C-449/19 WEG Tevesstraße

JUDGMENT OF THE COURT (Third Chamber)

17 December 2020 ( *1 )

(Reference for a preliminary ruling – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Exemption for leasing and letting immovable property – National legislation exempting from VAT the supply of heat by an association of residential property owners to property owners belonging to that association)

In Case C‑449/19,

REQUEST for a preliminary ruling under Article 267 TFEU from the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg, Germany), made by decision of 12 September 2018, received at the Court on 13 June 2019, in the proceedings

WEG Tevesstraße

v

Finanzamt Villingen-Schwenningen,

THE COURT (Third Chamber),

composed of A. Prechal, President of the Chamber, K. Lenaerts, President de la Court, acting as Judge of the Third Chamber, N. Wahl, F. Biltgen (Rapporteur) and L. S. Rossi, Judges,

Advocate General: M. Bobek,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

the German Government, by J. Möller and S. Eisenberg, acting as Agents,

the European Commission, by J. Jokubauskaitė and L. Mantl, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 10 September 2020,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), as amended by Council Directive 2009/162/EU of 22 December 2009 (OJ 2010 L 10, p. 14) (‘the VAT Directive’).

2The request has been made in proceedings between the association of residential property owners and co-owners, WEG Tevesstraße (‘WEG Tevesstraße’), comprising a limited liability company, a public authority and a municipality, on the one hand, and the Finanzamt Villingen-Schwenningen (Villingen-Schwenningen tax office, Germany) (‘the Finanzamt’), on the other, concerning the setting of the deduction of input value added tax (VAT) paid in relation to the costs of purchasing and operating a cogeneration power unit for 2012.

Legal context

European Union law

3Article 2(1)(a) of the VAT Directive provides:

‘The following transactions shall be subject to VAT:

the supply of goods for consideration within the territory of a Member State by a taxable person acting as such’.

4Article 9(1) of the VAT Directive states:

‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. Economic activity includes, in particular, the exploitation of goods or intangible and legal assets in a continuous manner with a view to profit.’

5Article 14(1) of the VAT Directive is worded as follows:

‘“Supply of goods”’ shall mean the transfer of the right to dispose of tangible property as owner.’

6Article 15(1) of the VAT Directive provides:

‘Electricity, gas, heat or cooling energy and the like shall be treated as tangible property.’

7Article 135(1)(l) of the VAT Directive provides:

‘Member States shall exempt the following transactions:

…

the leasing or letting of immovable property.’

8Article 136 of the VAT Directive provides:

‘Member States shall exempt the following transactions:

the supply of goods used solely for an activity exempted under Articles 132, 135, 371, 375, 376 and 377, Article 378(2), Article 379(2) and Articles 380 to 390b, if those goods have not given rise to deductibility;

the supply of goods on the acquisition or application of which VAT was not deductible, pursuant to Article 176.’

German law

9Paragraph 1(1)(1) of the Umsatzsteuergesetz (Law on turnover tax) of 21 February 2005 (BGB1. 2005 I, p. 386), in the version applicable to the main proceedings (‘the UStG’) provides:

‘The following transactions shall be subject to turnover tax:

supplies of goods and services effected for consideration within the country by a trader in the course of his or her business. …’

10Under Paragraph 4(13) of the UStG, the following are exempt from VAT: ‘services supplied by associations of residential property owners … to the residential property owners and co-owners, in so far as the services consist in making the common property available for use, maintenance, repair and other management purposes, as well as the supply of heat and similar goods.’

11Paragraph 9(1) of the UStG provides that the trader may waive the exemption provided for in Paragraph 4(13) if the transaction is carried out for the purposes of another trader’s business.

12Paragraph 15(1), (2) and (4) of the UStG provides inter alia:

‘(1) The trader may deduct the following amounts of input tax:

1tax lawfully due for supplies of goods and services which have been made for its business by another trader.

…

(2) There is no deduction of input tax in respect of the tax on the supplies, the importation or the intra-Community acquisition of goods, or in respect of other supplies of services which the trader uses for the following transactions:

1exempt transactions;

…

(4) If the trader uses any goods or services supplied, imported or acquired in the Community only in part to carry out transactions in respect of which there is no right to deduct, the part of the input tax which is economically attributable to those transactions shall not be deductible …’

The dispute in the main proceedings and the question referred for a preliminary ruling

13In 2012, the WEG Tevesstraße built a cogeneration power unit for operation on land belonging to the property owners of that association. The electricity generated by that power unit was supplied to an energy distributor while the heat produced was supplied to the property owners of that association. The WEG Tevesstraße requested a deduction of the VAT and, in that respect, it claimed from the Finanzamt an amount representing the input VAT paid totalling EUR 19 765.17 relating to the costs of purchasing and operating that power unit for 2012.

14In December 2014, the Finanzamt issued a tax assessment in respect of VAT for 2012 allowing the deduction of input VAT for the amount relating to the production of electricity, which corresponded to 28% of the amount claimed, but refused the deduction of input VAT for the amount relating to the production of heat which corresponded to 72% of the amount claimed. In support of its assessment, the Finanzamt stated that the supply of heat by an association of property owners to the property owners of that association is, under Paragraph 4(13) of the UStG, a transaction that is exempt from VAT.

15Following the rejection by the Finanzamt of its challenge, the WEG Tevesstraße brought an action before the referring court seeking the deduction of input VAT for the amount corresponding to the production of heat. In support of its action, it argues, in essence, that that provision of the UStG contravenes EU law, since the VAT Directive does not contain any provision exempting the supply of heat by an association of property co-owners to themselves.

16It follows from the request for a preliminary ruling that, like part of German legal literature, the referring court has doubts whether the exemption under Paragraph 4(13) of the UStG may be based on Article 135(1)(l) of the VAT Directive and, therefore, whether or not the VAT Directive precludes that national legislation.

17In those circumstances, the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg, Germany) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Are the provisions of [the VAT Directive] to be interpreted as precluding legislation of a Member State under which the supply of heat by associations of residential property owners to those owners is exempt from [VAT]?’

The question referred for a preliminary ruling

18By its question, the referring court asks in essence, whether Article 135(1)(l) of the VAT Directive must be interpreted as meaning that it precludes national legislation which exempts from VAT the supply of heat by an association of residential property owners to the property owners belonging to that association.

19As a preliminary point, it should be noted, as the Advocate General did in point 20 of his Opinion, that, in order to give an answer that is helpful for the referring court, it is important to take into account the legal and factual elements of that request.

20In that regard, it should be pointed out that the question referred is based on the premiss that the activity at issue in the main proceedings is an operation that is subject to VAT, for the purposes of Article 2(1)(a) of the VAT Directive.

