C-326/99 Goed Wonen

JUDGMENT OF THE COURT (Fifth Chamber)

4 October 2001 *

In Case C-326/99,

REFERENCE to the Court under Article 234 EC by the Hoge Raad der Nederlanden (Netherlands) for a preliminary ruling in the proceedings pending before that court between

Stichting 'Goed Wonen'

and

Staatssecretaris van Financiën,

on the interpretation of Article 5(3) and Article 13B(b) and C(a) of the Sixth Council Directive (77/338/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),

* Language of the case: Dutch.

•GOED WONEN'

THE COURT (Fifth Chamber),

composed of: A. La Pergola (Rapporteur), President of the Chamber, M. Wathelet, D.A.O. Edward, P. Jann and C.W.A. Timmermans, Judges,

Advocate General: EG. Jacobs,

Registrar: D. Louterman-Hubeau, Head of Division,

after considering the written observations submitted on behalf of:

— the Netherlands Government, by M.A. Fierstra, acting as Agent,

— the Commission of the European Communities, by E. Traversa and H.M.H. Speyart, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Stichting 'Goed Wonen', represented by G. Vos, gemachtigde; of the Netherlands Government, represented by J.S. van den Oosterkamp, acting as Agent; of the German Government, represented by W.-D. Plessing, acting as Agent; and of the Commission, represented by H.M.H. Speyart, at the hearing on 7 December 2000,

after hearing the Opinion of the Advocate General at the sitting on 22 February 2001,

gives the following

Judgment

Legal context and the dispute

1By judgment of 24 August 1999, received at the Court on 31 August 1999, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) referred to the Court for a preliminary ruling under Article 234 EC two questions on the interpretation of Article 5(3) and Article 13B(b) and C(a) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax; uniform basis of assessment (OJ 1977 L 145, p. 1, hereinafter 'the Sixth Directive').

2The two questions have been raised in proceedings between Stichting 'Goed Wonen', a Netherlands foundation, and the Staatssecretaris van Financiën concerning a supplementary assessment issued by the tax inspector in the matter of the value added tax (hereinafter 'VAT') declared by the foundation for the period from 1 April to 30 June 1995.

'GOED WONEN'

Law

Community rules

3The scope of the Sixth Directive is defined in Article 2 as follows:

'The following shall be subject to value added tax:

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

2. the importation of goods.'

4In Title V, headed 'Taxable transactions', Article 5 of the Sixth Directive, which is itself headed 'Supply of goods', provides:

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

3. Member States may consider the following to be tangible property:

(b) rights in rem giving the holder thereof a right of user over immovable property;

5According to Article 6 of the Sixth Directive, which is also contained in Title V and headed 'Supply of services':

'1. "Supply of services" shall mean any transaction which does not constitute a supply of goods within the meaning of Article 5.

'GOED WONEN'

6In Title X, headed 'Exemptions', Article 13 of the Sixth Directive, itself headed 'Exemptions within the territory of the country', contains the following provisions, also relevant to the present case:

'...

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

4. hire of safes.

Member States may apply further exclusions to the

C. Options

machinery;

scope of this exemption; Member States may allow taxpayers a right of option for taxation in case of: (a) letting and leasing of immovable property;

Member States may restrict the scope of this right of details of its use.'

option and shall fix the 'GOED WONEN'

7Article 17 of the Sixth Directive, headed 'Origin and scope of the right to deduct', provides in paragraph 2:

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

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

8In Title XV, headed 'Simplification procedures', Article 27 of the Sixth Directive provides:

'1. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance. Measures intended to simplify the procedure for charging the tax, except to a negligible extent, may not affect the amount of tax due at the final consumption stage.

2. A Member State wishing to introduce the measures referred to in paragraph 1 shall inform the Commission of them and shall provide the Commission with all relevant information.

3. The Commission shall inform the other Member States of the proposed measures within one month.

4. The Council's decision shall be deemed to have been adopted if, within two months of the other Member States being informed as laid down in the previous paragraph, neither the Commission nor any Member State has requested that the matter be raised by the Council.

...'

The Dutch legislation

9Article 3 of the Wet houdende vervanging van de bestaande omzetbelasting door een omzetbelasting volgens het stelsel van heffing over de toegevoegde waarde (Law replacing turnover tax by the system of taxing added value, Stbl. 1968, p. 329, of 28 June 1968, as amended by the Wet ter bestrijding van constructies met betrekking tot onroerende zaken (Law to prevent devices relating to immovable property, Stbl. 1995, p. 659, hereinafter 'the VAT Law'), of 18 December 1995, which entered into force with retroactive effect from 31 March 1995, is designed to transpose Article 5(3)(b) of the Sixth Directive. The first subparagraph of Article 3(2) of the VAT Law provides:

'The grant, transfer, modification, waiver or termination of limited rights over immovable property, with the exception of mortgages and ground rents, must also be viewed as a supply of goods, save where the total consideration plus turnover tax amounts to less than the economic value of those rights. The economic value shall not be less than the cost price of the immovable property to which the right relates, including turnover tax, which would be produced were that right to be created by an independent third party at the time of the transaction.'

GOED WONEN'

10Point 5 of Article 11(1)(b) of the VAT Law is intended to transpose the provisions of Article 13B(b) and C(a) of the Sixth Directive. It provides:

'The following are exempted from tax, subject to the conditions to be laid down by general administrative regulation:

(b) the letting (including the leasing) of immovable property, excluding:

(5) the letting of immovable property, apart from buildings and parts thereof which are used as accommodation, to persons using such property for the purposes in respect of which there exists a complete or virtually complete right to deduct tax pursuant to Article 15, provided that the lessor and lessee have jointly submitted a request to that effect to the Inspector and provided that they otherwise fulfil the conditions to be laid down by Ministerial regulation; "letting of immovable property" shall be taken to mean, inter alia, any other form in which immovable property is made available for use otherwise than by way of the supply thereof.'

11The Explanatory Statement relating to the draft law on the basis of which the Law of 18 December 1995 was enacted explains in this regard:

'The legislation on turnover tax applicable to immovable property is being increasingly used in a manner not anticipated by the legislature. Undertakings exempt from turnover tax, such as hospitals, banks and insurance companies, and bodies which are not undertakings, such as municipalities, are making use — quite often through a foundation or a company specially created for the purpose — of the "optional" regime for taxed lettings or taxed supplies of immovable property (the reference here is to the options available under Article 13C of the Sixth Directive implemented at national level). As a result, immovable property is attracting a lower burden of tax — in some cases, much lower than was envisaged [by the law]...

The Directive allows certain rights in immovable property to be considered to be goods (Article 5(3)). But there is no mandatory obligation. In principle, the Directive therefore regards the creation of the right, its transfer and so forth as provisions of services. In order to combat [abusive arrangements in relation to immovable property] it is therefore necessary to exempt those supplies of services so that there is no right to deduct input tax and thereby remove the VAT advantage. As regards the matter of current concern, Article 13B(b) of the Directive exempts "leasing or letting", without linking that expression to corresponding civil law concepts in the Member States. Since, in particular, detached rights [such as usufruct, emphyteusis and so forth] at issue here essentially exhibit a strong similarity with leasing and letting, the proposed treatment of them as analogous to letting [last subparagraph of Article 11(1)(b) of the VAT Law] reflects the scheme of the Directive. Member States are at liberty to define the concept of letting used in the Directive and may depart from the meaning of that concept in their own civil law, since the Directive makes no reference to it.'

'GOED WONEN'

The main proceedings and the questions referred for a preliminary ruling

12The Stichting 'Goed Wonen', the applicant in the main proceedings, is the legal successor of the housing association Woningbouwvereniging 'Goed Wonen' (hereinafter referred to as 'the GW Association').

13In the course of the second quarter of 1995, three newly-built housing complexes with dwellings designed for letting were supplied to the GW Association.

