C-51/88 Hamann v Finanzamt Hamburg-Eimsbüttel

Judgment of the Court (Second Chamber) of 15 March 1989. - Knut Hamann v Finanzamt Hamburg-Eimsbüttel. - Reference for a preliminary ruling: Finanzgericht Hamburg - Germany. - VAT - Means of transport - Ocean-going sailing yacht. - Case 51/88. European Court reports 1989 Page 00767

Summary Parties Grounds Decision on costs Operative part

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Tax provisions - Harmonization of laws - Turnover taxes - Common system of value-added tax - "Forms of transport" within the meaning of the Sixth Directive - Sailing yachts - Covered - Hiring - Place where the service is deemed to be supplied for tax purposes

( Council Directive 77/388/EEC, Art . 9(1 ) and ( 2)(d ) )

Ocean-going sailing yachts that are used by their hirers for the practice of the sport of sailing are forms of transport within the meaning of Article 9(2)(d ) of the Sixth Directive ( 77/388/EEC ) on the harmonization of the laws of the Member States on turnover taxes . Therefore the place where the service of hiring them out is supplied is, in conformity with the general principle laid down in Article 9(1 ) of the directive, deemed to be the place where the supplier has established his business .

In Case 51/88

REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht ( Finance Court ) Hamburg for a preliminary ruling in the proceedings pending before that court between

Knut Hamann, residing in Hamburg,

and

Finanzamt ( Tax Office ) Hamburg-Eimsbuettel,

on the interpretation of Article 9(2)(d ) 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 ( Official Journal 1977, L 145, p . 1 ),

THE COURT ( Second Chamber )

composed of : T . F . O' Higgins, President of Chamber, G . F . Mancini and F . A . Schockweiler, Judges,

Advocate General : F . G . Jacobs

Registrar : D . Louterman, Administrator

after considering the observations submitted on behalf of

Knut Hamann, the plaintiff in the main proceedings, by P . Mueller-Kemler, Rechtsanwalt, Hanover,

the Finanzamt Hamburg-Eimsbuettel, the defendant in the main proceedings, by its Director, in the written procedure,

the Government of the Federal Republic of Germany, by M . Seidel, Ministerial Adviser at the Federal Ministry of Economic Affairs, assisted by J . Sedemund, Rechtsanwalt, Cologne,

the Commission of the European Communities, by M . D . Calleja, a member of its Legal Department, assisted by R . Wagner, a civil servant seconded to the Commission under the exchange programme for civil servants,

having regard to the Report for the Hearing and further to the hearing on 14 February 1989,

after hearing the Opinion of the Advocate General delivered at the sitting on 21 February 1989,

gives the following

Judgment

Grounds

1By an order of 22 December 1987, which was received at the Court on 17 February 1988, the Finanzgericht Hamburg referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question on the interpretation of Article 9(2)(d ) of the Sixth Council Directive of 17 May 1977 ( 77/388/EEC ) on the harmonization of the legislation of the Member States on turnover taxes - Common system of value-added tax : uniform basis of assessment ( Official Journal 1977, L 145, p . 1; hereinafter referred to as "the Sixth Directive ").

2That question was raised in proceedings between Knut Hamann and the Finanzamt ( Tax Office ) Hamburg-Eimsbuettel ( hereinafter referred to as "the Finanzamt ") concerning the question whether the chartering of ocean-going sailing yachts for sporting purposes by an undertaking established in the Federal Republic of Germany is subject to value-added tax ( hereinafter referred to as "VAT ") in that State .

3According to the documents relating to the main proceedings, Hamann owns a yacht-charter business established in the Federal Republic of Germany . The yachts were chartered for sailing, primarily in Danish and Swedish waters but also as far away as Norway and Finland and were therefore used by the charterers mainly outside German tax jurisdiction .

4For the 1980 and 1981 financial years, Hamann declared a turnover net of tax which was accepted by the Finanzamt, subject to verification .

5During an inspection carried out in 1983, the tax inspector considered that the chartering by Hamann of ocean-going sailing yachts was a hiring-out of a form of transport which should be regarded as a taxable service supplied in Germany; he therefore calculated the VAT payable for 1980 and 1981 . The Finanzamt confirmed the inspector' s interpretation and issued revised assessment notices for 1980 and 1981 .

6After his objection was rejected, Hamann brought an action before the Finanzgericht Hamburg . He argued that the chartering of ocean-going sailing yachts was not subject to VAT under the German legislation on the ground that the turnover had occurred at the place where the goods hired out were used and therefore outside German tax jurisdiction . The rule laid down in German legislation for the hiring-out of forms of transport, whereby such hiring-out was deemed to be the place where the lessor pursued his business, was not appliable in this case since ocean-going sailing yachts were not to be regarded as means of transport .

