C-396/98 Schloßstraße

JUDGMENT OF THE COURT (Sixth Chamber)

8 June 2000 *

In Case C-396/98,

REFERENCE to the Court under Article 177 of the EC Treaty (now Article 234 EC) by Bundesfinanzhof (Germany) for a preliminary ruling in the proceedings pending before that court between

Grundstückgemeinschaft Schloßstraße GbR

and

Finanzamt Paderborn,

on the interpretation of Article 17 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to

* Language of the case: German.

turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145 p. 1),

THE COURT (Sixth Chamber),

composed of: J.C. Moitinho de Almeida (Rapporteur), President of the Chamber, R. Schintgen, G. Hirsch, V. Skouris and F. Macken, Judges,

Advocate General: D. Ruiz-Jarabo Colomer, Registrar: H. von Holstein, Deputy Registrar,

after considering the written observations submitted on behalf of:

— the German Government, by W.-D. Plessing, Ministerialrat in the Federal Ministry of the Economy, and C.-D. Quassowski, Regierungsdirektor in the same ministry, acting as Agents,

— the Commission of the European Communities, by E. Traversa, Legal Adviser, and A. Buschmann, a national civil servant on secondment to the Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Grundstückgemeinschaft Schloßstraße GbR, represented by B. Westermann, Tax Adviser, Paderborn, of the German Government, represented by C.-D. Quassowski, and of the Commission, represented by J. Grunwald, Legal Adviser, acting as Agent, at the hearing on

Legal context and the dispute

2 December 1999,

after hearing the Opinion of the Advocate General at the sitting on 16 December 1999,

gives the following

Judgment

1By order of 27 August 1998, received at the Court Registry on 6 November 1998, the Bundesfinanzhof (Federal Finance Court) referred to the Court for a preliminary ruling under Article 177 of the EC Treaty (now Article 234 EC) two questions on the interpretation of Article 17 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').

2 Those questions were raised in proceedings between Grundstückgemeinschaft Schloßstraße GbR (hereinafter 'Schloßstraße') and Finanzamt Paderborn concerning deduction of the value added tax ('VAT') paid by Schloßstraße on goods or services supplied to it in order to carry out certain operations in respect of which a legislative amendment made after those goods or services were supplied removed the right to waive exemption.

The Sixth Directive

3 Article 13 of the Sixth Directive provides:

'...

B. Other exemptions

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

(b) the leasing or letting of immovable property... down for the purpose of of the exemptions and of

C. Options

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

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

4 Article 17 of the Sixth Directive provides:

'1. The right to deduct shall arise at the time when the chargeable.

option and shall fix the

deductible tax becomes 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;

3. Member States shall also grant to every taxable person the right to a deduction or refund of the value added tax referred to in paragraph 2 in so far as the goods and services are used for the purposes of:

(a) transactions relating to the economic activities as referred to in Article 4(2) carried out in another country, which would be eligible for deduction of tax if they had occurred in the territory of the country;

(b) transactions which are exempt under Article 14(1)(i) and under Articles 15 and 16(1)(B), (C) and (D), and paragraph 2;

(c) any of the transactions exempted under Article 13B(a) and (d), paragraphs 1 to 5, when the customer is established outside the Community or when these transactions are directly linked with goods intended to be exported to a country outside the Community.

..."

According to Article 20 of the Sixth Directive:

'1. The initial deduction shall be adjusted according to the procedures laid down by the Member States, in particular:

(a) where that deduction was higher or lower than that to which the taxable person was entitled;

(b) where after the return is made some change occurs in the factors used to determine the amount to be deducted, in particular where purchases are cancelled or price reductions are obtained; however, adjustment shall not be made in cases of transactions remaining totally or partially unpaid and of destruction, loss or theft of property duly proved or confirmed...

2In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured. The annual adjustment shall be made only in respect of one fifth of the tax imposed on the goods. The adjustment shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired or manufactured.

3In the case of supply during the period of adjustment capital goods shall be regarded as if they had still been applied for business use by the taxable person until expiry of the period of adjustment. Such business activities are presumed to be fully taxed in cases where the delivery of the said goods is taxed; they are presumed to be fully exempt where the delivery is exempt. The adjustment shall be made only once for the whole period of adjustment still to be covered.

4For the purposes of applying the provisions of paragraphs 2 and 3, Member States may:

— define the concept of capital goods,

— indicate the amount of the tax which is to be taken into consideration for adjustment, — adopt any suitable measures with a view to ensuring that adjustment does not involve any unjustified advantage,

— permit administrative simplifications.

...'

The national VAT legislation

6Article 4(12)(a) of the Umsatzsteuergesetz (Law on value 'the UstG') provides:

added tax, hereinafter 'Among the operations covered by Article 1(1), subparagraphs (1) to (3), the following shall be exempt:

12. (a) the letting and leasing of land...'

7Article 9 of the UstG provides, however:

'1. An entrepreneur may treat as taxable an operation exempted under Article 4(12) where that operation is carried out for another entrepreneur on behalf of his undertaking.

2. The waiver of the exemption under paragraph 1 shall not be available... in the event of letting or leasing of land [Article 4(12)(a)] unless the entrepreneur proves that the land is not used or intended either for residential purposes or for activities other than those of an undertaking.'

8The Mißbrauchsbekämpfungs- und Steuerbereinigungsgesetz (Law on the simplification of tax legislation and combating of fraud, hereinafter 'the StMBG') of 21 December 1993 (BGBl. 11993, p. 2310) limited, with effect from 1 January 1994, the scope of the right of option regarding taxation of the letting of land. Article 9(2) of the UStG, as amended by the StMBG, provides:

'The waiver of exemption under paragraph 1 shall be permitted... in the event of the letting or leasing of land (Article 4(12)(a)) only if the recipient of the service uses or intends using the land only for operations which do not preclude the deduction of input tax. It shall be for the entrepreneur to prove that those conditions are met.'

9Under Article 18(3) of the UStG, the turnover tax return is to be made in the same way as for other taxes.