21First of all, that premiss is actually supported by the actual purpose of the question referred for a preliminary ruling. The exemptions laid down by the VAT Directive are intended to be applied only to the activities falling within the scope of that directive (see, to that effect, judgments of 11 June 1998, Fischer, C‑283/95, EU:C:1998:276, paragraph 18; of 29 April 2004, EDM, C‑77/01, EU:C:2004:243, paragraph 59; and of 13 March 2008, Securenta, C‑437/06, EU:C:2008:166, paragraph 26), so that, if the supply of heat at issue in the main proceedings did not fall within the scope of the VAT Directive, the issue whether or not that directive precludes an exemption such as the one in Paragraph 4(13) of the UStG would not arise. In addition, that premiss is confirmed by the fact that the referring court, in its request for a preliminary ruling, expressly refers to Article 2(1)(a) of the VAT Directive.

22Next, as is apparent from the observations of the German Government, the German legislature considered that the exemption introduced by Paragraph 4(13) of the UStG was necessary given that the supplies carried out by associations of residential property owners for the benefit of their members are, in principle, subject to VAT.

23Finally, as the referring court stated in its request for a preliminary ruling, it is clear from the case-law of the Bundesfinanzhof (Federal Finance Court, Germany), more particularly the judgment of 20 September 2018 IV R 6/16 (DE:BFH:2018:U.200918.IVR6.16.0, paragraph 56), that the supply of heat for consideration by an association of residential property owners to its members constitutes a supply that is subject to VAT under Paragraph 1(1) of the UStG, but which must be exempt from that tax pursuant to Paragraph 4(13) of the UStG.

24In that regard, it should be observed that, although the VAT Directive gives a very wide scope to VAT, only activities of an economic nature are covered by that tax (judgment of 2 June 2016, Lajvér, C‑263/15, EU:C:2016:392, paragraph 20 and the case-law cited).

25According to Article 2(1)(a) of the VAT Directive, relating to taxable transactions, the supply of goods for consideration within the territory of a Member State by a taxable person acting as such, inter alia, is subject to VAT (judgment of 2 June 2016, Lajvér, C‑263/15, EU:C:2016:392, paragraph 21 and the case-law cited).

26With regard to the activity at issue in the main proceedings, that is to say the supply of heat, it should be pointed out that, under Article 15(1) of the VAT Directive, heat is to be treated as tangible property. It follows that that activity constitutes a supply of goods, for the purposes of Article 14(1) of that directive.

27As regards the issue whether a supply takes place for consideration, it should be recalled that the Court has repeatedly held that the fact that a supply of goods is carried out ‘for consideration’, for the purposes of Article 2(1)(a) of the VAT Directive, requires the existence of a direct link between the service provided and the consideration received. Such a direct link exists only if there is a legal relationship between the supplier and the purchaser entailing reciprocal performance, the price received by the supplier constituting the value actually given in return for the goods supplied. Further, that consideration must have a subjective value that is actually received and is capable of being expressed in monetary terms (judgment of 13 June 2018, Gmina Wrocław, C‑665/16, EU:C:2018:431, paragraph 43 and the case-law cited).

28In the present case, it is apparent from the file submitted to the Court, which is, however, a matter for the referring court to ascertain, that all the property owners belonging to the WEG Tevesstraße pay to that association consideration for the provision of heat, the amount of which is determined according to their individual consumption of heat as revealed on their individual meters. If that situation is verified, it would be appropriate to conclude that the supply of heat at issue in the main proceedings takes place ‘for consideration’, for the purposes of Article 2(1)(a) of the VAT Directive.

29With regard to the notion of ‘taxable person for VAT purposes’, and even though the status of a taxable person for VAT purposes in an association of residential property owners such as the WEG Tevesstraße does not appear to have been called into question by the referring court, it should be recalled that, under Article 9(1) of the VAT Directive, a ‘taxable person’ means ‘any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity’. According to the case-law of the Court, the terms used in Article 9(1) of the VAT Directive, in particular the term ‘any person who’, give to the notion of ‘taxable person’ a broad definition focused on independence in the pursuit of an economic activity to the effect that all persons – natural or legal, both public and private, even entities devoid of legal personality – which, in an objective manner, satisfy the criteria set out in that provision must be regarded as being taxable persons for the purposes of VAT (see, to that effect, judgment of 12 October 2016, Nigl and Others, C‑340/15, EU:C:2016:764, paragraph 27 and the case-law cited).

30In order to establish that an economic activity is being carried out in an independent manner, it is necessary to examine whether the persons concerned perform their activities in their own name, on their own behalf and under their own responsibility, and whether they bear the economic risk associated with carrying out those activities (judgment of 12 October 2016, Nigl and Others, C‑340/15, EU:C:2016:764, paragraph 28 and the case-law cited).

31While it is ultimately for the national court, which has sole jurisdiction to assess the facts, to determine, in the light of the considerations set out in paragraphs 29 and 30 above, whether an association of residential property owners such as the WEG Tevesstraße must be regarded as ‘independently’ carrying on an activity, such as the one at issue in the main proceedings consisting in the production and marketing of heat, the Court, which is called on to provide answers of use to the referring court, may provide guidance, based on the case file in the main proceedings and on the written and oral observations that have been submitted to it, in order to enable the national court to give judgment in the particular case pending before it.

32In that regard, first, as the Advocate General stated in paragraph 49 of his opinion, it is apparent from the order for reference that, under German law, an association of residential property owners such as the WEG Tevesstraße is a legal person distinct from the property owners which make up that entity. Further, convergent economic interests between the association of residential property owners and the property owners concerned are not sufficient to support a finding that that association does not exercise the activity at issue ‘independently’, for the purposes of Article 9(1) of the VAT Directive.

33Secondly, it is true that, according to Article 11 of the VAT Directive, each Member State, after consulting the advisory committee on VAT referred to in Article 398 of that directive, may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links. However, in the present case, it is not necessary to examine Article 11 given that it is not apparent from the file submitted to the Court that, in the main proceedings, the German tax authority relied on fiscal unity for the purposes of that provision.

34The notion of ‘economic activity’ is defined in the second subparagraph of Article 9(1) of the VAT Directive as covering all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. It is apparent from the Court’s case-law that that definition shows that the scope of the term ‘economic activities’ is very wide and that the term is objective in character, in the sense that the activity is considered per se and without regard to its purpose or results. Thus, an activity is generally classified as economic where it is permanent and is carried out in return for remuneration which is received by the person carrying out the activity (see, to that effect, judgment of 12 November 2009, Commission v Spain, C‑154/08, not published, EU:C:2009:695, paragraph 89 and the case-law cited).

35Even if the activities carried on by an association of residential property owners such as WEG Tevesstraße consist in exercising the functions assigned to it by national legislation, that fact is in itself irrelevant for the purposes of classifying the provision of those services as economic activities (see, to that effect, judgment of 29 October 2015, Saudaçor, C‑174/14, EU:C:2015:733, paragraphs 39 and 40).

36In the present case, the supply of heat stems from the operation of a cogeneration power unit by WEG Tevesstraße. As is apparent from paragraph 28 above, and subject to verification by the referring court, there does not appear to be any dispute that the consideration for supplying heat was a payment made by the property owners belonging to that association. Nor is it disputed that the payments thus received by that association were permanent in nature. Furthermore, it is apparent from the order for reference that the electricity produced by that power unit is supplied to an energy distribution company and that that supply was made in consideration for payment.

