C-400/98 Breitsohl

JUDGMENT OF THE COURT (Sixth Chamber)

8 June 2000 *

In Case C-400/98,

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

Finanzamt Goslar

and

Brigitte Breitsohl,

on the interpretation of Articles 4, 17 and 28 of the 77/388/EEC of 17 May 1977 on the harmonisation of

* Language of the case: German.

Sixth Council Directive the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145 p. 1),

THE COURT (Sixth Chamber),

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

Advocate General: D. Ruiz-Jarabo Colomer, Registrar: R. Grass,

after considering the written observations submitted on behalf of:

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

— the Greek Government, by K. Paraskevopoulou-Grigoriou, Agent for Legal Proceedings in the State Legal Service, and A. Rokofyllou, Adviser in the Special Legal Service — Section for European Community Law in the Ministry of Foreign Affairs, acting as Agents, — the Commission of the European Communities, by E. Traversa, of its Legal Service, assisted by A. Buschmann, a national civil servant on secondment to the Legal Service, acting as Agents,

having regard to the report of the Judge-Rapporteur,

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

gives the following

Judgment

Legal context and the dispute

1By order of 27 August 1998, received at the Court on 9 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 Articles 4, 17 and 28 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; 'the Sixth Directive').

2 Those questions were raised in proceedings between Mrs Brigitte Breitsohl and the Finanzamt Goslar (Tax Office, Goslar) concerning the deduction by the Finanzamt of the value added tax ('VAT') which Mrs Breitsohl had paid on transactions carried out in preparation for a business project.

The Sixth Directive

3 Article 4 of the Sixth Directive provides:

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

2The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.

3Member States may also treat as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in paragraph 2 and in particular one of the following:

(a) the supply before first occupation of buildings or parts of buildings and the land on which they stand; Member States may determine the conditions of application of this criterion to transformations of buildings and the land on which they stand.

Member States may apply criteria other than that of first occupation, such as the period elapsing between the date of completion of the building and the date of first supply or the period elapsing between the date of first occupation and the date of subsequent supply, provided that these periods do not exceed five years and two years respectively.

"A building" shall be taken to mean any structure fixed to or in the ground;

(b) the supply of building land.

"Building land" shall mean any unimproved or improved land defined as such by the Member States.

...'

4Article 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 down for the purpose of ensuring the correct and straightforward application preventing any possible evasion, avoidance or abuse:

(g) the supply of buildings or parts thereof, and of the other than as described in Article 4(3)(a);

C. Options

Member States may allow taxpayers a right of option

(b) the transactions covered in B(d)(g) and (h) above. of the exemptions and of

land on which they stand,

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

5Under Article 17 of the Sixth Directive:

'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;

6Article 20 of the Sixth Directive provides:

'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...

2. In 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.

3. In 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.

4. For 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.

7Article 28(3) of the Sixth Directive provides:

'During the transitional period referred to in paragraph 4, Member States may: (b) continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned;

(c) grant to taxable persons the option for taxation of exempt transactions under the conditions set out in Annex G;

"

s Annex F to the Sixth Directive, headed 'Transactions referred to in Article 28(3)(b)', mentions in point 16:

'Supplies of those buildings and land described in Article 4(3)'.

9Annex G to the Sixth Directive, headed 'Right of option', provides:

'1. The right of option referred to in Article 28(3)(c) may be granted:

(b) in the case of transactions specified in Annex F;

...'

The national VAT legislation

10Paragraph 2(1) of the Umsatzsteuergesetz 1980 (Turnover Tax Law; 'the UStG') provides:

'A trader is a person who independently carries out an industrial, commercial or occupational activity. The undertaking comprises the whole of the industrial, commercial or occupational activity of the trader. An industrial, commercial or occupational activity shall mean any permanent activity carried out for the purpose of obtaining income, even where there is no intention to make a profit or a group of persons carries out its activities only in relation to its members.'

11Paragraph 4 of the UStG provides:

'The following transactions falling under Paragraph 1(1), points 1 to 3, are exempt from the tax:

9 (a) transactions falling under the Tax on the Transfer of Real Property ( Grunderwerbsteuergesetz)... '

12Paragraph 9(1) of the UStG provides, however:

'A trader may treat a supply exempted under Paragraph 4, point... 9 as taxable where the supply is made to another trader for the purposes of his business.'

13Paragraph 15(1) of the UStG provides:

'A trader may deduct the following taxes:

taxes separately stated in invoices, within the meaning of Paragraph 14, in respect of supplies or other services performed for his business by other businesses....'

The dispute in the main proceedings and the questions referred

14In 1989, Mrs Breitsohl applied to a motor vehicle manufacturer for a dealership. By letter of 14 April 1989, the manufacturer informed her that it accepted her application subject to certain conditions.

15In February 1990, Mrs Breitsohl declared to her competent local authority an industrial and commercial establishment for the sale and repair of motor vehicles, and acquired, for the sum of DEM 62 670, exempt from VAT, an empty plot of land which was to be the site of the declared business. In April 1990, she commissioned a building company to construct a motor vehicle repair workshop on the plot. Excavation work began the same month. Towards mid-May 1990, those works were finished, the foundations were laid and the floor partially completed. Those works as a whole represented a sum of DEM 173 655.50.

16When it became apparent that a rise of DEM 230 000 in the overall cost of the building works was to be expected, the bank refused to finance those additional costs. On 22 May 1990, the building company interrupted the works on account of the uncertainty as to their financing.

17Considering that she was no longer in a position to carry out all the building work on the land or to commence business, Mrs Breitsohl agreed, by a settlement reached on 22 November 1990, to pay the building company a total amount of DEM 100 000 and to sell the building works already completed to a third party for DEM 50 000, representing DEM 43 859.65 plus DEM 6 140.35 by way of VAT. On 21 December 1990, she sold the land to the same person for DEM 61 905, with no mention of VAT.

18In her annual VAT return for 1990, Mrs Breitsohl declared as taxable transactions DEM 43 859 arising from the sale of parts of the building and, as deductible amounts, DEM 13 900.11 in respect of lawyers' and tax accountants' fees and building accounts. This resulted in a surplus in her favour of DEM 7 759.90. In her preliminary tax returns, Mrs Breitsohl had not claimed those amounts.

19In its tax notice for 1990 dated 15 July 1992, the Finanzamt Goslar allowed a deductible amount of only DEM 95.20 on the ground that the services in question had been used for the purpose of a tax-exempt sale of land. The VAT due was therefore fixed at DEM 6 045.

20On 14 August 1992, Mrs Breitsohl lodged an administrative appeal against that tax notice. By decision of 11 January 1995, the Finanzamt held that Mrs Breitsohl had not acquired the status of a trader because she had not carried out any operations having a character of permanence and was not therefore entitled to make the deduction. By contrast, it held that Mrs Breitsohl was liable for the tax clearly mentioned in the invoice concerning the sale of building works to a third party, namely DEM 6 140.35.

21On 13 February 1995, Mrs Breitsohl brought an action against that decision before the Niedersächsisches Finanzgericht (Finance Court, Lower Saxony). By judgment of 5 December 1996, that court essentially upheld her action. Referring to the judgment of 29 February 1996 in Case C-l 10/94 INZO v Belgian State [1996] ECR I-857, the Finanzgericht held that the activity of trader had begun as soon as Mrs Breitsohl carried out her preparatory acts, and that she was therefore entitled to deduct the amounts of VAT corresponding to the building company's invoices. It further held that Mrs Breitsohl was properly entitled to waive the tax exemption on the supply of the immovable property, limiting that waiver to the part of the building works that had been completed and thus excluding the land from it. According to the Finanzgericht, deduction of tax could be refused only in respect of the notary's fees relating to the sale of the land.

22On 4 March 1997, the Finanzamt Goslar appealed on a point of law (Revision) to the Bundesfinanzhof against the judgment of the Finanzgericht. In its appeal, the Finanzamt argues essentially that Paragraph 9(1) of the UStG does not allow waiver of the exemption for the supply of real property to be limited to buildings alone. It submits that recent case-law of the Bundesgerichtshof, based on the case-law of the Court of Justice, allows the waiver of exemption referred to in Paragraph 9 of the UStG to be limited to certain parts of buildings on condition that the sale of those parts is accompanied by the sale of the parts of the land on which they stand. It maintains that the same interpretation follows from the combined provisions of Article 13B(g) and the first paragraph of Article 13C of the Sixth Directive, which mention supplies of buildings or parts thereof without providing for the possibility of a separate option in respect of the buildings on the one hand and the land on the other.

23The Bundesfinanzhof is in doubt as to whether the principles laid down in the INZO judgment apply only where the tax authority has already accepted in a tax assessment, on the basis of the trader's declared intention to carry out taxable transactions, that that person has status as a taxable person, or whether the authority must in every case base taxation on the intention to carry out taxable transactions, even where it is clear as from the first examination of the tax file that the economic activity envisaged will not be taken up.

