 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').

2That reference was made in proceedings between Temco Europe SA ('Temco Europe') and the État belge (Belgian State) relating to a summons issued against Temco Europe for payment of EUR 137 125.53 (BEF 5 531 639) in respect of value added tax ('VAT') which is alleged to have been wrongly deducted by that company, of EUR 13 708.51 (BEF 553 000) representing the amount of a fine, and of interest at the legal rate relating to those sums.

Legal framework

Community legislation

3Under Title X, headed 'Exemptions', Article 13 of the Sixth Directive, itself headed 'Exemptions within the territory of the country', includes the following provisions:

'...

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:

1. the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;

2. the letting of premises and sites for parking vehicles;

3. lettings of permanently installed equipment and machinery;

4. hire of safes.

Member States may apply further exclusions to the scope of this exemption;

...'

National legislation

4Article 1709 of the code civil beige (Belgian Civil Code) states:

'The letting of things is a contract by which one of the parties undertakes to allow the other the enjoyment of a thing during a certain time, and in exchange for a certain sum which the latter undertakes to pay to the former.'

5Article 44(3)(2) of the code de la taxe sur la valeur ajoutée (Belgian value added tax code) ('the VAT Code') provides that, inter alia, 'the leasing and letting of immovable property and the assignment of leases of immovable property and the use thereof in accordance with Article 19(1) ...' are exempt from value added tax.

The main proceedings and the questions referred

6The national court describes the background to the main proceedings as follows: 'Temco Europe SA is liable to VAT in respect of its property cleaning and maintenance business ....

It is the owner of a property at 107 to 117 Chaussée de Ruisbroeck. Between the end of 1993 and the beginning of 1994 it had refurbishment work carried out to the building at number 111 and deducted the VAT for which it was invoiced on that work. It has no place of business in the building.

Temco Energy Management Company SA, Publi-round SA and Petrus SA are companies belonging to the same group. Together with Temco Europe SA they are subject to a common central management.

On 1 February 1994, Temco Europe SA entered into three contracts ["the contracts"] with those three companies which the parties thereto described as "transfers", under which Temco Europe SA allowed each transferee to carry on its activities in the property, as allocated by the board of directors of the transferor, without the transferee having individual rights over any specific part of the property. Neither evidence of the transferees' activities nor the allocation resolutions of the board of directors of the transferor have been produced.

The contracts have been entered into for the duration of the transferee's activities, and the latter is bound to use the premises exclusively for its activity in compliance with the internal rules laid down by the transferor. The transferor's board of directors, however, is entitled at any time without notice to require the transferee to vacate the premises referred to in the transfer.

The transferee is responsible for all expenses required for its activity. Gas and electricity are calculated according to consumption and communal outgoings in accordance with the area occupied. The transferee is also liable for repairing deterioration of the premises occupied by it on the basis of criteria set by the transferor's board of directors.

Rent is payable annually and set at BEF 3 500 per m in the part fitted out as offices and BEF 1 000 per m in the part fitted out for storage plus 0.4% of the transferee's turnover exclusive of VAT and BEF 5 000 per annum for each person employed.

The parties expressly excluded application of Article 1709 of the code civil.

The internal rules establish the provisions for access to the building, cleaning, the rights to affix advertising signs and to unlimited access for persons authorised by the transferor and the duty on transferees to ensure that there is:

— connection to telephone, water, gas, electricity and heating services, where applicable in agreement with the other occupiers;

— access for all occupiers to drinks machines, to the canteen and to the showers;

— access to the driveways and car parks;

— responsible storage of items and use of drains and sewers.

Temco Europe SA has provided no relevant information on the performance of those contracts.

In a report drawn up on 30 September 1996, the assistant auditor of the VAT authority stated that:

— in respect of two of the occupiers the contracts were entered into after publication of the transfer of their registered offices to the building in issue;

— no provision in the contracts defined the transferees' activities or the use to be made of the premises;

— there was no monitoring of the portion of the rent linked to turnover, which proportion represented for Petrus SA 7%, for Publi-round SA 6% and for Temco Energy SA 0% of the rent.

— the occupiers have a key to access the building and the building has no security guard or concierge, with the effect that the restriction on access referred to in the internal rules is purely formalistia It is not disputed that the companies remained in occupation of the buildings whilst proceedings were pending.'

7Following an inspection by the administration de la TVA, de l'Enregistrement et des Domaines (VAT, Registration and Property Authority) ('the Authority'), the latter concluded that the contracts were in reality lettings of immovable property exempt from VAT under Article 44(3)(2) of the VAT Code, which is the provision transposing Article 13B(b) of the Sixth Directive, and that accordingly the deduction of VAT on the refurbishment work on the building at number 111 Chaussée de Ruisbroeck was not justified.

8As a result, the Authority demanded payment from Temco Europe of EUR 137 125.53 (BEF 5 531 639) in respect of VAT which it alleged to have been wrongly deducted, of EUR 13 708.51 (BEF 553 000) representing the amount of a fine, together with interest at the legal rate on those sums.

9As Temco Europe refused to pay those sums, a summons was issued against it by the Authority. Temco Europe lodged a defence against that summons, and, by judgment of 29 November 2000, the Tribunal de première instance de Bruxelles (Brussels Court of First Instance) (Belgium) annulled it. The Belgian State appealed against that judgment before the court of appeal.

10The Cour d'appel de Bruxelles (Brussels Court of Appeal) considered the concept of 'letting of immovable property' within the meaning of Article 13B(b) of the Sixth Directive in relation to contracts such as those that had been concluded in the main proceedings. The national court states in that regard:

'In the present case the defendant, the transferor, and the transferees entered into contracts on unequal terms by which the transferees were granted a licence to occupy the property. Those contracts were clearly put in place in order not to come within the scope of the rental and letting of immovable property.