10Article 27(2) of the UStG, as amended by the StMBG, contains the following transitional provision:

'Article 9(2) shall not apply where the building constructed on the land

1. is used or intended for dwelling purposes and was completed before 1 April 1985;

2. is used or intended for other purposes, not connected with an entrepreneurial activity, and was completed before 1 January 1986;

3. is used or intended for purposes other than those indicated in paragraphs 1 and 2 [dwelling or other purposes not relating to the business of an undertaking] and was completed before 1 January 1998;

and where... in the cases mentioned in paragraph 3, construction of the building commenced before 11 November 1993.'

11Articles 164 and 168 of the Abgabenordnung (Tax Code, hereinafter 'the AO') provide for rapid assessment of the tax on the basis of the taxpayer's returns alone, but, as a corollary, allows the tax administration to rectify that assessment as regards matters both of fact and of law.

12Article 164 of the AO provides:

'1. Pending final review, taxes may, in general or in particular cases, be assessed subject to review, and no reasons need be stated for such assessment.

2. The assessment may be annulled or amended at any time whilst it remains reviewable...

4. When the period prescribed for assessment expires, the assessment shall cease to be subject to review...'

is Article 168 of the AO states that a tax return shall rank as a tax assessment subject to review. Accordingly, pursuant to Article 18(3) of the UStG, the turnover tax return itself becomes, by virtue of the existing legislative provisions and subject to review, a tax assessment, which may be amended at any time without any other conditions being required to be met.

The main proceedings and the questions referred to the Court

14Schloßstraße is a company governed by civil law whose objects are to hold development rights in respect of land, to construct office and residential buildings thereon and to turn such assets to account on a long-term basis.

15On 8 March 1991, Schloßstraße acquired development rights in respect of the abovementioned land and, on 16 March 1991, it applied for a building permit. An objection was raised that Schloßstraße's plan did not conform with the town-planning rules and as a result the permit was not issued to it until 27 May 1993.

16It is clear from a decision adopted on 11 June 1993 by the members of Schloßstraße that they had resolved to transfer the building permit to a third party immediately after its issue. However, in the absence of a purchaser, that decision could not be implemented. On 10 October 1993, Schloßstraße concluded a contract with an architect with a view to constructing the building. Work commenced in January 1994 and was completed in December of the same year.

17The total area of the building was divided into three parts: 39.38% was let out for dwelling purposes; for the rest, 13.96% was leased to an architect's firm and 46.49% to a public limited company (hereinafter 'the finance company'), 90% of whose business consisted in providing VAT-exempt financial services.

18In its VAT returns for 1992 to 1994, Schloßstraße, relying on Article 9 of the UStG, waived exemption for the letting operations planned or carried out and claimed a right of deduction on invoices for goods or services relating to the construction work. Initially, that right of deduction was granted.

19However, pursuant to Articles 164 and 168 of the AO, the relevant notices of assessment were issued subject to subsequent review.

20The Finanzamt Paderborn undertook a review. Thereafter, it amended the abovementioned notices of assessment for 1992 and 1993 and drew up a first notice of assessment for 1994. In those notices, the Finanzamt agreed to the deduction of input VAT only as to 13.96% of the amounts declared, on the view that the only taxable use of the building was that of the architect's firm. According to the Finanzamt, it was no longer possible to allow deduction of VAT in respect of the 46.49% of the building used by the finance company for exempt operations since, for operations of that kind, the possibility of waiving the exemption had been removed with effect from 1 January 1994 following the amendment of Article 9(2) of the UStG by the StMBG. The Finanzamt also considered that Schloßstraße could no longer rely on the transitional provisions of Article 27(2) of the UStG, as amended by the StMBG, because construction of the building had not commenced before 11 November 1993, the final date prescribed by that provision for waiver of the benefit of exemption to be available.

21Schloßstraße lodged an objection against the VAT assessments for 1992, 1993 and 1994, which was rejected by the Finanzamt.

22On 8 December 1995 Schloßstraße brought an action before the Finanzgericht (Finance Court) Münster against that adverse decision of the Finanzamt. By judgment of 8 October 1996, the Finanzgericht dismissed that action.

23On 27 November 1996 Schloßstraße appealed on a point of law to the Bundesfinanzhof. In its appeal, Schloßstraße contends, first, that the restriction of the right to opt for taxation introduced by the StMBG is inapplicable to it since construction of the building must be deemed to have commenced on the date on which it applied for a building permit or, at least, the date of its grant. Furthermore; it infers from Case C-110/94 INZO v Belgian State [1996] ECR I-857 that, by virtue of the principle of the protection of legitimate expectations, it cannot ex post facto be divested of the right to deduct VAT paid during 1992 and 1993, in particular on architect's fees and notarial fees.

24The Bundesfinanzhof entertains doubts as to'the successful outcome of the appeal on a point of law based on the UStG and the procedural rules contained in the AO. It considers, first, that Schloßstraße cannot rely on the transitional provisions of Article 27(2) of the UStG because construction of the building did not begin until January 1994. The services already provided in 1992 and 1993 form part of the construction costs of the building and, therefore, of the building as 'capital goods'. Consequently, the decision on the deduction of VAT paid in respect of those services cannot be adopted without taking account of the construction date or, therefore, of the limitation introduced by the StMBG, since it depends on the actual purpose of the building in question, that is to say leasing operations carried out in 1994, and whether those operations are taxable or exempt.

25Since, according to the case-law of the Bundesfinanzhof relating to the UStG, a final decision on the right to deduction cannot be taken until the real use of capital goods is ascertained, the Finanzamt was, in its view, right, under Article 164(2) of the AO, to amend the notices of assessment issued subject to subsequent review and to disallow deduction to the extent to which the services provided were ultimately used for VAT-exempt operations.

26Next, the national court observes that retroactive application of Article 9(2) of the UStG, as amended by the StMBG, to the services provided in 1992 and 1993 does not infringe the constitutional principle of non-retroactivity. On the date on which the new version of Article 9(2) of the UStG entered into force, the right of deduction in respect of capital goods had not crystallised because the final use of those goods had not yet been established and that factor is determinative as regards the decision on the right of deduction.