24The Bundesfinanzhof first points out that, if it were necessary, in accordance with paragraph 23 of the INZO judgment, to require the declared intention to commence taxable transactions to be confirmed by objective evidence, where it has already been established, at the time of the decision on the right to deduct, that the intended taxable transactions will not in fact be carried out, the tax authority would, for tax purposes, have to treat mere intentions as business ventures and, where appropriate, take them into account under the adjustment procedure laid down in Article 20 of the Sixth Directive. The national court also raises the question whether the sale in 1990 of land and partially completed building work could still, as a supply of capital goods during the adjustment period, lead to an adjustment of the deduction under the conditions laid down in Article 20(3) of the Sixth Directive.

25The Bundesfinanzhof then points to the fact that, in German law, exemption or, as the case may be, the option for taxation, must relate to the essential components of the immovable property, that is to say not only the land but also - fixtures, particularly buildings. It doubts whether, in the case of a supply of developed land, Community law authorises the option for taxation in respect of building works alone. It recalls in that respect that, in accordance with the combined provisions of Article 28(3)(c), Annex G, point 1(b), and Annex F, point 16, of the Sixth Directive, Member States may, on a transitional basis, grant to taxable persons the option for taxation of supplies of buildings and land. Since the German legislature has not excluded the supply of developed land from the exemption, the Bundesfinanzhof considers that it is therefore possible to waive the exemption.

26As far as the Bundesfinanzhof can ascertain, the Sixth Directive and the case-law of the Court of Justice treat buildings and parts of buildings and the land on which they stand as a single supply item. According to paragraph 21 of the judgment in Case C-291/92 Armbrecht [1995] ECR 1-2775, the system of taxation of a developed piece of land may vary only in accordance with whether or not it is used for the business, thereby allowing the taxable person to opt for taxation in respect of the part used for the business and not to exercise such an option in respect of the part used privately. The apportionment between those two parts should be based on the proportions of business and private use during the year of acquisition and not by reference to the geographical division. Apportionment on the basis of a fixed geographical division of the developed land might lead to double taxation where the use of the property changes.

27The Bundesfinanzhof finally notes that, in this case, overtaxation might result from treating the land and the buildings on it as a single entity, given that the undeveloped land was acquired under the system of exemption and the building services which bore VAT were affixed to it. Either the sale of the developed land is exempt as a whole and there can be no right to deduct, even for the building works, the latter not having been carried out for the purposes of taxable transactions. Or the sale of the developed land forms the subject-matter of a waiver of exemption in its entirety, and Mrs Breitsohl benefits from the deduction in relation to the building works but is liable to VAT on the whole of the sale, even though she was not able to deduct any tax on acquisition of the undeveloped land.

28It was in those circumstances that, having doubts as to the interpretation to be given to the provisions of the Sixth Directive applicable to the case before it, the Bundesfinanzhof decided to stay the proceedings and refer the following questions to the Court of Justice for a preliminary ruling:

'1. According to the case-law of the Court of Justice of the European Communities (Case C-110/94 INZO v Belgian State [1996] ECR I-857), even the very first investment expenditure incurred for the purposes of a business may be regarded as an economic activity within the meaning of Article 4 of Directive 77/388/EEC. The tax authority has to take account of the business person's declared intention in this regard. The status of taxable person accorded on that basis cannot, in principle, be withdrawn retroactively on account of certain events having or having not occurred (principle of legal certainty). This also applies to the deductions relating to the investment transactions.

According to those principles, is the right to deduct tax (Article 17 of Directive 77/388/EEC) on "setting up" expenditure to be accorded on the basis of the intention to take up economic activity leading to taxable transactions even where the tax authority is already aware, when the first tax assessment is made, that the intended economic activity leading to taxable transactions was not actually taken up?

If the answer to Question 1 is in the affirmative:

2. In the case of a supply of buildings or parts thereof and of the land on which they stand, can the option for taxation be restricted to the buildings and parts thereof?'

The first question

29By its first question, the national court is asking essentially whether Articles 4 and 17 of the Sixth Directive are to be interpreted as meaning that the right to deduct the VAT paid on transactions carried out with a view to the realisation of a planned economic activity still exists even where the tax authority is aware, from the time of the first tax assessment, that the economic activity envisaged, which was to give rise to taxable transactions, will not be taken up.

30The German and Greek Governments argue that the principles of the protection of legitimate expectations and legal certainty, on which the INZO judgment is based, do not apply to the case at issue in the main proceedings. In this case, unlike INZO, the revenue authorities had not yet recognised Mrs Breitsohl's capacity as a taxable person when she submitted her VAT return. They maintain, therefore, that Mrs Breitsohl cannot invoke the protection of legitimate expectations and rely on the conviction she had that she could deduct VAT.

31Those governments add that the principle of the neutrality of VAT has not been infringed in the main proceedings, since Mrs Breitsohl has not carried out taxable economic activities and her capacity as a taxable person has not been recognised.

32The German Government points to the fact that, under Articles 4(1) and 17(2) of the Sixth Directive, a taxable person has the right to deduct VAT only if the goods and services on which it was paid are used to carry out taxable transactions. It follows, in its submission, that a final decision as to the right to deduct cannot be taken until the transactions for which those goods and services were actually used are known. Preparatory acts confer upon those performing them only a provisional capacity of trader and a provisional right to deduct, subject to the suspensive condition that taxable transactions are carried out. If such transactions do not follow the preparatory acts, and can no longer be anticipated, the tax authority should immediately refuse both the capacity of taxpayer and the deduction of VAT.

33The German Government maintains that if the mere intention of a 'trader' to carry out taxable transactions gave him the right to be recognised as a taxable person, and thus a right to deduct, the tax authority would have to make its determination on a basis of a purely subjective declaration of intention and not on the basis of actual facts capable of being objectively verified. Such a situation would constitute a direct incentive to abuse.

34In that respect, it should be recalled 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 exploitation of his business to begin (Case C-37/95 Belgian State v Ghent Coal Terminal [1998] ECR I-1, paragraph 17; Joined Cases C-110/98 to C-147/98 Gabalfrisa and Others v AEAT [2000] ECR I-1577, paragraph 47).

35It is important to note that it is the acquisition of 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 intended to be put, determines only 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 carried out under the conditions laid down in Article 20 ofthat directive (Case C-97/90 Lennartz v Finanzamt München [1991] ECR I-3795, paragraph 15).

36That interpretation is confirmed by the wording of Article 17(1) of the Sixth Directive, whereby the right to deduct arises at the time when the deductible tax becomes chargeable. In accordance with 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 entitled to deduct.

37Moreover, any other interpretation of Article 4 of the Sixth Directive would be contrary to the principle of VAT neutrality, 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 exploitation of a business and expenditure incurred during exploitation (Case 268/83 Rompelman v Minister van Financiën [1985] ECR 655, paragraph 23; INZO, paragraph 16; Gabalfrisa, paragraph 45).

38The arising of the right to deduct the VAT paid on the first investment expenditure is thus in no way dependent upon formal recognition of the status of taxable person by the tax authority. The only effect of that recognition is that such status, once recognised, cannot, save in situations of fraud or abuse, be withdrawn from the taxpayer with retrospective effect, without infringing the principles of the protection of legitimate expectations and legal certainty.

39As for the risk of abuse referred to by the German Government, it should be recalled that Article 4 of the Sixth Directive does not preclude the tax authority from requiring objective evidence in support of the declared intention to commence economic activities giving rise to taxable transactions. In that context, it is important to state 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 repayment of the sums retroactively on the ground that those deductions were made on the basis of false declarations (Rompelman, paragraph 24; INZO, paragraphs 23 and 24; Gabalfrisa, paragraph 46).

40In those circumstances, it is for the national court to check whether, taking account of the circumstances of the case in the main proceedings, and in particular the progress of the building works in mid-May 1990, the declaration of the intention to commence economic activities giving rise to taxable transactions was made in good faith and is borne out by objective evidence.

41In the absence of fraud or abuse, and subject to adjustments which may be made in accordance with the conditions laid down in Article 20 of the Sixth Directive, the principle of VAT neutrality requires, as indicated in paragraph 36 of this judgment, that the right to deduct, once it has arisen, be retained even where the tax authority is aware, from the time the first tax assessment is made, that the economic activity envisaged, which was to give rise to taxable transactions, will not be taken up.

42The answer to the first question must therefore be that Articles 4 and 17 of the Sixth Directive are to be interpreted as meaning that the right to deduct the VAT paid on transactions carried out with a view to the realisation of a planned economic activity still exists even where the tax authority is aware, from the time of the first tax assessment, that the economic activity envisaged, which was to give rise to taxable transactions, will not be taken up.

