C-621/10 Balkan and Sea Properties and Provadinvest

JUDGMENT OF THE COURT (Second Chamber)

26 April 2012 ( *1 )

‛VAT — Directive 2006/112/EC — Articles 73 and 80(1) — Sale of immovable property between connected companies — Value of the transaction — National legislation providing that for transactions between connected persons the taxable amount for VAT purposes is the open market value of the transaction’

In Joined Cases C-621/10 and C-129/11,

REFERENCES for a preliminary ruling under Article 267 TFEU from the Administrativen sad Varna (Bulgaria), made by decisions of 17 December 2010 and 1 March 2011, received at the Court on 29 December 2010 and 14 March 2011, in the proceedings

Balkan and Sea Properties ADSITs (C-621/10),

Provadinvest OOD (C-129/11)

v

Direktor na Direktsia ‘Obzhalvane i upravlenie na izpalnenieto’ — Varna pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite,

THE COURT (Second Chamber),

composed of J.N. Cunha Rodrigues (Rapporteur), President of the Chamber, U. Lõhmus, A. Rosas, A. Arabadjiev and C.G. Fernlund, Judges,

Advocate General: E. Sharpston,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

the Bulgarian Government, by T. Ivanov and E. Petranova (C-621/10), acting as Agents,

the European Commission, by S. Petrova and L. Lozano Palacios (C-621/10) and by the latter and V. Savov (C-129/11), acting as Agents,

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

gives the following

Judgment

Legal context and the dispute

1These references for a preliminary ruling concern the interpretation of Article 80(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, ‘the VAT Directive’).

2The references have been made in proceedings between Balkan and Sea Properties ADSITs (‘Balkan and Sea Properties’) and Provadinvest OOD (‘Provadinvest’) and the Direktor na Direktsia ‘Obzhalvane i upravlenie na izpalnenieto’ — Varna pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite (Director of the Appeals and Enforcement Management Directorate, Varna, at the Central Administration of the National Revenue Agency, ‘the Director’) concerning tax assessment notices refusing them the right to deduct input value added tax (VAT).

Legal context

European Union law

3According to recital 3 in the preamble to the VAT Directive, ‘[t]o ensure that the provisions are presented in a clear and rational manner, consistent with the principle of better regulation, it is appropriate to recast the structure and the wording 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)] although this will not, in principle, bring about material changes in the existing legislation. ...’

4Recital 26 in the preamble to the VAT Directive states that ‘[t]o prevent loss of tax revenues through the use of connected parties to derive tax benefits, it should, in specific limited circumstances, be possible for Member States to intervene as regards the taxable amount of supplies of goods or services and intra-Community acquisitions of goods’.

5Article 12 of the VAT Directive provides:

‘1. Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:

the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;

the supply of building land.

2. For the purposes of paragraph 1(a), “building” shall mean any structure fixed to or in the ground.

Member States may lay down the detailed rules for applying the criterion referred to in paragraph 1(a) to conversions of buildings and may determine what is meant by “the land on which a building stands”.

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

3. For the purposes of paragraph 1(b), “building land” shall mean any unimproved or improved land defined as such by the Member States.’

6Article 73 of the directive provides that ‘[i]n respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply’.

7Article 80 of the directive provides:

‘1. In order to prevent tax evasion or avoidance, Member States may in any of the following cases take measures to ensure that, in respect of the supply of goods or services involving family or other close personal ties, management, ownership, membership, financial or legal ties as defined by the Member State, the taxable amount is to be the open market value:

where the consideration is lower than the open market value and the recipient of the supply does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177;

where the consideration is lower than the open market value and the supplier does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177 and the supply is subject to an exemption under Articles 132, 135, 136, 371, 375, 376, 377, 378(2), 379(2) or Articles 380 to 390;

where the consideration is higher than the open market value and the supplier does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177.

For the purposes of the first subparagraph, legal ties may include the relationship between an employer and employee or the employee’s family, or any other closely connected persons.

2. Where Member States exercise the option provided for in paragraph 1, they may restrict the categories of suppliers or recipients to whom the measures shall apply.

3. Member States shall inform the VAT Committee of national legislative measures adopted pursuant to paragraph 1 in so far as these are not measures authorised by the Council prior to 13 August 2006 in accordance with Article 27(1) to (4) of Directive 77/388/EEC, and which are continued under paragraph 1 of this Article.’

8In accordance with Article 135(1)(j) and (k) of the directive, Member States are to exempt the following transactions:

the supply of a building or parts thereof, and of the land on which it stands, other than the supply referred to in point (a) of Article 12(1);

the supply of land which has not been built on other than the supply of building land as referred to in point (b) of Article 12(1)’.

9Article 273 of the directive provides:

‘Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.

The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.’

National law

10Article 12(1) of the Law on value added tax (Zakon za danak varhu dobavenata stoynost, DV No 63, 4 August 2006, ‘the ZDDS’) provides:

‘Any supply of goods or services within the meaning of Articles 6 and 9, where it is effected by a person taxable under the present law and where the place of performance is on national territory, and any supply taxed at zero rate and effected by a taxable person, unless the present law provides otherwise, is a taxable supply’.

11Article 27(3)(1) of the ZDDS provides that, in the case of a supply between connected persons, the taxable amount is the open market value.

12Under Article 45(1) of the ZDDS, ‘the transfer of ownership of land, the grant or transfer of limited rights in rem over land, and the leasing of land are exempt supplies’.