27Finally, the Bundesfinanzhof considers that Schloßstraße cannot invoke the principle of the protection of legitimate expectations and rely on its conviction that it was entitled to exercise the option provided for by Article 9(2) of the UStG in respect of the planned leasing of the building because construction of it commenced only after the entry into force of the new rules. It also states that, according to the findings of the Finanzamt, Schloßstraße still envisaged, on 11 June 1993, transferring the building permit to a third party and that the instructions given to the architect were not accompanied by any firm order for building works. Moreover, according to the national court, the VAT for the years in dispute had been assessed subject to subsequent review, so that Schloßstraße could not legitimately expect that that assessment would not be amended

28Nevertheless, querying whether such an interpretation of the relevant provisions of German law is consistent with the case-law of the Court of Justice on Article 17 of the Sixth Directive, the Bundesfinanzhof stayed proceedings pending a preliminary ruling from the Court on the following questions:

'(1) According to the case-law of the Court of Justice (Case C-37/95 Ghent Coal Terminal NV, in which reference is made to Case C-1 10/94 INZO), a taxable person can retain the right to deduct tax charged on goods and services where, by reason of circumstances beyond his control, he has not made use of those goods and services for the purpose of carrying out taxable transactions.

According to that principle, does a taxable person also retain the right to deduct tax if he does in fact use the goods or services to carry out (leasing) transactions but, following a change in the law, is no longer entitled, after acquiring the goods or services, to opt to waive the tax exemption for the transactions carried out with them, and so cannot in fact carry out any taxable transactions?

(2) In such a case, where there is a subsequent change in circumstances, does the right to deduct tax also continue to exist if, under national law, the tax assessments were allowed to be subject to a subsequent review, enabling a quick tax assessment to be made solely on the basis of information supplied by the taxable person, but giving the revenue authority the right to correct the tax assessment in every respect on the basis of factual and legal considerations?'

29By those two questions, which it is appropriate to consider together, the national court seeks essentially to ascertain whether Article 17 of the Sixth Directive must be interpreted as meaning that a taxable person's right to deduct VAT paid on goods or services supplied to it with a view to certain leasing operations is retained where a legislative amendment post-dating the supply of such goods or services but pre-dating the commencement of the abovementioned operations deprives that taxable person of the right to waive exemption thereof, even if the VAT was assessed subject to subsequent review.

30The German Government submits that Article 17(1) of the Sixth Directive determines only the time at which the right to deduct inputs tax arises. The material and legal conditions governing exercise of the right to deduct are laid down in Article 17(2). Those conditions include one requiring the goods and services in respect of which VAT has been paid to have been used for taxed operations. Accordingly, in the German Government's view, a final decision as to the right to deduction cannot be taken until it has been ascertained for what operations those goods and services were actually used, and that decision should take account of any legislative amendments made before the commencement of the taxed operations.

31Consequently, a taxable person enjoys no right to deduct VAT paid on goods or services supplied to it with a view to certain leasing operations where, after the supply of those goods or services but before the commencement of such leasing, a legislative amendment deprives him of the right to waive exemption for such operations.

32The German Government adds that the fact that, in the main proceedings, the goods or services were used for operations which were ultimately exempted distinguishes the present case from INZO, cited above, and Case C-37/95 Belgian State v Ghent Coal Terminal [1998] ECR I-1, in which the goods or services were intended to be used for taxed operations which were not ultimately carried out.

33As a preliminary point, it must be borne in mind that Title X of the Sixth Directive lays down (Articles 13 to 16) rules on exemption from VAT for certain operations. The cases of exemption include, under Article 13B(b), the leasing and letting of immovable property. For such operations, however, the Member States are entitled, under the first paragraph of Article 13C, point (a), to reintroduce taxation, by means of a right of option which they may grant to their taxpayers. Under the second paragraph of Article 13C, the Member States may restrict the scope of that right of option and determine the way in which it is to be exercised.

34On that point, the Court has held that a Member State which has availed itself of the possibility provided for by Article 13C of the Sixth Directive and has thus granted its taxpayers the right to opt for taxation of certain lettings of immovable property may, by means of a subsequent law, abolish that right of option and thus reintroduce the exemption for such operations (Case C-381/97 Belgocodex v Belgian State [1998] ECR I-8153, paragraph 27).

35That is the context in which it falls to be considered whether a taxable person who has paid VAT on goods or services supplied to him with a view to carrying out certain leasing operations has acquired a right to deduct such VAT even though, between the date of supply of those goods or services and the date on which the letting operations commenced, a legislative amendment abolished the right to waive exemption for such operations.

36In that connection, it must be borne in mind that a person who has the intention, confirmed by objective evidence, to commence independently an economic activity within the meaning of Article 4 of the Sixth Directive and who incurs the first investment expenditure for those purposes must be regarded as a taxable person. Acting in that capacity, he has therefore, in accordance with Article 17 et seq. of the Sixth Directive, the right immediately to deduct the VAT payable or paid on the investment expenditure incurred for the purposes of the transactions which he intends to carry out and which give rise to the right to deduct, without having to wait for the actual operation of his business to begin (Ghent Coal Terminal, cited above, paragraph 17, and Joined Cases C-110/98 to C-147/98 Gabalfrisa and Others [2000] ECR I-1577, paragraph 47).

37It is important to note that it is the acquisition of the goods or services by a taxable person acting as such that gives rise to the application of the VAT system and therefore of the deduction mechanism. The use to which the goods or services are put, or are intended to be put, merely determines the extent of the initial deduction to which the taxable person is entitled under Article 17 of the Sixth Directive and the extent of any adjustments in the course of the following periods, which must be made under the conditions laid down in Article 20 of that directive (Case C-97/90 Lennartz [1991] ECR I-3795, paragraph 15).

38That interpretation is confirmed by the wording of Article 17(1) of the Sixth Directive, according to which the right to deduct arises at the time when the deductible tax becomes chargeable. Under Article 10(2) of that directive, that is the case as soon as the goods are delivered to or the services are performed for the taxable person who has the right to deduct.

39Moreover, any other interpretation of Article 4 of the Sixth Directive would run counter to the principle that VAT should be neutral, in that it would burden the trader with the cost of VAT in the course of his economic activity without allowing him to deduct it in accordance with Article 17, and would create an arbitrary distinction between investment expenditure incurred before actual operation of a business and expenditure incurred during operation (Case 268/83 Rompelman [1985] ECR 655, paragraph 23; INZO, cited above, paragraph 16; and Gabalfrisa, cited above, paragraph 45).