The second question

43By its second question, the national court asks essentially whether Article 4(3)(a) of the Sixth Directive is to be interpreted as meaning that the option for taxation exercised at the time of the supply of the buildings or parts of buildings and the land on which they stand must relate inseparably to the buildings or parts of buildings and the land on which they stand, or whether it may be limited to the buildings or parts thereof.

44The German Government argues that the Federal Republic of Germany has made use of the option conferred upon it by Article 13C of the Sixth Directive by allowing its taxpayers the right to opt for taxation in the case of supply of buildings and land upon which they stand.

45The German Government considers that, since Article 13C of the Sixth Directive expressly allows Member States to restrict the scope of the right of option and fix the details of its use, the question whether a taxpayer may exercise his right of option solely in relation to buildings, to the exclusion of the land on which they stand, is a question of national law. That provision does not preclude either a national rule authorising exercise of the right of option solely in relation to the building or solely in relation to the land, or a national rule requiring exercise of the right of option in relation to the whole of the developed land.

46It should be noted at the outset that, since the case at issue in the main proceedings concerns the supply of a building or a part of a building and the land on which it stands 'before first occupation' as envisaged in Article 4(3)(a) of the Sixth Directive, the exemption granted by German law cannot be based on Article 13B(g) of the Sixth Directive, and neither, therefore, can the right to opt for taxation be based on Article 13C of the directive.

47As the national court and the Commission point out, the exemption and the right of option granted by the provisions of the UStG at issue in the main proceedings are based upon Article 28(3)(b) and (c) of the Sixth Directive, read in conjunction with Annex F, point 16 and Annex G, point 1(b), which authorise Member States during the transitional period, which has not yet expired, to continue to exempt the supply before first occupation of a building or part of a building and land on which it stands and to grant taxable persons the right to opt for taxation of such a supply.

48The next point to be made is that, without prejudice to the option which the first sentence of Article 4(3)(a) of the Sixth Directive confers upon Member States to define the words 'land on which they stand', the concept of 'supply... of buildings or parts of buildings and the land on which they stand' cannot be defined by reference to the national law applicable in the main proceedings, given the purpose of the Sixth Directive, which is aimed at determining the basis of VAT in a uniform manner according to Community rules. Such a concept, which contributes to determining the persons who may be regarded by Member States as taxable persons by virtue of Article 4(3)(a) of the directive, must therefore be interpreted in a uniform manner in all Member States.

49It is important to note in that respect that Article 4(3) of the Sixth Directive distinguishes between, on the one hand, the supply of building land, described as 'any unimproved or improved land defined as such by the Member States', and, on the other, the supply before first occupation of buildings or parts of buildings and the land on which they stand, any structure fixed to or in the ground being regarded as a building within the meaning of that provision.

50It follows from that distinction and from the wording of Article 4(3)(a) of the Sixth Directive, which refers to 'the supply... of buildings or parts of buildings and the land on which they stand', that, for the purposes of VAT, buildings or parts of buildings and the land on which they stand cannot be dissociated from each other.

51In those circumstances, the exemption and the right of option referred to in Article 28(3)(b) and (c) of the Sixth Directive, read in combination with Annex F, point 16, and Annex G, point 1(b) must relate inseparably to buildings or parts of buildings and the land on which they stand.

52Therefore, a taxable person who supplies buildings and land on which they stand may either use the VAT exemption for the buildings and the land taken as a whole, or opt for taxation of the whole. In the first hypothesis, the defendant in the main proceedings would have to carry out an adjustment of her deductions in accordance with Article 20(3) of the Sixth Directive. In the second hypothesis, she would be able to deduct the VAT relating to the building work in respect of which she has asserted her right to deduct, but she would, on the other hand, also have to subject the sum obtained for the sale of the land to VAT.

53It is true that, as the national court points out, the impossibility of separating buildings and the land on which they stand in relation to exemption or the exercise of the right of option for taxation may entail a risk that those elements may be overtaxed. However, as the Advocate General points out in paragraphs 107 and 108 of his Opinion, such a risk is inherent in a system, such as that implemented on a transitional basis by Article 28(3)(b) and (c) of the Sixth Directive, in which VAT exemptions are authorised at a stage prior to that of the final consumer, and is limited to the transitional period, at the expiry of which Member States must cease exempting supplies of buildings or parts of buildings and the land on which they stand.

54Since, moreover, as the order for reference shows and unlike the situation analysed in paragraph 21 of the judgment in Armbrecht, the parts of buildings and the land on which they stood at issue in the main proceedings were intended to be used for business purposes, there is no need, as far as the right of option is concerned, to make an apportionment between that part of the buildings or parts of buildings and the land on which they stood devoted to business activities, and that part reserved for the private use of the taxpayer.

55In those circumstances, the reply to the second question must be that Article 4(3)(a) of the Sixth Directive is to be interpreted as meaning that the option for taxation exercised at the time of the supply of buildings or parts of buildings and the land on which they stand must relate inseparably to the buildings or parts of buildings and the land on which they stand.

Costs

Costs

56The costs incurred by the German and Greek 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 proceedings 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:

1. Articles 4 and 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 are to be interpreted as meaning that the right to deduct the value added tax paid on transactions carried out with a view to the realisation of a planned economic activity still exists even where the tax authority is aware, from the time of the first tax assessment, that the economic activity envisaged, which was to give rise to taxable transactions, will not be taken up.

2. Article 4(3)(a) of the Sixth Directive 77/388 is to be interpreted as meaning that the option for taxation exercised at the time of the supply of buildings or parts of buildings and the land on which they stand must relate inseparably to the buildings or parts of buildings and the land on which they stand.

Moitinho de Almeida Schintgen Hirsch

Skouris Macken

Delivered in open court in Luxembourg on 8 June 2000.

R. Grass J.C. Moitinho de Almeida

Registrar President of the Sixth Chamber

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

Introduction

1The Bundesfinanzhof (Federal Finance Court, Germany) has referred to the Court for a preliminary ruling two questions concerning the interpretation 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 1 (hereinafter the 'Sixth Directive').

2The first of these two questions concerns whether a right to deduct Value Added Tax (hereinafter 'VAT') on 'setting up' expenditure exists where, at the time the first tax assessment is made, the tax authority is already aware that the economic activity leading to taxable transactions will not be taken up. If the answer is in the affirmative, the national court also wishes to know whether, in the case of a supply of buildings or parts thereof and of the land on which they stand, the option for taxation can be restricted to the buildings and parts thereof.

* Original language: Spanish.

I. Facts and main proceedings

3In 1989, Mrs Breitsohl applied to a car manufacturer for a dealership. By letter of 14 April 1989, the latter informed her that her application had been accepted subject to certain conditions. In February 1990, Mrs Breitsohl gave notice of the commencement of a business for the 'sale and repair of motor vehicles' and acquired for the sum of DEM 62 670 (without VAT) a vacant plot of land on which the business notified was to be conducted. In April 1990, she commissioned a building company to build a workshop on that plot. By the middle of May, the excavations were complete, the foundations were laid and part of the floor slab was finished. Payments amounting to DEM 173 655.50 were due for the work.

4At the planning stage, the total cost of the building works was estimated at DEM 1 400 000. When it became apparent that the price was likely to rise by a further DEM 230 000, the bank was not prepared to finance the additional cost. At the end of May 1990, the building company stopped work because of the uncertainty surrounding the financing.

5Considering herself no longer in a position to complete the building work on the land and commence business, in a settlement dated 22 November 1990, Mrs Breitsohl undertook to pay the building company a total amount of DEM 100 000 and to sell the building works already completed to a third party for DEM 50 000 (comprising DEM 43 859.65 plus DEM 6 140.35 VAT). In December 1990, she sold the land to the same buyer for DEM 61 905, with no mention of VAT.

6In her annual VAT return for 1990, Mrs Breitsohl declared as taxable transactions the sale of the parts of the building (basis of assessment: DEM 43 859). She claimed DEM 13 900.11 as deductible payments of input tax (lawyers' and tax accountants' fees and building accounts). All this resulted in a surplus in her favour of DEM 7 759.90. 2I n her preliminary returns she had not claimed the deductions of input tax.

7In its tax notice, the Finanzamt Goslar (Tax Office, Goslar) initially took account of deductible payments of input tax amounting only to DEM 95.20, on the grounds that the transactions to which those payments related were for the purpose of the tax exempt sale of land. The tax due was assessed at DEM 6 045. 3

8When Mrs Breitsohl appealed against that notice, the Finanzamt reasoned that in the absence of any continuing business activity she had not become a trader and was thus not entitled to deduct input tax. However, she owed the tax itemised in the bill issued to the purchaser of the works already completed.