14By notarial act dated 28 April 1995, the GW Association set up the Stichting 'De Goede Wonen' (hereinafter 'the GW Foundation') and granted to it a usufructuary right for a term of 10 years in respect of the new dwellings in return for a sum lower than the cost price of those dwellings. As usufructuary, the GW Foundation commissioned the GW Association to manage the dwellings, to carry out or have carried out large and small-scale maintenance work, to collect and administer rents, to issue receipts for rent received, to conclude, amend and terminate leases of the dwellings, issue invoices in respect of rent increases and to carry out all such legal acts on behalf of the usufructuary as the GW Association might deem appropriate in connection with such management.

15In its tax return for the period 1 April to 30 June 1995, the GW Association entered, first, the VAT which it had charged the GW Foundation for the grant of the usufruct, amounting to NLG 645 067, and, second, the amount of VAT which it itself had been charged for construction of the dwellings, amounting to NLG 1 285 059, which was deducted as input tax. On the basis of that declaration, the GW Association recouped NLG 639 992.

16The Tax Inspector later issued a supplementary assessment for the amount deducted by the GW Association. That assessment was confirmed by a decision of 12 December 1996 which the GW Association challenged before the Gerechtshof te Arnhem. However, by decision of 14 February 1997, the Inspector reduced his assessment to the sum of NLG 639 992, which corresponded to the amount which the tax authorities had reimbursed to the GW Association on the basis of its tax declaration.

17On 21 August 1997, the GW Association adopted the legal form of a foundation and became the Stichting 'Goed Wonen'

18By judgment of 20 May 1998, the Gerechtshof upheld the supplementary assessment, as reduced in the meantime by the Tax Inspector. It is against that judgment that the Stichting 'Goed Wonen' has appealed in cassation to the referring court, the Hoge Raad der Nederlanden.

19As the Hoge Raad der Nederlanden points out in its judgment, the Gerechtsof te Arnhem ruled that the situation created by the GW Association, in setting up the GW Foundation and granting it the usufructuary right over the dwellings, was no different from that which would have prevailed if it had itself let the newly-built dwellings. Given its very limited freedom of action, the GW Foundation was to be assimilated to the GW Association owing to the quite preponderant role of the latter, as shown by the powers conferred in granting the usufructuary right, and to the close administrative association of the two bodies. Consequently, the creation of the usufruct could not be a taxable transaction for VAT purposes. •GOED WONEN'

20The Gerechtsof also held, that even if the GW Foundation could not be assimilated to the GW Association, the supplementary assessment had to be upheld for the following reasons:

— the grant of a limited right such as usufruct did not constitute a supply of goods within the meaning of Article 3(1 )(e) of the VAT Law or Article 5(1) of the Sixth Directive since that concept does not cover the transfer of the right to dispose of an asset as owner;

— the Sixth Directive does not preclude the grant of a limited right in rem from being treated as a supply of goods under the sole condition referred to in the first subparagraph of Article 3(2) of the VAT Law;

— the grant of a usufruct in the circumstances of the instant case had to be treated as a 'letting' within the meaning of Article 13B(b) of the Sixth Directive so that the exemption provided for by that provision was applicable.

21The Hoge Raad der Nederlanden held that the first plea of the Stichting 'Goed Wonen', so far as it contested the interpretation of the Gerechtshof assimilating it to the GW Foundation, was well founded. According to the Hoge Raad, the legal transactions which had taken place in the case had incontestably led to the creation of a new and distinct legal person by the GW Association.

22With regard to the question whether the Dutch legislature could so implement Article 5(3)(b) of the Sixth Directive as to treat or not treat rights in rem entitling the holder to use immovable property as tangible goods depending on the price of transfer of those rights, the national court refers to the principles laid down in Case C-320/88 Shipping and Forwarding Enterprise Safe [1990] ECR I-285, paragraphs 8 and 9. According to the Hoge Raad the Court, in that judgment, held that the transfer of the power to dispose of tangible property as owner, even if there were no transfer of the legal property in the goods, was to be regarded as a 'supply of goods' on the ground that it was necessary to base the common VAT system on a uniform definition of taxable transactions.

23The Hoge Raad also points out that, since the Sixth Directive does not define 'letting' or 'leasing', the case raises the question whether, in Article 13B(b) of the Directive, the Council intended to limit the scope of those concepts to that which they have in the civil law of the Member State concerned.

24Taking the view that, in those circumstances, the case required an interpretation of the Sixth Directive, the Hoge Raad der Nederlanden stayed proceedings and referred the following two questions to the Court for a preliminary ruling:

'1. Is Article 5(3) of the Sixth Directive to be interpreted as meaning that rights in rem entitling the holder thereof to use immovable property may be treated by the national legislature as tangible property only if the remuneration agreed in respect of the grant, transfer, modification, waiver or termination of those rights is at least equivalent to the financial value of the immovable property concerned?

'GOED WONEN'

2. Are Article 13B(b) and Article 13C(a) of the Sixth Directive to be interpreted as meaning that the national legislature may treat the terms "leasing or letting" as covering not only leasing and/or letting in the sense applied to those terms by civil law but also any other form in which immovable property is made available for use otherwise than by way of the supply thereof?'

Preliminary observation

25Those two questions have been raised in proceedings which concern a transaction by which the owner of tangible immovable property, consisting of a building divided into several dwellings, confers on a legal person, for an agreed period and for consideration, the right to occupy the building as if it were the owner thereof and to exclude any other person from enjoyment of that right. It is common ground that the consideration agreed for the transfer of the right in question was lower than the cost price of the building concerned.

The first question

26By its first question, the Hoge Raad asks essentially whether, on a proper construction of Article 5(3)(b) of the Sixth Directive, it precludes a national provision, such as Article 3(2) of the VAT Law, whereby classification as a 'supply of goods' of the grant, transfer, modification, waiver or termination of rights in rem is made subject to the condition that the total consideration, plus turnover tax, amounts at least to the economic value of the immovable property to which the rights in rem relate.

27The Sticking 'Goed Wonen' contends that the grant of the usufruct to the GW Foundation was a supply of goods subject to VAT since that foundation acquired the power to dispose of the dwellings in question as owner.

28It also contends that Article 3(2) of the VAT Law is incompatible with Article 5(3) of the Sixth Directive. In its view, Article 5(3) allows the Member States only to select, within the catalogue of rights in rem existing in their national legal order, the rights which should be assimilated to tangible property. That provision does not, however, authorise them to differentiate between such rights on the basis of the consideration for a transaction concerning them.

29According to Sticking 'Goed Wonen', the effect of the criterion chosen by the Kingdom of the Netherlands is that, depending on the sum paid, a given right in rem could be regarded as tangible property in some cases and not in others. Furthermore, the price paid, which represents the consideration for creating a usufructuary right for a limited period, is inevitably lower than the economic value of the immovable property in question.

30The Sticking 'Goed Wonen' also contends that, before amending Article 3(2) of the VAT Law, the Kingdom of the Netherlands ought to have sought the authorisation provided for in Article 27 of the Sixth Directive. It did not have such authorisation at the time when its legislature made the amendments to that national legislation. Council Decision 96/432/EC of 8 July 1996 authorising the Netherlands to apply a measure derogating from Article 11 of Directive 77/388/ EEC on the harmonisation of the laws of the Member States relating to turnover taxes (Sixth VAT Directive) (OJ 1996 L 179, p. 51), was late, concerned a derogation from a different provision of the Sixth Directive and in any event was never used by that Member State.

'GOED WNEN'

31The Netherlands Government and the Commission submit that, owing to the artificial nature of the arrangement in the present case, the total amount of VAT paid by the GW Association and the GW Foundation was much lower than that which that association would have had to pay if it had acted itself as lessor of the dwellings. Since the majority of tenants were undoubtedly private individuals not subject to VAT, the GWAssociation would not have been able to submit, together with the tenants, an application for joint taxation on the basis of the option provided for in Article 11(1)(b), point 5, of the VAT Law. The exemption for lettings of immovable property would therefore have been applicable and the GW Association would not have been able to deduct input VAT upon acquisition of the dwellings.

32Consequently, according to the Netherlands Government and the Commission, the situation which gave rise to the main proceedings falls into the category of devices aiming artificially to reduce VAT on the transfer of immovable property, which is just what the Netherlands legislature sought to prevent by the amendment to the VAT Law introduced in 1995.