13Paragraph 5(2) of that article states that ‘paragraph 1 does not apply to the transfer of ownership of or other rights in rem in, or to the leasing of, equipment, machines, installations or structures which are firmly attached to the ground or constructed underground’.

14Article 67(1) of the ZDDS provides that ‘the amount of tax is calculated by multiplying the taxable amount by the tax rate’.

15Under Article 70(5) of the ZDDS, ‘no right to deduct a tax credit arises from tax invoiced unlawfully’.

16Paragraph 1(3) of the additional provisions of the Code of tax and social security procedure (Danachno-osiguritelnia protsesualen kodeks, DV No 105, 29 December 2005) specifies that ‘connected persons’ are:

spouses, relatives in the direct line, relatives in the collateral line to the third degree; relatives by marriage to the second degree, and, for the purposes of Article 123(1)(2), where they form part of a common household;

employers and employees;

partners;

persons one of whom participates in the management of the other or its subsidiary;

persons in whose management or supervisory bodies one and the same legal or natural person takes part, including where the natural person represents another person;

a company and a person who is in possession of more than 5% of the holdings or shares with voting rights in the company;

persons one of whom exercises control over the other;

persons whose activity is controlled by a third person or by its subsidiary;

persons who jointly control a third party or its subsidiary;

persons one of whom is a commercial agent of the other;

persons one of whom has made a donation to the other;

persons who directly or indirectly participate in the management, supervision or share capital of another person or persons, as a result of which conditions can be agreed between them which deviate from the normal conditions.’

17Under Paragraph 1(4) of the additional provisions, there is ‘control’ where the person controlling:

directly or indirectly or in combination with another person possesses more than half of the votes at the general assembly of another person, or

has the possibility directly or indirectly of appointing more than half of the members of the management or supervisory body of another person, or

has the possibility, including through or together with a subsidiary, on the basis of the articles of association or of a contract, of directing the activity of another person, or

as shareholder or partner in a company, on the basis of agreement with other partners or shareholders in the same company, independently controls more than half of the number of votes in the general meeting of that company, or

in any other way can exercise a determining influence on decisions about the activity of the company’.

The disputes in the main proceedings and the questions referred for a preliminary ruling

Case C-621/10

18Balkan and Sea Properties is a share company whose activity is the investment of funds collected by issuing immovable property securities.

19In March 2009 Balkan and Sea Properties bought, by notarial acts, immovable property from the company Ravda tur EOOD, for a total amount of BGN 21318852. That company is owned by Holding Varna AD, which owns 27.98% of the share capital of Balkan and Sea Properties.

20VAT was deducted on the conclusion of the definitive contract and the issue of the final invoices.

21Since the national legislation provides that, in the event of a sale between connected persons, the taxable amount is the open market value of the property, two export reports were commissioned, one by Balkan and Sea Properties and one by the tax authorities. The authorities concluded that the open market value of the property was lower than the actual sale price, and estimated it at BGN 21216300.

22The tax authorities thereupon considered that the VAT calculated on a price higher than the open market value of the property was unlawfully invoiced tax which could not be deducted and that, consequently, for the tax period corresponding to July 2009, Balkan and Sea Properties was not entitled to deduct the input VAT on the difference between the open market value and the actual sale price of the property in question.

23The amended tax notice was challenged in administrative proceedings before the Director. The Director confirmed the refusal of deduction of VAT.

24Balkan and Sea Properties brought proceedings in the Administrativen sad Varna (Administrative Court, Varna).

25That company submits in particular that the provisions of the ZDDS are not compatible with Article 80(1) of the VAT Directive, and seeks for that provision of European Union law to be applied directly.

26In those circumstances, the Administrativen sad Varna decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

Is Article 80(1)(c) of [the VAT Directive] to be interpreted as meaning that, where there are supplies between connected persons, in so far as the consideration is higher than the open market value, the taxable amount is the open market value of the transaction only if the supplier does not qualify for the full right to deduct the tax credit on the purchase or production of the goods which are supplied?

2Is Article 80(1)(c) of [the VAT Directive] to be interpreted as meaning that, if the supplier has exercised the full right to deduct the tax credit on goods and services which are the subject of subsequent supplies between connected persons at a price which is higher than the open market value, and that right to deduct the tax credit has not been corrected under Articles 173 to 177 of that directive, a Member State is not permitted to adopt measures whereby the taxable amount is exclusively the open market value?

3Does Article 80(1) of [the VAT Directive] constitute an exhaustive list of cases representing the circumstances in which the Member States may take measures whereby the taxable amount in respect of supplies is to be the open market value of the transaction?

4Is a provision of national law such as Article 27(3)(1) of the ZDDS permissible in cases other than those listed in Article 80(1)(a), (b) and (c) of [the VAT Directive]?

5In a case such as the present, does Article 80(1)(c) of [the VAT Directive] have direct effect, and may the national court apply it directly?’

Case C-129/11

27Provadinvest is a limited company whose principal activity is the leasing of agricultural land and steel structures used for polyethylene greenhouses.

28In June 2009 that company sold, by notarial acts, two plots of land to be used for greenhouses to one of its partners and one plot to its representative. Those plots were sold with the polyethylene structures erected on them, and with all the improvements and permanent crops on them, at a price of BGN 25 000 each.