9Mrs Breitsohl then brought an action before the Finanzgericht (Finance Court), which was successful on most counts. Referring to the judgment of the Court in the INZO case, 4 the Finanzgericht held that Mrs Breitsohl had already been engaged in trading by reason of the preparatory acts and had therefore been entitled to deduct the amounts of tax charged in the building accounts. It also held that Mrs Breitsohl could have opted to waive the tax exemption on the supply of the property, limited to the separable part of those building works which had been completed (excavations, foundations, floor). The right to deduct tax could be refused only in relation to the notary's fees, which concerned the sale of the land.

10The Finanzamt then appealed on a point of law (Revision in German) to the Bundesfinanzhof, the referring court, claiming that there had been a breach of the 1980 Umsatzsteuergesetz (the Turnover Tax Law; hereinafter 'the UStG'). According to the Finanzamt, the UStG does not permit a waiver of the tax exemption on the supply of land to be restricted to buildings. In its opinion, the same conclusion must be drawn from the first paragraph of Article 13 C read in conjunction with Article 13 B(g) of the Sixth Directive.

II. The questions referred for a preliminary ruling

11Since it had doubts as to the interpretation of the relevant provisions of the Sixth Directive, the Bundesfinanzhof referred the following questions to the Court for a preliminary ruling:

'1. According to the case-law of the Court of Justice of the European Communities (Case C-110/94 INZO v Belgian State [1996] ECR I-857), even the very first investment expenditure incurred for the purposes of a business may be regarded as an economic activity within the meaning of Article 4 of Directive 77/388/EEC. The tax authority has to take account of the business person's declared intention in this regard. The status of taxable person accorded on that basis cannot, in principle, be withdrawn retroactively on account of certain events having or having not occurred (principle of legal certainty). This also applies to the deductions relating to the investment transactions.

According to those principles, is the right to deduct tax (Article 17 of Directive 77/388/ EEC) on "setting up" expenditure to be accorded on the basis of the intention to take up economic activity leading to taxable transactions even where the tax authority is already aware, when the first tax assessment is made, that the intended economic activity leading to taxable transactions was not actually taken up?

If the answer to Question 1 is in the affirmative:

2. In the case of a supply of buildings or parts thereof and of the land on which they stand, can the option for taxation be restricted to the buildings and parts thereof?'

III. Observations submitted during the referral proceedings

12The German and Greek Governments and the Commission submitted written observations within the time-limit prescribed by Article 20 of the EC Statute of the Court of Justice.

IV. First question referred for a preliminary ruling

A. The Community provisions applicable

13According to Article 2 of the Sixth Directive:

'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.'

14Article 4 of the Sixth Directive defines what is meant by a taxable person:

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

2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions.'

15Article 17 of the Sixth Directive lays down the rules relating to the origin and scope of the right to deduct:

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

B. The national regulations

16Under Paragraph 2(1) of the UStG:

'A trader is anyone a person who independently carries out an industrial, commercial or occupational activity. The undertaking comprises the whole of the industrial, commercial or occupational activity of the trader. An industrial, commercial or occupational activity shall mean any permanent activity carried out for the purpose of obtaining income, even where there is no intention to make a profit or a group of persons carries out its activities only in relation to its members.'

17According to Paragraph 15(1) of the UStG:

'A trader may deduct the following taxes:

1. Taxes separately stated in invoices, within the meaning of paragraph 14, in respect of supplies of goods or other services performed for his business by other businesses'.

C. Brief review of the case-law

18On several occasions, decisions of the Court of Justice have confirmed the right to deduct VAT on preparatory transactions carried out for the purpose of pursuing a taxable economic activity.

19In the Rompelman case, 6 the Court was asked whether someone who had acquired the future title to business premises under construction with a view to letting such premises and effecting taxable supplies and services was acting, during the preparatory stage, as a taxable person with the right to deduct VAT.

20The Court concluded that the deduction system was 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 therefore ensured that all economic activities, whatever their purpose or results, provided that they were themselves subject to VAT, were taxed in a wholly neutral way. In the same judgment the Court held that the economic activities referred to in Article 4(1) might consist in several consecutive transactions and that the preparatory acts, such as the acquisition of assets and therefore the purchase of immovable property, must themselves be treated as constituting economic activity. Any other interpretation of Article 4 of the Sixth Directive 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 exploitation of immovable property and expenditure incurred during exploitation. 7

21A few years later, within the context of an action under Article 169, 8 the Court again stressed the importance of the right to deduct and declared 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 have an impact on the level of the tax burden and must be applied in a similar manner in all the Member States. Consequently, derogations are permitted only in the cases expressly provided for in the directive'.

22As early as 1991, the Court had held that 'pursuant to Article 17(1) of the Sixth Directive, which is entitled "Origin and scope of the right to deduct", the right to deduct arises at the time when the deductible tax becomes chargeable. Consequently, only the capacity in which a person is acting at that time can determine the existence of the right to deduct. By virtue of Article 17(2), in so far as a taxable person, acting as such, uses the goods for the purposes of his taxable transactions, he is entitled to deduct the tax due or paid in respect of those goods'. The Court added that 'consequently, it is the acquisition of the goods 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 are put, or intended to be put, merely determines the extent of the initial deduction to which the taxable person is entitled under Article 17 and the extent of any adjustments in the course of the following periods'. 1

23In the INZO judgment, the scope of which will need to be determined in the present case, the Court had to decide whether its findings in the Rompelman case also applied when the envisaged economic activity for which investment expenditure had been incurred was not finally taken up.

24The Court held that such investment expenditure should be regarded as 'economic activities' for the purposes of the Sixth Directive and concluded that, where the tax authority had accepted that a company which had declared its intention to begin an economic activity giving rise to taxable transactions had the status of a taxable person for the purposes of VAT, the carrying out of a study into the technical and economic aspects of the activity envisaged might be regarded as an economic activity within the meaning of Article 4 of the directive. It added that VAT paid in respect of such a profitability study might in principle be deducted in accordance with Article 17 of the directive, even if it was subsequently decided, in view of the results of that study, not to move to the operational phase, but to put the company into liquidation, with the result that the economic activity envisaged did not give rise to taxed transactions.

25The Court based its conclusion on two 14 principles:

(a) The principle of legal certainty, according to which the rights and obligations of taxable persons should not depend on facts, circumstances or events which occurred after the tax authority made a finding in respect of those rights and obligations. It follows that, once the tax authority has accepted, on the basis of information provided by a business, that it should be accorded the status of a taxable person, that status cannot, in principle, subsequently be withdrawn retroactively on account of the fact that certain events have or have not occurred.

(b) The principle of neutrality of VAT as regards the tax burden on a business. According to the Court, any other interpretation of the directive would be liable to create, as regards the tax treatment of the same investment activities, unjustified differences between businesses already carrying out taxable transactions and other businesses seeking by investment to commence activities which would in future be a source of taxable transactions. Likewise, arbitrary differences would be established between the latter businesses, in that final acceptance of the deductions would depend on whether or not the investment resulted in taxable transactions.

26The Court added that it was for the person applying to deduct VAT to show that the conditions for deduction were met, and that Article 4 did not preclude the tax authority from requiring objective evidence in support of the declared intention to commence economic activities which would give rise to taxable transactions.

27The Court arrived at the same conclusion in its judgment in Ghent Coal Terminal. In that judgment, it stated that Article 17 of the Sixth Directive must be construed as allowing a taxable person acting as such to deduct the VAT payable by him on goods or services supplied to him for the purpose of investment work intended to be used in connection with taxable transactions. The right to deduct remained acquired where, by reason of circumstances beyond his control, the taxable person had never made use of those goods or services for the purpose of carrying out taxable transactions. A supply of investment goods during the adjustment period, where such occurred, might give rise to an adjustment of the deduction under the conditions set out in Article 20(3) of the Sixth Directive.

D. Observations of the parties

28In the view of the German and Greek Governments, the Court's decision handed down in the INZO judgment is not applicable in the present case. They consider that that judgment is based on the principle of legal certainty, according to which the rights and obligations of taxable persons should not depend on circumstances arising after they have been accorded the status of a taxable person by the tax authority. In the present instance, contrary to what happened in the INZO case, the tax authority had not yet accorded the status of taxable person to Mrs Breitsohl when she lodged her VAT return. Accordingly, she cannot rely upon the principle of protection of a legitimate expectation of being able to deduct VAT.

29Both governments also consider that there was no breach of the principle of VAT neutrality. That principle, they submit, applies only when taxable transactions are effected, which was not the case since Mrs Breitsohl had not been accorded the status of a taxable person. In addition, the German Government draws attention to the risk of abuse that any other interpretation might involve.

30The Commission arrives at exactly the opposite conclusion. After pointing out that the facts as described by the referring court do not constitute evidence of the existence of abuse or fraud, it asserts that, under Article 4(1) of the Sixth Directive, the acquisition of the status of taxable person does not depend on a statement to that effect by the tax authority.