37It is apparent both from the wording of Article 9(1) of the VAT Directive and from the case-law of the Court that, for a finding that the exploitation of tangible or intangible property is carried out for the purpose of obtaining income therefrom, it is irrelevant whether or not that exploitation is intended to make a profit (judgment of 2 June 2016, Lajvér, C‑263/15, EU:C:2016:392, paragraph 35 and the case-law cited).

38As is confirmed, moreover, by the premiss on which the question referred for a preliminary is based, it follows that the VAT Directive is applicable in the present case and that the supply of heat at issue in the main proceedings constitutes a supply of goods which is, in principle, subject to VAT, for the purposes of Article 2(1)(a) of that directive.

39Having clarified that, it is appropriate to examine, in the first place, the issue raised by the referring court and by the German Government whether an exemption such as the one in Paragraph 4(13) of the UStG may come under Article 135(1)(l) of the VAT Directive, by which Member States exempt ‘the leasing or letting of immovable property’. In that regard, it is important to recall that, according to settled case-law, the terms used to describe the exemptions envisaged by Article 135(1) of the VAT Directive, including the notions of ‘leasing’ and ‘letting of immovable property’, are to be interpreted strictly since these exemptions constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person (see, inter alia, judgment of 19 December 2018, Mailat, C‑17/18, EU:C:2018:1038, paragraph 37 and the case-law cited).

40In addition, in the absence of a definition of those notions in the VAT Directive, the Court defined the ‘letting of immovable property’, for the purposes of Article 135(1)(l) of that directive, as an arrangement whereby the lessor assigns to the lessee, in return for rent and for an agreed period, the right to occupy its property and to exclude any other person from it (see, inter alia, judgment of 19 December 2018, Mailat, C‑17/18, EU:C:2018:1038, paragraph 36 and the case-law cited).

41The Court has also specified that the exemption provided for in Article 135(1)(l) of the VAT Directive is due to the fact that the letting of immovable property, whilst being an economic activity, is normally a relatively passive activity, not generating any significant added value. Such an activity is thus to be distinguished from other activities which are either industrial and commercial in nature, or have as their subject matter something which is best understood as the provision of a service rather than simply making property available, such as the right to use a golf course, the right to use a bridge in consideration of payment of a toll or the right to install cigarette machines in commercial premises (judgment of 2 July 2020, Veronsaajien oikeudenvalvontayksikkö (Computing centre services), C‑215/19, EU:C:2020:518, paragraph 41 and the case-law cited).

42In the main proceedings, as is apparent from the request for a preliminary ruling, the activity at issue consists in the supply of heat generated by the operation, by WEG Tevesstraße, of a cogeneration power unit. By supplying that heat, that association simply sells tangible property which is the result of the exploitation of another tangible property, albeit the latter is immovable, without however conferring on the purchasers of the heat, that is to say the property owners belonging to that association, the right to occupy an immovable property, in the present case the cogeneration power unit, and to exclude any other person from enjoyment of such a right, within the meaning of the case-law referred to in paragraph 40 above.

43In the second place, as regards the issue, also raised by the referring court and by the German Government, whether an exemption such as the one in Paragraph 4(13) of the UStG has its basis in report No 7 of the meeting of the Council of the European Union of 17 May 1977 concerning Article 13 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, ‘the Sixth Directive’), it should be recalled that, according to that report, ‘the Council and the [European] Commission declare that Member States may exempt making the common property available for use, maintenance, repair and other management purposes, as well as the supply of heat and similar goods by associations of residential property owners to the property owners themselves’.

44However, it is settled case-law that declarations made in the course of preparatory work leading to the adoption of a directive cannot be used for the purpose of interpreting that directive where no reference is made to the content of the declaration in the wording of the provision in question, and, moreover, such declarations have no legal significance (see, inter alia, judgment of 22 October 2009, Swiss Re Germany Holding, C‑242/08, EU:C:2009:647, paragraph 62 and the case-law cited).

45It should be pointed out that that is the situation in the present case, since neither Article 13B(b) of the Sixth Provision, making provision for the exemption of the leasing and letting of immovable property, nor Article 135(1)(l) of the VAT Directive, which replaced that provision, contain the slightest evidence that the declaration of the Council and the Commission set out in that report was reflected in those provisions.

46Therefore, it must be concluded that Article 135(1)(l) of the VAT Directive must be interpreted as meaning that an exemption such as the one in Paragraph 4(13) of the UStG does not come under that provision.

47That conclusion cannot be called into question by the argument advanced by the German Government and implicitly based on the principle of fiscal neutrality, according to which the supply of heating by an association of residential property owners to the property owners belonging to that association should be exempt from VAT in order to ensure equal treatment for VAT purposes between, on the one hand, the owners and tenants of single family homes not subject to VAT, who are respectively exempt from VAT, where they supply heat to themselves as property owners or where they simultaneously lease the house and the heating system, and on the other, the co-owners of properties subject to VAT, where the association to which they belong supplies them with heating.

48It is true that, according to established case-law, the principle of fiscal neutrality, which was intended by the EU legislature to reflect, in matters relating to VAT, the general principle of equal treatment (judgment of 29 October 2009, NCC Construction Danmark, C‑174/08, EU:C:2009:669, paragraph 41 and the case-law cited), precludes in particular treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes (judgment of 14 December 2017, Avon Cosmetics, C‑305/16, EU:C:2017:970, paragraph 52 and the case-law cited). Furthermore, it is apparent from the case-law of the Court that that principle must be interpreted as meaning that a difference in treatment for the purposes of VAT of two deliveries of goods or two supplies of services which are identical or similar from the point of view of the consumer and meet the same needs of the consumer is sufficient to establish an infringement of that principle (see, to that effect, judgment of 10 November 2011, Rank Group, C‑259/10 and C‑260/10, EU:C:2011:719, paragraph 36). However, it must be pointed out that the line of argument advanced by the German Government is based on a comparison of supplies of goods to two clearly distinct groups of consumers and that the fact that those groups are potentially treated differently is merely the consequence of the choice made by the persons belonging to those groups to own or not to own a dwelling in a building under co-ownership.

49In view of all the foregoing considerations, the answer to the question referred is that Article 135(1)(l) of the VAT Directive must be interpreted as meaning that it precludes national legislation which exempts from VAT the supply of heat by an association of residential property owners to the property owners belonging to that association.

Costs

50Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Third Chamber) hereby rules:

Article 135(1)(l) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2009/162/EU of 22 December 2009, must be interpreted as meaning that it precludes national legislation which exempts from value added tax the supply of heat by an association of residential property owners to the property owners belonging to that association.

Signatures

[Signatures]

( *1 ) Language of the case: German.

OPINION OF ADVOCATE GENERAL

BOBEK

delivered on 10 September 2020 ¹

(Reference for a preliminary ruling — Value Added Tax — Exemption for letting of immovable property — National provision exempting the supply of heat by an association of property owners to those owners)

I. Introduction

1An association of property owners supplied heat to those property owners and claimed input value added tax (‘VAT’) on expenditure associated with that activity. The tax authority in charge rejected that claim. It held that, pursuant to German law, the supply of heat to property owners is exempt from VAT.