29Provadinvest issued invoices not indicating VAT for those sales.

30The tax authorities took the view that the sales of the immovable property included both a supply of land that was exempt from VAT and a taxable supply of installations, improvements and permanent crops.

31Under national legislation, as the sales in question were sales between connected persons, the taxable amount for VAT purposes was the open market value determined by an expert. The expert assessed the total open market value solely of the polyethylene structures on the three plots of land at BGN 392700, a greater sum than that actually paid as consideration.

32The tax authorities issued an amended tax notice for the tax period corresponding to June 2009. That notice was challenged in administrative proceedings before the Director, who confirmed the amount of VAT charged to Provadinvest.

33Provadinvest brought proceedings in the Administrativen sad Varna.

34That court considers that the sale of the agricultural land in question represents an exempt supply under Article 45(1) of the ZDDS and that the sale of the installations erected on the land represents a taxable supply, as they fall within the exceptions mentioned in Article 45(5)(2) of that law.

35In those circumstances, the Administrativen sad Varna decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

Is Article 80(1)(a) and (b) of [the VAT Directive] to be interpreted as meaning that, where there are supplies between connected persons, in so far as the consideration is lower than the open market value, the taxable amount is the open market value of the transaction only if the supplier or the acquirer does not qualify for the full right to deduct the tax credit on the purchase or production of the goods which are supplied?

2Is Article 80(1)(a) and (b) of [the VAT Directive] to be interpreted as meaning that, if the supplier has exercised the full right to deduct the tax credit on goods and services which are the subject of subsequent supplies between connected persons at a value which is lower than the open market value, and that right to deduct the tax credit has not been corrected under Articles 173 to 177 of the directive and the supply is not subject to a tax exemption within the meaning of Articles 132, 135, 136, 371, 375, 376, 377, 378(2), 379(2) and 380 to 390 of the directive, a Member State is not permitted to adopt measures whereby the taxable amount is exclusively the open market value?

3Is Article 80(1)(a) and (b) of [the VAT Directive] to be interpreted as meaning that, if the acquirer has exercised the full right to deduct the tax credit on goods and services which are the subject of subsequent supplies between connected persons at a lower value than the open market value, and that right to deduct the tax credit has not been corrected under Articles 173 to 177 of the directive, a Member State is not permitted to adopt measures whereby the taxable amount is exclusively the open market value?

4Does Article 80(1) of [the VAT Directive] constitute an exhaustive list of cases representing the circumstances in which a Member State is permitted to take measures whereby the taxable amount in respect of supplies is to be the open market value of the transaction?

5Is a provision of national law such as Article 27(3)(1) of the ZDDS permissible in cases other than those listed in Article 80(1)(a), (b) and (c) of [the VAT Directive]?

5In a case such as the present, does Article 80(1)(a) and (b) of [the VAT Directive] have direct effect, and may the national court apply it directly?’

36By order of the President of the Court of 13 July 2011, Cases C-621/10 and C-129/11 were joined for the purposes of the oral procedure and the judgment.

Consideration of the questions referred

Preliminary observations

37In Case C-129/11 the referring court considers it necessary, in order to decide on the lawfulness of the amended tax notice which is the subject of the main proceedings, to determine, as well as the amount of the tax due, whether the conditions were satisfied for subjecting the sales of agricultural land and the installations erected on the land to VAT.

38For that purpose, it must be assessed whether the supplies of structures, namely polyethylene greenhouses, and the land on which they stand at issue in that case are exempt under Article 135 of the VAT Directive. The answer to that question depends on whether those structures may be classified as ‘buildings’ within the meaning of the first subparagraph of Article 12(2) of that directive.

39If so, if the supplies of those goods may be regarded as taking place before first occupation, there is a taxable transaction, whereas in the opposite case the transaction must be exempt in accordance with Article 135(1)(j) of the VAT Directive, subject to a possible right to opt for taxation.

40If those structures and the ground on which they stand cannot be classified as ‘buildings’ within the meaning of the first subparagraph of Article 12(2) of the VAT Directive, a distinction must be drawn depending on whether there are distinct supplies of land and of other elements or one single transaction consisting primarily of the supply of land (see, to that effect, Case C-461/08 Don Bosco Onroerend Goed [2009] ECR I-11079, paragraphs 35 to 38). It should also be ascertained whether the land in question falls within the definition of ‘building land’ in Article 12(3) of the VAT Directive. If so, the supplies would be taxable. If not, the supplies would be exempt in accordance with Article 135(1)(k) of the directive, subject to a possible right to opt for taxation.

41Such assessments of fact are within the jurisdiction of the referring court in the procedure established in Article 267 TFEU (see, to that effect, Case 104/77 Oehlschläger [1978] ECR 791, paragraph 4; Case C-30/93 AC-ATEL Electronics Vertriebs [1994] ECR I-2305, paragraphs 16 and 17; and Case C-318/98 Fornasar and Others [2000] ECR I-4785, paragraphs 31 and 32).

Questions 1 to 4 in Case C-621/10 and Questions 1 to 5 in Case C-129/11

42By these questions, which should be considered together, the referring court essentially asks whether Article 80(1) of the VAT Directive must be interpreted as meaning that the conditions it states are exhaustive or whether it may be accepted that the taxable amount is the open market value of the transaction between connected persons in cases other than those expressly provided for in that provision, in particular where the taxable person has a full right of deduction.