31According to the Commission, the status of taxable person is acquired ipso jure simply as a result of carrying out an economic activity. If that activity never reaches the operational stage and remains in the preparatory phase, the determining factor is, in accordance with the INZO judgment, the existence, during that preparatory phase, of an intention to arrive at the operational stage and, hence, to effect taxable transactions. The Commission claims that that intention does not have to be declared immediately to the tax authority but, as in the present instance, can be expressed tacitly by incurring investment expenditure.

E. Reply to the first question

32The answer to the first question depends on the harmonised concept 8 of a 'taxable person'.

33As already noted, under Article 4 of the Sixth Directive a 'taxable person' means any person who independently carries out any economic activity for the purpose of supplying goods or services. On the other hand, neither that article nor any other provision of the Sixth Directive makes acquisition of the status of taxable person dependent on the fulfilment of any additional formal conditions, such as formal acknowledgement by the tax authority.

34Thus, the directive establishes a direct link between the concept of chargeable event and that of taxable person and the execution of the taxable transaction defines the precise moment at which the chargeable event and the taxable person make their appearance in the field of tax law and the entire VAT machinery is set in motion.

35Specifically, with regard to investment expenditure incurred with a view to commencing a taxable economic activity, the Rompelman, INZO and Ghent Coal Terminal judgments show that the trader acquires the status of taxable person and hence the right to deduct at the moment at which his suppliers deliver the goods or perform the service, even if the economic activity envisaged is never carried out. In those circumstances, the only condition that the party concerned must satisfy is that he should have actually intended to carry out that taxable economic activity.

36It is not for the Court but for the national revenue and, where appropriate, judicial authorities to determine whether there was an actual intention to carry out a taxable activity.

37Nevertheless, it follows from the facts set out in the order for reference that Mrs Breitsohl did, in fact, intend to set up a business for the sale and repair of motor vehicles, a business which, most certainly, is subject to VAT. Subsequently, due to various financial vicissitudes beyond her control, she had to give up the project and sell the building works that had been completed and on which she had paid VAT to a third party. The conclusion must be that at the time at which the sale took place Mrs Breitsohl had already acquired the status of a taxable person, even though that status had not yet been formally acknowledged by the tax authority.

38Is Mrs Breitsohl entitled to deduct the amounts she has paid by way of VAT?

39As I have already pointed out, under Article 17 of the Sixth Directive, the right to deduct VAT — an essential part of the VAT system — arises immediately, as soon as the deductible tax becomes chargeable, that is to say, in accordance with Article 10(2) of the Sixth Directive, when the goods are delivered or the services are performed.

40Above all, it should be noted that there is nothing in the order for reference to suggest that Mrs Breitsohl had failed to satisfy any of the essential formal conditions which, if not fulfilled, might have resulted in her losing the right to deduct.

41As the Commission rightly says, Arti 22 cle 18 of the UStG allowed Mrs Breitsohl to avail herself of the right of deduction immediately in one of her monthly tax returns. If she had proceeded in this way, the tax authority would have had to acknowledge her status as a taxable person and accept the deduction made on her return.

42Instead, Mrs Breitsohl waited for her annual return to exercise her right of deduction, by which time the tax authority was already aware that the economic activity envisaged could not be taken up. That, however, has no bearing on the above analysis. Mrs Breitsohl was a taxable person for the purposes of VAT and, in accordance with the national regulations applicable, she was entitled, if she so wished, to wait until the end of the year to exercise her right of deduction.

43I therefore consider that Mrs Breitsohl was entitled to deduct the sums she had paid by way of VAT on the goods and services supplied to her and still retained that right when she lodged her annual return, even though at that time it was already clear that she would not be able to take up the economic activity she had originally envisaged.

44That is consistent with the Court's findings in INZO.

45For the German Government, and much of its reasoning is based on this premise, the principle of legal certainty cited by the Court in INZO has no bearing on the present case because the tax authority did not, at any time, accord Mrs Breitsohl the status of a taxable person.

46On the other hand, the German Government barely mentions the other principle on which the Court based its INZO judgment, namely, the principle of VAT neutrality. In INZO, the Court stated that that principle forbade the creation, as regards the tax treatment of the same investment activities, of unjustified differences between businesses already carrying out taxable transactions and other businesses seeking by investment to commence activities which would in future be a source of taxable transactions. Likewise, if the principle were disregarded, arbitrary differences would be established between the latter businesses, in that final acceptance of the deductions would depend on whether or not the investment resulted in taxable transactions.

47It is my opinion that, a fortiori, the same principle prohibits any discrimination with respect to those latter businesses based on the time at which they requested the deduction of tax — before or after it became apparent that the economic activity envisaged was not going to materialise — or on whether or not the tax authority had formally accorded them the status of a taxable person at the time at which they asked for VAT to be deducted.

48As the principle of neutrality is one of the pillars of the VAT system, it would be impossible to accept a solution that was contrary to its requirements and not based on an express provision of Community law.

49This analysis would not be complete if I failed to examine the German Government's contention that giving a reply to the first question other than the one which it proposes would be to open the way to abuse, since any end consumer acquiring capital goods (such as land or a motor vehicle) could then claim the status of a taxable person and take advantage of the right of deduction simply by declaring his intention to commence an economic activity. According to the German Government, the tax authority would then have to rule on the basis of a purely subjective declaration of intent and not on the basis of genuine, objectively verifiable information.

50I share the German Government's concern with regard to the risk of tax fraud. Nevertheless, the Member States are not devoid of means of providing against and combating such fraud. In that connection, it may be appropriate to recall, firstly, that Articles 18 and 22 of the Sixth Directive require the taxable person to comply with a series of formalities — statements, invoices and accounts — and that these formalities can be supplemented by additional measures that Member States deem it necessary to adopt in order to ensure that the tax is properly collected and fraud prevented. Secondly, Member States have broad discretion to decide, in each specific case, what is the actual intention of the person concerned. Finally, in the event of fraud or abuse, the tax authority can withdraw the status of taxable person and amend the preliminary tax notice issued.

51For those reasons, I consider that my reply to the first question referred for a preliminary ruling must be that Articles 4 and 17 of the Sixth Directive should be interpreted as meaning that the right to deduct VAT on transactions effected with a view to taking up a projected economic activity subsists even where the tax authority is already aware, when the first tax assessment is made, that the economic activity leading to taxable transactions will not be taken up.

V. Second question referred for a preliminary ruling

A. The Community provisions applicable

52In accordance with Article 28(3) of the Sixth Directive:

'During the transitional period referred to in paragraph 4, Member States may:

(b) continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned;

(c) grant to taxable persons the option for taxation of exempt transactions under the conditions set out in Annex G.'

...'

53Annex F, point 16 covers 'supplies of those buildings and land described in Article 4(3)'.

54Under Article 4(3) of the Sixth Directive:

'3. Member States may also treat as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in paragraph 2 and in particular one of the following:

(a) the supply before first occupation of a buildings or parts of buildings and the land on which they stand; Member States may determine the conditions of application of this criterion to trans formations of buildings and the land on which they stand.

Member States may apply criteria other than that of first occupation, such as the period elapsing between the date of completion of the building and the date of first supply or the period elapsing between the date of first occupation and the date of subsequent supply, provided that these periods do not exceed five years and two years respectively.

"A building" shall be taken to mean any structure fixed to or in the ground; (b) the supply of building land.

"Building land" shall mean any unimproved or improved land defined as such by the Member States.'

55Annex G, point 1, reads as follows:

'1. The right of option referred to in Article 28(3)(c) may be granted in the following circumstances:

(b) in the case of transactions specified in Annex F:

Member States which provisionally maintain the right to exempt such supplies may grant taxable persons the right to opt for taxation.'

56Finally, Article 20(3) of the Sixth Directive, entitled 'Adjustments of deductions', provides as follows:

'3. In 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.

However, in the latter case, Member States may waive the requirement for adjustment in so far as the purchaser is a taxable person using the capital goods in question solely for transactions in respect of which value added tax is deductible.

B. The national regulations

57According to Paragraph 4 of the UStG:

'Among the transactions referred to in Article 1(1), points 1 to 3, the following shall be exempt from VAT:

judgment not on the server 9. (a) transactions which fall under the Grunderwerbsteuergesetz (Law on Real Property Transfer Tax).'

58Nevertheless, under Paragraph 9 of the UStG:

'1. A trader may treat a supply exempted under Paragraph 4... (9) as taxable where the supply is made to another trader for the purposes of his business.'

C. Observations of the parties

59The German Government points out, firstly, that the Federal Republic of Germany has made use of the power conferred upon it by Article 13 C of the Sixth Directive to allow its taxpayers a right of option for taxation on the supply of buildings and the land on which they stand.