One cannot examine those contracts, however, without taking into account the close link between those companies, all sharing the same management, which enables the transferees to enjoy the benefit of continuity of occupation and fair performance of the terms of the contracts.

The performance of the contracts has shown that the transferees have continuous and unrestricted access to the premises and that they enjoy a high degree of security in occupying their offices and storage premises.'

11In those circumstances, the Cour d'appel de Bruxelles decided to stay the proceedings and to refer the following question to the Court for a preliminary reference:

'May Article 13B(b) of the Sixth Directive be interpreted to mean that transactions, corresponding in Belgian law to a contract of indefinite duration by which one company, through a number of contracts, simultaneously grants associated companies a licence to occupy a single property in return for a payment set partially but essentially on the basis of the area occupied, where the inherent insecurity of a licence is absent owing to the fact that the transferee and the transferor are under common management, constitute a letting of immovable property within the meaning of Community law, or, in other words, does the independent Community law concept of the "letting of immovable property" in Article 13B(b) of the Sixth Directive cover use, for consideration, of an immovable asset for purposes other than those of the taxpayer's business — which definition is adopted in Article 44(3) (2) in fine of the [VAT Code] — that is to say, the grant under a licence of indefinite duration of a non-exclusive right of occupation in return for a monthly payment, albeit fluctuating and partly dependent on the profits of one of the contracting parties, where the inherent insecurity of a licence is absent owing to the fact that the transferee and the transferor are under common management?'

The question referred

12By its question, the national court is essentially asking whether Article 13B(b) of the Sixth Directive must be interpreted as meaning that transactions by which one company, through a number of contracts, simultaneously grants associated companies a licence to occupy a single property in return for a payment set essentially on the basis of the area occupied are transactions which constitute the 'letting of immovable property' within the meaning of that provision.

Observations submitted to the Court

13Temco Europe submits that the contracts, which Belgian law treats as not being rental contracts, do not satisfy the definition of letting under Community law by reason of the absence of an exclusive right of occupation of the property, of the inherent insecurity of that right and the fact that payment in respect of that right is not set with regard only to the period of occupation of the property.

14The Belgian State argues that, in order to determine the nature of a contract, it is necessary to have regard to the manner of its performance, irrespective of its wording. It also refers to the need to take into account the underlying objective of the exemption laid down by Article 13B(b) of the Sixth Directive, the background to the exemption and the objectives and scheme of the directive. The criterion relating to the period of the contract is not to be interpreted as meaning that the period must always be fixed at the time the contract is concluded. As regards the inherent insecurity of the right of occupation, the Belgian State takes the view that this relates to a method of terminating the obligation, which does not affect the substance of the service provided.

15The Commission points out that the national court itself considered that the contracts were entered into on unequal terms and lacked any basis in reality, inasmuch as they were clearly put in place in order not to come within the scope of the 'letting of immovable property'. The national court should take the real situation into account and look beneath the contractual terms. It also argues that an intention to avoid tax may be inferred, having regard to the absence of an economic justification at the time the contracts were concluded and that the national court, which has to decide the merits of the case, could base its reasoning on the concept of the abuse of rights which has been applied by the Court in other situations.

Findings of the Court

16It should be observed at the outset that according to settled case-law the exemptions provided for in Article 13 of the Sixth Directive have their own independent meaning in Community law and must therefore be given a Community definition (see Case C-358/97 Commission v Ireland [2000] ECR I-6301, paragraph 51; Case C-315/00 Maierhofer [2003] ECR I-563, paragraph 25; and Case C-275/01 Sinclair Collis [2003] ECR I-5965, paragraph 22).

17Secondly, the terms used to specify the exemptions provided for by Article 13 of the Sixth Directive are to be interpreted strictly since they constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person (see, inter alia, Commission v Ireland, paragraph 52; Case C-150/99 Stockholm Lindöpark [2001] ECR I-493, paragraph 25; and Sinclair Collis, paragraph 23). As the Advocate General rightly states at point 37 of his Opinion, the requirement of strict interpretation does not mean, however, that the terms used to specify exemptions should be construed in such a way as to deprive the exemptions of their intended effect.

18As regards the exemptions laid down under Article 13B(b) of the Sixth Directive, it must be noted that that provision does not define 'letting', nor does it refer to relevant definitions adopted in the legal orders of the Member States (see Case C-326/99 Goed Wonen [2001] ECR I-6831, paragraph 44, and Sinclair Collis, paragraph 24). That provision must therefore be interpreted in the light of the context in which it is used, and of the objectives and the scheme of the Sixth Directive, having particular regard to the underlying purpose of the exemption which it establishes (see, to that effect, Goed Wonen, paragraph 50).

19In numerous cases, the Court has defined the concept of the letting of immovable property within the meaning of Article 13B(b) of the Sixth Directive as essentially the conferring by a landlord on a tenant, for an agreed period and in return for payment, of the right to occupy property as if that person were the owner and to exclude any other person from enjoyment of such a right (see, to that effect, Goed Wonen, paragraph 55; Case C-409/98 Mirror Group [2001] ECR I-7175, paragraph 31; Case C-108/99 Cantor Fitzgerald International [2001] ECR I-7257, paragraph 21; Case C-269/00 Seeling [2003] ECR I-4101, paragraph 49; and Sinclair Collis, paragraph 25).

20While the Court has stressed the importance of the period of the letting in those judgments, it has done so in order to distinguish a transaction comprising the letting of immovable property, which is usually a relatively passive activity linked simply to the passage of time and not generating any significant added value (see, to that effect, Goed Wonen, paragraph 52), from other activities which are either industrial and commercial in nature, such as the exemptions referred to in Article 13B(b)(l) to (4) of the Sixth Directive, or have as their subject-matter something which is best understood as the provision of a service rather than simply the making available of property, such as the right to use a golfcourse (Stockholm Lindòpark, paragraphs 24 to 27), the right to use a bridge in consideration of payment of a toll (Commission v Ireland) or the right to install cigarette machines in commercial premises (Sinclair Collis, paragraphs 27 to 30).