7The Finanzamt, however, considered that ocean-going sailing yachts were forms of transport within the meaning of the German legislation and that the hiring-out of such goods was therefore subject to VAT at the place where the lessor had established his business, that is to say within the territory of the Federal Republic of Germany .

8The Finanzgericht Hamburg considered that the rule governing the hiring-out of forms of transport was introduced into the German legislation in order to transpose the Sixth Directive into national law .

9Taking the view that the dispute involved the interpretation of the relevant Community rules, the Finanzgericht Hamburg decided, by order of 22 December 1987, to stay the proceedings pursuant to Article 177 of the EEC Treaty until the Court had given a preliminary ruling on the following question :

"IsArticle 9(2)(d ) of the Sixth Directive to be interpreted as meaning that ocean-going sailing yachts that are used by their hirers for the practice of the sport of sailing are to be regarded as' "forms of transport' within the meaning of that directive?"

10Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the law applicable, the course of the procedure and the observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .

11It should be noted first of all that Article 9(1 ) of the Sixth Directive provides that : "The place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides ".

12Secondly, it should be noted that Article 9(2 ) of the Sixth Directive lays down a number of exceptions to this general rule . In particular, Article 9(2)(d ) provides that "in the case of hiring-out of movable tangible property, with the exception of all forms of transport, which is exported by the lessor from one Member State with a view to it being used in another Member State, the place of supply of the service shall be the place of utilization ".

13It follows from that provision that all forms of transport are outside the scope of the exception laid down for the hiring-out of movable tangible property, which therefore remains subject to the general rule in Article 9(1 ) of the Sixth Directive .

14In order to answer the question asked by the national court, it is necessary to determine whether ocean-going yachts that are chartered for the practice of the sport of sailing are forms of transport within the meaning of Article 9(2)(d ) of the Sixth Directive .

15In this connection Hamann states that the definition of the term "form of transport" depends upon the main function of the object in question . The main purpose of the chartering of an ocean-going sailing yacht is not to transport persons and goods from one place to another but to practise the sport of sailing or to sail for pleasure . Consequently, the yachts concerned in the main proceedings are not to be regarded as forms of transport within the meaning of Article 9(2)(d ) of the Sixth Directive .

16The Commission, however, considers that the term "form of transport" must be interpreted widely and that it covers anything which may be used to go from one place to another . According to the Commission, any sailing boat suitable for sailing is therefore a form of transport within the meaning of the Sixth Directive even if it is used primarily for the purposes of sport .

17The Commission' s argument must be accepted . It is clear from the seventh recital in the preamble to the Sixth Directive that one of the aims of the directive was to delimit in a rational way the scope of the legislation of Member States, in particular as regards the supply of services . Thus the place where a service is supplied is in principle, for the sake of simplification, deemed to be the place where the supplier has established his business . However, according to the aforesaid recital, an exception to this general rule must be made in certain specific cases : thus in the case of the hiring-out of movable tangible property, the place of supply of the service is the place in which the goods hired out are used, in order to prevent distortions of competition which may arise from the different rates of VAT applied by the Member States .

18Those considerations do not apply, however, to the hiring-out of forms of transport . Since they may easily cross frontiers, it is difficult, if not impossible, to determine the place of their utilization . However, in each case a practical criterion must be laid down for VAT charging . Consequently, for the hiring-out of all forms of transport, the Sixth Directive provided that the service should be deemed to be supplied not at the place where the goods hired out are used but, in conformity with the general rule, at the place where the supplier has established his business .

19In view of the reasons for the exclusion of all forms of transport from the exception laid down in Article 9(2)(d ) of the Sixth Directive and the fact that exceptions to the general rule laid down by the Sixth Directive must be interpreted narrowly, ocean-going sailing yachts, even if used by the hirers for sporting purposes, must thus be regarded as forms of transport within the meaning of the aforesaid provision of the Sixth Directive . Yachts of that kind enable persons and goods to be moved over long distances, so that it is difficult to determine the place where they are used and therefore deeming the place where the service is supplied to be the place where the goods are used entails the risk that no VAT would be paid on the hiring-out of such vessels, contrary to the aim of the Sixth Directive .

20This interpretation is confirmed by Article 15(2 ) of the Sixth Directive, according to which "pleasure boats" - the category to which ocean-going sailing yachts belong - are "means of transport for private use ".

21The same interpretation was also adopted in Council Directive 83/182/EEC of 28 March 1983 on tax exemptions within the Community for certain means of transport temporarily imported into one Member State from another ( Official Journal 1983, L 105, p . 59 ), Article 1(1 ) of which provides that "pleasure boats" are within the scope of the directive and are therefore covered by the term "certain means of transport ".

22The answer to the question raised by the national court must therefore be that ocean-going sailing yachts that are used by their hirers for the practice of the sport of sailing are "forms of transport" within the meaning of Article 9(2)(d ) of the Sixth Directive .