60The German Government considers that, since Article 13 C of the Sixth Directive expressly allows Member States to restrict the scope of the right of option and fix the details of its use, the question whether the taxable person can use his right of option when separating the supply of the building from the supply of the land is one for national law. In fact, Article 13 C of the Sixth Directive does not preclude national regulations from authorising the exercise of the option solely for the building or solely for the land any more than it precludes national regulations from requiring that the right of option be exercised for the property as a whole.

61The Commission observes that the exemption granted under German law is not based on Article 13 B(g) of the Sixth Directive but on Article 28(3)(b), read in conjunction with Annex F, point 16, and Article 4(3), adding that the right of option is not based on Article 13 C but on Article 28(3)(c), read in conjunction with Annex G, point 1(b), of the Sixth Directive. The Commission deduces from these provisions that a supply of buildings or parts thereof and the land on which they stand can only be exempted from tax in its totality. The same applies to the right of option for taxation.

D. Reply to the second question

62I agree with the Commission that the exemption granted under German law is not based on Article 13 B(g) of the Sixth Directive, according to which: '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: (g) the supply of buildings or parts thereof, and of the land on which they stand, other than as described in Article 4(3)(a); '.

63As already pointed out, Article 4(3)(a) refers to 'the supply before first occupation of buildings or parts of buildings and the land on which they stand'.

64The parts of buildings supplied in the present case were supplied before first occupation. Thus, the exemption and the right of option can only be based on Article 28(3)(b), read in conjunction with Annex F, point 16, and Article 4(3), as the referring court rightly points out and contrary to what the German Government contends in its observations.

65This point having been clarified, I can now go on to examine the actual question referred for a preliminary ruling.

66In the order for reference, the Bundesfinanzhof indicates that the German regulations should be interpreted as meaning that the exemption or, as the case may be, the right to opt for taxation should apply to the whole of the immovable property, that is to say both the buildings or parts thereof and the land on which they stand. It adds that there is nothing in its previous case-law to contradict that interpretation. Nevertheless, it asks the Court whether, thus interpreted, the German regulations are consistent with the Sixth Directive.

67The analysis of the national court's second question must begin with an interpretation of the legal concept of 'supply before first occupation of buildings or parts of buildings and the land on which they stand', in Article 4(3)(a) of the Sixth Directive.

68First of all, subject to the right to define the concept of 'the land on which they stand' accorded to Member States in the second part of the first sentence of Article 4(3)(a) of the Sixth Directive, this legal concept must be interpreted uniformly in all the Member States; otherwise the purpose of the directive, namely 'to determine the basis of assessment of value added tax in a uniform manner according to Community rules', could not be achieved.

69The Court has accepted the division of real property for the purposes of VAT in two different judgments, neither of which, in my opinion, provides an answer to the question raised.

70The first of these is the Armbrecht 30 judgment, to which the German Government, the Commission and the national court itself refer.

71In that case, the national court asked the Court of Justice whether a taxable person who sold a hotel which he had used for both business and private purposes and, in so doing, waived the exemption from VAT for which the sale would otherwise qualify under Article 13 B(g) of the Sixth Directive, had to pay tax on the part of the selling price that corresponded to the portion of the hotel used for private purposes.

72In its observations on the Armbrecht case, the German Government pointed out that Mr Armbrecht's property formed a single entity in German civil law and was entered as such in the land register. It therefore considered that it should be treated as a single entity for the application of the Directive.

73To this argument the Court replied as follows:

'It is true that Article 5(1) of the Directive does not define the extent of the property rights conferred, which must be determined in accordance with the applicable national law, but the Court has held that the objective of the Directive, which is to base the common system of VAT on a uniform definition of taxable transactions, would be jeopardised if the preconditions for a supply of goods, which is one of the three taxable transactions, varied from one Member State to another. Consequently, the national law applicable in the main proceedings cannot provide the answer to the question raised, which concerns not the civil law applicable to supply but whether the transaction is subject to tax'.

74In that respect, the Armbrecht judgment clearly sets a precedent for the present case. The fact that, as the Bundesfinanzhof has stressed, a building and the land on which it stands are inseparable under German civil law (Articles 93 and 94 of the Civil Code) and cannot be the object of separate rights does not mean that, for the application of VAT, the land and the building cannot be treated differently, provided, of course, that the correct application of the Sixth Directive requires that they be separated.

75To return to the Armbrecht judgment, the Court held it to be consistent with Community law that when a property is sold the taxable person should pay VAT only on that part of the property which he had used for business purposes because the sale of the part used for private purposes did not fall within the scope of the Sixth Directive.

76The Court stated that 'apportionment between the part allocated to the taxable person's business activities and the part retained for private use must be based on the proportions of private and business use in the year of acquisition and not on a geographical division. The taxable person must, moreover, throughout his period of ownership of the property in question, demonstrate an intention to retain part of it among his private assets'.

77There can be no doubt that in the present case the situation is different..

78Thus, the property sold by Mrs Breitsohl, which consisted of parts of a building and the land on which they stood, was always used for business purposes. Accordingly, it was never put to any private use that might have justified an apportionment along the lines of the Armbrecht judgment. Both the sale of the land and the sale of the parts of the building were effected by a taxable person acting as such.

79The second occasion on which the Court considered it necessary for the constituent parts of a property to be treated differently for the application of VAT was in the De Jong case.

80The national court had asked whether a taxable person — in this case, a building contractor — who acquired a plot of land solely for private purposes but then, in pursuit of his business, built a dwelling on it to be occupied by him thereby applied goods forming part of his business assets for his private use within the meaning of Article 5(6) of the Sixth Directive.

81The Netherlands Government had contended that the construction of a dwelling on land made available to the undertaking for that purpose gave rise, for the purposes of turnover tax, to a new unit of real estate comprising the building and the surrounding land. Consequently, it was that unit resulting, in that form, from the pursuit of the taxable person's business activity that the latter had applied for his private use.

82The Court rejected that contention. After reaching the conclusion that, regardless of whether the land and the building were inseparable under national legislation, it was necessary to distinguish between the taxation of land which a taxable person owns in his private capacity and the taxation of a building which the taxable person has erected on that land in pursuit of his business, the Court added that: 'As regards the taxation of land which a building contractor owns in his private capacity and on which, in pursuit of his business, he has built a dwelling for himself that land never formed part of the assets of the business and consequently could not have been applied for private use within the meaning of Article 5(6) of the Sixth Directive. The basis of assessment will be, in accordance with Article 11 A(1)(b) of the Sixth Directive, the value of the building alone and not that of the land'.

83In my opinion, the De Jong case also differs considerably from the case at issue here.

84Firstly, in De Jong, the person concerned acquired the land for private purposes whereas, as already pointed out, Mrs Breitsohl acquired hers in order to pursue a business activity. Secondly, in De Jong, the dwelling was built by the company of the person concerned, who intended to occupy it himself, whereas Mrs Breitsohl entrusted the construction of the building to a third party and that building was to be used for taxable activities.

85I therefore conclude that the reply to the Bundesfinanzhofs question cannot be found in the case-law of the Court but must be sought directly in the provisions of the Sixth Directive.

86The Commission, basing its argument on a literal interpretation of Article 4(3)(a), concludes that this provision concerns the supply of a unit of real estate inseparably comprising the building and the land on which it stands.

87The very wording of this article and, in particular, the use of the copulative conjunction 'and' seem to confirm the Commission's view. Moreover, the different language versions coincide in this respect.

88My analysis of the provisions of the Sixth Directive dealing with the taxation of supplies of immovable property confirms this interpretation.

89Thus, the Sixth Directive makes a distinction between land which has not been built on, building land and land which has been built on:

— supplies of land which has not been built on other than building land are exempt from VAT, although Member States may allow taxpayers a right of option for taxation; 6 — supplies of building land are subject to tax, although, during the transitional period, Member States may continue to exempt them or grant to taxable persons the option for taxation;

— as regards land which has been built on, the directive makes a distinction between the first supply and subsequent supplies:

(a) the supply before first occupation of buildings or parts of buildings and the land on which they stand is subject to VAT. 'A building' is taken to mean any structure fixed to or in the ground. Nevertheless, during the transitional period, Member States may continue to exempt these supplies or grant taxable persons the option for taxation;

(b) subsequent supplies of buildings or parts thereof and of the land on which they stand are exempt from VAT, although, here too, Member States may allow taxpayers a right of option for taxation.

90Clearly, the Sixth Directive establishes different rules for the application of VAT to supplies of land only in so far as the latter has not been built on. On the other hand, once it has been built on, and in the absence of specific provisions concerning the separate taxation of the land and the building, for the application of VAT the value of the land must be considered as being incorporated in the construction, so that the 'immovable property' inseparably comprises the land and the building erected on it.