2In this context, the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg, Germany) seeks to ascertain whether Directive 2006/112/EC ² (‘the VAT Directive’) precludes national legislation from exempting from VAT the supply of heat by associations of property owners to those owners. In answering that question, the Court will have the opportunity to provide guidance on when compensation in return for the supply of goods (such as heat) is deemed sufficiently commensurate to the ‘benefit’ derived from that transaction for it to have been rendered ‘for consideration’ within the meaning of Article 2(1) of the VAT Directive.

II. Legal framework

A. EU law

3Recital 4 of the VAT Directive states the following:

‘The attainment of the objective of establishing an internal market presupposes the application in Member States of legislation on turnover taxes that does not distort conditions of competition or hinder the free movement of goods and services. It is therefore necessary to achieve such harmonisation of legislation on turnover taxes by means of a system of value added tax (VAT), such as will eliminate, as far as possible, factors which may distort conditions of competition, whether at national or Community level.’

4According to Article 2(1)(a) and (c) of the VAT Directive:

‘1. The following transactions shall be subject to VAT:

the supply of goods for consideration within the territory of a Member State by a taxable person acting as such

…

the supply of services for consideration within the territory of a Member State by a taxable person acting as such.’

5Article 9(1) of the VAT Directive, which deals with ‘taxable persons’, reads as follows:

‘1. “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

6Article 14(1) of the VAT Directive defines the ‘supply of goods’ as meaning ‘the transfer of the right to dispose of tangible property as owner’, while, according to Article 15(1) of the VAT Directive, ‘heat … shall be treated as tangible property’.

7Article 135 of the VAT Directive, which falls under Chapter 3 (‘Exemptions for other activities’), sets out a number of exemptions from VAT. It reads in relevant part:

‘1. Member States shall exempt the following transactions:

…

the leasing or letting of immovable property.’

B. German law

1. The German Law on Value Added Tax

8Paragraphs 1 and 4 of the Umsatzsteuergesetz (the German Law on Value Added Tax) (‘the UStG’) lay down the general rules on the incurrence of VAT and its exemptions therefrom, which includes the exemption for the supply of heat by associations of property owners to those owners:

(1) The following transactions shall be subject to turnover tax:

1. supplies of goods and services effected for consideration within the territory of the country by a trader in the course of business. Transactions are not excluded from taxation where they are carried out pursuant to statute or an order of an authority or are deemed to be carried out under a statutory provision;

…

The following transactions covered by Paragraph 1(1)(1) shall be exempt from tax:

…

13. services supplied by associations of property owners within the meaning of the Wohnungseigentumsgesetz (Act on the Ownership of Apartments and the Permanent Residential Right) … to property owners and co-owners, in so far as the services consist in the delivery of common property for use, maintenance, repair and other administrative purposes as well as the supply of heat and similar services.’

2. Act on the Ownership of Apartments and the Permanent Residential Right

9The Wohnungseigentumsgesetz (Act on the Ownership of Apartments and the Permanent Residential Right) governs the principles underlying the formal division of property between property owners. In relevant part, it notes the following:

(1) Unless expressly provided otherwise, the apartment owners shall be the holders of the rights and obligations, including in particular in respect of the separately owned property and the jointly owned property, in accordance with the provisions of the present act.

…

(2) Each apartment owner shall be under an obligation to the other apartment owners to bear the charges in respect of the jointly owned property as well as the expenses relating to the maintenance, repair and other administration, and to the common use of the jointly owned property proportionate to his share (subsection 1, second sentence).

(3) Notwithstanding subsection 2, the apartment owners may resolve by majority that the operating costs … for the jointly owned property or the separately owned property, which do not have to be settled directly with third parties, as well as the administrative expenses, be recorded by reference to usage or causation and that they be distributed by reference thereto or to some other standard, provided this is consistent with proper administration.’

III. Facts, national proceedings and the question referred

10WEG Tevesstraße (‘the applicant’) is an association of property owners. Those property owners are three legal persons (a private company, a public authority and a municipality) (‘the Owners’). It appears that the applicant has been tasked with managing a mixed-use property estate in Baden-Württemberg (‘the Estate’). The Estate consists of 20 rental apartments, a department of the public authority, and an entity of the municipality.

11In 2012, the applicant constructed a combined heat and power unit (‘the CHPU’) on the Estate. It started generating electricity from the CHPU. It then sold the electricity to a power company, and supplied the heat produced thereby to the Owners.

12In the same year, the applicant filed its advance VAT return and claimed a total of EUR 19 765.17 in input VAT resulting from the acquisition and operating costs associated with the CHPU.

13On 3 December 2014, after assessing that request, the Finance Authority Villingen-Schwenningen authorised only an amount corresponding to 28% of the VAT for input tax deduction. According to its calculation, that amount represented the share of the abovementioned costs attributable to the generation of electricity. As regards the 72% of the input tax deduction attributable to the generation of heat, the Finance Authority rejected the applicant’s request on the basis that, pursuant to Paragraph 4.13 of the UStG, the supply of heat to property owners is exempt from VAT.

14After unsuccessfully challenging that assessment before the Finance Authority, the applicant brought proceedings before the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg, Germany). Among other things, the applicant considers Paragraph 4.13 of the UStG to be contrary to EU law in so far as the exemption contained therein does not derive from the VAT Directive. Given the primacy of EU law, the supply of heat to the Owners should be subject to VAT, so that the applicant is entitled also to the outstanding 72% of the VAT for input tax deduction.

15Harbouring doubts as to whether the national legislation applicable is compatible with EU law, the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg, Germany) decided to stay proceedings and refer the following question to the Court of Justice for a preliminary ruling:

‘Are the provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) to be interpreted as precluding legislation of a Member State under which the supply of heat by associations of property owners to those owners is exempt from value added tax?’

16Written observations have been submitted by the German Government and the European Commission. On 22 May 2020, they also replied to written questions put to the parties.

IV. Analysis

17This Opinion is structured as follows: I shall start with preliminary remarks setting out a number of hypotheses regarding the facts of the case and the assumptions I make in order to provide the referring court with an answer (A). I shall then set out the legal test for determining whether there is a taxable transaction under the VAT Directive (B). Next, I shall consider arguments put forward by the German Government and the Commission, before applying the legal test to the hypothetical scenarios established (C).

A. Preliminary clarifications

18The referring court asks essentially whether the provisions of the VAT Directive preclude Member State legislation from exempting from VAT the supply of heat by an association of property owners to those owners.

19Given the need for a uniform basis of assessment of VAT, ³ absolving a transaction from VAT can arise in one of two situations: (i) where no taxable transaction is present in the first place; or (ii) where one of the limited exemptions listed in Title IX of the VAT Directive applies.

20Both considerations require a detailed account of the factual circumstances underlying the transaction at issue. In the present case, the order for reference is rather scarce in detail, thus making it difficult to conclude on either situation without the knowledge of a number of factual variables. I consider it therefore necessary to set out my understanding of the facts, and the need for certain assumptions, which will inevitably frame the answer that I may give to the question raised by the referring court.