33As to those arguments, it is to be noted at the outset that, according to Article 5(1) and (3) of the Sixth Directive, the Member States may treat as tangible property forming the object of a 'supply' only the transfer of rights in rem entitling the holder to use immovable property. However, the Court has held, in Case C-186/89 Van Tiem [1990] ECR I-4363 that, in so far as a Member State has made use of such a possibility, the term 'transfer' used in Article 5(1) is to be interpreted as also covering the creation of one of the rights in rem mentioned in paragraph (3)(b) of that provision.

34Furthermore, as the Netherlands Government and the Commission rightly point out, the Member States are at liberty to exercise the choice afforded them by Article 5(3) of the Sixth Directive, by, inter alia, laying down certain conditions, in so far as these do not fundamentally alter the nature of the choice afforded, since no provision of the Sixth Directive in any way restricts the Member States' discretion in this regard. Consequently, whilst Article 5(3) of the Sixth Directive allows all the rights in question to be treated as tangible property, or only one or more of those rights to be so treated, that provision also allows such treatment to be restricted to only those rights which meet the precise criteria adopted by the Member State concerned.

35So, the condition laid down in Article 3(2) of the VAT Law, according to which the agreed consideration for the grant of the rights covered by that provision, plus turnover tax, must be not less than the cost price of the immovable property in question, is consonant with the aim of the Sixth Directive to ensure that VAT is actually collected and in the proper way, notwithstanding the fact that this condition will rarely be fulfilled in practice.

36Consequently, such a condition is not contrary to the provisions of Article 5(3) of the Sixth Directive.

37In those circumstances, it is not necessary to consider the argument of the Sticking 'Goed Wonen' that the amendment made to the VAT Law in 1995 constituted a special derogation, within the meaning of Article 27 of the Sixth Directive, for which Council authorisation was necessary.

38Consequently, the reply to be given to the first question must be that, on a proper construction of Article 5(3)(b) of the Sixth Directive, it does not preclude adoption of a national provision, such as Article 3(2) of the VAT Law, whereby classification as a 'supply of goods' of the grant, transfer, modification, waiver or termination of rights in rem in immovable property is made subject to the condition that the total consideration, plus turnover tax, must amount to at least the economic value of the immovable property to which those rights in rem relate.

'GOED WONEN'

The second question

39By its second question, the national court asks essentially whether, on a proper construction of Article 13B(b) and C(a) of the Sixth Directive, it precludes adoption of a national provision, such as Article 11(1)(b), point 5, of the VAT Law, which, for the purposes of applying the VAT exemption, allows the grant of a usufructuary right over immovable property for a limited period of time to be regarded as leasing or letting of immovable property.

40The Stichting 'Goed Wonen' and the Commission submit that the grant of rights in rem, whereby immovable property is made available for use otherwise than by supply, does not constitute 'leasing' or 'letting'. Consequently, according to them, the exemption created by the VAT Law in the case of the grant of a usufructuary right is contrary to the Sixth Directive.

41They submit that a strict construction must be given to the exempting provisions of the Sixth Directive, which may break the chain of deductions between taxable persons arising under Article 17 of the Sixth Directive and, consequently, lead to a charge to tax because input tax cannot be deducted.

42The Commission submits in particular that leasing and letting, on the one hand, and usufruct, on the other, are significantly different in the civil law systems' originating in Roman law, such as those existing in the majority of the Member States. First of all, the usufructuary acquires, besides the right to use the property in question, the right to enjoy the fruits of it. Next, usufruct in immovable property is a right in rem, whereas leasing and letting are rights in personam. Furthermore, usufruct is extinguished automatically when the usufructuary dies whereas a lease in principle continues in favour of the tenants' successors. Finally, unlike usufruct, a rental agreement generally makes the property in question available to the tenant to live in. Consequently, subletting of the property by the tenant is in principle excluded, unless exceptionally authorised by the owner, whereas the usufructuary has the right to use the property in question to the full and thus also to sublet it. Moreover, only a usufructuary right can be granted without consideration.

43According to the Commission, if the Community legislature had wanted to exempt from VAT the grant of rights in rem entitling the holder to use immovable property, it would have explicitly mentioned those rights, as it did in Article 4(2) or Article 5(3)(b) of the Sixth Directive, rather than only mentioning leasing and letting in Article 13.

44In considering the merits of that argument, it is to be noted that the Sixth Directive does not define 'leasing' or 'letting', nor does it refer to relevant definitions adopted in the legal orders of the Member States, as it does, for example, as regards 'building land' (see Article 4(3)(b)) of the Sixth Directive, which provides that '"building land" shall mean any unimproved or improved land defined as such by the Member States'.

45As is clear from the actual wording of Article 13B(b) and C of the Sixth Directive, the latter has left the Member States wide discretion as to whether the transactions concerned are to be exempt or taxed (see Case C-12/98 Amengual Far [2000] ECR I-527, paragraph 13).

46Next, it is settled in case-law that, since the exemptions provided for in the Sixth Directive, in particular in Article 13, are derogations from the general principle stated in Article 2 of the Directive, according to which VAT is to be levied on all •GOED WONEN"

supplies of goods or services made for consideration by a taxable person, those exemptions must be interpreted strictly (see, as regards in particular the exemption for leasing and letting of immovable property, Case C-358/97 Commission v Ireland [2000] ECR I-6301, paragraph 55, and Case C-150/99 Stockholm Lindöpark [2001] ECR I-493, paragraph 25).

47Finally, it should be observed that, according to the 11th recital of the preamble to the Sixth Directive, the Council's aim in establishing the common list of exemptions was to ensure that the Community's own resources are collected in a uniform manner in all the Member States. It follows that, even though Article 13B of the Sixth Directive refers to the exemption conditions laid down by the Member States, the exemptions provided for by that provision must constitute independent concepts of Community law so that the basis for assessing VAT is determined uniformly and according to Community rules (see Commission v Ireland, paragraph 51, and Case C-240/99 Försäkringsaktiebolaget Skandia [2001] ECR I-1951, paragraph 23).

48In this regard, the argument put forward by the Stichting 'Goed Wonen' and the Commission to the effect that the Community definition of leasing and letting must be based on the similarities existing between the relevant legal concepts prevailing in the civil law of the Member States most heavily influenced by Roman law cannot be accepted.

49As the Advocate General points out in paragraph 71 to 75 of his Opinion, such an approach would ignore the significant differences existing between the legal systems of the Member States in the matter of rights in rem conferring on their holder a right of user over immovable property. Moreover, the Court has held that the concept of leasing or letting in Article 13B(b) of the Sixth Directive is broader than that existing in the various national laws (see Commission v Ireland, paragraph 54).

50Consequently, in order to provide a helpful answer to the second question, as reformulated in paragraph 39 above, it is first necessary to analyse the ratio legis of the exemption established by Article 13B(b) of the Sixth Directive for the leasing or letting of immovable property. Second, it will be necessary to examine whether that ratio legis would allow that exemption to be extended to the grant of a right in rem such as usufruct, which entitles the holder to use immovable property so that the latter transaction can be regarded as also being covered by the Community concept of leasing or letting, as interpreted in the light of its context and the aims and scheme of the Sixth Directive.

51In this regard, the Explanatory Memorandum to the Commission's proposal for the Sixth Directive, presented to the Council on 29 June 1973 (Bull. EC II-73, Supplement, p. 7, particularly p. 16), states, with regard to Title x of the Sixth' Directive, concerning exemptions, that '[t]he list of exemptions has been drawn up having regard to (i) the exemptions already existing in the various Member States, and (ii) the need to keep the number of exemptions as small as possible... [I]n the Member States the letting of immovable property is generally exempted on technical, economic and social grounds. But the arguments which justify the exemption of lettings of premises as dwellings... no longer apply in the case of hotel premises or of lettings for industrial or commercial purposes'.

52Although the leasing of immovable property is in principle covered by the concept of economic activity within the meaning of Article 4 of the Sixth Directive, it is normally a relatively passive activity, not generating any significant added value. Like sales of new buildings following their first supply to a final consumer, which marks the end of the production process, the leasing of immovable property must therefore in principle be exempt from taxation, without prejudice to the right to opt for taxation which the Member States may grant to taxable persons, pursuant to Article 13C of the Sixth Directive.

