C-511/10 BLC Baumarkt

JUDGMENT OF THE COURT (First Chamber)

8 November 2012 ( *1 )

‛Sixth VAT Directive — Article 17(5), third subparagraph — Right to deduct input tax — Goods and services used for both taxable and exempt transactions — Letting of a building for commercial and residential purposes — Criterion for calculating the deductible proportion of VAT’

In Case C‑511/10,

REFERENCE for a preliminary ruling under Article 267 TFEU from the Bundesfinanzhof (Germany), made by decision of 22 July 2010, received at the Court on 27 October 2010, in the proceedings

Finanzamt Hildesheim

v

BLC Baumarkt GmbH & Co. KG,

THE COURT (First Chamber),

composed of A. Tizzano, President of the Chamber, A. Borg Barthet, M. Ilešič, J.‑J. Kasel (Rapporteur) and M. Berger, Judges,

Advocate General: P. Cruz Villalón,

Registrar: A. Calot Escobar,

after considering the observations submitted on behalf of:

the German Government, by T. Henze and J. Möller, acting as Agents,

the Greek Government, by F. Dedousi, G. Kotta, and K. Boskovits, acting as Agents,

the United Kingdom Government, by C. Murrell, acting as Agent,

the European Commission, by C. Soulay and B.‑R. Killmann, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 26 April 2012,

gives the following

Judgment

Legal context and the dispute

1This reference for a preliminary ruling concerns the interpretation of the third subparagraph of Article 17(5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1; ‘the Sixth Directive’).

2The reference has been submitted in the context of a dispute between Finanzamt Hildesheim (‘the Finanzamt’) and BLC Baumarkt GmbH & Co. KG (‘BLC’), a German company, as to how to calculate the deductible proportion of input value added tax (‘VAT’) paid in respect of a building used both for transactions subject to VAT and transactions exempt from VAT.

Legal context

European Union legislation

3The 12th recital in the preamble to the Sixth Directive reads as follows:

‘… the rules governing deductions should be harmonised to the extent that they affect the actual amounts collected; … the deductible proportion should be calculated in a similar manner in all the Member States’.

4Article 17(5) of the Sixth Directive provides:

‘As regards goods and services to be used by a taxable person both for transactions covered by paragraphs 2 and 3, in respect of which [VAT] is deductible, and for transactions in respect of which [VAT] is not deductible, only such proportion of the [VAT] shall be deductible as is attributable to the former transactions.

This proportion shall be determined, in accordance with Article 19, for all the transactions carried out by the taxable person.

However, Member States may:

authorise the taxable person to determine a proportion for each sector of his business, provided that separate accounts are kept for each sector;

compel the taxable person to determine a proportion for each sector of his business and to keep separate accounts for each sector;

authorise or compel the taxable person to make the deduction on the basis of the use made of all or part of the goods and services;

authorise or compel the taxable person to make the deduction in accordance with the rule laid down in the first subparagraph, in respect of all goods and services used for all transactions referred to therein;

provide that, where the [VAT] which is not deductible by the taxable person is insignificant, it is to be treated as nil.’

5Article 19(1) of the Sixth Directive provides:

‘The proportion deductible under the first subparagraph of Article 17(5) shall be made up of a fraction having:

as numerator, the total amount, exclusive of [VAT], of turnover per year attributable to transactions in respect of which [VAT] is deductible under Article 17(2) and (3),

as denominator, the total amount, exclusive of [VAT], of turnover per year attributable to transactions included in the numerator and to transactions in respect of which [VAT] is not deductible. The Member States may also include in the denominator the amount of subsidies, other than those specified in Article 11A(1)(a).

The proportion shall be determined on an annual basis, fixed as a percentage and rounded up to a figure not exceeding the next unit.’

German law

6Under Paragraph 15(4) of the Umsatzsteuergesetz (Law on turnover tax) 1999 (BGBl. 1999 I, p. 1270), as amended by the Steueränderungsgesetz (Law on tax amendment) 2003 (BGBl. 2003 I, p. 2645) (‘the UStG’):

‘If the trader uses a product or service delivered, imported or acquired in the Community only in part to carry out transactions not giving rise to the right to deduct, the part of the input tax economically linked to those transactions does not give rise to the right to deduct. The trader may carry out a reasonable estimation of the amounts not giving rise to the right to deduct. A determination of the non-deductible part of the tax by reference to the percentage of turnover not giving rise to the right to deduct in relation to the turnover giving rise to that right is authorised only where no other economic allocation is possible.’