43In accordance with the general rule set out in Article 73 of the VAT Directive, the taxable amount for the supply of goods or services for consideration is the consideration actually received for them by the taxable person. That consideration is thus the subjective value, that is to say, the value actually received, and not a value estimated according to objective criteria (see, to that effect, Case 154/80 Coöperatieve Aardappelenbewaarplaats [1981] ECR 445, paragraph 13; Case C-412/03 Hotel Scandic Gåsabäck [2005] ECR I-743, paragraph 21; and Case C-285/10 Campsa Estaciones de Servicio [2011] ECR I-5059, paragraph 28).

44Article 73 of the VAT Directive is the expression of a fundamental principle, the corollary of which is that the tax authorities may not collect as VAT an amount exceeding the tax paid to the taxable person (see, to that effect, Case C-330/95 Goldsmiths [1997] ECR I-3801, paragraph 15).

45By allowing the taxable amount to be taken as the open market value of the transaction in certain cases, Article 80(1) of the VAT Directive lays down an exception to the general rule stated in Article 73 of the directive, which must as such be interpreted strictly (see Case C-453/05 Ludwig [2007] ECR I-5083, paragraph 21, and Case C-41/09 Commission v Netherlands [2011] ECR I-831, paragraph 58 and the case-law cited).

46It should be recalled that, as stated in recital 26 in the preamble to the VAT Directive, the objective of Article 80(1) is to prevent tax evasion or avoidance.

47As the Advocate General observes in point 30 of her Opinion, where goods or services are supplied at an artificially low or high price between parties who both enjoy a full right of deduction of VAT, there cannot be any evasion or avoidance of tax at that stage. It is only at the stage of the final consumer, or of a mixed taxable person enjoying only a proportional right of deduction, that an artificially low or high price can lead to a loss of tax revenue.

48Consequently, it is only where the person concerned by the transaction does not enjoy a full right of deduction that there is a risk of tax evasion or avoidance which Article 80(1) of the directive allows the Member States to prevent.

49That conclusion does not in any way prevent the Member States from laying down other obligations in order to avoid evasion, on the basis of and in compliance with the conditions set out in Article 273 of the VAT Directive.

50That interpretation is confirmed by the wording of Article 11(A)(6) of the Sixth Directive 77/388, as amended by Council Directive 2006/69/EC of 24 July 2006 (OJ 2006 L 221, p. 9), the provisions of which are substantially reproduced in Article 80(1) of the VAT Directive (see recital 3 in the preamble to that directive), and which states that the derogation ‘may apply only in any of the following circumstances’.

51It follows from the foregoing that the conditions of application laid down in Article 80(1) of the VAT Directive are exhaustive and, consequently, that national legislation cannot on the basis of that provision provide that the taxable amount is to be the open market value of the transaction in cases other than those listed in that provision, in particular where the supplier or acquirer has a full right of deduction of VAT.

52The answer to Questions 1 to 4 in Case C-621/10 and Questions 1 to 5 in Case C-129/11 is therefore that Article 80(1) of the VAT Directive must be interpreted as meaning that the conditions of application it sets out are exhaustive and, consequently, that national legislation cannot on the basis of that provision provide that the taxable amount is to be the open market value of the transaction in cases other than those listed in that provision, in particular where the taxable person has a full right of deduction of VAT, which is for the national court to ascertain.

Question 5 in Case C-621/10 and Question 6 in Case C-129/11

53By these questions the referring court essentially asks whether Article 80(1) of the VAT Directive has direct effect and whether the national court can consequently apply it directly to the disputes in the main proceedings.

54It is for the referring court, to the full extent of its discretion under national law, to interpret and apply national law in conformity with the requirements of European Union law and, where such an interpretation is not possible, to disapply any provision of domestic law that would be contrary to those requirements (see, to that effect, Case C-357/06 Frigerio Luigi & C. [2007] ECR I-12311, paragraph 28, and Joined Cases C-395/08 and C-396/08 Bruno and Others [2010] ECR I-5119, paragraph 74).

55As found in paragraphs 42 to 51 above, Article 80(1) of the VAT Directive allows exceptions to be made to the general rule laid down in Article 73 of that directive only in the cases it lists.

56According to settled case-law of the Court, whenever the provisions of a directive appear, so far as their subject-matter is concerned, to be unconditional and sufficiently precise, they may be relied on before the national courts by individuals against the State where the State has failed to transpose the directive into national law within the time-limit or has transposed it incorrectly (see Case C-226/07 Flughafen Köln-Bonn [2008] ECR I-5999, paragraph 23, and Case C-203/10 Auto Nikolovi [2011] ECR I-1083, paragraph 61).

57It also follows from the Court’s case-law that the fact that a provision of a directive gives Member States a choice does not necessarily render it impossible to determine with sufficient precision, on the basis of the provisions of the directive alone, the content of the rights thus conferred on individuals (see Flughafen Köln-Bonn, paragraph 30, and Case C-138/07 Cobelfret [2009] ECR I-731, paragraph 61).

58Article 80(1) of the VAT Directive establishes unequivocally and exhaustively the conditions to be satisfied for a Member State to be able to provide in its legislation for the possibility of correcting the taxable amount of a transaction between connected persons.

59That being so, if the transactions at issue in the main proceedings which fall within Article 27(3) of the ZDDS correspond to one of the situations set out in Article 80(1), the Member State concerned must be regarded as having made use of the option provided for in that provision.