53However, it is also consistent with the general aim of the Sixth Directive that if immovable property is made available to a taxable person through leasing or 'GOED WONEN'

letting, as a means of contributing to the production of goods or services whose cost is passed on in their price, the property stays within, or returns to, the economic circuit and must be capable of giving rise to taxable transactions. The common characteristic of the transactions which Article 13B(b) of the Sixth Directive excludes from the scope of the exemption is indeed that they involve more active exploitation of immovable property, thus justifying supplementary taxation, in addition to that charged on the initial sale of the property.

54The foregoing considerations are valid, mutatis mutandis, for the grant of a right in rem conferring on its holder a right of user over immovable property such as the usufructuary right in question in the present case.

55The fundamental characteristic of such a transaction, which it has in common with leasing, lies in conferring on the person concerned, for an agreed period and for payment, the right to occupy property as if that person were the owner and to exclude any other person from enjoyment of such a right.

56Consequently, observance of the principle of the neutrality of VAT and the requirement for a consistent application of the provisions of the Sixth Directive, in particular the proper, simple and uniform application of the exemptions provided for (see Case C-283/95 Fischer [1998] ECR I-3369, paragraph 28), entail treating the grant of a right such as the usufructuary right in question in the present case like leasing and letting, for the purposes of the application of Article 13B(b) and C(a) of the Sixth Directive.

57As the Netherlands Government has rightly pointed out, treating such a form of use of immovable property as letting prevents any abusive creation of a right to deduct input tax on immovable property, which is an aim expressly provided for by Article 13 of the Directive.

58That interpretation is not affected by the fact, pointed out by the Sticking 'Goed Wonen' and the Commission, that in the civil law of many Member States usufruct has characteristics which distinguish it from leasing or letting. As the Advocate General points out in paragraphs 87 to 91 of his Opinion, those points are not relevant to the determination of the present case. The particularities in question, arising from the fact that these legal institutions belong to distinct legal categories, are secondary in relation to the fact that, economically, a right such as the usufructuary right in question in the present case and leasing and letting present the essential common characteristic mentioned in paragraph 55 above.

59It follows from the foregoing considerations that the reply to be given to the second question must be that, on a proper construction of Article 13B(b) and C(a) of the Sixth Directive, it does not preclude adoption of a national provision such as Article 11(1)(b), point 5, of the VAT Law, which, for the purposes of the application of the VAT exemption, allows the grant, for an agreed period and for payment, of a right in rem entitling the holder to use immovable property, such as the usufructuary right in question in the present case, to be treated as the leasing or letting of immovable property.

Costs

Costs

60The costs incurred by the Netherlands and German Governments and by the Commission, 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.

'GOED WONEN'

Operative part

On those grounds,

THE COURT (Fifth Chamber),

in answer to the questions referred to it by the Hoge Raad der Nederlanden by judgment of 24 August 1999, hereby rules:

1. On a proper construction of Article 5(3)(b) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover tax — Common system of value added tax: uniform basis of assessment, it does not preclude adoption of a national provision, such as Article 3(2) of the Wet houdende vervanging van de bestaande omzetbelasting door een omzetbelasting volgens het stelsel van heffing over de toegevoegde waarde (Law replacing turnover tax by the system of taxing added value) of 28 June 1968, as amended by the Wet ter bestrijding van constructies met betrekking tot onroerende zaken (Law to prevent artificial arrangements relating to immovable property) of 18 December 1995, whereby classification as a 'supply of goods' of the grant, transfer, modification, waiver or termination of rights in rem in immovable property is made subject to the condition that the total consideration, plus turnover tax, must amount to at least the economic value of the immovable property to which those rights in rem relate.

2. On a proper construction of Article 13B(b) and C(a) of Directive 77/388, it does not preclude adoption of a national provision such as Article 11(1)(b), point 5, of the VAT Law of 28 June 1968, as amended by the Law of 18 December 1995, which, for the purposes of the application of the exemption from value added tax, allows the grant, for an agreed period and for payment, of a right in rem entitling the holder to use immovable property, such as the usufructuary right in question in the present case, to be treated as the leasing or letting of immovable property.

La Pergola Wathelet Edward

Jann Timmermans

Delivered in open court in Luxembourg on 4 October 2001.

R. Grass

A. La Pergola

Registrar President of the Fifth Chamber

OPINION OF ADVOCATE GENERAL JACOBS delivered on 22 February 2001 1

1The present case referred by the Netherlands Hoge Raad (Supreme Court) concerns the interpretation of Articles 5(3) and 13B(b) of the Sixth VAT Directive. 2 At issue is the value added tax treatment of the grant of a usufructuary right in respect of immovable property for a term of 10 years. One of the questions is whether a Member State may treat such a transaction as exempted 'leasing or letting of immovable property' within the meaning of Article 13B(b) of the Sixth Directive.

Relevant provisions of the Sixth Directive

2Under Article 2(1) of the Sixth Directive the supply of goods or services effected for consideration by a taxable person acting as such is subject to value added tax.

3Three of the concepts referred to in Article 2(1) are defined in Articles 4, 5 and 6 of the Directive, namely the concepts of 'taxable person', 'supply of goods' and 'supply of services'.

4Under Article 4(1) 'taxable person' means any person who independently carries out any economic activity specified in paragraph 2 thereof.

5Under Article 4(2) '[t]he exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.'

6Article 5, which is the first provision of Title V 'Taxable transactions', provides:

'1. "Supply of goods" means the transfer of the right to dispose of tangible property as owner.

3. Member States may consider the following to be tangible property:

(a) certain interests in immovable property;

(b) rights in rem giving the holder thereof a right of user over immovable property;

(c) shares or interests equivalent to shares giving the holder thereof de jure or de facto rights of ownership or possession over immovable property or part thereof.

...'

7According to Article 6(1) 'supply of services' means any transaction which does not constitute a supply of goods within the meaning of Article 5.

8Article 13 of the Directive concerns domestic exemptions from VAT. Article 13A enumerates activities which are exempted 'in the public interest'. Article 13B contains a list of 'other exemptions'. Article 13 C entitles Member States to grant taxpayers a right to opt for taxation in certain of the cases listed in Article 13B. It must be borne in mind that in some circumstances it may work to the advantage of a taxable person to opt for taxation of a supply in order to be able to reclaim the input tax incurred.

9The exemption at issue in the present case is Article 13B(b) which exempts from VAT the 'leasing or letting of immovable property'. The Member States may subject that exemption to conditions and certain transactions are excluded from its scope. Article 13B(b) provides:

'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.'

10Article 13C provides for a related right to opt for taxation:

'C. Options

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

(a) letting and leasing of immovable property;

(b) ...

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

11In certain cases it might appear appropriate to authorise Member States to take or retain special measures derogating from the Directive in order to simplify the levying of tax or to avoid fraud or tax avoidance. Article 27(1) of the Sixth Directive therefore provides:

'The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance....'

The Netherlands legal background

12In the Netherlands value added tax is governed by the Wet op de omzetbelasting 1968 (Law on turnover tax 1968, hereinafter 'the Law'), as amended. 4

13The present dispute centres essentially upon two amendments made to that Law by a Law of 18 December 1995. 5 Those amendments were expressly designed to combat tax avoidance arrangements with regard to immovable property. They were given retroactive effect from 6 p.m. on 31 March 1995.

14For the purpose of the analysis it is perhaps best to set out in full the text of the two amended provisions. The newly-intro duced passages are printed in italics. Other relevant provisions of the Law will be summarised.

15Article 1(a) of the Law describes the scope of value added tax in terms almost identical to Article 2(1) of the Directive.

16Article 3 of the Law clarifies the concept of supplies of goods. Under Article 3(1)(e) a supply of goods consists for example in a transfer of goods as a result of which the goods in question leave the taxable person's business assets.