91At this point, it might be useful to 42 mention the Kerrutt judgment. In that case the Court was asked whether supplies of goods and services, other than the supply of the building land, under a parcel of contracts for work and services in connection with the construction of a building were subject to VAT by virtue of Article 2(1) of the Sixth Directive, or whether they qualified for the exemptions in respect of the 'supply of buildings or parts thereof and the land on which they stand' provided for in Article 13 B(g) and Article 28(3)(b), in conjunction with point 16 of Annex F to the Sixth Directive.

92The Court considered that the applicability of those provisions in a case such as that which was the subject of the main proceedings depended on whether the supplies of goods and services in question for the construction of a building, together with the land transaction, constituted a single property transaction which could be regarded as falling within the scope of the expression 'supply of buildings and the land on which they stand' because of the economic connection between the partial transactions concerned and their common aim, which was the construction of the building on the land purchased.

93In that connection, the Court held that:

'It is clear from the words "supply of buildings... and the land on which they stand" that such a single transaction can be said to have taken place only where the two categories of goods supplied, namely the building and the land, are, for the purposes of the law governing the sale of property, the subject of a single delivery inasmuch as the delivery is of land which has been built on.'

94The Court concluded that: 'supplies of goods and the services of contractors and building workers under a scheme such as the "Bauherrenmodell", which are transactions legally separate from the land transaction which was completed with another contractor, cannot be regarded as forming, together with that transaction, a unity capable of being classified as a single "supply of buildings or parts of buildings and the land on which they stand"'..

95In the Kerrutt case the essence of the problem was whether the contracts for work and services in connection with the construction of a building could be regarded, together with the land transaction, as the supply before first occupation of a building and the land on which it stood. There is no relation between this problem and that which confronts us in the present case. Nevertheless, it seems to me that the expressions 'single transaction' and 'single delivery' used by the Court in referring to the legal concept now at issue confirm the interpretation that I propose.

96Thus, the words 'supply before first occupation of buildings or parts of buildings and the land on which they stand' must be regarded as referring to a single transaction which, for the application of the* Sixth Directive, should be treated as a whole. Accordingly, the exemption and the right of option which Member States apply, where appropriate, on the basis of Article 28(3), must relate to the immovable property as a whole, without it being possible to separate the supply of the buildings or parts thereof, on the one hand, from the supply of the land, on the other.

97Nevertheless, the German Government cites the last sentence of Article 13 C of the Sixth Directive, according to which 'Member States may restrict the scope of this right of option and shall fix the details of its use' and goes on to assert that the directive does not prevent national regulations from limiting the right of option to the building or to the land.

98First of all, I should point out that this assertion has no bearing on the present case. The Federal Republic of Germany has made no use of any such supposed authority to limit the right of option in the way suggested.

99Moreover, it should again be stressed that Article 13 C concerns supplies of buildings or parts of buildings and the land on which they stand which are not the first supply of the immovable property. In contrast, Article 28(3)(c), in conjunction with Annex G, point 1(b), which deals with the right of option that can be exercised in connection with the first supply of immovable property and is applicable in the present case, does not include a provision similar to that cited by the German Government.

100Finally, I believe it would be incompatible with the objective of harmonising the VAT system for Member States to be able to adjust the right of option in such a way as to distort, for the supplies in question, the uniform tax treatment sought by the Sixth Directive.

101To return to the present case, Mrs Breitsohl had a choice between (1) claiming total exemption for the transaction or (2) exercising the right of option for taxation of the supply of immovable property comprising the parts of the building and the land.

102If Mrs Breitsohl had opted for total exemption, she would have had to adjust her deductions under the terms of Article 20(3) of the Sixth Directive and use the simplified adjustment procedure laid down in Paragraph 15(a), subparagraph 5, of the UStG.

103If, on the other hand, Mrs Breitsohl had opted for taxation of the supply of immovable property, she would have had the right to deduct the VAT paid to her suppliers — including that on the fees charged by her lawyers for transferring the land. However, the basis of assessment would be the total amount of the consideration, including the value of the land.

104As pointed out by the Bundesfinanzhof in its order for reference, this might have led to double taxation.

105In its reply to a question put to it by the Court, the Commission acknowledged the existence of this risk, which it explained as follows:

— A sells to B, free of VAT, a plot of undeveloped land whose price includes VAT previously paid in connection with certain excavation work.

— B erects a building on the land and pays VAT on the building work.

— B sells the property (comprising land and building) to C and exercises his right of option for taxation.

— If this right of option can be exercised only on the property as a whole, that is to say on the land plus the building, there will be double taxation inasmuch as the land will have been twice subject to VAT.

106According to the Commission, this risk of double taxation exists, in general, when exemption from VAT arises at an intermediate stage of the taxation chain. It cites as an example the exemption for insurance transactions and financial services for which the Sixth Directive provides. In neither case are the companies concerned authorised to deduct VAT. Accordingly, they seek to pass the tax on to their customers by increasing their prices. In the next stage of the chain, this passing on of the VAT in the price results in double taxation proportional to the tax borne by the enterprises.

For the Commission, in the present case, the only way of avoiding this hypothetical double taxation would be to calculate the taxable amount on the basis of the value of the building and exclude the price of the land. It adds, however, that this solution must be rejected inasmuch as it is incompatible with the principle of inseparability of building and land for the application of VAT, a principle laid down in both national legal systems and the Sixth Directive.

107The exemptions for which the VAT system provides are known to disrupt the deduction mechanism and can result in taxable persons passing on in their prices the sums paid by way of VAT which they have not been able to deduct. If, moreover, the exemption is granted at an intermediate stage, the risk of its leading to double taxation is increased.

108Nevertheless, there is an important difference between the transactions mentioned by the Commission and first supplies of immovable property. The Community legislature decided that, for reasons of general policy common to the Member States, insurance transactions and financial services should be exempt from VAT. On the other hand, under the system established by the Sixth Directive, the supply before first occupation of both building land and land which has been built on is subject to VAT. Member States were allowed to continue exempting such supplies or grant the right of option for taxation only during a transitional period. Accordingly, after that transitional period expires, there will no longer be any possibility of double taxation occurring in connection with the first supply of immovable property because the acquisition of building land will always be subject to VAT.

109The provisions of the Sixth Directive do not appear to offer a solution to any problem of double taxation which might arise in this case. Mrs Breitsohl cannot rely on Article 28(3)(f) of the Sixth Directive since, as has been shown, she did not acquire the building land for the purpose of resale. Nor, as I have already pointed out, is it possible to separate the value of the land from that of the building for the purpose of calculating the taxable amount. There is therefore a risk of double taxation, which is incompatible with the principle of neutrality.

110This is not the first time that the Court has had to consider the risk of double taxation without the Sixth Directive being able to provide a solution. I am thinking of the case-law relating to the application of VAT to second-hand goods and, in particular, of the judgment in Oro Amsterdam Beheer and Concerto.

111According to Article 32 of the Sixth Directive: 'The Council, acting unanimously on a proposal from the Commission, shall adopt before 31 December 1977

— According to this provision, during the transitional period, Member States may 'provide that for supplies of buildings and building land purchased for the purpose of resale by a taxable person for whom tax on the purchase was not deductible the taxable amount shall be the difference between the selling price and the purchase price'.

a Community taxation system to be applied to used goods, works of art, antiques and collectors' items. Until this Community system becomes applicable, Member States applying a special system to these items at the time this Directive comes into force may retain that system'.

Twelve years after the time-limit indicated in that provision, a Community tax regime applicable to second-hand goods had still not been adopted.

112In the abovementioned case, the Gerechtshof (Regional Court of Appeal), Amsterdam, asked the Court whether, under the conditions which it had described, it was in conformity with Community law, and in particular with the Sixth Directive, for national tax legislation not to allow the amount of tax included in the price of goods bought for resale from non taxable individuals to be taken into account for calculating the VAT payable by way of turnover tax on the supply of second-hand goods.

113The Court replied that: 'On the whole the Community system of VAT is the result of a gradual harmonisation of national legislation pursuant to Articles 99 and 100 of the Treaty. This harmonisation, as brought about by successive directives and in particular by the Sixth Directive, is still only partial. The harmonisation is designed in particular to preclude double taxation, so that the deduction of input tax at each stage of taxation is an integral part of the system of VAT. That objective has not yet been achieved, however, as is clear from Article 32 of the Sixth Directive, and nowhere in the common system of value added tax, as it stands at present, are to be found the necessary bases for determining and laying down detailed rules for applying a common system of taxation enabling double taxation to be avoided in trade in second-hand goods'.

114Thus, the fact that, during the transitional period, Member States are allowed to maintain in force tax provisions which deviate from the common VAT system can produce undesirable effects that will only disappear when that period ends. In any event, the double taxation situations which might arise, as in the present case, cannot justify giving the Community provisions an interpretation contrary to that which follows from both their wording and their intended purpose.