21The actual period of the letting is thus not, of itself, the decisive factor in determining whether a contract is one for the letting of immovable property under Community law, even if the fact that accommodation is provided for a brief period only may constitute an appropriate basis for distinguishing the provision of hotel accommodation from the letting of dwelling accommodation (Case C-346/95 Blasi [1998] ECR I-481, paragraphs 23 and 24).

22In any event, it is not essential that that period be fixed at the time the contract is concluded. It is necessary to take into account the reality of the contractual relations (Blasi, paragraph 26). The period of a letting may be shortened or extended by the mutual agreement of the parties during the performance of the contract.

23Furthermore, while a payment to the landlord which is strictly linked to the period of occupation of the property by the tenant appears best to reflect the passive nature of a letting transaction, it is not to be inferred from that that a payment which takes into account other factors has the effect of precluding a 'letting of immovable property' within the meaning of Article 13B(b) of the Sixth Directive, particularly where the other factors taken into account are plainly accessory in light of the part of the payment linked to the passage of time or pay for no service other than the simple making available of the property.

24Lastly, as regards the tenant's right of exclusive occupation of the property, it must be pointed out that this can be restricted in the contract concluded with the landlord and only relates to the property as it is defined in that contract. Thus, the landlord may reserve the right regularly to visit the property let. Furthermore, a contract of letting may relate to certain parts of a property which must be used in common with other occupiers.

25The presence in the contract of such restrictions on the right to occupy the premises let does not prevent that occupation being exclusive as regards all other persons not permitted by law or by the contract to exercise a right over the property which is the subject of the contract of letting.

26As regards the transaction at issue in the main proceedings, it is for the national court to consider all the circumstances surrounding it in order to establish its characteristics and to assess whether it can be treated as a 'letting of immovable property' within the meaning of Article 13B(b) of the Sixth Directive.

27It is also a matter for that court to establish whether the contracts, as performed, have as their essential object the making available, in a passive manner, of premises' or parts of buildings in exchange for a payment linked to the passage of time, or whether they give rise to the provision of a service capable of being categorised in a different way.

28The answer to the question referred must therefore be that:

Article 13B(b) of the Sixth Directive must be interpreted as meaning that transactions by which one company, through a number of contracts, simultaneously grants associated companies a licence to occupy a single property in return for a payment set essentially on the basis of the area occupied and by which the contracts, as performed, have as their essential object the making available, in a passive manner, of premises or parts of buildings in return for a payment linked to the passage of time, are transactions comprising the 'letting of immovable property' within the meaning of that provision and not the provision of a service capable of being categorised in a different way.

Costs

Costs

29Since these proceedings are, for the parties to the main proceedings, a step in the proceedings 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:

Article 13B(b) 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) must be interpreted as meaning that transactions by which one company, through a number of contracts, simultaneously grants associated companies a licence to occupy a single property in return for a payment set essentially on the basis of the area occupied and by which the contracts, as performed, have as their essential object the making available, in a passive manner, of premises or parts of buildings in return for a payment linked to the passage of time, are transactions comprising the letting of immovable property* within the meaning of that provision and not the provision of a service capable of being categorised in a different way.

Signatures.

OPINION OF ADVOCATE GENERAL RUIZ-JARABO COLOMER delivered on

I — Introduction

1Article 13B(b) of the Sixth Value Added Tax Directive 2 grants exemption for 'the leasing or letting of immovable property', an expression whose meaning has been determined in Community case-law in an independent and uniform manner in accordance with the law of the Union, so that it has a broader definition than in certain national systems of law. 4T he Court of Justice regards it as an agreement whereby the landlord of property assigns to the tenant, in return foi

4 May 2004 1

rent and for an agreed period, the right to occupy his property and to exclude other persons from it. 5

2The purpose of the present preliminary question is to examine the possibility of bringing within the scope of that expression three contracts by which a company lets, without security of tenure and for an indeterminate period, to three companies within its business group the use and enjoyment of a building which it owns, in return for a stipulated price, determined primarily by reference to the area occupied, even though none of the companies is granted exclusive rights in respect of any specific part of the building.

3More particularly, the Brussels Cour

Appeal, Sixth Tax Division) raises two issues, which are two sides of the same coin. First, it wishes to know whether it is appropriate for those contracts to be regarded as leases of immovable property for the purposes of the exemption in question. Second, it wonders whether the abovementioned Community law concept extends to the use, as described in the foregoing point, of the property owned by Temco for purposes unconnected with its business.

4In its written observations, the Belgian State opposes the latter approach because, in its view, account must be taken of a provision of its domestic law (Article 44(3) (2), first indent, of the Code de la taxe sur la valeur ajoutée [Value Added Tax Code]), which is not applicable to the present case, since it was not invoked by the parties or taken into consideration by the Brussels Tribunal de première instance (Court of First Instance). That view, which it reiterated at the hearing in response to questions put by me and which was supported by the other parties present, can be easily rebutted: it is for the Court of Justice, in preliminary-ruling proceedings, to interpret or give a ruling as to the validity of Community law but not to examine the choice of the provision or the interpretation of national law adopted by the referring court, which is responsible, as 'owner' of the case, for determining the extent to which any provision is relevant for determination of the dispute. In short, the assessment of the relevance of the question is a matter for the judge who raises it, 7a nd the Community Court cannot review it, except where the question bears no relation to reality or to the subject-matter of the main proceedings, is not a matter of Union law, or reflects a manifestly misconceived assessment of the content thereof, — and none of those circumstances arises in this case.