17The first of the two amended provisions which are in issue in the present case is Article 3(2) of the Law. It establishes a deemed supply of goods and is intended to make use of the possibility afforded by Article 5(3) of the Directive. 6I t provides in its amended version:

'2. The grant, transfer, modification, waiver or termination of limited rights over immovable property, with the exception of mortgages and ground rents must also be viewed as a supply of goods, save where the sum paid therefor plus turnover tax amounts to less than the economic value of those rights. The economic value shall be not less than the cost price of the immovable property to which the right relates, including turnover tax, which would result if it were created by an independent third party at the time of the transaction'

18Article 11(1)(b) as amended is the second contentious provision. It is intended to implement Article 13B(b) and 13C(a) of the Directive and provides:

'1. The following are exempted from tax, subject to the conditions to be laid down by general administrative regulation:

(b) the letting (including the leasing) of immovable property, excluding:

(1) ...

(5) the letting of immovable property, apart from buildings and parts thereof which are used as accommodation, to persons using such property for purposes in respect of which there exists a complete or virtually complete right to deduct tax pursuant to Article 15, provided that the lessor and lessee have jointly submitted a request to that effect to the Inspector and provided that they otherwise fulfil the conditions to be laid down by Ministerial regulation;

"letting of immovable property" shall be taken to mean, inter alia, any other form in which immovable property is made available for use otherwise than by way of the supply thereof.'

The facts and the main proceedings

19At the material time in 1995 the appellant in the main proceedings was a housing association called Woningbouw vereniging 'Goed Wonen'. In 1997 it changed its legal form and became a foundation called Stichting 'Goed Wonen'. Since that change has no bearing on the present case and in order to prevent confusion with the distinct Stichting 'De Goede Woning' introduced below 8 I will refer to the housing association and the succeeding foundation simply as 'the appellant'.

20In the course of the second trimester of 1995 three new-built housing complexes with dwellings designed for letting (hereinafter 'the new houses') were supplied to the appellant.

21By notarial act dated 28 April 1995 the appellant set up the Stichting 'De Goede Woning' (hereinafter 'the Stichting').

22By a further notarial act of the same date, the appellant granted the Stichting a usufructuary right for a term of 10 years in respect of the new houses in return for a sum lower than the cost price of those houses.

23The act granting the usufructuary right provided also that the Stichting was to commission the appellant to

— manage the buildings and carry out large and small-scale maintenance work or have the same carried out,

— collect and administer the rents, issue receipts for rents received, conclude, modify and terminate agreements for the rental of the buildings and issue invoices in respect of rent increases, — carry out all such (legal) acts on behalf of the usufructuary in relation to the aforesaid management as the Stichting may deem appropriate.

24In its tax declaration for the period 1 April 1995 to 30 June 1995 the appellant indicated the turnover tax for the grant of the usufructuary right to the Stichting (HFL 645 067) and offset the amount of the turnover tax charged to it in connection with the construction of the new houses (HFL 1 285 059). On the basis of that declaration the appellant initially recouped HFL 639 992.

25The setting-up of the Stichting and the grant of the usufructuary right may thus have been to the appellant's advantage in particular because under the law in force before the amendments it was able to deduct the input tax.

26Presumably after the entry into force (with retroactive effect) of the amendments made by the law of 18 December 1995 the Netherlands tax authorities issued a supplementary assessment in the sum of HFL 1 285 059 corresponding to the amount deducted by the appellant as input tax. The appellant lodged an objection against that supplementary assessment. The Netherlands authorities initially confirmed their decision. By decision of 14 February 1997 they however reduced the assessment to the sum of HFL 639 992 which corresponds to the amount recouped by the appellant on the basis of the declaration.

27By judgment of 20 May 1998 the Gerechtshof te Arnhem (Regional Court of Appeal, Arnhem) annulled the tax authorities' initial assessment but confirmed the assessment in its corrected form of 14 February 1997. The Gerechtshof held that the setting-up of the Stichting and the grant of the usufructuary right were of no relevance for VAT purposes and argued essentially as follows.

28In the first place, the Stichting had to be assimilated to the appellant, because the role of the appellant in its relationship with the Stichting was so dominant. The grant of the usufructuary right was not therefore a transaction between two different taxable persons.

29Secondly, even if such an assimilation was not possible, the grant of the usufructuary right could not be viewed as giving GOED WONEN' rise to taxation and to the related right to deduct input tax:

— it could not be regarded as a transfer of the right to dispose of the asset in question as owner within the meaning of Article 5(1) of the Sixth Directive and Article 3(1)(e) of the Law, since it involved merely the grant of a limited right;

— it could also not be regarded as a supply of goods within the meaning of Article 3(2) of the Law as amended, since the sum paid for it amounted to less than the cost price of the houses in question;

— since it could not be considered as a supply of goods it had to be considered as a supply of services, taxable in principle; but that supply had to be considered as exempted 'letting of immovable property' within the meaning of the new definition contained in Article 11(1)(b) of the Law as amended, since it constituted 'a form in which immovable property is made available for use otherwise than by way of supply thereof'.

30The appellant lodged an appeal against that judgment before the Hoge Raad.

31The Hoge Raad appears to have no doubt about three issues. In the Hoge Raad's view the Gerechtshof was wrong in assimilating the appellant to the Stichting, because the legal transactions at issue resulted in the creation of a separate legal entity, in the form of a foundation, which was distinct from the appellant. However, the Gerechtshof had rightly held that there was no transfer of the right to dispose of the assets in question as owner within the meaning of Article 5(1) of the Sixth Directive and Article 3(1)(e) of the Law. The Stichting obtained only a limited right which did not encompass the right to dispose freely of the houses in question. Finally, it was in the present case not open to the courts to question the retroactive effect of the Law of 19 December 1995.

32The Hoge Raad considers however that several of the appellant's arguments raise questions regarding the interpretation of the Sixth Directive.

33Before the referring court the appellant maintained in substance, first, that Article 3(2) of the Law infringes Article 5(3)(b) of the Directive. In its view, the Netherlands legislature wrongly established a link between the amount of the consideration paid for the grant of a right in rem and the question whether that grant is to be regarded as a taxable supply. Secondly, before amending Article 3(2) of the Law the Netherlands should have sought authorisation pursuant to Article 27 of the Directive. Thirdly, Article 11(1)(b) of the Law is contrary to Article 13B(b) and 13C(a) of the Directive in that it exempts from value added tax transactions such as the grant of an usufructuary right which cannot be regarded as leasing or letting of immovable property within the meaning of the Directive.

34In the light of those arguments the Hoge Raad submitted the following questions for a preliminary ruling:

'1. Is Article 5(3) of the Sixth Directive to be interpreted as meaning that rights in rem entitling the holder thereof to use immovable property may be treated by the national legislature as tangible property only if the remuneration agreed in respect of the grant, transfer, modification, waiver or termination of those rights is at least equivalent to the financial value of the immovable property concerned?

2. Are Article 13B(b) and Article 13C(a) of the Sixth Directive to be interpreted as meaning that the national legislature may treat the terms "leasing or letting" as covering not only leasing and/or letting in the sense applied to those terms by civil law but also any other form in which immovable property is made available for use otherwise than by way of the supply thereof?'

35Written observations have been submitted by the Netherlands Government and the Commission. At the hearing the appellant, the Netherlands and German Governments, and the Commission were represented.

Question 1: Article 5(3) of the Sixth Directive

36By its first question the referring court wishes to ascertain whether Article 5(3)(b) of the Sixth Directive must be interpreted as precluding a national provision such as Article 3(2) of the Law as amended which subjects the classification as 'supply of goods' of the grant, transfer, modification, waiver or termination of rights in rem, with the exception of mortgages and ground rents, to the condition that the sum paid therefor plus turnover tax amounts at least to the economic value of the immovable property to which the rights in rem relate.