Conclusion

Conclusion

115In the light of the above, I propose that the Court of Justice reply as follows to the questions referred for a preliminary ruling by the Bundesfinanzhof:

(1) Articles 4 and 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 are to be interpreted as meaning that the right to deduct VAT on transactions effected with a view to taking up a projected economic activity continues to exist even where the tax authority is already aware, when the first tax assessment is made, that the economic activity leading to taxable transactions will not be taken up.

(2) Article 4(3)(a) of the Sixth Directive should be interpreted as meaning that in the case of a supply of buildings or parts thereof and of the land on which they stand, the option for taxation must be exercised inseparably in respect of the immovable property as a whole, including both the buildings or parts thereof and the land on which they stand.

Notes

(1) OJ 1977 L 145, p. 1. The wording of this repeatedly amended directive shows how right F. Pérez Royo was when he observed that 'studying value added tax is almost as painful as having to pay it' (Foreword to the book by Ramirez Gómez, S., El Impuesto sobre el Valor Añadido, Civitas, Madrid, 1994).

(2) The difference (to within a few pfennigs) between the payments deductible and the VAT on the selling price of the parts of the building.

(3) The difference (to within a few pfennigs) between the deductible payments accepted by the tax office and the VAT on the selling price of the parts of the building.

(4) Case C-110/94 INZO v Belgian State [1996] ECR I-857.

(5) _ Version of Article 17 of the Sixth Directive in force at the material time. 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/EEC 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/EC of

(10) April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to value addea tax — scope of certain exemptions and practical arrangements for implementing them (OJ 1995 L 102, p. 18).

(6) Case 268/83 Rompelman v Minister van Financiën [1985] ECR 655.

(7) Paragraphs 19, 22 and 23.

(8) Case 50/87 Commission v France [1988] ECR 4797.

(9) Paragraphs 16 and 17.

(10) Case C-97/90 Lennartz v Finanzamt München [1991] ECR I-3795.

(11) Paragraphs 8 and 15.

(12) Judgment previously cited in footnote 4.

(13) Paragraphs 18 to 20.

(14) Paragraphs 21 and 22.

(15) Paragraph 23.

(16) Case C-37/95 Belgian Stale v Ghent Coal Terminal [1998] ECR I-1.

(17) Paragraph 24.

(18) As the Court pointed out in its judgment of 5 May 1982 in Case 15/81 Schul v Invoerrechten en Accijnzen [1992] ECR 1409, paragraphs 11 and 12, the Sixth Directive harmonised the concepts of chargeable event, taxable person, chargeability of tax and taxable amount. These concepts must be interpreted uniformly in the Member States.

(19) Frequent references to the link between the chargeable event and the taxable person can be found in the legal literature. Thus, Sainz de Bujanda writes: 'the taxable person is the person who assumes liability with respect to the fiscal obligation as the author of the chargeable event' (Sainz de Bujanda, F., Notas de Derecho financiero, tome I, vol. 2, Publicaciones de la Facultad de Derecho de Madrid, Madrid, 1967, p. 608, quoted by Menéndez Moreno, A., Comentarios a la Ley General Tributaria y líneas para su reforma — Homenaje a Fernando Sainz de Bujanda, Instituto de Estudios Fiscales, Madrid, 1991, p. 502).

(20) I have left aside the question of whether it was possible to separate the parts of the building from the land in opting for taxation, which is the subject of the second question referred for a preliminary ruling.

(21) Provided that the person concerned meets certain requirements, in particular: (1) is a taxable person; (2) obtained the goods or services for consideration in his capacity of taxatie person; and (3) has complied with the formalities laid down in Article 18 of the Sixth Directive and fulfilled any obligations imposed by national law on the basis of Article 22(8) of the directive (see Joined Cases 123/87 and

(330) /87 Jeunehomme and Others v Belgian State [1988] ECR 4517; Case C-217/94 Eismann Atto Adige v Ufficio IVA di Bolzano [1996] ECR I-5287; Case C-85/95 Reisdorf v Finanzamt Köln-West [1996] ECR I-6257). With respect to the obligation upon Member States to observe the principle of proportionality in imposing these formal requirements, see the judgment in Joined Cases C-286/94, C-340/95, C-401/95 and C-47/96 Molenheide and Others v Belgian State [1997] ECR I-7281, together with the Opinion of Mr Advocate General Saggio in Joined Cases C-110/98 to C-147/98 Cabalfrisa and Others v AEAT [2000) ECR I-1577, at page I-1579, paragraphs 32 and 33).

(22) This article lays down the procedural rules for the fiscal management of VAT.

(23) The German Government merely asserts that, as the tax authority had not accorded Mrs Breitsohl the status of a taxable person, she had not acquired that status and therefore could not carry out taxable economic activities, with the result that, according to the German Government, the principle of tax neutrality was not applicable.

(24) According to Anicie 22(8), in the version introduced by Article 28(h) of Directive 91/680, cited in footnote 5 above, Member States may impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, subject to the requirement of equal treatment for domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.

(25) In the Ghent Coal Terminal NV judgment, the Court held that: '... in cases of fraud or abuse, in which 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 repayment of the sums retroactively on the ground that those deductions were made on the basis of false declarations' (judgment cited in footnote 16, paragraph 21). In German law, this possibility is provided for in Article 164 of the Abgabenordnung (Tax Code), according to which the tax notice is issued without prejudice to any subsequent verification and the taxpayer must be informed that the notice is provisional and subject to change.

(26) The transitional period was initially fixed at five years as from 1 January 1978. Nevertheless, it must be considered to have been extended indefinitely since the Council has still to take a decision on the possible abolition of these derogations.

(27) Emphasis added.

(28) As the Commission points out, the Fedetal Republic of Germany has never exercised this right.

(29) Case 139/84 Van Dijk's Boekhuis v Staatssecretaris van Financiën [1985] ECR 1405, paragraph 19).

(30) Case C-291/92 Finanzamt Velzen v Armbrecht [1995] ECR I-2775.

(31) Paragraphs 13 and 14.

(32) Paragraph 21.

(33) Case C-20/91 De Jong v Staatssecretaris van Financeiën [1992] ECR I-2847.

(34) Paragraphs 19 and 20.

(35) Thus, in the Spanish version: 'la entrega anterior a su primera ocupación de edificios o partes de edificios y de la porción de terreno sobre la que éstos se levanten'; in the English version: 'the supply before first occupation of buildings or parts of buildings and the land on which they stand'; in the German version: 'die Lieferung von Gebäu den order Gebäudeteilen und dem dazugehörigen Grund und Boden, wenn sie vor dem Erstbezug erfolgt'; and in the Italian version: 'la cessione, effettuata anteriormente alla Erima occupazione, di un fabbricato o di una frazione di fabbricato e del suolo attiguo' (emphasis added).

(36) Article 13 B(h) and Article 13 C(b).

(37) Article 28(3)(b), read in conjunction with Article 4(3)(b) and Annex F, point 16, and Article 28(3)(c), read in conjunction with Annex G, point 1(b).

(38) Article 28(3)(b), read in conjunction with Article 4(3)(a) and Annex F, point 16, and Article 28(3)(c), read in conjunction with Annex G, point 1(b).

(39) Article 13 B(g) and Article 13 C(b).

(40) My analysis is restricted to legal acts relevant to the present case, that is to say, to the transfer of the right of ownership in the developed land.

(41) As already noted in connection with the Armbrecht and De Jong judgments, I refer here to the situation in which both the building and the land are supplied by a taxable person acting as such, as in the present case.

(42) Case 73/85 Kerrutt v Finanzamt Mönchengladbach-Mitte [1986] ECR 2219.

(43) Paragraph 13. In his Opinion on this case, Advocate General Darmon stated that: 'The structure of Article 4(3) of the directive confirms that analysis. Article 4(3)(a) refers to "the supply before first occupation of buildings or parts of buildings and the land on which they stand", and that is a single financial and legal transaction inasmuch as it involves the transfer of ownership of ¡and which has been built on' (emphasis added).

(44) Paragraph 15.

(45) Under this article of the UStG, which was adopted on the basis of Article 20(4) of the Sixth Directive, the deduction may also be adjusted upon disposal of the capital goods item in the course of the calendar year in which it is first used.

(46) According to Article 11 A(1): 'The taxable amount shall be: (a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies'

(47) Article 13 B(a) and (d).

(48) See the justification for the proposed Sixth Directive which the Commission submitted to the Council on 29 June

(197) 3, Official Journal of the European Communities, Supplement 11/73, p. 16. — At least, if one leaves aside the problems that might result from the fact that the legislature departed from the Commission's proposal and instead of itself defining the concept of 'building land', decided to leave that task to the Member States [see Article 4(3)(b) of the Sixth Directive].

(51) Case C-165/88 Oro Amsterdam Beheer and Concerto v Inspecteur der Ouzetbelasting [19891 ECR 4081.

(52) Paragraphs 21 to 23.