II — Legal background

A — Community law: the Sixth Directive

5Article 2 defines a taxable event as 'the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such'.

6Article 4(1) explains that a taxable person is:

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

Under Article 4(2), in particular, '[t]he exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis' is to be considered an economic activity.

7Article 6(1) refers to the taxable event of the 'supply of services' on a residual basis ('any transaction which does not constitute a supply of goods') and that is assimilated, in Article 6(2)(a), to the use of goods forming part of the assets of a business for the private use of the taxable person or of his staff or more generally for purposes other than those of his business where the value added tax on such goods is wholly or partly deductible.

8Article 13 provides:

'Exemptions within the territory of the country

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:

1. the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, C. Options including the provision of accommodation in holiday camps or on sites developed for use as camping sites;

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

2. the letting of premises and sites for parking vehicles;

(a) letting and leasing of immovable property;

3. lettings of permanently installed equipment and machinery;

4. hire of safes.

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

Member States may apply further exclusions to the scope of this exemption. 11

B — Belgian law: the Code de la taxe sur la

valeur ajoutée (the Belgian Value Added Tax Code)

9Article 44(3) (2) of the Code exempts the from the other language versions of the Sixth Directive: Les États membres ont la faculté de prévoir des exclusions letting of immovable property and the use of supplémentaires au champ d'application de cette exonération thereof in accordance with Article 19(1), that (French); Die Mitgliedstaaten können weitere Ausnahmen vom Geltungsbereich dieser Befreiung vorsehen (German);

is to say for consideration and for purposes Member States may apply further exclusions to the scope of this exemption (English) and Gli Stati membri possono unconnected with the taxable person's eco stabilire ulteriori esclusioni al campo di applicazione di tale nomic activity. It excludes from the exemp esenzione (Italian).

tion financial leases, and the provision of vehicle parking spaces, areas for storage and for camping, accommodation in hotels and similar establishments, and the hire of safes.

III — The facts and the main proceedings

10The Belgian public limited company Temco Europe ('Temco'), whose business is the cleaning and maintenance of buildings, is subject, as such, to value added tax ('VAT'); it is the owner of a building in Brussels, which it reinstated between 1993 and 1994, but which is not its head office.

11On 1 February 1994 it concluded three contracts with three companies belonging to its business group, under the same central management, which the parties described as 'assignments', granting them the use and enjoyment of the premises on the following conditions:

— the companies are to carry on business in the property, for the purpose agreed upon by the management of Temco, but without any specific right to any particular area;

— the term of the contracts depends on the course of events, but the management of the property may, at any time and without notice, require the premises to be vacated;

— the charges are to be borne by the three undertakings; the costs of water and electricity are calculated according to consumption, whereas the common charges are determined by reference to the area occupied, as is the cost of repairs;

— the rent, which is paid annually, amounts to BEF 3 500 (now the equivalent sum in euro) per square metre of office area and BEF 1 000 per square metre for storage areas. To this is added 0.4% of the tenants' turnover and BEF 5 000 a year per employee;

— internal rules, which govern access to and cleaning of the building, grant an unlimited right of access to the management of the transferor company;

— the parties excluded the application of Article 1709 of the Belgian Civil Code, which defines a lease.

12The owner deducted the VAT invoiced to it for the reinstatement works; however, the Belgian tax administration took the view that the contracts described above constitute genuine leases which are exempt from tax, and therefore deduction is inappropriate. As a result, on 16 April 1997 it issued a payment order which, after being confirmed and declared enforceable, was served on Temco. Temco challenged it.

13The Brussels Tribunal de Première Instance, by judgment of 29 September 2000, annulled the order and prohibited further enforcement; the Belgian State appealed against that decision.

IV — The question referred to the Court

14The Cour d'appel stayed the proceedings and referred the following question to the Court of Justice for a preliminary ruling; 'May Article 13B(b) of the Sixth Directive be interpreted to mean that transactions, corresponding in Belgian law to a contract of indefinite duration by which one company, by a number of contracts with associated companies, simultaneously grants a licence to occupy a single property in return for a payment set partially but essentially on the basis of the area occupied, where the inherent insecurity of a licence is absent owing to the fact that the transferees and the transferor are under common management, constitute a letting of immovable property within the meaning of Community law, or, in other words, does the independent Community law concept of the "letting of immovable property" in Article 13B(b) of the Sixth Directive cover use, for consideration, of an immovable asset for purposes other than those of the taxpayer's business — which definition is adopted in Article 44(3) (2) in fine of the Belgian Code de la TVA — that is to say, the grant under a licence of indefinite duration of a non-exclusive right of occupation in return for a monthly payment, albeit fluctuating and partly dependent on the profits of one of the contracting parties, where the inherent insecurity of a licence is absent owing to the fact that the transferees and the transferor are under common management?'

V — The procedure before the Court of Justice

15Written observations were submitted within the period laid down in Article 20 of the EC Statute by the Belgian Government, Temco and the Commission.

16At the hearing on 1 April 2004, the parties participating in the written phase presented oral argument.

VI — Analysis of the questions referred to the Court

17The long and rambling question from the Belgian Court contains two complementary but different questions. The first seeks to clarify whether agreements like those in the main proceedings can be regarded as constituting 'leasing of immovable property' within the meaning attributed to that term by Article 13B(b) of the Sixth Directive, as interpreted by the Court of Justice.

18The second question is expressed in particularly confused terms. A superficial glance at the last part of the long question discloses a redundancy of expression whereby the same dilemma is re-stated in different terms. However, that allusion to Article 44(3)(2) and the onward reference to Article 19(1) of the Value Added Tax Code give the impression that the true unknown which it is sought to clarify lies in the question whether, if it is decided that the contracts at issue are not lettings, it is possible to conclude that they are for exploitation of the building, for consideration, for purposes other than the business of Temco. If it proves appropriate to examine this alternative, it would seem necessary to decide whether the Member States are entitled to extend the scope of the exemption provided for in the abovementioned provision of the Sixth Directive so as to include matters unconnected with the leasing of immovable property.