21Two sets of variables will necessarily inform my opinion. Those are the following.

1. Who delivers what to whom and what is being heated?

22The referring court indicates, both in the order for reference and in the question referred, that it is the applicant which supplies the heat arising from the production of electricity to ‘die Wohnungseigentümer’ (the Owners). I stress that the heat is supplied to those legal persons to indicate that there is no evidence in the case file which would suggest that the heat is supplied to the residential tenants of the 20 rental apartments also forming part of the Estate (and the ownership of which is equally unclear). In fact, no tenants appear to be involved in this transaction.

23That brings about a further complication: should the referring court’s order be read literally? That query arises because the use of the definite article ‘die’ before ‘Wohnungseigentümer’ indicates the use of the plural, which may suggest that the Court would be requested to give an opinion on the supply of heat to the Owners collectively, presumably then for collective use in the common areas. Or am I to understand the referring court as meaning that the heat is supplied to ‘die Wohnungseigentümer’ collectively but for personal use in the individually owned areas of the Estate?

24The order for reference gives no clear guidance in either direction. Paragraph 4.13 of the UStG is equally unclear. In relevant part, it merely provides, without further qualification, that the supply of heat by an association of property owners to ‘die Wohnungseigentümer’ is exempt from VAT.

25That lack of detail consequently gives rise to the existence of two possible scenarios. First, there is the heating of the common areas. Under this scenario, the applicant supplies heat to the Owners collectively, in the sense that either the Owners or the applicant (or perhaps even directly the applicant on the Owners’ behalf) heat the communal areas of the Estate for collective consumption and enjoyment. Second, there is the heating of the individual areas. In such a scenario, the applicant would also supply heat to the Owners, but in a rather different manner. In that case, the Owners receive heat for their designated parts of the Estate directly and consume it individually.

2. What compensation (if any) is provided and how is it calculated?

26As the German Government and Commission correctly point out, the referring court’s order is equally silent on the question of compensation. In fact, there is no indication that any compensation is provided. Nor is there detail as to how compensation, if any, would be calculated.

27Indeed, without compensation, there is no taxable transaction. ⁴

28For the purposes of my assessment, I shall nonetheless assume that the Owners provide some compensation to the applicant for the supply of heat, since it is unlikely that the referring court would even pose such a question if there was no compensation whatsoever.

29Moreover, the manner in which the system of compensation is designed and calculated equally matters. On the one hand, there may be a specific invoice for a specific expense. In other words, any payment for the supply of heat is earmarked and thus provided directly to cover that specific expense. On the other hand, the supply of heat could be part of a larger array of activities provided by the applicant. The Owners would then, presumably, pay a regular lump sum to cover various running costs, including the supply of heat. Here, the mode of invoicing would be for all (or some) of those running activities, potentially with a breakdown of costs. Compensation would be provided indirectly to cover ‘general’ expenses.

30In sum, the two variables unknown to me, but in my view important for the eventual assessment of the case, are not only whether the common areas or the individual areas of the Estate are to receive the heat, but also whether compensation in return for that supply is provided to cover a specific expense (‘directly’) or a general expense (‘indirectly’).

B. Legal test

31For a transaction to be taxable within the meaning of the VAT Directive, there must be a transaction carried out for consideration (falling within Article 2 of the VAT Directive) on the territory of a Member State (as required by Article 5 thereof) by a taxable person acting in that capacity (within the meaning of Article 9 of the same directive). That is, unless one of the exemptions contained in Title IX of the VAT Directive applies.

32In the present case, satisfaction of the territorial scope criterion is undisputed. I shall therefore have no further regard to it and focus my analysis on the remaining factors.

1. Supply of goods for consideration?

33Article 2 of the VAT Directive lays down those transactions which are liable to VAT. Among others, it clarifies that the ‘supply of goods for consideration’ is a transaction subject to VAT. That has been interpreted to mean that the EU legislature sought to tax only consumption ‘for consideration’, that is to say that there was compensation provided reciprocally in return for the supply of goods. ⁵ Such ‘consideration’ is deemed to be the (at least some, at times even subjective) value of the good in question, and not a value estimated according to objective criteria. ⁶

34The ‘consideration’ must also be ‘directly and immediately linked’ to the taxed activity at issue. ⁷ I read the case-law as prescribing two cumulative conditions in this regard. First, that there exists some sort of ‘causality’ in payment. In other words, that a person can be seen to be paying for a particular good or service. ⁸ Second, that the payment rendered is pursuant to a ‘legal relationship’ between the two parties to the transaction. ⁹

35I should note at this point that I find the use of the expression ‘legal relationship’ in the case-law somewhat unfortunate. There may be transactions subject to a ‘legal relationship’ that do not fall within the scope of Article 2 of the VAT Directive. Thus, Apple and Pear Development Council undoubtedly concerned a ‘legal relationship’ between commercial growers of apples and pears in England and Wales and the body tasked by law to promote their interests (with membership mandatory), even though the Court held that the annual charge paid by each apple and pear grower was insufficiently commensurate to the individual ‘benefit’ derived from the body’s activities. ¹⁰ That implies that there is more to the concept of ‘legal relationship’ than first meets the eye.

36To me, the ‘legal relationship’ in such type of situations rather aims at the ‘commensurability of benefit’ linked to the payment rendered. That is to say that the requisite ‘legal relationship’ is only present where the party providing the compensation also receives a certain ‘benefit’ commensurate to that compensation. In Apple and Pear Development Council, that ‘commensurability of benefit’ was inexistent as the body’s functions related to the common interests of the growers collectively, so that any benefit derived from those functions by the individual grower was derived ‘indirectly from those accruing generally to the industry as a whole’. ¹¹

37The same logic is also apparent in Commission v Finland, where the Court held that legal aid services in return for a modest fee, which was calculated on the basis of the legal aid recipient’s income, did not have a commensurate link to the services received, even though a legal relationship was present. ¹² Similarly, in Tolsma, admittedly a case without a ‘legal relationship’, the Court held that there was also no commensurability between donations given by passers-by to a street busker and the benefit received from him playing music on a public street. ¹³

38Conversely, a ‘commensurability of benefit’ was found to be present in both Kennemer Golf and Le Rayon D’Or, where the payment of a flat-rate charge in return for the ‘standby’ availability of a service (the possibility to use the golf course or to receive care on demand) was deemed to be ‘for consideration’, even though no use of those services was actually made. ¹⁴

39In sum, the ‘legal relationship’ criterion thus appears to have both formal and substantive facets. Beyond (or within) the formal condition of there being some sort of structured legal relationship between the parties to a transaction, the notion of a legal relationship links back to the idea of consideration. It aims at capturing any exchange of mutual benefit of at least some economic value, within which there is a traceable causality between the supplies carried out by either party.

2. An economic activity?

40Article 9 of the VAT Directive concerns itself with ‘taxable persons’. Pursuant to the first subparagraph of Article 9(1), a taxable person is ‘any person’, who, independently, carries out in ‘any place’‘any economic activity’, whatever the purpose or results of that activity. The second subparagraph of that provision then specifies what an ‘economic activity’ is.