60By contrast, if those transactions do not correspond to those referred to in Article 80(1) of the VAT Directive, that article must be interpreted as conferring on companies such as the applicants in the main proceedings the right to rely on it directly to oppose the application by the referring court of provisions of national legislation that are contrary to it (see, by analogy, Flughafen Köln-Bonn, paragraph 33). In that case, should it prove impossible to interpret the relevant provisions of the ZDDS in conformity with Article 80(1) of the VAT Directive, the national court would have to disapply those provisions in so far as they are incompatible with Article 80(1).

61That would have the consequence that Article 73 of the VAT Directive would be applicable in order to establish that, subject to the exceptions provided for by that directive, the taxable amount of the transactions at issue in the main proceedings is the consideration actually received. As the Court has held with respect to Article 11(A)(1)(a) of the Sixth Directive 77/388, as amended by Directive 2006/69, which became Article 73 of the VAT Directive, that provision has direct effect (see, to that effect, Case C-62/93 BP Soupergaz [1995] ECR I-1883, paragraphs 34 to 36, and Case C-62/00 Marks & Spencer [2002] ECR I-6325, paragraph 47).

62The answer to Question 5 in Case C-621/10 and Question 6 in Case C-129/11 is therefore that, in circumstances such as those of the main proceedings, Article 80(1) of the VAT Directive confers on the companies concerned the right to rely on it directly to oppose the application of provisions of national legislation that are incompatible with that provision. If it is not possible to interpret the national legislation in conformity with Article 80(1) of the directive, the national court should disapply any provision of that legislation that is contrary to it.

Costs

63Since 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 (Second Chamber) hereby rules:

Article 80(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the conditions of application it sets out are exhaustive and, consequently, that national legislation cannot on the basis of that provision provide that the taxable amount is to be the open market value of the transaction in cases other than those listed in that provision, in particular where the taxable person has a full right of deduction of value added tax, which is for the national court to ascertain.

In circumstances such as those of the main proceedings, Article 80(1) of Directive 2006/112 confers on the companies concerned the right to rely on it directly to oppose the application of provisions of national legislation that are incompatible with that provision. If it is not possible to interpret the national legislation in conformity with Article 80(1) of the directive, the national court should disapply any provision of that legislation that is contrary to it.

Signatures

[Signatures]

( *1 ) Language of the case: Bulgarian.

OPINION OF ADVOCATE GENERAL

SHARPSTON

delivered on 26 January 2012 ¹

‛VAT — Transactions between connected persons — Scope of Member States’ option under Directive 2006/112/EC to tax on the basis of open market value — Possibility of direct application of the directive if national legislation goes beyond the scope of the option’

Introduction

1In these references for a preliminary ruling, the Administrativen Sad Varna (Administrative Court, Varna) (Bulgaria) seeks guidance on the limits of the option under Article 80(1) of Directive 2006/112, ² whereby Member States may in certain circumstances depart from the general rule that the taxable amount is the actual consideration obtained by the supplier and instead assess value added tax (‘VAT’) on the open market value of the supply. It also wishes to know whether Bulgarian legislation exercising that option in a wider range of circumstances is compatible with Directive 2006/112 and, if not, whether Article 80(1) has direct effect and may be applied directly by a national court.

EU VAT legislation

2The general principle of the VAT system is set out in Article 1(2) of Directive 2006/112:

‘The principle of the common system of VAT entails the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, however many transactions take place in the production and distribution process before the stage at which the tax is charged.

On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components.

The common system of VAT shall be applied up to and including the retail trade stage.’

3Article 73 of Directive 2006/112 ³ lays down the general rule on the determination of the taxable amount for VAT:

‘In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, [ ⁴] the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.’

4Article 80 of Directive 2006/112 provides for a possible further exception to that general rule:

‘1. In order to prevent tax evasion or avoidance, Member States may in any of the following cases take measures to ensure that, in respect of the supply of goods or services involving family or other close personal ties, management, ownership, membership, financial or legal ties as defined by the Member State, the taxable amount is to be the open market value:

where the consideration is lower than the open market value and the recipient of the supply does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177; [ ⁵]

where the consideration is lower than the open market value and the supplier does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177 and the supply is subject to an exemption under Articles 132, 135, 136, 371, 375, 376, 377, 378(2), 379(2) or Articles 380 to 390b; [ ⁶]

where the consideration is higher than the open market value and the supplier does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177.

For the purposes of the first subparagraph, legal ties may include the relationship between an employer and employee or the employee’s family, or any other closely connected persons.

2. Where Member States exercise the option provided for in paragraph 1, they may restrict the categories of suppliers or recipients to whom the measures shall apply.

...’

5It is helpful to understand why the optional exception was introduced. ⁷

6Generally, economic operators have no incentive to fix prices on the basis of the amount of VAT which their supplies will bear, particularly where both parties are taxable persons with a full right to deduct input tax. ⁸ Where that is not so, there may be situations in which, if supplier and customer agree on an artificially inflated or reduced price, the overall VAT burden is reduced and less VAT is collected. Two types of situation are of particular relevance.

7The first is when the customer does not enjoy a full right of deduction of input VAT (he may be a final consumer, or a taxable person who uses his inputs for the purpose of making exempt supplies or who is a ‘mixed’ supplier enjoying only a proportional right of deduction ⁹). It is in such a customer’s interest to pay less VAT on goods and services he receives by acquiring them at artificially low prices. That is the situation addressed by Article 80(1)(a) of Directive 2006/112.