40Article 4 of the Sixth Directive does not, however, preclude the tax authority from requiring objective evidence in support of the declared intention to commence economic activities which will give rise to taxable transactions. In that context, it is important to point out that a taxable person acquires that status definitively only if he made the declaration of intention to begin the envisaged economic activities in good faith. In cases of fraud or abuse, in which, for example, the person concerned, on the pretext of intending to pursue a particular economic activity, in fact sought to acquire as his private assets goods in respect of which a deduction could be made, the tax authority may claim, with retroactive effect, repayment of the sums deducted on the ground that those deductions were made on the basis of false declarations (Rompelman, paragraph 24, INZO, paragraphs 23 and 24, and Gabalfrisa, paragraph 46).

41In those circumstances, it is for the national court to verify whether, having regard to the facts of the case before it and in particular the fact that on 11 June 1993 the members of Schloßstraße still envisaged transferring the building permit to a third party immediately after its issue, the declared intention to commence economic activities which would give rise to taxable transactions was made in good faith and was supported by objective evidence.

42In the absence of fraud or abuse and subject to any adjustments to be made under the conditions laid down in Article 20 of the Sixth Directive, entitlement to deduct, once it has arisen, is retained even if the taxable person has been unable to use the goods or services which gave rise to a deduction in the context of taxable transactions by reason of circumstances beyond his control. In such a case, there is no risk of fraud or abuse capable of justifying subsequent repayment of the sums deducted (Ghent Coal Terminal, paragraphs 20 and 22).

43A legislative amendment made, as in this case, between the date of supply of the goods or services with a view to the performance of certain economic activities and the date of commencement of such activities which, with retroactive effect, deprives a taxable person of the right to waive the VAT exemption for such activities constitutes a factor outside his control.

44It should be borne in mind that in paragraph 25 of the judgment in Belgocodex, cited above, the Court held, with respect to retroactive removal of the right to opt for taxation and of entitlement to deduction which had already arisen under the Sixth Directive, that the principles of the protection of legitimate expectations and of legal certainty form part of the Community legal order and must be observed by the Member States when they exercise the powers conferred on them by Community directives.

45In the specific circumstances of the Belgocodex case, the Court held in paragraph 26 of its judgment that it was for the national court to determine whether a breach of those principles had been committed by the retroactive repeal of the law which had introduced the right of option. In view of the fact that detailed arrangements had never been laid down for the implementation of that law, the Court considered that it was not in a position to decide whether the provisions of that law might have given rise to a legitimate expectation on the part of the taxable person which should be protected.

46In the case in the main proceedings, as the Advocate General observed in points 40 to 43 of his Opinion, such specific circumstances are lacking. It is clear from the documents before the Court that Schloßstraße opted for taxation of the goods or services acquired during 1992 and 1993 under the national legislation in force when it exercised its right of option and that the tax authority refused to allow it to exercise its right to deduct the VAT paid on those goods or services on the sole ground that the StMBG had removed the right to opt for taxation.

47In those circumstances, provided that the national court finds that the intention to commence economic activities giving rise to taxable transactions was declared in good faith and that that intention is supported by objective evidence, the taxable person is entitled immediately to deduct the VAT due or paid on the goods or services supplied with a view to the performance of the economic activities which it envisages carrying out and the principles of the protection of legitimate expectations and of legal certainty preclude its being deprived retroactively of that right by a legislative amendment post-dating the supply of those goods or services.

48Contrary to the German Government's contention, such a conclusion cannot be undermined by the fact that, in the case in the main proceedings, the reservation of the right to undertake a subsequent review enabled the tax authority to rectify the VAT assessment in every respect, as regards matters both of fact and of law.

49It must be observed in that connection, as noted by the Advocate General in points 46 to 50 of his Opinion, that the tax authority's power to carry out reviews and to amend provisional assessments sent by it to taxable persons is incontestably useful in managing taxes in general and VAT in particular.

so Such a possibility enables the tax authority to request, with retroactive effect, the repayment of sums deducted where the taxable person has, in a fraudulent or abusive manner, feigned a wish to engage in a particular economic activity but in reality sought to incorporate in his own assets property which might be the subject of a deduction.

51The assessment of VAT subject to subsequent review also makes it possible to proceed, under the conditions laid down in Article 20 of the Sixth Directive, with adjustment of the amounts of VAT which the taxable person has deducted when acquiring capital goods, in particular where he changes his planned use of the building, for example by increasing the proportion thereof which is to be used for residential purposes.

52However, except in the cases referred to in the foregoing paragraphs, recourse to the assessment of VAT subject to subsequent review cannot, as is clear from paragraphs 45 and 46 of this judgment, allow the tax authority to deprive a taxable person of a right to deduct which he has acquired under Article 17 of the Sixth Directive.

53The answer to the questions submitted must therefore be that Article 17 of the Sixth Directive must be interpreted as meaning that a taxable person's right to deduct VAT paid in respect of goods or services supplied to him with a view to his carrying out certain letting operations is retained where a legislative amendment post-dating the supply of those goods or services but pre-dating the commencement of such operations deprives the taxable person concerned of the right to waive exemption thereof, even if the VAT was assessed subject to subsequent review.

Costs

Costs

54The costs incurred by the German Government and 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.

Operative part

On those grounds,

THE COURT (Sixth Chamber)

in answer to the questions referred to it by the Bundesfinanzhof by order of 27 August 1998, hereby rules:

Article 17 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 must be interpreted as meaning that a taxable person's right to deduct VAT paid in respect of goods or services supplied to him with a view to his carrying out certain letting operations is retained where a legislative amendment post-dating the supply of those goods or services but pre-dating the commencement of such operations deprives the taxable person concerned of the right to waive exemption thereof, even if the VAT was assessed subject to subsequent review.

Moitinho de Almeida Schintgen Hirsch

Skouris Macken

Delivered in open court in Luxembourg on 8 June 2000.

J.C. Moitinho de Almeida R. Grass

President of the Sixth Chamber Registrar

OPINION OF ADVOCATE GENERAL RUIZ-JARABO COLOMER delivered on 16 December 1999 *

Introduction

1This reference from the Bundesfinanzhof (Federal Finance Court), Germany, for a preliminary ruling under Article 177 of the EC Treaty (now Article 234 EC) expresses that court's uncertainty as to the scope of recent Court of Justice case-law on the right to deduct value added tax (hereinafter 'VAT') charged on investment expenditure.