37The appellant maintains that the amendment of Article 3(2) of the Law is incompatible with Article 5(3)(b) of the Directive. In its view the Directive allows the Member States only to select within the catalogue of rights in rem existing in their national legal order the rights which should be assimilated to tangible property. It does not however allow them to differentiate on the basis of the sum paid for a transaction over such a right. The effect of the criterion chosen by the Netherlands is that depending on the sum paid a given right in rem is regarded as tangible property in some cases and not in others. It follows that before amending Article 3(2) of the Law the Netherlands should have sought authorisation pursuant to Article 27 of the Directive. Neither at the moment of the grant of the usufructuary right nor when the amendments were adopted by the legislature did the Netherlands have such an authorisation. The authorisation granted in 1996 came too late, allowed a derogation from a different provision of the Sixth Directive and was in any event never used by the Netherlands.

38The Netherlands Government and the Commission maintain — and I agree with them on this point — that a national provision such as Article 3(2) as amended is compatible with Article 5(3)(b) of the Sixth Directive.

39According to Article 5(1) of the Sixth Directive 'supply of goods' means the 'transfer of the right to dispose of tangible property as owner'. The two key elements in the definition are that the supply must entail the 'transfer of the right to dispose of [the] property as owner' and that the supply must concern 'tangible property'.

40As regards the first element, the Court has held that 'supply of goods' does not refer to the transfer of ownership in accordance with the procedures prescribed by the applicable national law but covers any transfer of tangible property by one party which empowers the other party actually to dispose of it as if he were the owner of the property. 11

41As regards the second element, Article 5(3)(b) provides that the Member States may consider 'rights in rem giving the holder thereof a right of user over immovable property' to be tangible property. That provision was prompted by the existence in the private law of several Member States of limited rights in rem such as 'usufruct', 'emphyteusis' and 'superficie' which give the holder certain rights of economic utilisation over immovable property.

42On a literal interpretation of Article 5(1) and (3)(b) Member States may consider only the transfer of the rights in rem mentioned in Article 5(3)(b) as a 'supply of goods' within the meaning of the directive. It follows however from Van Tiem that where a Member State has made use of the possibility provided for by Article 5(3)(b) to consider certain rights in rem to be tangible property, the term 'transfer' in Article 5(1) must be interpreted as also covering the creation of such a right.

43As regards the appellant's main argument that the Member States are not entitled to differentiate on the basis of the sum paid for a transaction over a given right, Article 5(3)(b) provides expressly that Member States may consider rights in rem giving the holder a right of user over immovable property as tangible property. No provision in the Sixth Directive subjects the discretion which the Member States enjoy under that provision to an express limitation. Since the Member States are free to consider the rights in rem mentioned in Article 5(3)(b) not to be tangible property at all, they may a fortiori also subject their classification as tangible property to restrictive conditions. The only limitation which the Member States have to respect is that the conditions imposed must not fundamentally alter the nature of the choice offered by Article 5(3)(b).

44It will be recalled that the distinguishing criterion chosen by the Netherlands legislature is the sum paid for the transaction over the right in rem. That in my view is not contrary to the objective of Article 5(3) (b) and does not fundamentally alter the nature of the choice offered by that provision. The objective of Article 5(3)(b) is to allow the Member States to treat as supplies of goods certain transactions which are similar in their economic effects to the supplies covered by Article 5(1). That similarity will in practice often be stronger where the sum paid for the transaction over the right in rem corresponds to the economic value of the immovable property concerned and weaker where no price or a price below the economic value of the immovable property in question is paid.

45An alternative criterion could have been the period for which a limited right in rem is granted. That is illustrated by a Council Decision authorising Ireland to •GOED WONEN' apply a measure derogating from the Sixth Directive. It appears incidentally from that decision that Ireland treats the supply of long-term lease interests (i.e. a lease of 10 years or more) in immovable property as a supply of goods. The Council stated in that context that Community law gives the Member States a great deal of discretion in determining the VAT treatment to be applied to immovable property, and its transposition has led to considerable variations in the national laws applied in that field.

46Since the disputed amendment is allowed by Article 5(3) of the Directive, the Netherlands did not need an authorisation pursuant to Article 27 of the Directive. It is therefore not necessary to discuss the appellant's arguments concerning the authorisation of 1996.

47It is perhaps possible to imagine transactions by which certain rights in rem over immovable property are granted for a sum below the economic value of that property and which at the same time actually empower the other party to dispose of the property as if he were the owner thereof. If Article 3(2) were to be interpreted as causing those transactions to be classified as supplies of services, a conflict with Article 5(1) as interpreted by the Court could perhaps arise. Since the present case does not concern a transaction of that type and since no question on the interpretation of Article 5(1) was referred, the Court does not need to pursue that hypothesis further.

48I accordingly conclude that Article 5(3)(b) of the Sixth Directive must be interpreted as allowing a Member State to subject the classification as 'supply of goods' of a transaction concerning a limited right over immovable property to the condition that the sum paid for the transaction plus turnover tax amounts at least to the economic value of the immovable property to which the right relates.

Question 2: Article 13B(b) of the Sixth Directive

The disputed amendment and the formulation of the question

49The referring court asks:

'Are Article 13B(b) and Article 13C(a) of the Sixth Directive to be interpreted as meaning that the national legislature may treat the terms "leasing or letting" as covering not only leasing and/or letting in the sense applied to those terms by civil law but also any other form in which immovable property is made available for use otherwise than by way of the supply thereof?'

50The question is thus formulated in abstract terms by reference to the wording of the disputed amendment of Article 11(1)(b) of the Law which defines 'letting of immovable property' as 'inter alia, any other form in which immovable property is made available for use otherwise than by way of supply thereof'.

51Despite the broad scope of the referring court's question the arguments of the parties in the main proceedings and the observations submitted to the Court have concentrated almost exclusively on the concrete problem discussed in the main proceedings, namely the grant of a usufructuary right and its classification for VAT purposes. It would moreover be difficult to give the referring court a general reply which takes into account all legal forms available under the laws of the Member States through which immovable property can be made available for use.

52I therefore propose to reformulate the second question in the light of the facts of the main proceedings and to consider whether a Member State may regard the grant of a usufructuary right over immovable property for a limited period of time (for example 10 years) as 'leasing or letting of immovable property' within the meaning of Article 13B(b) and C(a) of the Sixth Directive.

The nature of usufruct

53According to Article 3:021 of the Netherlands Civil Code a usufructuary right gives the holder thereof the right to use the property of another and to take the fruits of that property.

54Usufruct has its origin in Roman law where it was defined as the right to use and enjoy the things of another without impair ing their substance. Its primary purpose was essentially alimentary, e.g. provision for a widow. Initially Roman lawyers were not sure how to classify it and it was argued that in many respects usufruct was a fraction of ownership. Only at a later stage did it come to be thought of as a limited ius in rem which was to be classified as a personal servitude. A servitude was a right which encumbered another person's property and could be either praedial or personal. Praedial servitudes such as rights of way attached to land: they were rights that a person had by virtue of ownership of land over the land of another. Personal servi tudes such as usufruct attached to a particular person and died with him.

55Today in the Community usufruct exists in Austria, Belgium, France, Germany, Greece, Italy, Luxembourg, the Netherlands, Portugal and Spain. In those legal orders it is still classified as a personal servitude. It is mainly used in family arrangements and/or for tax reasons.

56Usufruct's main features under the national laws concerned are the following:

— it is the exclusive right in rem to use and take the fruits of a property belonging to another as if the usufructuary were the owner of that property; — the usufructuary is not allowed to alter fundamentally the nature or the use of the property;

— a usufructuary right is granted for life or any fixed period; if given to a legal entity it may in many legal orders not exceed a period fixed by law (e.g. 30 years);

— as a personal servitude it cannot sur vive the death of the original usufructuary or its dissolution if a legal entity;

— usufruct is created inter alia by contract, will, operation of law (e.g. usufruct over the family home for the surviving spouse) or court decision;

— in many legal orders the transfer of a usufructuary right is excluded by law or at least subject to the agreement of the owner.

57Usufruct as such does not exist in Denmark, Finland, Sweden, Ireland or the United Kingdom.

58In Denmark, Finland, Sweden and Ireland there are comparable but much more limited rights to take the produce from another's land for a determined period (e.g. timber felling rights, grazing licences).

59Close equivalents to usufruct in England and Wales, Ireland and Northern Ireland are perhaps life estates and the long lease which may be determinable on death to make it similar to a usufruct for life. In Scotland the liferent apparently fulfils a similar purpose.