8The second is when the supplier is a ‘mixed’ taxable person whose right to deduct input tax depends on the proportion of taxed supplies among his total outputs. The proportion of input tax which he can deduct will increase if the value of his exempt outputs is artificially lowered or that of his taxed outputs artificially raised (the situations addressed in Article 80(1)(b) and (c) respectively ¹⁰).

9Arrangements of that kind are, however, unlikely unless the two parties are so closely connected that the actual price charged, exclusive of VAT, is not of overall financial significance to them — in normal circumstances, it makes no commercial sense for a supplier to agree to an artificially low price or for a customer to agree to an artificially high price. In Article 80(1) of Directive 2006/112, the option to tax on the basis of open market value is thus limited to supplies ‘involving family or other close personal ties, management, ownership, membership, financial or legal ties’.

10‘Open market value’ is defined in Article 72 of Directive 2006/112 as ‘the full amount that, in order to obtain the goods or services in question at that time, a customer at the same marketing stage at which the supply of goods or services takes place, would have to pay, under conditions of fair competition, to a supplier at arm’s length within the territory of the Member State in which the supply is subject to tax’.

Bulgarian VAT legislation

11The referring court mentions a number of provisions of the Zakon za danak varhu dobavena stoynost (Law on value added tax, ‘the ZDDS’) of 2006. In particular:

under Article 27(3)(1), for any supply between connected persons, the taxable amount is the open market value;

under Article 45(1), transfers of ownership of, or limited real rights in, immovable property are exempt supplies;

by virtue of Article 45(5)(2), Article 45(1) does not apply to transfers of ownership of, or other real rights in, equipment, machines, accessories or buildings which are firmly attached to the ground or installed underground, or to the letting thereof;

under Article 70(5), no right to deduct input VAT arises in the case of tax charged unlawfully.

12Other relevant rules are in the ‘additional provisions’ of the Danachno-osiguritelen protsesualen kodeks (Code of Tax and Social Security Procedure, ‘the DOPK’). In particular:

Paragraph 1(3) defines ‘connected persons’ for the purposes of Article 27(3)(1) of the ZDDS (in greater detail than in Article 80(1) of Directive 2006/112, but within the latitude afforded by that provision);

under Paragraph 1(8), the ‘open market value’ is the consideration, exclusive of VAT and excise duties, which would be applied under the same conditions for the same or similar goods or services in a legal transaction between unconnected persons;

Paragraph 1(10) lists five methods for the determination of open market value, to be applied in accordance with instructions issued by the Ministry of Finance.

Facts, procedure and questions referred

Case C-621/10 Balkan and Sea Properties

13In 2009, ADSITS Balkan and Sea Properties (‘Balkan and Sea’), a real estate investment trust, purchased various properties in the town of Ravda from Ravda tur EOOD, for a total price of BGN 21 318 852. ¹¹ The latter was a single-member private limited liability company, connected to Balkan and Sea within the meaning of Paragraph 1(3) of the additional provisions of the DOPK. VAT was charged on the price ¹² and Balkan and Sea sought to deduct that tax from its output VAT.

14An appraisal commissioned by the tax authority concluded that the open market value of the properties was BGN 21 216 300. The authority therefore took the view that the value of the transaction had been inflated by BGN 102 552, that the VAT charged on the latter amount was a tax charged unlawfully within the meaning of Article 70(5) of the ZDDS and that no right to deduct therefore arose in respect of that portion of the tax, amounting to BGN 20 510,42. ¹³

15Balkan and Sea’s challenge to that assessment is now before the referring court, which asks:

Is Article 80(1)(c) of [Directive 2006/112] to be interpreted as meaning that where there are supplies between connected persons, in so far as the consideration is higher than the open market value, the taxable amount is the open market value of the transaction only if the supplier does not qualify for the full right to deduct the VAT chargeable on the purchase or production of the goods which are supplied?

2Is Article 80(1)(c) of [Directive 2006/112] to be interpreted as meaning that, if the supplier has exercised the full right to deduct VAT on goods and services which are the subject of subsequent supplies between connected persons at a price which is higher than the open market value, and that right to deduct input VAT has not been corrected under Articles 173 to 177 of that Directive, [ ¹⁴] a Member State is not permitted to adopt measures whereby the taxable amount is exclusively the open market value?

3Does Article 80(1) of [Directive 2006/112] constitute an exhaustive list of cases representing the circumstances in which the Member States may take measures whereby the taxable amount in respect of supplies is to be the open market value of the transaction?

4Is a provision of national law such as Article 27(3)(1) of [the ZDDS] permissible in cases other than those listed in Article 80(1)(a), (b) and (c) of [Directive 2006/112]?

5In a case such as the present does Article 80(1)(c) of [Directive 2006/112] have direct effect, and may the domestic court apply it directly?’

Case C-129/11 Provadinvest

16OOD Provadinvest (‘Provadinvest’) is a limited liability company which leases plots of agricultural land for the operation of greenhouses consisting of steel structures covered with polyethylene foil (or of polyethylene structures — the precise nature of the structures is not entirely clear from the order for reference). In 2009, it sold three such plots, each with an area of around six hectares, together with the greenhouse structures erected on them and all improvements and permanent crops. Two of those plots were sold to one of its shareholders and the third to its representative officer. The price paid was BGN 25000 in each case, and no VAT was indicated on the invoices.