A — The first question

19At the beginning of this Opinion I set out the meaning which the Court of Justice has given to the opening words of Article 13B(b) of the Sixth Directive. In fact, little more should be added, for fear of over stepping the limits of the Court's jurisdiction in preliminary-ruling proceedings and going beyond its function as the ultimate inter preter of Community legislation: if it considered the application thereof to this specific case it would thereby encroach upon the jurisdiction of the referring court. However, that 'little more' provides the key to giving the Brussels Cour d'appel the answer it seeks.

20According to the Community case-law, there is an exemption from VAT for (1) transfer by the owner of an immovable property to another person, (2) to the exclusion of all others, (3) of the use and enjoyment thereof, (4) for an agreed term, (5) in exchange for the payment of rent. In order to decide whether that definition applies to a specific agreement, account must be taken of all the elements of the transaction and the circumstances in which it takes place, the objective content thereof being decisive, regardless of how the parties have characterised it.

21Since the first and third elements are present in the contracts signed by Temco, the debate in these proceedings has focused on the requirements of the exclusive basis of the assignment, its duration and the nature of the contractual price.

1. The tenant's possession

22The leasing of an immovable property is characterised by the transfer of the powers of the owner — with the exception of the power of disposal — and, therefore, the capacity to exclude all others (including the owner) from enjoyment of the property. Nevertheless, an exclusive tenancy is not synonymous with a sole tenancy, since there is the possibility of joint possession, by means of one or more agreements. The decisive feature is the monopoly enjoyed by the tenants, who are seen by everyone to be in possession of the leased property and are entitled to prohibit anybody else from using it.

23It is, therefore, irrelevant whether the powers transferred are exercised by one person alone or by several and whether, in the second case, the transfer is the result of one agreement or of more than one. Indeed, according to the definition given by the Court of Justice, it is immaterial whether each user has a part of the building assigned to him or whether the allocation is on an undivided basis, in notional shares. 17

24The exemption in Article 13B(b) of the Sixth Directive relates to certain transactions which constitute an economic activity within the meaning of Article 4 of the directive and which, by their nature, do not produce relevant added value, a fact which renders exemption appropriate for financial reasons; the same considerations account for the exceptions to the exemption, to the extent to which they involve more active use of immovable assets.

25The key is to be found, therefore, in the nature of the transaction and its economic reality, regardless of the legal classification attributed to it by the parties since, otherwise, there would be a danger of disregarding the general nature of the tax and of undermining its neutrality by allowing operations which were substantively the same to be treated differently. It was on that basis that the Court of Justice ruled in 'Goed Wonen' that Article 13B(b) and Article 13C(a) of the Sixth Directive do not preclude a national provision which, for the purposes of the application of the VAT exemption, allows the

is — Quite apart from the right to opt for taxation, which the Member States can grant to taxable persons under Article grant, for an agreed period and for payment, of a right in rem entitling the holder to use immovable property to be treated as the leasing or letting of immovable property.

26In those circumstances, it is for the national court to analyse the content of the contracts and the circumstances in which they are put into effect, in order to determine whether they grant the transferees enjoyment vis-à-vis the world at large and, in particular, vis-à-vis the owner.

2. The term of the letting

27Time is a crucial factor in contracts of this kind, for which reason the Court of Justice, in its judgments in Commission v Ireland and Commission v United Kingdom (paragraphs 56 and 68 respectively), cited above, held that there was no lease in cases in which the consent of the parties did not take time into account, such as, for example, the use of a road network in exchange for the payment of a toll. For similar reasons, the Stockholm Lindepark judgment states that the duration of the use by the parties of a golf course, in return for a payment, is one of the factors which the national court must take into account in deciding whether the transaction is exempt from the VAT (paragraphs 27 and 28), and the Blasi judgment added (paragraphs 23 to 26) that the period of the assignment constitutes a basic element in distinguishing the renting of a dwelling from one of the accommodation transactions for which Article 13B(b) of the Sixth Directive rules out any exemption.

28However, even where the degree of permanence of possession is of some importance, it is only one of several features of the renting of immovable property, for which reason it is inappropriate to treat it as the sole 'indicator' on the basis of which to characterise an agreement as a lease, without taking any other consideration into account, in particular the real duration of the relationship. In Blasi, the Court of Justice made it clear that it is for the referring court to verify whether the period stated in the agreement reflects the true intention of the parties since, if it does not, it would be necessary to determine the actual period of possession of the property.

29Furthermore, an 'agreed period' is not the equivalent of a 'specified period', so that the assignment of the use of a property for an imprecise period does not, for that reason alone, constitute a tenancy within the meaning of the Sixth Directive. It may be relevant if the period is so short that, under the rule in Blasi, it should be described as accommodation, but it is irrelevant if, after the minimum threshold has been passed, it is extended. In this respect, it is of little importance that the period of the relationship might be made dependent on the will of one of the parties or of both, or indeed on an external circumstance outside their control, because, in any event, contractual consent is expressed by the intention to make the property available for a period, even if its duration is uncertain.

30Licences do not, for such purposes, lose their status as leases by reason of the fact that their expiry is dependent on the will of the owner. It is necessary to take the reality of each case into account and, as in the Blasi case, to evaluate the period of the legal relationship, a task which also falls to the national court. As the Belgian State indicates in its written observations, the decision to exclude licences from the scope of the tax exemption infringes the principle of neutrality, since transactions which are intrinsically the same would be treated differently. It is not mistaken when it observes that that Community law concept must be defined by reference to the nature of what is supplied rather than to the way in which it comes to an end, so that, in accordance with the case-law of the Court of Justice, any transfer of the tenancy of an immovable property by the owner, in exchange for rent, must be classified as a tenancy. 23

31The foregoing considerations highlight the irrelevance of the fact that, in the main proceedings, the company which owns the building and the transferees belong to the same business group and have the same management, because, even though this may compensate for the insecurity of tenure, it does not confer on the agreements any greater 'leasehold' status: if the indeterminate length and insecurity of the tenancy are irrelevant for their classification as such, under the Sixth Directive, any reduction of that uncertainty is, in turn, of scant importance.