The dispute in the main proceedings and the question referred

7During 2003 and 2004, BLC had a building built which included both living accommodation and commercial premises. After completion of the building, BLC let it, that letting being partly exempt from VAT and partly subject thereto. In its VAT declaration for 2004, BLC carried out a partial deduction of the input tax in relation to that building. To that end, BLC calculated the amount of deductible VAT by applying a proportion determined by reference to the ratio between the turnover in relation to the commercial letting and that arising from other letting transactions (‘the turnover-based method’).

8Following a tax inspection, the Finanzamt took the view that, in accordance with Paragraph 15(4) of the UStG, the amount of deductible input VAT had to be determined by reference to the ratio between the area of the commercial premises and that of the premises used for living accommodation. In this case, allocation carried out in accordance with that latter method caused a downward revision of the amount of deductible VAT. The Finanzamt therefore sent an amendment notice to BLC.

9BLC brought an action against that amendment notice before the Finanzgericht. That court allowed the action on the ground that the third sentence of Paragraph 15(4) of the UStG was contrary to EU law. Article 17(5)(c) of the Sixth Directive precluded a Member State from providing, as the main criterion, a criterion for allocation other the turnover-based method.

10The Finanzamt appealed on a point of law to the Bundesfinanzhof against the decision of the Finanzgericht. The Bundesfinanzhof considers it necessary to determine the question whether one of the possibilities set out in the third subparagraph of Article 17(5) of the Sixth Directive, more particularly that appearing in Article 17(5)(c), authorises Member States to restrict allocation arising from the application of the turnover-based method by providing that that method may be used only where no other economic allocation is possible.

11In those circumstances, the Bundesfinanzhof decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Is the third subparagraph of Article 17(5) of [the Sixth Directive] to be interpreted as authorising the Member States to prescribe primarily an apportionment criterion other than the [turnover-based] method for apportioning the input tax on the construction of a mixed-use building?’

The question referred for a preliminary ruling

12By its question, the national court asks, in essence, whether the third subparagraph of Article 17(5) of the Sixth Directive must be interpreted as allowing Member States, for the purposes of calculating the proportion of input VAT deductible for the construction of a mixed-use building, to give precedence, as the key to allocation, to an allocation key other than that based on turnover appearing in Article 19(1) of that directive.

13In answering that question, it needs to be remembered that Article 17(5) of the Sixth Directive lays down the rules applicable to the right to deduct VAT where the VAT relates to goods or services used by the taxable person ‘both for transactions covered by paragraphs 2 and 3, in respect of which value added tax is deductible, and for transactions in respect of which value added tax is not deductible’. In such a case, the first subparagraph of Article 17(5) of the Sixth Directive provides that only such proportion of the VAT is deductible as is attributable to the former taxable transactions (Case C-488/07 Royal Bank of Scotland [2008] ECR I-10409, paragraph 17).

14Under the second subparagraph of Article 17(5) of the Sixth Directive, the deductible amount is calculated according to a proportion fixed in accordance with Article 19 of that directive (Royal Bank of Scotland, paragraph 18).

15However, as is apparent from paragraph 19 of the judgment in Royal Bank of Scotland, the third subparagraph of Article 17(5) of the Sixth Directive, which begins with the word ‘however’, allows derogation from the rule set out in the first and second subparagraphs of Article 17(5) by permitting Member States to employ one of the other methods for determining the deductible amount listed in the third subparagraph of Article 17(5), namely determination of a separate proportion for each sector of business or deduction on the basis of the use made of all or part of the goods and services for a specific activity, or they may even exclude the right of deduction in certain circumstances.

16Since the third subparagraph of Article 17(5) of the Sixth Directive must thus be regarded as constituting a provision derogating from the first and second subparagraphs of Article 17(5), the Member States must, in the exercise of the powers conferred on them by that provision, respect the effectiveness of the first subparagraph of Article 17(5) of the Sixth Directive and the principles which underlie the common system of VAT, in particular those of fiscal neutrality and proportionality.

17Therefore, to permit a Member State to adopt legislation, such as that described by the national court, which derogates generally from the rules established by the first and second subparagraphs of Article 17(5) and by Article 19(1) of the Sixth Directive would be contrary to the latter. Such legislation would call into question the objective of the Sixth Directive, set out in the 12th recital thereof, according to which calculation of the deductible proportion must be carried out in a similar manner in all Member States.

18That interpretation is, moreover, in accordance with the purpose of the third subparagraph of Article 17(5) of the Sixth Directive, the provisions of which are suitable for application to given situations since they have the aim, in particular, by taking into account the specific characteristics of the taxable person’s activities, to permit Member States to achieve greater accuracy in calculating the deductible proportion (see, to that effect, Royal Bank of Scotland, paragraph 24).