41Given the wide wording of that provision, any person in any place engaging in any economic activity is a ‘taxable person’. ¹⁵ Similarly, the term ‘economic activity’ has been interpreted broadly and is objective in character, in the sense that the activity is considered per se and without regard to its purpose and results. ¹⁶

42Having clarified the legal test resulting from Articles 2 and 9 of the VAT Directive, I shall now turn to the present case.

C. The present case

43Pursuant to Article 15 of the VAT Directive, ‘heat’ is deemed tangible property.

44The present case could essentially concern two different scenarios: one where the heat is supplied for the common areas of the Estate and one where it is supplied for the individual areas of the Estate. In both cases, I assume that the Owners compensate the applicant for the supply of the good (heat) in some way, be that directly or indirectly. ¹⁷

45Before I proceed to assessing those scenarios individually, I should comment on two transversal lines of argument made in the present case which apply irrespective of the scenario considered.

46The first line of argument concerns the nature of an ‘economic activity’. The German Government and the Commission consider that, given the identity of persons between the parties making up the association of property owners (the applicant, which is in effect the Owners) and the parties receiving the heat (again, the Owners), that transaction could not be deemed an ‘economic activity’. According to the Commission, that would also extend to general maintenance, repair, and other services which the applicant would provide to the Owners. All of the above would fall outside the scope of application of the VAT Directive.

47I cannot agree with that line of reasoning.

48First, as far as the nature of supply is concerned, the first sentence of Article 9(1) of the VAT Directive uses the rather clear qualifier ‘any’ to indicate that ‘any activity of producers, traders or persons supplying services is to be regarded as an “economic activity”’. Furthermore, the interplay between abstract and typological definitions in the first and second subparagraphs of that provision implies, to me, that the EU legislature intended the concept of ‘economic activity’ to include as broad a range of activities as possible. ¹⁸

49Second, and to my mind rather crucially, as the referring court notes, under German law, the applicant is a separate legal person. Consequently, the heat is supplied by one legal entity to three other legal entities. I certainly do understand that, in economic terms, the applicant is made up of some of the same persons benefiting from its activities. However, the overlap in economic interests is hardly an argument for completely disregarding a clear legal differentiation present under national law. There is thus no identity of persons and no self-supply arises.

50I therefore do not see how the supply of heat performed by a legal person distinct from the recipient of the goods would not amount to an ‘economic activity’ within the meaning of Article 9(1) of the VAT Directive. Even if one were to change the activity at issue, that conclusion would not be affected: if the applicant received compensation for, say, the cleaning of the common areas, the maintenance of the building’s façade, or even the repair of the front gate interphones, it would be performing individual ‘economic activities’ in the same way as it does, in the present case, with the supply of heat. None of those activities escape the scope of Article 9(1) of the VAT Directive. ¹⁹

51The second line of argument concerns the nature of Paragraph 4.13 of the UStG. The German Government puts forward two observations in this regard. First, Paragraph 4.13 of the UStG would be an implementation into national law of the exemption found in Article 135(1)(l) of the VAT Directive relating to the ‘leasing or letting of immovable property’. Second, the German Government argues that the exemption contained in Paragraph 4.13 of the UStG would find support in a statement by the Commission and the Council. That statement, contained in the Council minutes relating to the adoption of the Sixth Council Directive 77/388/EEC ²⁰ (‘Sixth Directive’), notes that Member States may exempt from VAT, among other things, the supply of heat.

52I cannot subscribe to either of those arguments.

53Article 135(1)(l) of the VAT Directive sets out one of the activities that Member States may exempt from VAT. It may not define what constitutes ‘leasing or letting’, nor does it make a reference to national law for that purpose. ²¹ However, that provision is an exemption from the ordinary requirement to pay VAT and so must be interpreted strictly. ²²

54First, looking at the face of the text, I see no argument to support the German Government’s position that the supply of heat, or, in fact, the supply of any items not constituting immovable property, by an association of property owners to those owners, should fall within that exemption. It escapes me how the ‘supply of heat for consumption at the property’ could ever be, by any reasonable construction (and certainly not a narrow one), subsumed under ‘the leasing and letting of immovable property’. The former is simply a completely different activity, which indeed has something to do with ‘property’, but that is just about it.

55Second, presumably, if the Owners leased or let immovable property from the applicant (quod non on the facts of the case) and the applicant stated that consumption of heat was part of the compulsory ‘rental package’, the argument could be had that the supply of heat is part of the letting transaction. However, the case-law exempts an ‘ancillary’ supply from VAT only to the extent that it shares the tax treatment of the ‘principal’ supply and where it does not constitute an object for customers or a service sought of its own sake, but a means of better enjoying the principal service. ²³ That requires an assessment of the essential features of the transaction. ²⁴

56While that determination would then be for the national court to make, I note that there is no indication in the present case that the ‘ancillary’ activity for the supply of heat is part of the ‘leasing or letting’ transaction, if any, which, after all, constitutes the ‘principal’ activity for the purposes of the exemption under Article 135(1)(l) of the VAT Directive. ²⁵ Even if it were, I would have serious doubts that, in general, such a bundling of activities would be possible under the VAT Directive. The supply of heat would therefore have some difficulty in coming under the notion of a specific aspect of that exempted ‘principal’ activity. ²⁶

57Third, and without prejudice to whether the supply of heat could, in certain circumstances, be considered ancillary, it is, in any event, an ‘active’ transaction. As the Court has held, Article 135(1)(l) of the VAT Directive merely intended to exempt the ‘passive’ transaction of ‘leasing or letting of immovable property’ from VAT. ²⁷ As the Commission correctly observes, the judgment in Wojskowa Agencja Mieszkaniowa w Warszawie clearly finds that ‘active’ transactions, such as ‘the provision of water, electricity and heating as well as refuse collection accompanying that letting must, in principle, be regarded as constituting several distinct and independent supplies which need to be assessed separately for VAT purposes’. ²⁸

58As regards the statement of the Commission and the Council in relation to the Sixth Directive, the reply is even simpler. The case-law is clear that such instruments have no legal value and may be used only where the content thereof is referred to in the wording of the provision in question. ²⁹ That is because those addressed by the legislation at issue must be able to rely on what it contains. ³⁰

59Article 135(1)(l) of the VAT Directive makes no reference to the supply of heat. Nor does its predecessor in the Sixth Directive, namely Article 13(B)(b) thereof, to which the statement relates. It thus cannot be relied on in this case.

60Having dealt with the general, transversal arguments, I shall now turn to the two scenarios which may arise in the present case.

1. Scenario 1: heating of the common areas

61To recall, the first scenario presupposes that the applicant supplies the heat to the Owners collectively. The heat is thus supplied for the communal interest of the Owners and is consumed in like measure. The Owners pay the applicant either directly or indirectly for the supply of the heat.