3. The rent

32Temco places particular emphasis on the rent in denying the status of tenancy for the agreements signed in 1994, stating that the rent is not determined solely by reference to the period of occupation but also by reference to turnover and the number of employees of the occupants. That assertion does not, at first sight, appear to be entirely true, since the main component of the price is the area occupied. Also, according to the information before the Court, time is not a factor affecting the determination of the rent.

33It is sufficient for the price to be indicated in kind or in legal tender; normally, in both cases, the main parameters are the size of the property, its location, its state of upkeep, its use and the duration of the agreement. There may be others, such as those in the present case, and others which may be conceived of, provided that they are not illegal or inimical to good customs or morals. It is also permissible for some of those criteria to be lacking, for example the temporal factor, but the contract nevertheless retains its status as a lease. Thus, it is not unusual for the rent to be paid monthly, whilst the term of the relationship is stipulated in years. There is, therefore, no correlation between the variables used for

transaction.

34In short, Article 13B(b) of the Sixth Directive is concerned with agreements by which the owner of immovable property assigns the use and enjoyment thereof to another person, excluding all others — including the owner — for a period of time, in exchange for a price. The decision whether a particular operation fulfils those requirements is a matter for the national court which, for that purpose, must take account of all the features thereof, in addition to the material circumstances in which it takes place, the following being irrelevant:

1. the legal classification which the parties attribute to the agreement;

2. the number of transferees, the existence of only one, or more than one, contract relating to the same property, and, where appropriate, the specific allocation of an area or the attribution of notional shares or proportions;

3. the greater or lesser indeterminacy of the term of the agreement and the expiry thereof, it being permissible for the period not to be expressly agreed upon or for it to be dependent upon consent by one of the parties, or both, or upon an event outside their control; 4. the fact that the undertakings on each side of the legal relationship may belong to a single business group and be under common management;

5. the way the rent is determined and the parameters used for its determination; in particular, any failure to specify the duration of the transfer.

4. Comments on the possibility of an intent to defraud and the principle of strict interpretation of exemptions

35To prevent, in the words of the opening paragraph of Article 13B, 'any possible evasion, avoidance or abuse', the referring court, in discharging this duty, must inquire whether the taxable person has illegitimate motives or whether the public treasury's loss of a particular tax debt has occurred without there being any intention to deceive. It must use the latter criterion of interpretation in the exercise of its judicial authority to assess the facts in order to verify whether the precise requirements are fulfilled for a transaction to be declared exempt.

36The national courts are obliged to be even more rigorous when confronted with ingenious legal manoeuvres devised with the intent of evading the application of a provision and must enforce the neutrality rule which governs the common system of VAT.

37That approach allows contracts which, at first sight, should be classified differently to be regarded as 'leases of immovable property' and does not contradict the rule, repeatedly enunciated by the Court of Justice, that exemptions should be interpreted restrictively. This prevents the tax benefit from being granted in various cases other than those contemplated by the provision, but not in the case of operations which, despite their appearance, are very similar to exempt transactions, so that they must be covered by the same exclusion. As Advocate General Jacobs stated in his Opinion in the Seeling case, that requirement of strict interpretation does not mean that the terms used to specify exemptions should be construed narrowly or restrictively so as to deprive the exemptions of their intended effect (point 32).

B — The second question

38The Brussels Cour d'appel also asks whether the agreements at issue in the main proceedings may constitute use of the building by Temco for consideration for purposes other than its business, for the purposes of Article 44(3)(2) in conjunction with Article 19(1) of the Belgian Value Added Tax Code. That, in fact, is a question to which the answer must be sought by the Belgian court itself, in the exercise of its judicial authority, having regard to the facts and legal issues in the case before it. It is not for the Court of Justice to classify an act-in-[2003] ECR I-13711, Case C-212/01 Margarete Unterpertm- the-law in order to determine whether or not ger [2003] ECR I-13859. and Case C-307/01 d'Ambrwnenil [2003] ECR I-19989, paragraphs 36, 34 and 52 respectively. a rule of national law is applicable to it.

39Nevertheless, the doubt entertained by the national court is in one respect of wider significance: does the Sixth Directive preclude national legislation which extends the scope of the exemptions? In other words, does it allow Member States to exonerate, in addition to leases, the use of buildings for profit, for purposes other than the business or economic activities of the taxable person?

40In my opinion, the answer must be in the negative.

41The intention of the Community legislature is to levy VAT on all supplies, for profit, of goods and services in every Member State by persons engaged in economic activities of the kind referred to in Article 4(2) of the Sixth Directive, including the exploitation of tangible or intangible property.

42A taxable person has two choices as regards the part of his assets which he uses for purposes other than those which give rise to tax: to exclude it from the common system of VAT or integrate it in his business assets, deducting the input VAT and paying the charge for private use under Article 6(2)(a) of the Sixth Directive. The purpose of that provision is to avoid non-taxation of an asset allocated to an undertaking but used for personal enjoyment if the tax paid on the acquisition thereof was deductible, in order to guarantee equal treatment as between the taxable person and the final consumer.