19It follows that Article 17(5) of the Sixth Directive does not preclude a Member State, while complying with the principles underlying the common system of VAT, from giving precedence, for a given transaction, such as the construction of a mixed-use building, to one of the methods of calculating the deductible proportion provided for in the third subparagraph of that provision.

20Concerning the rules for calculating the deductible proportion to be applied in that type of situation, it should be noted that, apart from those which must be used in case of application of Article 17(5)(d) of the Sixth Directive, which refers expressly to the calculation rule referred to in the first subparagraph of Article 17(5) of that directive, the rules laid down in Article 19(1) of the latter do not apply in so far as a given situation is subject to one of the other special regimes provided for in the third subparagraph of Article 17(5) of the directive (see, to that effect, Royal Bank of Scotland, paragraph 21).

21As is quite clear from the wording of Articles 17(5) and 19(1) of the Sixth Directive, the latter provision refers only to the proportion deductible under the first subparagraph of Article 17(5) of the directive, and therefore lays down a detailed rule for calculating the proportion referred to in the first of those two provisions only (Royal Bank of Scotland, paragraph 22) and, by extension, for the deduction to be made pursuant to Article 17(5)(d) of the said directive.

22In the absence of indications in the Sixth Directive, it is for the Member States to establish, within the limits of compliance with EU law and the principles on which the common system of VAT is based, methods and rules governing the calculation of the deductible proportion of input VAT. In exercising that power, the Member States are obliged to take account of the purpose and general system of that directive (see, to that effect, Case C-437/06 Securenta [2008] ECR I-1597, paragraphs 34 and 35).

23In this case, it must be held that, having regard, first, to the purpose of the third subparagraph of Article 17(5) of the Sixth Directive, which, as has been recalled in paragraph 18 of this judgment, is designed to allow Member States to reach more precise results in calculating the deductible proportion, second, to the general system of Article 17(5) of that directive, and, third, to the principle of fiscal neutrality, on which the common system of VAT is based and of which the third subparagraph of Article 17(5) may be regarded as constituting an application, the Member States must ensure, when exercising the prerogatives recognised by that latter provision, that the calculation of the deductible proportion of input VAT is as precise as possible (see, by analogy, as regards determination of the proportion between economic and non-economic activities, Securenta, paragraph 37).

24The Sixth Directive does not therefore preclude Member States, when exercising that power, from applying, for a given transaction, a method or allocation key other than the turnover-based method, such as, in particular, that based on the floor area at issue in the main proceedings, on condition that the method used guarantees a more precise determination of the deductible proportion of the input VAT than that arising from application of the turnover-based method.

25In the case at issue in the main proceedings, it is for the national court to verify whether those conditions are complied with.

26Therefore, the answer to the question is that the third subparagraph of Article 17(5) of the Sixth Directive must be interpreted as allowing Member States, for the purposes of calculating the proportion of input VAT deductible for a given operation, such as the construction of a mixed-use building, to give precedence, as the key to allocation, to an allocation key other than that based on turnover appearing in Article 19(1) of that directive, on condition that the method used guarantees a more precise determination of the said deductible proportion.

Costs

27Since 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 (First Chamber) hereby rules:

The third subparagraph of Article 17(5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment must be interpreted as allowing Member States, for the purposes of calculating the proportion of input value added tax deductible for a given operation, such as the construction of a mixed-use building, to give precedence, as the key to allocation, to an allocation key other than that based on turnover appearing in Article 19(1) of that directive, on condition that the method used guarantees a more precise determination of the said deductible proportion.

Signatures

[Signatures]

( *1 ) Language of the case: German.

OPINION OF ADVOCATE GENERAL

CRUZ VILLALÓN

delivered on 26 April 2012 ¹

‛Value added tax — Sixth Directive — Deduction of input tax — Goods and services used both for taxable transactions and for exempt transactions — Letting of a property for commercial and residential purposes — Calculation of the deductible proportion — National legislation which provides for calculation of the deductible proportion based on the surface area of the property used for each type of letting’

1By means of a single question, which the Bundesfinanzhof (Federal Finance Court) formulates in terms which are prima facie very precise, the present reference for a preliminary ruling provides the Court of Justice with an opportunity to move forward with the complex interpretation of the design and the scope of the system laid down in Article 17(5) of the Sixth Directive, ² in particular the third subparagraph, point (c), thereof. It will be seen that the question concerns the scope of point (c) to the extent that, as is well-known, it provides that in relation to goods and services used both for transactions in respect of which VAT is deductible and for transactions in respect of which VAT is not deductible (‘mixed use’), Member States may authorise or compel taxable persons to calculate the VAT deductible on the basis of the use ³ of those goods and services.