The matter to be resolved in this case is whether, in accordance with the provisions of Sixth Council Directive 77/388/EEC (hereinafter 'the Sixth Directive'), a taxable person retains the right to deduct if a change in the law after the date on which goods or services were acquired for the purpose of engaging in taxable economic activities, deprives him of the right to opt to waive the tax exemption for those activities, and whether the fact that the relevant assessment was subject to review has any effect.

* Original language: Spanish.

I — The facts and the main proceedings

2The object of Grundstückgemeinschaft S c h l o ß s t r a ße GbR (hereinafter 'Schloßstraße') is to hold development rights in respect of land, to construct office and residential buildings thereon and to turn such assets to account on a long-term basis.

3Schloßstraße acquired the aforesaid development rights in March 1991 and applied for a building permit a few days later. As a result of problems over compliance with town-planning rules, it did not obtain the permit until May 1993. The national court has stated that at least until June 1993 the partners intended to transfer the building permit to a third party. However, since no purchaser was found, they concluded a contract with an architect to construct the building. Work commenced in January 1994 and was completed in December of the same year. Schloßstraße lets out 39.38% of the total area of the building for dwelling purposes, 13.96% to an architect's firm and the remaining 46.49% to a public limited company, 90% of whose business, as a financial service provider, was exempt from VAT.

4In its VAT returns for 1992 to 1994, Schloßstraße opted to pay tax on the letting operations planned or carried out and claimed a right of deduction on invoices for costs relating to the construction work. The right of deduction was initially allowed. However, pursuant to Articles 164 and 168 of the Abgabenordnung (Tax Code; hereinafter 'the AO'), the relevant notices of assessment were issued subject to subsequent review.

5Following a review, the Finanzamt Paderborn decided to amend Schloßstraße's returns and notices of assessment for 1992 to 1994. The Finanzamt agreed to the deduction of tax only as to 13.96%, on the view that the only taxable use of the building was that of the architect's firm. According to the Finanzamt, it was no longer possible to allow deduction of tax in respect of the 46.49% of the building used by the public limited company for exempt operations since, for operations of that kind, the possibility of waiving the exemption had been removed with effect from 1 January 1994 following the amendment of Article 9(2) of the Umsatzsteuergesetz (Law on value added tax, hereinafter the 'UStG') by the Mißbrauchsbekämpfungs-und Steuerbereinigungsgesetz (Law on the simplification of tax legislation and combating of fraud, hereinafter the 'StMBG') of 21 December 1993. The Finanzamt also considered that Schloßstraße could no longer rely on the transitional provisions of Article 27(2) of the UStG, as amended by the StMBG, because construction of the building had not commenced until 11 November 1993, the final date prescribed by that provision.

6The objection and the action brought by Schloßstraße against the Finanzamt decision were dismissed. In its appeal on a point of law, Schloßstraße contends that the restriction of the option introduced by the new rule contained in Article 9(2) of the UStG is inapplicable to it since construction of the building must be deemed to have commenced on the date on which it applied for a building permit or, at least, the date of its grant. Furthermore, it infers from the Court's judgment in INZO that it can rely on the principle of the protection of legitimate expectations to claim the right to deduct tax paid during 1992 and 1993 (in particular on architect's and notarial fees).

7In its order for reference, the Bundesfinanzhof expresses doubts as to the successful outcome of the appeal. It points out, first, that Schloßstraße cannot rely on the transitional provisions of Article 27(2) of the UStG because construction of the building did not begin until January 1994. The services already provided in 1992 and 1993 form part of the construction costs of the building and, therefore, of the building as 'capital goods'. Consequently, the decision on the deduction of VAT paid in respect of those services cannot be adopted without taking account of the construction of the building or, therefore, of the limitation introduced by Article 27(2) of the UStG, as amended by the StMBG, since it depends on the actual purpose of the building, that is to say leasing operations carried out in 1994, and whether those operations are taxable or exempt.

Since, according to the case-law of the Bundesfinanzhof relating to the UStG, a final decision on the right to deduction cannot be taken until the real use — rather than the intended use — of capital goods is ascertained, the Finanzamt was, in its view, right under Article 164(2) of the AO to amend the notices of assessment issued subject to subsequent review and to disallow deduction to the extent to which the services provided were ultimately used for tax-exempt operations.

Next, the Bundesfinanzhof observes that the retroactive application of Article 9(2) of the UStG, as amended, to tax charged on the services provided in 1992 and 1993 does not infringe the constitutional principle of non-retroactivity. At the time when the new rule entered into force, the right of deduction in respect of the capital goods had not yet crystallised because the final use of those capital goods had not yet been established and that factor is determinative as regards the decision on the right of deduction.

Finally, the national court considers that Schloßstraße cannot claim a legitimate expectation of exercising the option provided for by the old Article 9(2) of the UStG in respect of the planned leasing of the building because construction commenced only after the entry into force of the new rules.

8Nevertheless, the Bundesfinanzhof queried whether such an interpretation of the relevant provisions of German law is consistent with the case-law of the Court of Justice on Article 17 of the Sixth Directive. It therefore stayed proceedings pending a preliminary ruling on the following questions:

'According to the case-law of the Court of Justice (Case C-37/95 Ghent Coal Terminal NV, in which reference is made to Case C-110/94 INZO), a taxable person can retain the right to deduct tax charged on goods and services where, by reason of circumstances beyond his control, he has not made use of those goods and services for the purpose of carrying out taxable transactions.

According to that principle, does a taxable person also retain the right to deduct tax if he does in fact use the goods or services to carry out (leasing) transactions but, following a change in the law, is no longer entitled, after acquiring the goods or services, to opt to waive the tax exemption for the transactions carried out with them, and so cannot in fact carry out any taxable transactions?

In such a case, where there is a subsequent change in circumstances, does the right to deduct tax also continue to exist if, under national law, the tax assessments were allowed to be subject to a subsequent review, enabling a quick tax assessment to be made solely on the basis of information supplied by the taxable person, but giving the revenue authority the right to correct the tax assessment in every respect on the basis of factual and legal considerations?'