43Thus, Article 4(2), read in conjunction with Article 6(2)(a), enables it to be stated that the use and enjoyment of immovable property for purposes other than the business or economic activity of the taxpayer constitute supplies for profit and, consequently, fall to be taxed, provided that, at an earlier stage, they gave rise to a right of deduction. 30

44For its part, Article 13B(b) exempts a 31 class of services, whether they form part of the economic activity of the taxable person or are supplied in other circumstances, provided that, in the latter case, they are subject to taxation, because the subject-matter of the lease gave rise, in the past, to the deduction of VAT.

45The common system established by the Sixth Directive, and the principles of general application and neutrality, which are the basis for the rule that exemptions must be interpreted restrictively, do not allow a general exemption for the exploitation, whatever the legal nature thereof, of assets appropriated to the business activity of the taxable person for non-business purposes if they gave rise to the right to deduct input VAT. There is nothing in the Community provision to indicate that such use should be assimilated to a lease.

46The foregoing consequence is not contrary to the second paragraph of Article 13B (b), in the Spanish version, under which the Member States may extend that 'exemption' to other cases, because, as the Court of Justice has stated, having regard to the various language versions and to the context of the provision, its meaning is precisely the contrary, namely, to allow the Member States to exclude from the tax benefit cases other than those which it enumerates.

47The Amengual Far judgment, cited above, in which the Court of Justice decided that the Sixth Directive allows Member States, by means of a general rule, to subject to VAT lettings of immovable property and, by way of exception, to exempt only lettings of immovable property to be used for dwelling purposes, likewise does not cast any doubt on the approach which I advocate. That ruling takes account of the considerable degree of latitude which the Community provision granted to national legislatures in relation to exemptions for leases of immovable property, as is apparent from the terms of Article 13B(b) and the option provided for by part C, but it does not extend to any other economic transaction under the conditions laid down by Article 6(2)(a).

VII — Conclusion

48In view of all the foregoing considerations, I propose that the Court of Justice reply as follows to the questions submitted to it by the Cour d'appel de Bruxelles:

(1) The letting of immovable property referred to in Article 13B(b) 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 is a legal transaction whereby the owner of an immovable property assigns the use and enjoyment thereof to another person, to the exclusion of all others — including the owner — for a period of time, in exchange for payment of a price. The decision as to whether a transaction fulfils those requirements is a matter for the national court which, for that purpose, must take account of all the elements of the transaction, in addition to the material circumstances in which it takes place, in particular the possible intent to defraud or the possibility of tax avoidance, the following being irrelevant:

(a) the legal classification which the parties attribute to the agreement;

(b) the number of transferees, the existence of only one, or more than one, contract relating to the same property, and, where appropriate, the specific allocation of an area or the attribution of notional shares or proportions; (c) the greater or lesser indeterminacy of the term of the agreement and the expiry thereof, it being permissible for the period not to be expressly agreed upon or for it to be dependent upon consent by one of the parties, or both, or upon an event outside their control;

(d) the fact that the undertakings on each side of the legal relationship may belong to a single business group and be under common management;

(e) the way the rent is determined and the parameters used for its determination; in particular, any failure to specify the duration of the transfer.

(2) Articles 6(2)(a) and 13B(b) of the Sixth Directive must be interpreted as precluding national legislation which allows a general exemption from value added tax for the exploitation, whatever the legal nature thereof, of immovable property appropriated to the taxable person's business which, having given rise to a right of deduction, is used for purposes other than the taxable person's business.

Notes

(1) Original language: Spanish.

(2) 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).

(3) See Case C-358/97 Commission v Ireland [2000] ECR I-6301, d'appel (Sixième chambre fiscale) (Court of paragraph 51, Case C-359/97 Commission v United Kingdom ? [2000] ECR I-6355, paragraph 63; Case C-326/99 Goed Wonen' [2001] ECR I-6831, paragraph 47; Case C-315/00 Maierho/er [2003] ECR I-563, paragraph 25, Case C-269/00 Seeling [2003] ECR I-4101, paragraph 46; and Case C-275/01 Sinclair Collis [2003] ECR I-5965, paragraph 22. This approach is the consequence of the 11th recital in the preamble to the Sixth Directive, under which the common list of exemptions is designed to ensure that the tax is levied in a uniform manner in all the Member States. In his Opinion in 'Goed Wonen', Advocate General Jacobs stated that it was impossible to give a unitary definition of that legal concept and that it was appropriate to take a functional approach, taking account of the context and structure of the Sixth Directive.

(5) Case C-409/98 Mirror Group [2001] ECR I-7175, paragraph

(4) Commission v Ireland, paragraph 54, Commission v United 31. Also relevant are Seeling, paragraph 49. and Sinclair Collis, Kingdom, paragraph 66, and 'Goed Wonen', paragraph 49. paragraph 25.

(7) In Case 53/79 Damiani [1980] ECR 273, the Court of Justice stated that it was not its role to pronounce on the expediency of the request for a preliminary ruling. By virtue of the division of jurisdiction under Article 177 of the EC Treaty (now Article

(234) EC) it is for the national court, which is alone in having a direct knowledge of the facts of the case and of the arguments put forward by the parties, and which will have to give judgment in the case, to appreciate, with full knowledge of the matter before it, the relevance of the question of law raised by the dispute before it and the necessity for a preliminary ruling so as to enable it to give judgment (paragraph 5).

(8) Case 126/80 Salonia [19811 ECR 1563, paragraph 6, and Case C-186/90 Durighello [1991] ECR I-5773, paragraph 9.

(9) In Case 93/78 Mattheus [1978] ECR 2203, the Court of Justice declared that it had no jurisdiction to interpret measures that had not been adopted by the Community.

(10) Case 13/68 Salgoil [1968] ECR 453, paragraph 1, and Case

(6) The Code was approved by the Law of 3 July 1969 (Moniteur belge, 19 July 1969).

(166) /84 Thomasdünger [1985] ECR 3001, paragraph 11.