62Having suggested that the supply of heat is likely to constitute an economic activity, the next issue would be whether or not it is being provided for consideration in the sense of Article 2 of the VAT Directive. With no knowledge about the payment or invoicing arrangements between the applicant and the Owners, I cannot but offer some, indeed rather vague, guidance on the criteria that are likely to be of relevance for the national court.

63First, depending on the type of compensation and invoicing, it is likely that some causality in the consideration provided is present, ³¹ unless of course the applicant finds itself in the rather unlikely scenario where the Owners would pay absolutely nothing for the heat supplied to them.

64Second, is there a ‘legal relationship’ under which there is a structured exchange of consideration? Such ‘legal relationship’ presupposes not only a ‘meeting of the minds’ but also commensurate ‘benefit’ to the payer. ³² What that means for the present case is the following.

65By its very nature, the applicant does not act in the interest of or at the direction of one individual owner. Where it supplies heat with a view to heating the common areas of the Estate, the applicant is likely to carry out its functions for the benefit of and in the common interest of the Estate as a whole. The consideration received for carrying out its activities (such as the supply of heat) lacks any real correlation to the ‘benefit’ commensurate to the individual share that the owner holds in the overall ‘consideration’ provided for that transaction. ³³ Any ‘benefit’ received by the individual owner would be derived indirectly from the benefit to the Owners collectively, even if it cannot be ruled out that some of the Owners, in certain circumstances, might benefit more greatly from the supply of heat than others. ³⁴

66Put differently, the individual ‘benefit’ is thus insufficiently commensurate to the payment rendered. That makes the link between the consideration provided and the transaction received insufficiently direct for it to fall within the scope of Article 2(1) of the VAT Directive. ³⁵

67It is true that, at least under German law, and subject to verification by the referring court, the Owners are legally obliged to cover their share of the overall charges and expenses incurred by the applicant. ³⁶ However, I do not deem the existence of a legal obligation to become part of a separate entity (like in Apple and Pear Development Council), or, in fact, the obligation to pay one’s proportionate share of the overall expenses of that body (as would be required in the present case under the applicable German law), as determinative of whether ‘commensurability of benefit’ exists. Certainly, for all effects and purposes, the lack of control and absence of any consensual element may be considered a ‘pointer’ for the transaction not to be ‘in any real sense a payment for a particular activity’, ³⁷ but it does not characterise the relationship between the activity concerned and the payment rendered.

68That is why, to me, the supply of heat under the first scenario, if destined for the common areas of the Estate, may equally lack the ‘commensurability of benefit’ if the Owners were not legally obliged to cover the charges and expenses incurred by the applicant. In those circumstances, the supply of heat is for the common interest of the Owners, and thus not made ‘for consideration’ within the scope of Article 2(1) of the VAT Directive.

69Accordingly, were those the factual circumstances of the case, I would be of the view that the VAT Directive does not preclude Paragraph 4.13 of the UStG. Indeed, in such a case, and to such an extent, Paragraph 4.13 of the UStG could be seen as a mere clarification in national law of an activity in any event not subject to VAT.

2. Scenario 2: heating of the individual areas

70In the second scenario, the applicant supplies heat to the Owners individually, for their personal use within their parts of the Estate. Such a supply is then provided in the individual interest of the Owner. The heat is not consumed in the common areas of the Estate. The Owners pay the applicant directly or indirectly.

71In this scenario, the ‘causality’ criterion for there to be consideration is, a fortiori to the first scenario, likely to be established. Indeed, whereas one may conceive a number of various types of flat rate, lump sum, or other types of hybrid payments possible when each owner is to come up regularly with their share for the heating of the communal areas, it is rather difficult to imagine that the same type of arrangement would also be applicable to what is essentially private consumption.

72That being said, to me, the distinguishing factor of Scenario 2 is the existence of a commensurate ‘benefit’ to the individual owner. Indeed, if the Owners receive, and compensate the applicant for the supply of heat for their individual use, then the compensation provided is earmarked for an activity that is of sufficiently direct and commensurate benefit to the owner. I am certainly not implying that a benefit need be commensurate to the monetary value of the payment provided. The VAT Directive does not police bad economic decision-making. The point is rather one of whether the benefit received is sufficiently direct to be made ‘for consideration’ within the meaning of Article 2(1) of the VAT Directive. If yes, it will be provided ‘for consideration’ within the meaning of Article 2(1) of the VAT Directive.

73Those conclusions remain irrespective of the mode of payment. Clearly, where the supply of heat is reciprocated by means of a direct payment to cover a specific invoice, there is no doubt that it will be commensurate to the benefit received from that heat. One may change the way that compensation is rendered, but that conclusion is still likely to remain the same. A transaction for the supply of heat which is reciprocated indirectly by the owner, say, by means of a regular flat rate payment, is still commensurate to the benefit received, and thus ‘for consideration’, since it covers, at least in part, an activity granted for the individual benefit of the owner.

74As the judgments in Kennemer Golf and Le Rayon d’Or evidence, that holds true even if it is not possible to relate the sum to each personal use of the heat. ³⁸ The ‘commensurability of benefit’ element is thus also present in a transaction incurring ‘mixed expenses’. That is to say in a situation where the applicant carries out an array of activities for the Owners collectively, and, in addition, supplies the heat to the Owners individually. Here, at least part of the compensation provided is earmarked to cover an individual expenditure. The transaction thus becomes commensurate in part and, to that extent, ‘for consideration’ within the meaning of Article 2(1) of the VAT Directive and subject to VAT.

75In those circumstances, Paragraph 4.13 of the UStG would exempt a transaction from the ordinary requirement to pay VAT in Germany, whereas the same transaction would be liable to VAT in other Member States, or perhaps even in Germany itself, ³⁹ in violation of the principle of fiscal neutrality. ⁴⁰ The VAT Directive would then preclude Paragraph 4.13 of the UStG for exempting the supply of heat from VAT.

76In the light of the above, it falls to the national court to assess the details of the arrangement between the applicant and the Owners, taking due account of the above considerations on the ‘commensurability of benefit’ of the payments rendered, if any, for the supply of heat. Should there be an element of commensurability present in the transaction before the national court, the ‘for consideration’ element of Article 2(1) of the VAT Directive is likely to become satisfied and the transaction, to that extent, becomes liable to VAT.

V. Conclusion

77I propose to the Court that it answers the question referred by the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg, Germany) as follows:

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as not precluding national provisions which exempt from value added tax the supply of heat by an association of property owners to those owners, in so far as the compensation received by the association in return for the supply of heat takes account only of charges and expenses incurred for the supply of heat to the common areas of the property.

Conversely, Directive 2006/112/EC must be interpreted as precluding the same provisions of national law, to the extent that the compensation received by the association in return for the supply of heat takes account, in whole or in part, of the supply of heat to the individually owned parts of the property.

It falls to the national court to verify under what circumstances compensation is provided for the supply of heat in the main proceedings.

¹ Original language: English.

² Council Directive of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

³ Recital 7 of the VAT Directive speaks of the need for the common system of VAT to ‘result in neutrality in competition’. See also judgment of 3 May 2001, Commission v France (C‑481/98, EU:C:2001:237, paragraph 22).