II — Observations submitted in the course of the preliminary ruling procedure

9The German Government and the Commission have submitted written observations to the Court within the time prescribed in Article 20 of the EC Statute of the Court of Justice.

Representatives of Schloßstraße, the German Government and the Commission submitted oral observations at the hearing on 2 December 1999.

III — Analysis of the questions

10The questions referred to the Court, which the Commission representative has described as 'difficult and technically complicated', raise two problems. On the one hand there is the problem of determining when a taxable person acquires the right to deduct VAT paid on capital goods and on the other hand there is the question whether Member States can abolish with retroactive effect, an acquired right to deduction on the ground, as in this case, that the initial assessment was provisional. Before giving an opinion on these two questions, I believe we should consider the provisions of the Sixth Directive and of the German law applicable to the leasing of immovable property.

A — The provisions of the Sixth Directive and of the German law applicable to the leasing of immovable property.

11The Sixth Directive establishes that the leasing of immovable property is usually VAT-exempt. Article 13B provides that:

'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...'

12However, Article 13C provides that:

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

(a) letting and leasing of immovable property;

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

13In Germany, exemption from VAT on the leasing of land is established under Article 4(12)(a) of the UStG. Germany has availed itself of the opportunity afforded by the Sixth Directive to give its taxpayers the right to opt for taxation, as provided under Article 9(1) of that Law.

14In the version of the Law that was in force before the amendments introduced by the StMBG of 21 December 1993, Article 9(2) of the UStG provided that:

'The waiver of exemption under paragraph 1 shall not be available... in the event of the letting or leasing of land (paragraph 4(12)(a)) unless the entrepreneur proves that the land is not used or intended either for residential purposes or for activities other than those of an undertaking.'

15With effect from 1 January 1994, the StMBG limited the scope of the aforesaid right of option in so far as this relates to the letting of land. Under Article 9(2) of the UStG as amended:

'The waiver of exemption under paragraph 1 shall be permitted... in the event of the letting or leasing of land (Article 4(12)(a)) only if the recipient of the service uses or intends using the land only for operations which do not preclude the deduction of input tax. It shall be for the entrepreneur to prove that those conditions are met.'

16The StMBG also inserted a transitional provision into Article 27(2) of the UStG regulating the application of Article 9(2) as amended. Under that provision:

'Article 9(2) shall not apply where the building constructed on the land

3. is used or intended for purposes other than those indicated in paragraphs 1 and 2 4 and was completed before 1 January 1998

and where... in the cases mentioned in paragraph 3, construction of the building commenced before 11 November 1993.'

17The case-law of the Court confirms that the Member States have a wide discretion in determining the scope of Article 13B and C.

18Thus, in Becker 5t he Court held that 'by virtue of the power conferred upon them [by Article 13C], the Member States may allow persons entitled to exemptions provided for by the directive to waive their exemptions in all cases or within certain limits or subject to certain detailed rules'.

19In its judgment in Belgocodex 6 which was delivered after this reference for a preliminary ruling was made, and to which I shall return later, the Court held that:

'the Member States have wide discretion under Article 13B and C. It is for them to assess whether they should or should not introduce the right of option, depending on what they consider to be expedient in the situation existing in their country at a given time. The freedom to grant or decline to grant the right of option is not restricted in time or by the fact that a contrary decision had been adopted in the past. Member States may therefore, within the sphere of their national powers, also revoke the right of option after having introduced it and return to the basic rule that letting and leasing of immovable property are exempt from tax'.

20One initial conclusion with regard to the present case can be drawn from that case-law. Under the 1994 StMBG, the German Government may lawfully restrict the scope of the right to opt for taxation on the letting and leasing of land. Article 13B and C allows Member States to decide, on the basis of their economic situation at a given time, whether to grant the right to opt for taxation and also the conditions or limits that will apply to the exercise of that right.

21That being said I shall now examine whether, under Community law, Schloßstraße had already acquired the right to make the deduction at the time the 1994 StMBG entered into force and whether that right could be retroactively withdrawn.

B — Origin of the right to deduct VAT on investment costs

22The German Government considers that under the scheme of the Sixth Directive the right to deduct VAT depends on whether the services taxed have been used in taxable operations. Consequently a final decision as to the right to deduct cannot be taken until it has been ascertained for what operations those services were actually used.

23Applying those considerations to the facts described, the German Government argues that under Article 9(2) of the UStG as amended in 1994, Schloßstraße at no time enjoyed a provisional right to deduct input tax on the letting to the financial services company, since the latter did not use the leased property for taxable operations. It adds that the new version of the provision should be used as a basis since the taxable person did not let the building until after the entry into force of the StMBG, and the right to deduct should be determined when the operations in question take place and should therefore take account of any legislative amendments made before the commencement of those operations.

24In my view, the German Government's argument is not consistent with the applicable provisions of the Sixth Directive as interpreted by the Court of Justice.

25Under the Title, 'Origin and scope of the right to deduct', Article 17 of the Sixth Directive provides:

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

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

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

...'7

26Pursuant to the first sentence of Article 10(2) of the Sixth Directive: 'The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed.'

27The Court has stated repeatedly that the deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of value added tax consequently ensures that all economic activities, whatever their purpose or results, provided that they are themselves subject to VAT, are taxed in a wholly neutral way.

28The Court has also stated that in the absence of any provision empowering the Member States to limit the right of deduction granted to taxable persons, that right must be exercised immediately in respect of all the taxes charged on transactions relating to inputs. Such limitations on the right of deduction must be applied in a similar manner in all the Member States and therefore derogations are permitted only in the cases expressly provided for in the Directive. In this sense the Court indicated that the provisions Article 17(1) and (2) specify the conditions giving rise to the right to deduct and the extent of that right. They do not leave the Member States any discretion as regards their implementation. They therefore confer rights on individuals which they may invoke before a national court in order to challenge national rules which are incompatible with those provisions.

29More specifically, in accordance with the case-law of the Court investment expenditure incurred for the purposes of and with the view to commencing a business must be regarded as an economic activity within the meaning of Article 4 of the Sixth Directive, and the taxable person therefore has the right to deduct the VAT paid on it. Any other interpretation would burden the trader with the cost of VAT in the course of his economic activity without allowing him to deduct it in accordance with Article 17 and would create an arbitrary distinction between investment expenditure incurred before actual operation of a business and expenditure incurred during operation.