(11) The Spanish version of that sentence is as follows: Los Estados miembros podrán ampliar el ámbito de esta exención a otros supuestos [sic]. The Spanish version thus differs totally

(12) See the considerations that I set out on the respective roles of the Court of Justice and the national courts in point 35 of my Opinion of 11 December 2003 in Case C-30/02 Recheio judgment of 17 June 2004, ECR I-6051, p. 6053 is yet to be delivered.

(13) Case C-150/99 Stockholm Lindepark [2001] ECR I-493, paragraph 26.

(16) In his Opinion in Commission v Ireland, cited above, Advocate General Alber pointed out that property may be leased to more than one person at the same time (paragraph

(65) .

(17) In its written observations, the Commission points out that the contracts signed on 1 February 1994 grant each tenant a clearly identified area, which they enjoy to the exclusion of others, and the Belgian State adds that the essential factor in determining the rent is the areas occupied by each of them. Also, in legal relationships like those involved in the main proceedings, it is materially impossible for there to be no specific allocation of areas of the building, without prejudice to the use of the common parts. In any event, the three

(14) Case C-108/99 Cantor Fitzgerald International [2001] ECR I-

(725) 7, paragraph 33.

(15) Maierhofer, paragraph 39. companies form a single entity vis-à-vis third parties, the latter being excluded from use of the building.

(13) C. In my Opinion in Case C-396/98 Schlosstrasse [2000] ECR I-4279, I stated that, under that provision, the Member States are free to decide, according to the economic context prevailing at the time, whether it is appropriate to grant that right and, if so, under what conditions and subject to what limits (paragraph 20).

(19) See to that effect the 'Goed Wonen' judgment, paragraphs 52 and 53. In his Opinion in Case C-346/95 Blast[1998] ECR I-

(481) , Advocate General Jacobs set out a number of interesting considerations on the treatment of immovable property in the Sixth Directive (paragraphs 15 and 16). It is now almost three decades since J.C. Scliolsem, in La TVA européenne face au phénomène immobilier, Faculty of Law, University of Liège, 1975, p. 123 et seq., set out the problems relating to the taxation of rents.

(20) In their written observations, the Belgian State and Temco undertake a detailed study of the factors to be assessed in due course by the Cour d'appel de Bruxelles which has to give judgment on the substance.

(21) In paragraph 84 of his Opinion in 'Goed Wonen', Advocate General Jacobs defined the transaction referred to in Article

(13) B(b) as an agreement 'whereby one party grants the other the right to occupy a defined immovable property as his own and to use or even take profits from that property for an agreed (definite or indefinite) duration in exchange for remuneration linked to that duration' (emphasis added).

(22) In the main proceedings, the agreements were signed on 1 February 1994 and, it seems, are still in force.

(23) In footnote 27 to his Opinion in Case C-63/92 Lubbock Fine fixing the price and the legal nature of the [1993] ECR I-6665. Advocate General Darmon stated that, under Community VAT law. a letting includes a licence.

(24) R. De Mendizábal Allende, in 'La infracción tributaria y el delito fiscal', published in Actualidad Administrativa No 1 of

(199) 6, p. 1, states that there is nothing older than fraud and, by way of illustration, he recounts that when travelling in Egypt, on arriving at Sakkara, he saw, on a mastaba, near the terraced pyramid of Djoser, a vivid representation of deception and bribery. On one side a group of four peasants are being flogged by a like number of officials of the Pharaoh. 'Dilatory taxpayers receive punishment from the revenue inspectors'. Above their heads is a warning in hieroglyphs which states, somewhat elliptically, 'They do not pay what they owe to the Pharaoh but rather they bribe their scribes not to punish them'.

(25) The Court of Justice has recognised the objective nature of the concept of tax avoidance used in the Sixth Directive (Joined Cases 138/86 and 139/86 Direct Cosmetics [1988] ECR 3937, paragraphs 21 to 23).

(26) See Case C-185/89 Velker International Oil Company [1990] ECR I-2561, paragraph 19; Case C-2/95 SDC [1997] ECR I-

(301) 7, paragraph 20; Case C-359/97 Commission v United Kingdom [2000] ECR I-6355, paragraph 64; and Case C-240/99 Skandia [2001] ECR I-1951, paragraph 32. More recent cases include Case C-8/01 Assurandor-Socictctet

(27) In paragraph 29 of his Opinion in Seeling, Advocate General Jacobs draws attention to this alternative.

(28) Case 50/88 Kühne [1989] ECR 1925, paragraph 8.

(29) Case C-258/95 Fillibeck [1997] ECR I-5577, paragraph 25.

(30) See paragraph 42 of the judgment in Seeling and the cases referred to there.

(31) The Court of Justice has classified as such leases of immovable property. See, for example, Mirror Group, paragraph 24 et seq., and Cantor Fitzgerald International, paragraph 17 et seq.

(32) In Seeling it was stated that Article 6(2)(a) and Article 13B(b) of the Sixth Directive preclude national legislation which treats as exempt services the use, for the private needs of the taxable person, of a part of a building allocated in its entirety to his business, since it cannot be classified as a lease or rental.

(33) In his Opinion in Seeling, Advocate General Jacobs stated that 'if... the [Community] legislature had intended Article 6

(2) (a) to be read in conjunction with Article 13(B)(b), it might have been expected that Article G(2)(a) would contain an express reference to Article 13(B)(b): the effect of such a reading is, after all, to transform a taxable supply into an exempt supply.'

(34) Lubbock Fine, paragraph 13, and Case C-12/98 Amengitai Far [20001 ECR I-527, paragraph 10.

(35) In Case 173/88 Henriksen [1989] ECR 2763, the Court of Justice explained that the final paragraph of Article 13B(b) gives the Member States the power to restrict, by means of additional exceptions, the scope of the exemption, but it does not allow them to free from tax transactions excluded from the exemption (paragraph 21).