Costs

Costs

23The costs incurred by the Government of the Federal Republic of Germany and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable . Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the action pending before the national court, costs are a matter for that court .

Operative part

On those grounds,

THE COURT ( Second Chamber ),

in answer to the question submitted to it by the Finanzgericht Hamburg, by order of 22 December 1987, hereby rules :

Ocean-going sailing yachts that are used by their hirers for the practice of the sport of sailing are "forms of transport" within the meaning of Article 9(2)(d ) 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 .

OPINION OF MR ADVOCATE GENERAL JACOBS delivered on 21 February 1989"'

My Lords,

1The plaintiff, Mr Hamann, owned a yacht-charter business established in the Federal Republic of Germany and operating from Kiel. It appears from the order for reference that the yachts were generally sailed by the charterer for pleasure outside German territorial waters in Danish and Swedish waters — presumably in the Baltic Sea — and also as far as Norway and Finland. Therefore a large part of the utilization of the service supplied — the use of a yacht — took place outside German tax jurisdiction and within the tax jurisdiction of other countries, including countries not Member States of the European Communities.

2In 1981 and 1982 the plaintiff submitted tax returns declaring a tax-free turnover of DM 75 064 and DM 132 943 for the years 1980 and 1981 respectively. These were accepted by the defendant, the local tax office, subject to verification. An inspector examined the plaintiff's books in 1983 and calculated an increase in VAT of DM 7 703.22 and DM 15 103.73 for the years 1980 and 1981 respectively. The increase was based on the fact that the service provided by the plaintiff was the

* Original language: English.

774 hiring-out of a form of transport not of movable tangible property. The defendant agreed with this assessment (both of tax due and the reason on which it was based) and claimed the payment of tax accordingly on 7 May 1984. The plaintiff challenged the claim but the defendant rejected the challenge on 20 September 1985.

3The plaintiff then challenged the latter decision before the Finanzgericht, Hamburg. That court, by order of 22 December 1987, received at the Court Registry on 17 February 1988, referred the following question on the interpretation of the Sixth VAT Directive (Sixth VAT Directive 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 (77/388/EEC, Official Journal L 145, 13.6.1977, p. 1):

'Is Article 9(2) of the Sixth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes of 17 May 1977 to be interpreted as meaning that ocean-going sailing yachts, that are used by their hirers for the practice of the sport of sailing, are "forms of transport" within the meaning of that directive?'

4The purposes of the directive are clear from the preamble: they include establishing 'a basis of assessment determined in a uniform manner according to Community rules' (recital 2) and — with particular relevance to the present case — to resolve possible conflicts of jurisdiction between Member States as regards the supply of services (recital 7).

5Article 2 of the directive provides, so far as material:

'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

Article 3 governs the territorial application of the directive: by Article 3(1), the 'territory of the country' is the area of application of the EEC Treaty as stipulated in respect of each Member State in Article 227. It has not been suggested that the application of the directive is affected by the fact that the yachts may have been sailed in part outside the territories of any of the Member States.

6Article 9(1) of the directive, giving effect to recital 7 of the preamble, provides as follows:

'The place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.'

7Article 9(2) of the directive provides certain exceptions to that general rule. In particular, subparagraph (d) states (before amendment):

'in the case of the hiring-out of movable tangible property, with the exception of all forms of transport, which is exported by the lessor from one Member State with a view to its being used in another Member State, the place of supply of the service shall be the place of utilization.'

The reason for the exception made in the case of the hiring-out of movable property is no doubt to prevent distortion of trade and distortion of competition. To take the illustration given at the hearing by the agent of the Commission, if there were a substantial difference in the rate of VAT on the hiring-out of television sets, between the Federal Republic of Germany and Denmark, then to tax the hiring in the Member State from which the goods were supplied might lead to a substantial distortion.

8However, that exception for the hiring-out of movable property is expressed to exclude 'all forms of transport', so that the hiring-out of forms of transport (other than for purely internal purposes) falls within the general rule in Article 9(1). Thus the chartering of the yachts, if they are forms of transport, is to be deemed to take place where the supplier has established his business.

9Again, the purpose of the exclusion from the exception of forms of transport is, in the ordinary case, readily apparent, since where such forms of transport as cars, vans, or even bicycles or horses, may be used across national frontiers, it would be wholly impracticable to seek to tax the hiring-out of such forms of transport in the 'place of utilization'.