30Furthermore, the right to deduct VAT on investment expenditure remains acquired where the expected economic activity has not given rise to taxable transactions or where the taxable person has been unable to use the goods or services which gave rise to deduction in the context of taxable transactions by reason of circumstances beyond his control. It is contrary to the principle of legal certainty for the rights and obligations of taxable persons to depend on facts, circumstances or events which occurred after the tax authority made a finding in respect of those rights and obligations. A supply of investment goods during the adjustment period may give rise to an adjustment of the deduction under the conditions set out in Article 20(3) of the Directive. 5

31It therefore follows from the relevant provisions of the Sixth Directive, as interpreted by the Court, that the right to deduct VAT on investment expenditure should be determined at the time when the goods or services to which the expenditure refers are delivered. If the taxable person declares that his actual intention is to use the investments in the performance of an activity which is taxable under the Sixth Directive or the national legislation in force, he will immediately acquire the right to deduct even though the planned activity never takes place.

32Moreover, the connection between the acquisition of capital goods and the acquisition of the right to deduct is confirmed, in my opinion, by Article 20 of the Sixth Directive on adjustments of deductions. Paragraph 2 of that article states that in the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired, not when use of the capital goods by taxable persons commences. 6

33Returning to the present case, it is for the national court to verify Schloßstraße's actual intention when the investment expenditure at issue was made. If its real intention was to use these investments to carry out taxable transactions — or even transactions that might become taxable by virtue of the right, later removed, to opt for taxation — then, as the Commission has claimed, Schloßstraße should be deemed to have acquired the right to deduct at the time when the services in question were supplied and before the changes to the law took place. I shall therefore now examine the retroactive removal of an acquired right to opt for taxation and entitlement to deduction.

C — The ability of Member States to remove, with retroactive effect, acquired rights to pay and deduct VAT

34In discussing this point, I shall again refer to the judgment in Belgocodex. In that case, the plaintiff in the main proceedings had acquired a property which was to be renovated. He subsequently let the property to a company that used it for its economic activities. Belgocodex then deducted the input tax changed in respect of the renovation work.

35Belgocodex made the deduction on the basis of the Law of 28 December 1992 amending the Belgian VAT Code and introducing the right to opt for taxation of certain lettings of immovable property. However, the Law stated that the implementing regulations would state the form of option, its method of exercise and the requirements that must be met by the lease. The implementing regulations were never adopted and on 6 July 1994 the 1992 Law was formally repealed with retroactive effect.

36As a result of this derogation, the Belgian revenue authority refused to allow Belgocodex to make the deduction it claimed and the company therefore appealed to the Tribunal de Première Instance (Court of First Instance) Nivelles, which asked the Court of Justice for a ruling as to whether a Member State which has availed itself of the possibility provided for by Article 13C of the Sixth Council Directive and has thus given its taxpayers the right to opt for taxation of certain lettings of immovable property may abolish, in a subsequent law, that right of option and thus reintroduce the exemption in full.

37Belgocodex claimed before the Court that the principle of the protection of legitimate expectations and the principle of legal certainty preclude retroactive repeal of the national legislation in question. It contended that, upon the adoption of the Belgian Law of 28 December 1992, it could legitimately count on the right of option, whether the Royal Decree implementing that law was adopted or not.

38In its decision, the Court recalled that the principle of protection of legitimate expectations and the principle of legal certainty form part of the Community legal order and must be observed by the Member States when they exercise the powers conferred on them by Community directives. However, in the specific circumstances of that case, it was not for the Court but for the national court to determine whether a breach of those principles had been committed by the retroactive repeal of a law in respect of which the implementing decree had not been adopted.

39The 'specific circumstances' of the Belgocodex case were the doubts as to whether, in accordance with applicable Belgian law, the 1992 Law really had provided a right to opt for taxation in that case, since the implementing legislation had never been adopted. That was therefore a matter for the national court to determine.

40The Commission claims that in the present case such specific circumstances are lacking. In the light of the judgment in Ghent Coal, it maintains that Schloßstraße cannot be deprived of the right to deduct for reasons beyond its control. The Commission takes the view that a restriction of the right of option introduced by the adoption of a law upon which transitional provisions confer retroactive effect, should be regarded for these purposes as constituting reasons beyond the control of the taxable person. Consequently, Schloßstraße should retain the benefit of the tax it had deducted before the legal amendment came into effect.

41I share the Commission's view. It can be inferred from the order for reference that in the financial years 1992 and 1993, Schloßstraße complied with all the provisions of German law then applicable to the exercise of the right to opt for taxation. When the new law subsequently entered into force it precluded Schloßstraße from pursuing its plan to use those capital goods to perform taxable economic activities. In my view the change in the law constitutes 'circumstances beyond the control' of the taxable person, within the meaning of the judgment in Ghent Coal, and may not deprive him of an acquired right to deduct.

42I should add that although, as I have said, Article 13B and C of the Sixth Directive certainly does grant Member States wide discretion to regulate the right of option, including the right to remove it, that discretion may not be used to infringe Article 17(1) of the Directive by revoking an acquired right to deduct.

43Any such revocation would, furthermore, be a violation of the taxable person's legitimate expectation that the provisions of the Directive will be correctly implemented. In this respect I should point out that compliance with the principle of protection of legitimate expectations, which is a general and superior principle of Community law for the protection of the individual, is binding on all national authorities entrusted with the implementation of Community provisions.

D — The effect of the provisional nature of the assessments

44In my view the fact that, under national law, the tax authority may rectify provisional assessments of taxable persons as regards matters both of fact and of law does not alter the previous analysis.

45The German Government contends that even where the application of a change in the law, to an acquired right to deduct in respect of services supplied to a taxable person before that change in the law, is deemed to be an unlawful retroactive application of that law, the principle of protection of legitimate expectations and the principle of legal certainty will not have been infringed in the present case since, as a result of the right to review provisional tax assessments granted under the AO, Schloßstraße could not claim that the principle of legitimate expectations existed as to the continued validity of its right to deduct.