I – Legislative framework

A – European Union law. The Sixth Directive

2According to the twelfth recital in the preamble to the Sixth Directive, ‘the rules governing deductions should be harmonised to the extent that they affect the actual amounts collected ... the deductible proportion should be calculated in a similar manner in all the Member States’.

3Article 17(5) of the Sixth Directive provides as follows:

‘As regards goods and services to be used by a taxable person both for transactions covered by paragraphs 2 and 3, in respect of which [VAT] is deductible, and for transactions in respect of which [VAT] is not deductible, only such proportion of the [VAT] shall be deductible as is attributable to the former transactions.

This proportion shall be determined, in accordance with Article 19, for all the transactions carried out by the taxable person.

However, Member States may:

authorise the taxable person to determine a proportion for each sector of his business, provided that separate accounts are kept for each sector;

compel the taxable person to determine a proportion for each sector of his business and to keep separate accounts for each sector;

authorise or compel the taxable person to make the deduction on the basis of the use made of all or part of the goods and services;

authorise or compel the taxable person to make the deduction in accordance with the rule laid down in the first subparagraph, in respect of all goods and services used for all transactions referred to therein;

provide that, where the [VAT] which is not deductible by the taxable person is insignificant, it is to be treated as nil.’

4Article 19(1) of the Sixth Directive provides as follows:

‘The proportion deductible under the first subparagraph of Article 17(5) shall be made up of a fraction having:

as numerator, the total amount, exclusive of [VAT], of turnover per year attributable to transactions in respect of which [VAT] is deductible under Article 17(2) and (3),

as denominator, the total amount, exclusive of [VAT], of turnover per year attributable to transactions included in the numerator and to transactions in respect of which [VAT] is not deductible. The Member States may also include in the denominator the amount of subsidies, other than those specified in Article 11A(1)(a).

The proportion shall be determined on an annual basis, fixed as a percentage and rounded up to a figure not exceeding the next unit.’

B – National law

5Under Paragraph 1(1) of the Umsatzsteuergesetz (Law on turnover tax; ‘UStG’) ⁴, as amended by the Steueränderungsgesetz 2003 (Law on tax amendment, 2003), ⁵‘[t]he 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 his business ...’

6In accordance with Paragraph 4 UStG, ‘[t]he following transactions covered by Paragraph 1(1)(1) shall be exempt: ... 12(a) the leasing and letting of immovable property ...’

7Under Paragraph 9(1) UStG, ‘a trader may treat a transaction which is exempt from tax under Paragraph 4(12) … as taxable if the transaction is performed for another trader for the purposes of his business ...’

8Paragraph 15 UStG provides as follows:

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

1tax owed by law for supplies of goods and services effected by other traders for the purposes of his business.

…

(2) There shall be no deduction of tax in respect of the supply, importation or intra-Community acquisition of goods, or in respect of supplies of services, which the trader uses for the purposes of the following transactions:

1exempt transactions;

…

(4) If a trader uses any goods supplied, imported or acquired in the Community for the purposes of his business, or a service supplied to him, only in part for effecting transactions in respect of which the right to deduct is excluded, there shall be no deduction of the part of the input tax which is economically attributable to those transactions. The trader may make an appropriate estimate of the non-deductible amounts. Determination of the non-deductible part of the input tax in accordance with the ratio between the transactions in respect of which the right to deduct is excluded and the transactions in respect of which there is a right of deduction is permissible only if no other economic allocation is possible.’

II – Facts

9Between 2003 and 2004, BLC Baumarkt GmbH & Co. KG (‘BLC’) constructed a residential and commercial building. In 2004, it let the building subject to VAT as regards the commercial premises and exempt from VAT as regards the apartments.

10In its VAT return for 2004, BLC made a partial deduction of the tax in relation to that property. In that connection, it applied a deductible proportion calculated on the basis of the turnover from the commercial letting and the turnover from the letting of the apartments (‘the turnover method’).

11Following an inspection, the Finanzamt Hildesheim (the tax office; ‘Finanzamt’) stated that, under the third sentence of Paragraph 15(4) UStG, as amended in 2003, the deductible amount should be determined on the basis of the respective surface areas of the commercial premises and the apartments (‘the surface area method’). In this particular case, that meant a reduction of the deductible amount and a fresh assessment.

12BLC appealed against the fresh assessment to the Finanzgericht, which upheld the appeal on the ground that the third sentence of Paragraph 15(4) UStG was contrary to European Union law. The Finanzgericht took the view that Article 17(5), third subparagraph, point (c), of the Sixth Directive precludes a Member State from providing primarily for a method of calculation other than the turnover method.