10Before addressing the issue whether yachts are to be regarded as forms of transport, I would add that it seems very doubtful whether, even if yachts are to be regarded as not being forms of transport, the present case would fall within the exception in Article 9(2)(d), which requires that movable property, to come within the exception, should have been exported by the lessor from one Member State with a view to its being used in another Member State. While that issue has not been addressed by the national court, it seems manifestly not the case that the yachts were exported by the lessor, Mr Hamann, with a view to their being used in another Member State, and therefore the hiring of the yachts would not fall within the exception even if they were to be regarded as movable property. The reason why the issue has not been addressed by the national court appears to be that the German legislation, the German Law of 1980 on Turnover Tax ('Umsatzsteuergesetz'), does not contain the requirement set out above; it merely provides, in Article 3a(2)4, that the

776 hiring-out of movable physical objects is carried out where the objects are used ('Die Vermietung beweglicher körperlicher Gegenstände — ausgenommen Beförderungsmittel — wird dort ausgeführt, wo die Gegenstände genutzt werden').

11Although it is therefore likely that the reference in this case was not strictly necessary to decide the dispute, it is well established that this Court must nevertheless rule on the question referred and I therefore turn to that question. The plaintiff in the main proceedings argues, in essence, that yachts sailed for pleasure purposes are not forms of transport since transport is not the main purpose for which they are used. That view is contested by the Tax Office, by the German Government and by the Commission, which contend in substance that the term 'forms of transport' must be understood more widely as covering any means of conveyance even if it is not used principally as a means of conveyance.

12At first sight, it would seem that the expression 'forms of transport' might be interpreted either in the sense contended for by Mr Hamann or in the wider sense. On the one hand, it could be contended that the essential criterion of a means of transport is its functional purpose; and that the transportation of yachtsmen, and the contents of the yacht, is merely incidental to the purpose of sailing, which is primarily a recreational activity. On that view, a sailing boat is primarily an item of leisure equipment rather than a means of transport. On the other hand, it could be said that, although the reasons for sailing may be of a purely recreational or sporting character, nevertheless transportation occurs whatever the reasons for which it is undertaken, and that a boat is a form of transport, whatever the purposes for which it is used. Indeed, these two views, it appears, are reflected in the case-law of the German courts.

13However, in my view, there is a clear answer to the question of interpretation as it arises in the context of the Sixth Directive. First, as I have already pointed out, the purpose underlying the provisions points to a broad interpretation of the term. Indeed, because of the practical difficulties in taxing such supplies of services, if a narrower interpretation were adopted, there would be a risk that such supplies of services would escape taxation altogether. Moreover any derogation from the directive must be interpreted restrictively, which points here to a broad interpretation of the term in issue. Such an interpretation also finds some support in the language of the provision itself: while in the German version of Article 9(2)(d) the term used is 'außer Beförderungsmitteln', that is 'with the exception of means of transport', other language versions include an additional encompassing adjective: in English 'all', in French 'tout' and so on, indicating that the term is intended in the most comprehensive sense.

14Of no less significance is the fact that, as the Commission has pointed out, Article 15(2) of the directive expressly refers to 'pleasure boats and private aircraft or any other means of transport for private use', thus clearly — although in another context — including pleasure boats, which chartered sailing yachts are, within the meaning of 'means of transport'. I do not regard the slightly different formulation in the English version — 'means' instead of 'forms' — as significant, and other language versions use the same words in both places.

15Later legislation in the same field, which may be used for comparative purposes, is also of interest. In the directive of 28 March 1983 on tax exemptions within the Community for certain means of transpon temporarily imported into one Member State from another (83/182/EEC, Official Journal L 105, 23.4.1983, p. 59), Article 1(1) includes in the scope of the directive (and, by implication, within the meaning of 'certain means of transport') inter alia 'pleasure boats'. On this occasion, there is a slight difference of wording in other language texts. Instead of 'Beförderungsmitteln' the German has 'Verkehrsmittel'. The French continues to use 'moyens de transpon'. Once again, however, the linguistic differences are not significant and it is clear that the concept, as envisaged by the Community legislator, remains the same since the directive itself is designed to fit into the general VAT system.

16Taking these points together I am led to the conclusion that pleasure boats (including chartered yachts) were intended to be included in the expression 'forms of transport'.

17In reaching that conclusion I do not take account of the fact that Article 9 of the Sixth Directive was amended by the Tenth VAT Directive (84/386/EEC, Official Journal L 208, 3.8.1984, p. 58), since that directive was adopted on 31 July '. .. as regards the hiring-out of forms of 1984 and was to be implemented by 1 July transport, Article 9(1) should, for reasons 1985 and therefore does not affect this case.

of control, be strictly applied, the place The final recital of the preamble to that where the supplier has established his directive makes it clear that the Community business being treated as the place of supply legislator wished to ensure strict application of such services'.

of the general rule in Article 9(1):

18Accordingly, in my opinion the answer to be given to the referring court should be as follows:

Ocean-going sailing yachts, hired out for the purpose of sailing, are "means of transport" within the meaning of Artice 9(2) of the Sixth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes.'