46The tax authority's power to carry out reviews and to amend provisional assessments sent by it to taxable persons, is available in most Member States and is incontestably useful in managing taxes in general and VAT in particular.

47Consequently, if during a tax inspection it is discovered that a taxable person has attempted to defraud the Treasury by declaring as goods intended for company use goods actually acquired for his own private use, so as to be able to deduct the VAT paid on them, the tax authority can review the declaration ex officio and cancel the previously allowed deduction.

48This also applies to the adjustment procedure set up under Article 20 of the Sixth Directive. Under this system, and so far as capital goods are specifically concerned, the taxable person must adjust the amount of the tax to be deducted when particular circumstances arise within a particular period of time. Thus, in this case, if Schloßstraße had changed the proposed use of the building by increasing, for example, the part of it intended for residential use, the tax authority could have reduced the deductible proportion of VAT pro rata.

49However, the documents do not indicate that Schloßstraße committed any fraud or that it changed the use it intended to

IV — Conclusion

make of the building when it initially exercised its right to opt for taxation and deduction. Consequently, the only ground for revoking the acquired rights of option and deduction would be, in this case, the subsequent amendment of the law abolish ing the right to opt for taxation on Schloßstraße's economic activities.

50As I have already indicated, the right to deduct at issue in this case follows directly from Article 17(1) and (2) of the Sixth Directive. Consequently, Schloßstraße did have, on the basis of Community law, a legitimate right to expect that its right to deduct would be respected. In these circumstances, I consider that the tax authority is not entitled to use the tax assessment review procedure to abolish, with retroactive effect, this acquired right, as that would infringe the taxable person's legitimate expectations which are founded on Community law.

51In the light of the foregoing considerations, I propose that the Court reply as follows to the questions referred by the Bundesfinanzhof for a preliminary ruling:

Article 17(1) 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 must be interpreted as meaning that a Member State that decides to abolish the right to opt for deduction of tax on particular economic activities cannot withdraw, with retroactive effect, the right to deduct VAT paid on capital goods prior to the entry into force of that derogation for the purpose of engaging in those economic activities. This shall apply even if the deduction was initially granted to the taxable person subject to review.

Notes

(1) Sixth Council Directive 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).

(2) Case C-110/94 [1996] ECR I-857.

(3) The question, on which the parties disagree and which Schloßstraße raised during the hearing, as to when construction of the building should be deemed to have commenced for the purpose of the UStG is, as the Bundesfinanzhof stated in its order for reference, a question of national law that cannot be examined here.

(4) Paragraphs 1 and 2 refer to buildings used for dwelling or other purposes not related to the business of an undertaking.

(5) Case 8/81 [1982] ECR 53, paragraph 38.

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

(7) Original wording of Article 17 of the Sixth Directive. Paragraph 2 was subsequently amended by Article 1(22) of Council Directive 91/680/EEC of 16 December 1991, supplementing the common system of value added tax and amending Directive 77/388 with a view to the abolition of fiscal frontiers (OJ 1991 L 376, p. 1), and by Article 1(10) of Council Directive 95/7/EEC of 10 April 1995 amending Directive 77/388 and introducing new simplification measures with regard to value added tax — scope of certain exemptions and practical arrangements for implementing them (OJ 1995 L 102, p. 18).

(8) See, in particular, Case 268/83 Rompelman [1985] ECR

(655) , paragraph 19, Case 50/87 Commission v France [1988] ECR 4797, paragraph 15, and Case C-37/95 Ghent Coal [1998] ECR I-1, paragraph 15.

(9) See in particular Commission v France, cited in footnote 8 above, paragraphs 16 and 17, Case C-97/90 Lennartz [1991] ECR I-3795, paragraph 27, Case C-62/93 BP Supergas 11995] ECR I-1883, paragraph 18, and Ghent Coal, cited in footnote 8 above, paragraph 15.

(10) BP Supergas, cited in footnote 9 above, paragraph 35.

(11) For a detailed examination of this case-law see my Opinion on this same point in Case C-400/98 Breitsohl [2000] ECR I-4321, ECR I-4324, points 18 and 27.

(12) Rompelman, cited in footnote 8 above, paragraphs 22 and

(13) Ghent Coal, cited in footnote 8 above, paragraphs 19 and

(20) .

(14) INZO, cited in footnote 2 above, paragraph 21.

(15) Ghent Coal, cited in footnote 8 above, paragraph 23.

(16) In the case of immovable property acquired as capital goods, the adjustment period may be extended up to 20 years (Article 20(2), last subparagraph, as amended by Directive 95/7, cited in footnote 7 above). Paragraph 2 also states that, 'By way of derogation from the preceding subparagraph, Member States may base the adjustment on a period of five full years starting from the time at which the goods are first used' (my emphasis). However this option allowed to Member States is an exception to the stated general rule. Moreover, Article 17, which refers to the right to deduct, gives Member States no such option.

(17) The national court states that, until at least June 1993, the intention of the partners was to transfer the building permit. However, it is for the national court to determine whether this fact, about which the order for reference does not provide enough information, has any bearing on the legality of the provisional deduction allowed by the Finanzamt.

(18) Cited in footnote 6 above.

(19) Cited in footnote 8 above.

(20) Joined Cases C-104/89 and C-37/90 Mulder v Council and Commission [1992] ECR I-3061, paragraph 15.

(21) Case 230/78 Eridania [1979] ECR 2749, paragraph 31. It is however clear that the change in the law introduced by the StMBG applies in full to the goods and services supplied to Schloßstraße from the date it entered into force, in other words from 1 January 1994. As the Court has held, 'the field of application of this principle [respect for legitimate expectations] cannot be extended to the point of generally preventing new rules from applying to the future effects of situations which arose under the earlier rules in the absence of obligations entered into with the public authorities' (Case 84/78 Tomadini [1979] ECR

(180) 1, paragraph 21).

(22) Paragraph 164 of the AO provides: '1. Pending final review, taxes may, in general or in particular cases, be assessed subject to review, and no reasons need be stated for such assessment.

(2) . The assessment may be annulled or amended at any time whilst it remains reviewable...

(4) . When the prescribed period for assessment expires, the assessment shall cease to be subject to review...'.

(23) VAT is normally managed on a self-assessment basis under which the taxable persons calculate their own tax liability and pay it to the Treasury themselves.