17The plots, greenhouse structures, improvements and crops were appraised by a valuer, who determined the open market value of the greenhouse structures on the three plots as totalling BGN 392 700.

18On that basis, the tax authority took the view that the transactions comprised both exempt supplies (plots of land) and taxable supplies (accessories, improvements and crops). For the latter, since the parties were connected within the meaning of Paragraph 1(3) of the additional provisions of the DOPK, the taxable amount was the open market value determined by the valuer. The tax authority therefore assessed the VAT due at BGN 78540.

19Provadinvest’s challenge to that assessment is now before the referring court, which asks:

Is Article 80(1)(a) and (b) of [Directive 2006/112] to be interpreted as meaning that, where there are supplies between connected persons, in so far as the consideration is lower than the open market value, the taxable amount is the open market value of the transaction only if the supplier or the acquirer does not qualify for the full right to deduct the input tax chargeable on the purchase or production of the goods which are supplied?

2Is Article 80(1)(a) and (b) of [Directive 2006/112] to be interpreted as meaning that, if the supplier has exercised the full right to deduct the input tax on goods and services which are the subject of subsequent supplies between connected persons at a value which is lower than the open market value, and that right to deduct input tax has not been corrected under Articles 173 to 177 of the Directive [ ¹⁵] and the supply is not subject to a tax exemption within the meaning of Articles 132, 135, 136, 371, 375, 376, 377, 378(2), 379(2) and 380 to 390 of the Directive, a Member State is not permitted to adopt measures whereby the taxable amount is exclusively the open market value?

3Is Article 80(1)(a) and (b) of [Directive 2006/112] to be interpreted as meaning that, if the acquirer has exercised the right to deduct in full the input tax on goods and services which are the subject of supplies between connected persons with a lower value than the open market value, and that right to deduct input tax has not been corrected under Articles 173 to 177 of the directive, a Member State is not permitted to adopt measures whereby the taxable amount is exclusively the open market value?

4Does Article 80(1) of [Directive 2006/112] constitute an exhaustive list of cases representing the circumstances in which a Member State is permitted to take measures whereby the taxable amount in respect of supplies is to be the open market value of the transaction?

5Is a provision of national law such as Article 27(3)(1) of [the ZDDS] permissible in cases other than those listed in Article 80(1)(a), (b) and (c) of [Directive 2006/112]?

6In a case such as the present does Article 80(1)(a) and (b) of [Directive 2006/112] have direct effect, and may the domestic court apply it directly?’

20Written observations have been submitted to the Court by the Bulgarian Government in Case C-621/10 and by the Commission in both cases. Neither Balkan and Sea nor Provadinvest has submitted observations. No hearing has been requested, and none has been held.

Assessment

Preliminary remarks

21No issue has been raised as to the admissibility of the references for a preliminary ruling, but it must be acknowledged that the orders for reference do not set out the circumstances of the main proceedings in as much detail as could be wished for. In particular, it would have been preferable if the referring court had, in each case, stated more explicitly the extent to which each party to the transactions in fact enjoyed and/or exercised a right to deduct input VAT.

22However, it is apparent from the orders for reference that the relevant provision of national law, Article 27(3)(1) of the ZDDS, does not lay down any condition as to the extent to which connected parties must enjoy a right to deduct in order for it to apply. Moreover, the wording of the questions themselves indicates that the referring court considers that the circumstances of the main proceedings, while falling within the scope of Article 27(3)(1) of the ZDDS, fall outwith that of Article 80(1)(a), (b) or (c) of Directive 2006/112, at least on a strict and literal interpretation of their terms — in other words that the relevant parties to the transactions in both cases enjoyed a full right of deduction.

23The first question referred in both cases asks, essentially, whether the option in Article 80(1) of Directive 2006/112 is confined to cases in which the supplier or the customer, as the case may be, does not have a full right of deduction. The second question in Case C-621/10 and the second and third in Case C-129/11 ask whether, in cases where such supplier or customer, as the case may be, has exercised a full right of deduction, Member States are precluded from taking open market value as the taxable amount. The third question in Case C-621/10 and the fourth in Case C-129/11 ask whether Article 80(1) contains an exhaustive list of circumstances in which a Member State may take open market value as the taxable amount. The fourth question in Case C-621/10 and the fifth in Case C-129/11 ask whether a national provision under which open market value is to be taken as the taxable amount in all transactions between connected parties is permissible in cases other than those listed in Article 80(1).

24Those questions all seek to ascertain the scope of the option available under Article 80(1), and I shall address them together.

25The last question referred in each case asks whether the provisions of Article 80(1) have direct effect, and whether they can be applied directly by national courts. It raises different issues, and I shall address it separately.

26Finally, I shall consider two points which, although not raised in the orders for reference, may assist the referring court in reaching a final decision: in Case C-621/10, the assessment of open market value and, in Case C-129/11, the extent to which the transactions should properly be treated as exempt or taxable.

The scope of the option available under Article 80(1)

27It seems to me clear — and both the Bulgarian Government and the Commission share that view — that the option available under Article 80(1) of Directive 2006/112 is limited to the circumstances set out unambiguously in its provisions. Consequently, a Member State may not adopt legislation under which the taxable amount is to be the open market value in all transactions between connected persons, whether those circumstances are present or not.