⁴ Judgments of 5 February 1981, Coöperatieve Aardappelenbewaarplaats (154/80, EU:C:1981:38, paragraph 14), and of 1 April 1982, Hong-Kong Trade Development Council (89/81, EU:C:1982:121, paragraph 10). As I have suggested elsewhere, without knowledge of the element of compensation, one cannot presume any element of consideration for a ‘supply of goods’ to be present. See my Opinion in Gmina Wrocław (C‑665/16, EU:C:2018:112, point 57).

⁵ See the case-law quoted above in footnote 4.

⁶ See judgment of 13 June 2018, Gmina Wrocław (C‑665/16, EU:C:2018:431, paragraph 43).

⁷ See, for instance, judgment of 3 July 2019, The Chancellor, Masters and Scholars of the University of Cambridge (C‑316/18, EU:C:2019:559, paragraph 21 and the case-law cited).

⁸ See judgment of 5 February 1981, Coöperatieve Aardappelenbewaarplaats (154/80, EU:C:1981:38, paragraph 12).

⁹ See judgments of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 17), and of 10 November 2016, Baštová (C‑432/15, EU:C:2016:855, paragraph 28 and the case-law cited).

¹⁰ Judgment of 8 March 1988, Apple and Pear Development Council (102/86, EU:C:1988:120, paragraph 14).

¹¹ Ibid, paragraph 14.

¹² Judgment of 29 October 2009, Commission v Finland (C‑246/08, EU:C:2009:671, paragraphs 50 to 51).

¹³ Judgment of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 17).

¹⁴ Judgments of 21 March 2002, Kennemer Golf (C‑174/00, EU:C:2002:200, paragraphs 40 to 42), and of 27 March 2014, Le Rayon d’Or (C‑151/13, EU:C:2014:185, paragraph 37).

¹⁵ As Terra and Kajus observe, for the purposes of the VAT Directive, that means that the ‘satay-peddler in Djarkarta’ is considered a taxable person in the same sense as a ‘department store in Amsterdam’. See Terra, B.J.M., and Kajus, J., Introduction to European VAT, IBFD Publications 2018, p. 371.

¹⁶ Cf, inter alia, judgments of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 22), and of 10 April 2019, PSM K (C‑214/18, EU:C:2019:301, paragraphs 41 to 42).

¹⁷ Set out in detail above, points 22 to 30 of this Opinion.

¹⁸ See, to that effect, Opinion of Advocate General Kokott in Posnania Investment (C‑36/16, EU:C:2017:134, point 25).

¹⁹ The economic nature of such activities may be further stressed by a mind experiment: would and could such activities be provided by a different (externally hired) entity (not the applicant) on a normal paid basis? The answer to that question is bound to be positive: of course heat can (and often is) supplied by an external company on a paid basis, similarly to hiring a company to fix a broken lift in the house.

²⁰ Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1).

²¹ It is settled case-law that the need for a uniform application of EU law and the principle of equality require that the terms of a provision of EU law which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope must normally be given an autonomous and uniform interpretation, which must take into account the context of that provision and the purpose of the legislation in question (see, for instance, judgment of 16 November 2017, Kozuba Premium Selection (C‑308/16, EU:C:2017:869, paragraph 38 and the case-law cited)).

²² See, most recently, judgment of 2 July 2020, Blackrock Investment Management (UK) (C‑231/19, EU:C:2020:513, paragraph 22).

²³ See judgment of 19 December 2018, Mailat (C‑17/18, EU:C:2018:1038, paragraph 34 and the case-law cited).

²⁴ See judgment of 18 January 2018, Stadion Amsterdam (C‑463/16, EU:C:2018:22, paragraph 30 and the case-law cited).

²⁵ See, to that effect, judgments of 25 February 1999, CPP (C‑349/96, EU:C:1999:93, paragraphs 7 to 10 and 31); of 27 September 2012, Field Fisher Waterhouse (C‑392/11, EU:C:2012:597, paragraph 23); of 27 June 2013, RR Donnelley Global Turnkey Solutions Poland (C‑155/12, EU:C:2013:434, paragraph 24); and of 19 December 2018, Mailat (C‑17/18, EU:C:2018:1038, paragraph 40).

²⁶ See, in like measure, judgment of 6 May 2010, Commission v France (C‑94/09, EU:C:2010:253, paragraph 34).

²⁷ Judgment of 4 October 2001, Goed Wonen (C‑326/99, EU:C:2001:506, paragraph 52), and of 28 February 2019, Sequeira Mesquita (C‑278/18, EU:C:2019:160, paragraph 19). See also the Opinion of Advocate General Trstenjak in RLRE Tellmer Property (C‑572/07, EU:C:2008:697, point 32).

²⁸ Judgment of 16 April 2015, Wojskowa Agencja Mieszkaniowa w Warszawie (C‑42/14, EU:C:2015:229, paragraph 47).

²⁹ See, inter alia, judgment of 14 March 2013, Agrargenossenschaft Neuzelle (C‑545/11, EU:C:2013:169, paragraph 52).

³⁰ See judgment of 17 October 1996, Denkavit and Others (C‑283/94, C‑291/94 and C‑292/94, EU:C:1996:387, paragraph 29).

³¹ As set out above, points 26 to 30 of this Opinion.

³² As set out above, points 34 to 39 of this Opinion.

³³ See also judgment of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 14), which called this the lack of a ‘reciprocal performance’.

³⁴ The prime scenario here would be that of a well-maintained communal garden on the ground floor, which would indirectly benefit the owner of a ground floor apartment to a greater extent than the owner of a top floor apartment. Cf, to that effect, judgment of 8 March 1988, Apple and Pear Development Council (102/86, EU:C:1988:120, paragraph 14).

³⁵ In this sense indeed concurring with the decision of the Conseil d’Etat of 7 December 2001 in Case No. 212273, ECLI:FR:CEORD:2001:212273.20011207, cited by the referring court.

³⁶ I derive that understanding from Paragraph 16.2 of the Wohnungseigentumsgesetz (Act on the Ownership of Apartments and the Permanent Residential Right).

³⁷ Opinion of Advocate General Slynn in Apple and Pear Development Council (102/86, not published, EU:C:1987:466, p. 1461).

³⁸ See, in particular, judgments of 21 March 2002, Kennemer Golf (C‑174/00, EU:C:2002:200, paragraph 40), and of 27 March 2014, Le Rayon d’Or (C‑151/13, EU:C:2014:185, paragraph 37).

³⁹ Again, the individual consumption of heat (or electricity or water, for that matter) in the individual owner’s or rental flat units will normally be provided by a third party and will be subject to VAT. It is indeed only in the rather singular factual constellation of the present case that an association of owners apparently starts, beyond its normal (communal) functions, delivering also other, indeed (individualized), commercial supplies, thus effectively creating a dissonance between its generally stated legal nature, on the one hand, and the specific, effectively economic, activity, on the other hand.

⁴⁰ See, for instance, judgment of 19 December 2019, Segler-Vereinigung Cuxhaven (C‑715/18, EU:C:2019:1138, paragraph 36 and the case-law cited).