III – The question referred

13The Finanzamt brought an appeal on a point of law against that judgment before the Bundesfinanzhof, which has referred the following question for a preliminary ruling:

‘Is the third subparagraph of Article 17(5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes to be interpreted as authorising the Member States to prescribe primarily an apportionment criterion other than the transaction formula for apportioning the input tax on the construction of a mixed-use building?’

14The referring court asks whether, under point (c) of the third subparagraph of Article 17(5) of the Sixth Directive, a national legislature is entitled to limit the transaction formula and, therefore, replace the turnover method with another method such as the surface area method.

15The Bundesfinanzhof states that the German legislature based the restriction of the transaction formula by the third sentence of Paragraph 15(4) UStG expressly on Article 17(5), third subparagraph, point (c), of the Sixth Directive, on the ground that the application of the transaction formula is not binding on the Member States because, under that provision, they may lay down different apportionment criteria.

16However, the Bundesfinanzhof acknowledges that, against that interpretation, it could be argued that the wording of Article 17(5), third subparagraph, point (c), of Sixth Directive 77/388/EEC is far from clear and that the scheme and the purpose of the provision suggest that the transaction formula should be retained.

IV – The procedure before the Court of Justice

17The reference for a preliminary ruling was lodged at the Court Registry on 27 October 2010.

18Written observations were submitted by the German, United Kingdom and Greek Governments and by the Commission. No hearing was held.

19The Commission and all the governments which have participated in these proceedings take the view that the question referred should be answered in the affirmative. Accepting that, in principle, the applicable method is the turnover method, they maintain that, in accordance with the RBS judgment, ⁶ Article 17(5), third subparagraph, of the Sixth Directive allows Member States to provide for derogations of greater or lesser scope from that rule, extending even as far as excluding the right of deduction. That, they submit, is supported by the wording and the scheme of Article 17(5), third subparagraph, point (c), of the Sixth Directive, from which it is clear that the European Union legislature does not impose on the Member States a specific formula for calculating the deductible percentage. That is also borne out by the explanatory memorandum to the proposal for the Sixth Directive. Finally, the parties point out that, in their opinion, in addition to being more readily applicable, the surface area method produces more accurate results and therefore ensures better application of the principle of fiscal neutrality.

20For its part, the United Kingdom Government argues that the exceptions cannot become the rule, meaning that the turnover formula is merely a subsidiary formula. The United Kingdom Government submits that the exceptions may be allowed as such only when the turnover method gives an unfair or inaccurate result.

V – Assessment

21It is appropriate to make some preliminary remarks about the question referred by the Bundesfinanzhof before proceeding to provide the appropriate answer to it. First of all, it should be observed that the question refers to two aspects: one is a particular type of property which is intended to give rise to a possible right to deduct VAT; the other is a particular way of calculating that deductible amount in – to put it simply – cases of ‘mixed use’.

22Thus, on the one hand, as I stated at the outset, the Bundesfinanzhof appears only to have doubts concerning the calculation of the amount of input tax which may be deducted on the construction of a very specific type of property – a building – where that property is put to ‘mixed use’, in other words is used in a manner which entails both transactions in respect of which there is a right to deduct VAT and transactions in respect of which there is no such right.

23On the other hand, the referring court refers to a rather specific method of calculating the deductible amount, which it describes using the phrase ‘primarily an apportionment criterion other than the transaction formula’, in a barely concealed reference to the applicable national provision (Paragraph 15(4) UStG). As far as that aspect is concerned, it is common knowledge that the Sixth Directive is far more explicit. Article 17(5) of the directive sets out a large number of binding criteria for the Member States. As already pointed out, the difficulty lies in determining the discretion available to the Member States when it comes to establishing the formula which must apply in such cases in order to determine the deductible amount.

24Formulated in that way, the question referred by the Bundesfinanzhof immediately raises the following question for the Court: is the referring court asking whether the formula described in those terms is valid as such and, therefore, valid in general for the purposes of quantifying the deductible amount in the case of any goods and services, or, on the other hand, is it asking about the lawfulness of the formula solely and exclusively in the case of the type of property concerned?

25Having regard to the wording of the question as it is formulated, the referring court could appear to require a reply concerning the case of mixed-use buildings alone. However, the structure of the order for reference and the written observations are sufficient to reveal the limited significance of the property which has given rise to the proceedings. The dispute concerns to a large extent the latitude available to the Member States under Article 17(5), third subparagraph of the Sixth Directive, at all times against the background of the decision made by the national legislature.

26In short, the question concerns the extent to which the Member States may give priority to a method based on use, thereby departing from the turnover rule. In that connection, it is certainly significant that the proceedings concern the calculation of the deductible amount of input tax on the construction of a mixed-use building. However, in my view, a consideration of the more general legislative framework in which this particular case has arisen proves conclusive.