60In England and Wales, Northern Ireland, Ireland and Scotland there was historically no need for the legal institution of usufruct. In those legal orders the 'lease' may be used to obtain very similar results, namely to grant to the lessee an exclusive right (similar to limited ownership) to occupy or take the profits from land or buildings for a fixed period of time. In English law there was also the trust — especially to fulfil the 'alimentary' function. The grant of a usufructuary right as 'leasing or letting' within the meaning of Article 13B(b) of the Sixth Directive

61The appellant and the Commission maintain that the grant of a usufructuary right cannot be regarded as exempted 'leasing or letting' within the meaning of Article 13B(b) of the Sixth Directive.

62In the first place, they recall the Court's settled case-law that the exemptions provided for in 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 supplies of goods or services made for consideration by a taxable person.

63Moreover, it follows in their view from the terminology employed in the Sixth Directive that the concept of 'leasing or letting' in Article 13B(b) must be interpreted by reference to the common principles of the civil laws of the Member States as they derive from Roman law.

64They refer to the Sixth Directive which uses inter alia the following concepts:

— 'rights in rem giving the holder thereof a right of user of immovable property' in Article 5(3)(b);

— 'leasing or letting of immovable property' (in Netherlands 'verpachting en verhuur') in Article 13B(b);

— 'exploitation of property for the purpose of obtaining income therefrom on a continuing basis' in Article 4(2).

65The appellant and the Commission maintain that the authors of the Directive were thus aware of the fundamental differences in civil law between, on the one hand, the grant of a right in rem such as a usufructuary right and, on the other hand, 'leasing or letting' (in Netherlands 'verpachting en verhuur'). The latter concept must be read as relating only to personal rental contracts which do not give rise to rights in rem. If the Community had wanted to bring the grant of rights in rem within the scope of the exemption it could have used in Article 13B(b) a more neutral formula similar to that used in Article 4(2).

66According to the appellant and the Commission the main differences between, on the one hand, a rental contract creating rights in personam which is to be considered as exempted 'leasing or letting' and, on the other hand, the grant of a usufructuary right which is not exempted from VAT are the following:

— usufruct grants the holder a right in rem, whilst rental contracts grant only rights in personam;

— a usufructuary right does not survive the death of the original usufructuary, whilst a rental agreement continues in principle with the successors of the tenant;

— a usufructuary right may be granted without remuneration, whilst the concept of a rental contract presupposes the payment of a remuneration;

— the usufructuary has the right to use the property in question fully and thus also to sublet it; in a rental agreement subletting is in principle precluded if not exceptionally allowed by the owner.

67I am not convinced by those arguments. In my view the Netherlands and German Governments are right to maintain that a Member State may regard the grant of a usufructuary right as exempted 'leasing or letting' within the meaning of Article 13B(b) of the Sixth Directive.

68The Sixth Directive does not expressly define the concept of 'leasing or letting'. Nor does it leave that definition to the legal orders of the Member States.

69It follows from the 11th recital of the preamble to the Sixth Directive that the common list of exemptions in Article 13 is designed to guarantee that VAT is collected in a uniform manner in all the Member States. It is therefore well-established case-law that the terms used to specify the exemptions provided for by Article 13 constitute independent concepts of Community law which must be given a Community definition.

70The wording of Article 13B(b) of the Sixth Directive does not shed any light on the scope of the concept of 'leasing or letting of immovable property'. 5

71The appellant and the Commission appear to suggest, if I understand their arguments correctly, that 'leasing or letting' (in Netherlands 'verpachting en verhuur') must be taken to refer only to personal rental contracts which do not give rise to rights in rem as they are known in the civil laws of the Member States most strongly influenced by Roman law.

72I consider however that the Community definition of 'leasing or letting' cannot be found by simply referring to legal concepts used by only some of the national laws.

73That is, first, because there are important substantive differences between the legal institutions used in the different Member States.

74For example the 'lease' to which the wording of the English version refers is a peculiar institution of the common law jurisdictions. 'Leasehold' is considered as one of two main types of 'interests in land', the other being 'freehold' (akin to absolute ownership). Leasehold is traditionally regarded as a kind of limited ownership and may thus be even stronger than limited rights in rem. A lease may be used to grant a right to occupy or take the profits from land or buildings either for a fixed term, commonly up to 999 years, or by way of periodic tenancy, e.g. on a recurring monthly or yearly basis until determined by notice.

75In order to obtain the same range of economic results the civil law jurisdictions use several distinct legal vehicles such as rental contracts and rights in rem (e.g. usufruct or building rights). In that respect the Germanic and Romanist legal orders appear to attach importance to the systematic distinction between contracts over immovable property which grant only rights in personam such as rental contracts and arrangements which create rights in rem. The Nordic legal orders do not appear to insist so strongly on those systematic differences.

76Secondly, those substantive differences are reflected in important linguistic differences of terminology within Article 13B(b) as regards the phrase 'leasing or letting'. The wording of the Danish, Dutch, French, German, Italian and Swedish language versions refers to two distinct types of contracts. One of those contracts (udlejn ing, location, Vermietung, locazione, ver huur, uthyrning) consists of granting the tenant the right to use the property of another. The other type of contract (bort forpagtning, affermage, Verpachtung, affitto, verpachting, utarrendering) consists of allowing the tenant also to enjoy the gains produced by the property. The English and Spanish versions also use two words (leasing or letting, arrendiamento y alquiler), but the words do not correspond to two technically distinct types of contracts. The Finnish, Greek and Portuguese versions use only one word referring to one type of contract.

77Finally, it appears from the first subparagraph of Article 13B(b) that the authors of the Directive did not have a purely formalistic idea of the concept of 'leasing or letting'. That provision excludes from the scope of the exemption inter alia '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'. It might be argued that the existence of the exclusion in question logically presupposes that the contract for a hotel room constitutes 'leasing or letting' for the purposes of Article 13B(b). The authors of the Directive were however certainly aware that such a contract — in view of the overriding importance of the services provided by the hotelier and the control he retains over the use of the premises — is in some national laws not considered to be a contract to let.

78It does not therefore come as a surprise that the Court's case-law on the concept of 'leasing or letting of immovable property' instead of referring to legal categories of national law takes a functional approach which takes into account the context in which the concept is used and the general structure of the Sixth VAT Directive.

79The Court held for example in two of the 'road toll' cases that the definition of 'leasing or letting of immovable property' under Article 13B(b) is 'certainly wider in some respects than that enshrined in various national laws'. In the same cases the Court did not attempt to classify the contract granting access to roads on payment of a toll by reference to categories of national law. It held instead that the concept 'leasing or letting' could not be considered to cover contracts in which the parties have not agreed on any duration for the right of enjoyment of the immovable property, which was an essential element of a contract to let. Where access to roads was provided, the duration of the use of the road was not a factor taken into account by the parties, in particular in determining the price. More recently in Stockholm Lindöpark, which concerned the making available of a golf course, the Court repeated that agreement on the duration of the right of enjoyment of the immovable property was an essential element of 'leasing or letting'. In my Opinion in the same case I emphasised also another essential element: that a lease or let necessarily involved the grant of some right to occupy the property as one's own and to exclude or admit others, a right which is, moreover, linked to a defined piece or area of property.

80A functional interpretation of the concept of 'leasing or letting of immovable property' moreover guarantees the equal treatment of taxable persons who in economic terms perform equivalent transactions and facilitates the uniform application of exemptions throughout the Community as postulated in the 11th recital of the preamble to the Sixth Directive. It is also in line with the Court's functional interpretation of the concept of the 'transfer of the right to dispose of [the] property as owner' within the meaning of Article 5(1).

81What then are the essential elements of the concept of 'leasing or letting of immovable property'?

82In his Opinion in Lubbock Fine Advocate General Darmon used a definition which was common ground between the parties, namely that a letting was a contract by which the owner transfers in return for a rent certain rights in his property, such as the right of enjoyment of the property, whatever the nuances of national law on that point. In a footnote he added that leasing or letting for the purposes of Community law included in his view a 'lease', a 'licence', a 'bail' or a 'convention d'occupation précaire'.