27Having framed the question in those terms, I shall deal with the reply which I propose in three stages. In the first stage, I shall attempt to provide an essentially systematic and purposive interpretation of the relevant section of Article 17(5) of the Sixth Directive, which is also capable of providing a criterion in respect of the method of calculation which the referring court describes using the phrase cited. In the second stage, I shall deal much more briefly with the specific case of input tax on the construction of a mixed-use building. Finally, in the third stage, I shall set out my thoughts on the task which still falls to the national court in the circumstances of the present case.

A – Article 17(5) of the Sixth Directive: a ‘relaxed’ rule

28I must begin this first stage by admitting that there are undeniable difficulties with regard to the interpretation of Article 17(5) of the Sixth Directive, in particular the third subparagraph thereof which provides the Member States with a number of varied and disparate options, all introduced by the adversative particle ‘however’ ⁷ which has the effect of endowing them all with a certain derogating effect. It is essentially the scope of that capacity or effect of the third subparagraph of weakening the subject-matter of the first two subparagraphs with which the present case is concerned.

29Under the third subparagraph of Article 17(5), Member States may (A) provide for an optional or compulsory separate calculation for each sector of business (points (a) and (b)); (B) provide for a principal deductible proportion which is either compulsory or optional, and which, in the latter case, entails the possibility of other deductible proportions (point (d)); or lastly, as far as the present case in particular is concerned, (C) provide for the deduction to be calculated on the basis of the criterion of use of all or part of the goods and services used in all transactions (point (c)). ⁸

30Giving advance notice of my conclusion in that regard, I believe that Article 17(5) of the Sixth Directive lays down a clear rule for calculating the amount of the deductible proportion in the cases of mixed use referred to therein, which is that the deductible proportion must be based on turnover and calculated in accordance with the formula laid down in Article 19(1) of the directive.

31The Court observed as much in the RBS judgment, case‑law to which all the parties have referred in support of their respective positions. In that judgment, the Court began by stating that ‘Article 17(5) of the Sixth Directive lays down the rules applicable to the right to deduct VAT where the VAT relates to goods or services used by the taxable person “both for transactions covered by paragraphs 2 and 3, in respect of which value added tax is deductible, and for transactions in respect of which value added tax is not deductible”. In such a case, the first subparagraph of Article 17(5) of the Sixth Directive provides that only such proportion of the VAT is deductible as is attributable to the former taxable transactions (Abbey National, paragraph 37, and Case C-16/00 Cibo Participations [2001] ECR I-6663, paragraph 34)’ (paragraph 17).

32As the judgment goes on to explain, that amount is calculated, ‘[u]nder the second subparagraph of Article 17(5) of the Sixth Directive ... according to a proportion fixed in accordance with Article 19 of that directive’ (paragraph 18).

33Thus, as the United Kingdom Government has stated, the general rule laid down in Article 19 of the Sixth Directive, based on the correlation between the amount of turnover relating to transactions in respect of which VAT may be deducted and the amount of turnover relating to transactions in respect of which VAT may not be deducted, relies on accounting information which is readily available for all taxable persons and enables, in principle, a fair and reasonably accurate calculation of the amount which is ultimately deductible. Further, that rule is, naturally, the one which the European Union legislature primarily chose, since, while the directive merely mentions other possible methods available to the Member States, the turnover method is the only one which is defined and for which the details of the calculation process are laid down.

34Certainly, paragraph 19 of the RBS judgment contains an assertion which, to my mind, is the source of a fairly widespread misunderstanding ⁹ and is the basis for the view that, under the rules laid down in Article 17(5) of the Sixth Directive, the Member States may lay down certain exceptions which, in my opinion, are not supported either by a reading of the provision or by the RBS judgment.

35In paragraph 19 of the RBS judgment, the Court held that ‘[t]he third subparagraph of Article 17(5) nevertheless allows derogation from that rule [the one in the second subparagraph] by permitting Member States to employ one of the other methods for determining the deductible amount listed in that subparagraph, namely determination of a separate proportion for each sector of business or deduction on the basis of the use made of all or part of the goods and services for a specific activity, or they may even exclude the right of deduction in certain circumstances.’ It could follow from the foregoing that the method laid down in the first two subparagraphs is not binding on the Member States, since the third subparagraph allows them to adopt ‘other methods’ which differ from it.

36To my mind, that conclusion, inferred from the passage quoted, is hasty. First, account should be taken of its context. In the scheme of a decision dealing with the possibilities relating to the rounding up of figures when calculating a deduction, a matter which is governed by Article 19(1), second subparagraph, of the Sixth Directive, I would go so far as to say that the section reproduced above is an obiter dictum.