83.In the light of the Court's subsequent case-law I would tentatively suggest a more specific interpretation which takes into account the different language versions of Article 13B(b) and the divergences between the laws of the Member States.

84'Leasing or letting of immovable property' within the meaning of Article 13B(b) includes in my view agreements 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.

85If one applies that interpretation to the present case the grant of a usufructuary right as in issue in the main proceedings can properly be considered as exempted 'leasing or letting of immovable property'.

86It may be recalled that the appellant granted the Stichting a usufructuary right over the new houses for a period of 10 years. There was thus an agreement whereby one party grants the other the right to occupy and to use and even take the profits from a specified immovable property. That right was granted for remuneration and for an agreed duration.

87The particularities of usufruct emphasised by the appellant and the Commission cannot affect that result.

88The fact that usufruct grants the holder a right in rem whilst rental contracts grant only rights in personam is irrelevant. Even in the civil law jurisdictions the practical differences between usufruct and rental contract are much narrower than suggested by the abstract and theoretical distinction between rights in personam and rights in rem. For example in most civil law jurisdictions the tenant does not lose his rights arising from a rental contract — which are in theory in personam only — where the owner sells the property to a third person. Conversely a usufructuary right (a personal servitude) can rarely be transferred freely to third persons and cannot survive the death of the original usufructuary. Those are probably the main reasons why the classification both of the rights flowing from a rental contract as rights in personam and of usufruct as a right in rem were historically disputed. It must also be recalled that in the common law jurisdictions the lease serves the purposes of both rental contracts and usufruct and may grant the tenant rights which are stronger than limited rights in rem.

89The fact mentioned by the Commission that usufruct does not survive the death of the original usufructuary whilst a rental contract continues in principle with the successors of the tenant only confirms my thesis about the irrelevance of the abstract distinction between the legal effects of rental contracts and of usufruct. The theoretical distinction between rights in rem and rights in personam would lead one to expect exactly the opposite.

90The fact that a usufructuary right may be granted without remuneration is also irrelevant. It is true that a usufructuary right granted without remuneration for example in family arrangements cannot be assimilated to leasing or letting. It must however be borne in mind that supplies effected for no consideration fall in any event outside the scope of the Sixth Directive.

91Finally, I am not convinced that the Commission's contention that the usufructuary may always sublet the property whilst the tenant in a rental contract needs the authorisation of the owner is correct. It appears that the right of the usufructuary to sublet may also be limited by contract. In any event, it cannot be decisive for the classification of usufruct as 'leasing or letting' whether subletting is allowed sub-GOED WONEN

ject to contractual limitations or forbidden the grant of a usufructuary right over subject to contractual authorisation. immovable property for a limited period of time (for example 10 years) as leasing or letting of immovable property within the meaning of Article 13B(b) and C(a) of the

92In the light of the foregoing, I conclude Sixth Directive.

that a Member State can properly regard

Conclusion

93For the above reasons the questions referred should in my view be answered as follows:

(1) Article 5(3)(b) of the Sixth VAT Directive must be interpreted as allowing a Member State to subject the classification as a 'supply of goods' of a transaction concerning limited rights over immovable property to the condition that the sum paid for the transaction plus turnover tax amounts to no less than the economic value of the immovable property to which the rights relate;

(2) Article 13B(b) and C(a) of the Sixth VAT Directive must be interpreted as allowing a Member State to regard the grant of a usufructuary right over immovable property for a limited period of time (for example 10 years) as leasing or letting of immovable property within the meaning of those provisions.

Notes

(1) Original language: English.

(2) Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover tax — Common system of value added tax: uniform basis of assessment, OJ 1977 L 145, p. 1.

(3) Staatsblad 1968, 329.

(4) The Law was in particular amended by law of 28 December

(197) 8 (Staatsblad 1978, 677) in order to implement the Sixth Directive.

(5) Wet van 18 december 1995 tot wijziging van de Wet op de omzetbelasting 1968, de Wet op belastingen van rechtsverk eer en enkele andere belastingwetten m verband met de bestrijding van constructies met betrekking tot onroerende zaken. Staatsblad 1995, 659.

(6) See paragraph 6 above.

(7) See paragraphs 9 and 10 above.

(8) See paragraph 21 below.

(9) See below, paragraphs 53 to 60.

(10) Council Decision 96/432/EC of 8 July 1996 authorising the Netherlands to apply a measure derogating front Article 11 of Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes (Sixth VAT Directive), OJ 1996 L 179, p. 51.

(11) Case C-320/88 Shipping and Forwarding Enterprise Safe [1990] ECR I-285, paragraph 7 of the judgment.

(12) See the Explanatory Memorandum to the Commission's first proposal for the Sixth Directive, Bulletin of the European Communities, Supplement 11/73, p. 10.

(13) Case C-186/89 [1990] ECR I-4363.

(14) Council Decision 97/510/EC of 24 July 1997 authorising Ireland to apply a measure derogating from Article 21 of the Sixth Directive (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes, OJ 1997 L 214, p. 37.

(15) Sec Case C-320/88 Shipping and Forwarding Enterprise Safe, summarised in paragraph 40 and cited in note 11.

(16) See paragraph 18 above.

(17) See the useful synthesis by A. Borkowski, Textbook on Roman Law, Blackstone Press Limited, London, 1994, p. 163 et seq. •GOED WONEN'

(18) See also WAV. Buckland and A.D. McNair, Roman Law and Common Laiw: A Comparison in Outline, second edition revised by EH. Lawson, Cambridge University Press, Cambridge 1965, p. 127 et seq.

(19) The following comparisons between the different national legal orders are based on the helpful analysis in A. Hurn-dall (Ed.), Property in Europe: Law and Practice, Butter-worths, London, Dublin, Edinburgh 1998.

(20) See for example Case C-216/97 Gregg [1999] ECR I-4947, paragraph 12 of the judgment and with regard to Article 13B(b) Cases C-358/97 Commission v Ireland and C-359/97 Commission v United Kingdom, judgments of 12 September 2000, paragraphs 52 and 64 of the judgments with further references.

(21) See paragraph 6 above.

(22) Sec paragraph 5 above.

(23) See by contrast the concept of 'building land' in Article 4(3)(b) of the Sixth Directive which 'shall mean any unimproved or improved land defined as such by the Member States'.

(24) Cases C-358/97 Commission v Ireland and C-359/97 Commission v United Kingdom, cited in note 20, at paragraphs 51 and 63 of the judgments.

(25) Ibidem at respectively paragraphs 53 and 65 of the judgment.

(26) Sec un the distinctive modes of legal thinking of the different legal families K. Zweigert and H. Kotz, introduction to Comparative Laif, third revised edition translated from the German hy T. Weir, Clarendon Press Oxford 1998, p. 69.

(27) Cases C-358/97 Commission v Ireland and C-359/97 Commission v United Kingdom, cited in note 20, at paragraphs 54 and 66 of the judgments.

(28) Ibidem, at paragraphs 56, 57 and 68, 69 of the judgments respectively.

(29) Case C-150/99, judgment of 18 January 2001, at paragraph 27.

(30) Paragraph 38 of the Opinion, which was delivered on

(26) September 2000.

(31) Case C-281/91 Muys' en De Winter's Bouw- en Aannemingsbedrijf [1993] ECR I-5405, paragraph 14 of the judgment.

(32) See paragraph 40 and note 11 above.

(33) Case C-63/92 f 1993] ECR I-6665, paragraph 39 and note

(27) of the Opinion. It is not clear whether he referred m tilat nute to the French or the English term 'licence'.

(34) See paragraph 66 above.

(35) H. Coing, Europäisches Privatrecht Bd. H. 19. Jahrhun dert: Überblick über die Entivickhtng des Privatrechts in den ehemals gemeinrechtlichen Ländern, C.H. Beck'sche Verlagsbuchhandlung München 1989, p. 482.

(36) As regards rental contracts see H. Coing, cited in the previous note, p. 482 and as regards usufruct see above, paragraph 54 and notes 17 and 18.