37The RBS judgment did not rule in general terms on the scheme of the subparagraphs of Article 17(5) and instead only did so on a very specific aspect of the method of calculating the deductible proportion. In the instant case, however, notwithstanding the apparent precision of the question referred by the Bundesfinanzhof, a general ruling is required, as I stated in point 25.

38Second, even if it is accepted that the third subparagraph offers the Member States the possibility of adopting ‘other methods’, under no circumstances does it set out a general, unconditional right to derogate from the rule laid down in the two subparagraphs which precede it, the details of which are contained in Article 19.

39In short, it is my view that on a systematic interpretation of the provision, the third paragraph of Article 17(5) of the Sixth Directive is not capable of converting the rule laid down in the first two subparagraphs into a rule which may be derogated from generally or without limitation.

40Further, a purposive interpretation leads to the same conclusion. The explanatory memorandum to the proposal for the Sixth Directive ¹⁰ explains the reason for Article 17(5) as the need to avoid inequalities in the application of the tax, for which purpose it is provided that the Member States ‘may authorise or oblige the taxable person to determine special proportions and to make deductions on the basis of actual use to which all or part of the goods or services are put in the business concerned’.

41Also in that connection, in the context of a directive which, according to its twelfth recital, serves the purpose of harmonising the rules governing deductions ‘to the extent that they affect the actual amounts collected’, and states for that purpose that ‘the deductible proportion should be calculated in a similar manner in all the Member States’, it is clear that if Member States were able to provide in general terms and without limitation for the introduction of any of the options set out in the third subparagraph, it would be contrary to the aim pursued by the European Union legislature. It would make no sense to re-introduce diversity by authorising the Member States to derogate from the method laid down as the general rule, at least, as will be seen below, in the absence of any justification based on the aim of better satisfying the requirements inherent in the philosophy and the system of the rules governing VAT.

42All of this leads me to conclude that the aim of the third subparagraph of Article 17(5) is essentially to avoid the strictness of the rule in the preceding two subparagraphs by making available to the Member States, for that purpose, a number of measures which are flexible in their design and scope and are in all cases in the interests of the traditional neutrality of the tax. ¹¹

43That right to ‘relax’ the rule, which is made available to the Member States, can be justified only in so far as the measures by which it is secured are capable of enabling the attainment of the aim pursued by the European Union legislature in allowing the Member States to choose any of the options provided for in points (a) to (d) of the third paragraph of Article 17(5) of the Sixth Directive. In the words of paragraph 24 of the RBS judgment, that aim is ‘to permit Member States to achieve greater accuracy by taking into account the specific characteristics of the taxable person’s activities.’ In short, the ultimate aim pursued is, as is obligatory in the sphere of taxation, the accurate calculation of the deduction to which the taxable person concerned has a legitimate right and the guarantee of neutrality, a principle which informs VAT. ¹²

44As a result of those arguments, it is possible to reach an initial, general conclusion: Article 17(5) of the Sixth Directive permits Member States to derogate from the general proportion rule based on turnover, which is laid down in the first two subparagraphs in conjunction with Article 19, and to do so in accordance with the various alternatives laid down in the third subparagraph of Article 17(5). In particular, point (c) of the third subparagraph unquestionably grants Member States the right to derogate from the general rule since it allows them to opt for a deductible proportion based on use. A systematic and purposive interpretation of that specific provision precludes the attribution to it of a scope whereby the rule stipulated as the starting point can be almost de-activated in a general way or else relegated to a position which is distinctly subordinate or which is clearly difficult to apply.

45To put it another way, Article 17(5) does not permit alteration of the nature of the basic structure of the rules for calculation of a deduction, which were laid down by the European Union legislature with the aim of harmonising the rules on deduction in force in the Member State by imposing a similar method of calculation in all of them. However, it is compatible with that harmonising aim for the Member States to lay down an unlimited number of cases which are not necessarily governed by the general rule and are justified by the need to comply fully with the principle of the neutrality of the tax and to ensure the utmost accuracy in the calculation of the deduction in each case. ¹³ That being so, it is now necessary to ascertain whether, in the light of its characteristics which the referring court has asked the Court to take into account, the instant case merits the application of a calculation criterion which is potentially different from the transaction formula.

B – ‘Mixed-use’ buildings

46As has already been observed, the Bundesfinanzhof does not seek a general reply to the question as it has been addressed so far but rather a specific reply concerning the calculation of the deductible amount of input tax on the construction of a mixed-use building. The considerations set out above should enable that reply to be dealt with in a relatively straightforward manner.

47All the parties have observed that, in certain circumstances, the turnover method which is laid down as the general rule in the Sixth Directive may be less fair and accurate than other possible methods. Or, to put it the other way round, it could be the case that, having regard to the specific features of the transactions concerned, there are more accurate methods of determining the deductible amount than the one primarily laid down by the legislature in the Sixth Directive. Since greater fairness and accuracy in the calculation of the deductible amount must lead to better compliance with the principle of the neutrality of VAT, it should be acknowledged that that factor is a sufficient reason justifying the replacement of the turnover rule by a rule which guarantees that result.

48More specifically, all the parties to the proceedings agree that, in cases such as the present one, that is cases concerning the construction of a mixed-use building, the method of actual use based on the surface area criterion ensures a more accurate result in respect of the deductible amount to which a taxable person is lawfully entitled.

49In those terms, I believe that it is possible, in any event as a starting hypothesis, for mixed-use buildings to be regarded as plausible ‘candidates’ for an alternative method of calculation to the proportion method based on turnover.

50If that is the case, a matter which it is for the referring court to establish, there is no reason why, under European Union law, the method used for calculating the deductible amount should not be the method of actual use.

51However, the question remains whether, in those terms, the Member State made a specific choice in the sense of providing for that category of property to be treated in accordance with a calculation which, at least primarily, is not based on the turnover method. That is because it is clear at the very least that it is not a choice which takes effect automatically and that instead it requires a decision of the Member State in that regard. I shall now deal with the last point to which I referred at the beginning of this Opinion.

C – The decision of the Member State under Article 17(5)

52I should say at the outset that a specific decision of the national legislature with regard to calculation of the deduction in the case of mixed-use buildings would certainly have made matters easier for the national court. As has been seen, the national legislature opted for a provision which, by allowing taxable persons, as a general rule, to determine the amounts which are partially non-deductible by means of an objective calculation, sufficiently covers a case of this kind. However, at the same time, as the considerations I have set out above show, it is that general nature which may give rise to a problem from the point of view of European Union law, because the national provision makes the turnover formula a final, subsidiary option which applies only if no other economic allocation of goods and services used in the same transactions is possible.

53In short, the consequence of that ‘all-inclusive’ treatment by the national legislature is that it is not possible to identify the reason which specifically led the Member State to derogate in this case – as in others – from the general rule.

54That situation with regard to the national legislation leads me to conclude that, in circumstances such as these, even though the case which the Court has been asked to consider appears prima facie to be one where it is possible to derogate from the general rule, it must be for the national court to confirm, if appropriate, the decision of the national authority which, in the main proceedings, did not allow the deductible amount to be calculated on the basis of turnover.

VI – Conclusion

Conclusion

55In the light of the foregoing considerations, I propose that the Court should reply in the following terms to the question referred by the Bundesfinanzhof:

Article 17(5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment must be interpreted as meaning that, in principle, in a case such as that of the apportionment of input tax on the construction of a mixed-use building, it does not preclude the Member States from prescribing primarily an apportionment criterion other than the transaction formula. However, in the circumstances arising from the situation with regard to the national legislation applicable to the case, it is for the national court to ensure in the instant case that that formula is aimed at guaranteeing a more accurate result than the one laid down as the general rule.

¹ Original language: Spanish.

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

³ ‘Use’ is the term used in point (c) of the third subparagraph of Article 17(5) of the English-language version of the Sixth Directive. The German version uses the term ‘Zuordnung’, the Spanish version uses the term ‘afectación real’, while the French version uses the term ‘affectation’.

⁴ BGBl 1999 I, p. 1270.

⁵ BGBl. 2003 I, p. 2645.

⁶ Case C-488/07 Royal Bank of Scotland [2008] ECR I-10409. ‘RBS judgment’.

⁷ That adversative particle has now been deleted from Article 173 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

⁸ Point (e) is irrelevant for the present purposes since it merely provides for the exclusion of the right of deduction where the amount of tax is insignificant.

⁹ That is clear from the positions adopted by the parties which have participated in these proceedings.

¹⁰ Published in the Official Journal of the European Communities, Supplement 11/73.

¹¹ It is highly symptomatic that, without amending the subject-matter of the provision, Article 173(2) of Directive 2006/112 reproduces the third subparagraph of Article 17(5) of the Sixth Directive, providing that ‘Member States may take the following measures ...’ followed by a transcription of points (a) to (e) of the third subparagraph. That makes even clearer the fact that it is not true exceptions to the general rule which are permitted but rather ‘measures’ which qualify or relax it without, obviously, altering its nature.

¹² In that connection, see Case C-174/08 NCC Construction Danmark [2009] ECR I-10567, paragraph 27.

¹³ The Court gave a clear ruling in that regard in, for example, Case C-437/06 Securenta Göttinger Immobilienanlagen und Vermögensmanagement [2008] ECR I-1597, paragraphs 34 to 39.