28First, Article 73 of Directive 2006/112 lays down a clear general rule, to the effect that the taxable amount is to be the actual consideration for the transaction. That consideration is the subjective value: the value actually received, and not a value estimated according to objective criteria. ¹⁶ Any provision which derogates from a general rule — as does Article 80 of Directive 2006/112 — must be interpreted strictly. ¹⁷

29Second, Article 80(1) of Directive 2006/112 states that the purpose of the optional derogation is ‘to prevent tax evasion or avoidance’. That aim is further clarified in recitals 3 in the preamble to Directive 2006/69 — ‘to ensure that there is no loss of tax through the use of connected parties to derive tax benefits’ — and 26 in the preamble to Directive 2006/112 — ‘[t]o prevent loss of tax revenues through the use of connected parties to derive tax benefits’.

30When goods or services are supplied at an artificially low or high price between parties who both enjoy a full right of deduction in connection with the transaction — that is to say, when both supplier and customer make only taxable outputs — there is no evasion or avoidance of tax at that stage. As far as the transaction in question is concerned, the tax is entirely neutral for both parties, and will remain so whatever the price charged. Nor can any tax be ‘lost’ at that stage. It is only when the supply chain comes to an end with the final consumer — or to a partial end with a ‘mixed’ taxable person enjoying a proportional right of deduction — that an artificially low or high price can lead to a loss of tax revenue. It is only at that point that the total amount of VAT due on the whole supply chain definitively ‘crystallises’ — and that amount is proportional only to the final price, irrespective of amounts charged earlier in the chain. ¹⁸

31Third, recitals 3 in the preamble to Directive 2006/69 and 26 in the preamble to Directive 2006/112 state that Member States should be able to intervene ‘in specific limited circumstances’. That limitation was made more explicit in Article 11A(6) of the Sixth Directive, which stated that the option could apply ‘only in any of the following circumstances’. Although the word ‘only’ no longer appears in Article 80(1) of Directive 2006/112, it is clear from recital 3 in the preamble to the latter that no material change was made by the recasting of the text.

32Finally, Article 80(2) of Directive 2006/112 explicitly authorises Member States which exercise the option to restrict the categories of suppliers or recipients to whom the measures are to apply. By necessary implication, there is no authorisation to extend those categories to, for example, taxable persons who have a full right of deduction.

33Consequently, Article 80(1)(a), (b) and (c) comprise an exhaustive list of the circumstances in which a Member State may levy VAT on a transaction on the basis of its open market value rather than of the consideration actually paid. Those provisions do not authorise a Member State to take such an approach where the supplier or customer, as the case may be, has a full right of deduction.

34It follows that a national provision which requires VAT to be levied on the basis of open market value in all cases where the parties are connected is not authorised by the option available under Article 80(1), at least to the extent that it covers cases where the relevant party to the transaction has a full right of deduction.

35I note in that regard that, in 2010, the Bulgarian Government received a letter of formal notice from the Commission asserting that Article 27(3) of the ZDDS was incompatible with Articles 73 and 80 of Directive 2006/112. It accepts the Commission’s complaint and has undertaken to amend the provision by 1 January 2012.

Consequences of incompatibility of national legislation

36In its last question in each case, the referring court asks whether Article 80(1) of Directive 2006/112 has direct effect, and whether national courts can apply it directly. The Bulgarian Government and the Commission have addressed that question as concerning, in effect, the extent to which Balkan and Sea and/or Provadinvest may rely on Article 80(1) in order to challenge the tax authority’s assessments. That, however, does not seem to me to be the best starting-point.

37From my analysis of the previous questions, I have concluded that a national provision which requires VAT to be levied on the basis of open market value in all cases where the parties are connected is not authorised by the option available under Article 80(1), at least to the extent that it covers cases where the relevant party to the transaction has a full right of deduction. ¹⁹

38In accordance with consistent case-law, it is for the national court, to the full extent of its discretion under national law, to interpret and apply national law in conformity with EU law. ²⁰ That obligation applies even when other conditions enabling an individual to rely on the direct effect of a directive are absent. ²¹ Where such an interpretation is not possible, that court must disapply any provision of domestic law to the extent that it is incompatible with EU law. ²²

39In the first place, therefore, it will be for the national court to seek to interpret Article 27(3) of the ZDDS in such a way as to reconcile it with a correct exercise of the option in Article 80 of Directive 2006/112. If that is possible, then there will be no further issue of compatibility with the directive or of giving direct effect to any of its provisions. If it is not possible, then the national provision must be disapplied.

40In the latter case, it is necessary to envisage two possibilities. Either the relevant parties to the transactions in the cases in the main proceedings enjoyed a full right of deduction, so that those cases did not fall within any of the circumstances set out in Article 80(1), or they did not enjoy a full right of deduction and the cases fell within those circumstances.

41If the relevant parties enjoyed a full right of deduction, there is simply no scope for Article 80(1) to have direct effect or to be applied directly to cases to which, on its own terms, it does not apply. By contrast, Article 73 of Directive 2006/112, which has direct effect, ²³ can be relevant. Article 80(1) allows Member States to introduce a derogation from the general rule as to the determination of taxable value. In the absence of such a derogating rule, the general rule in Article 73 of Directive 2006/112 must apply. ²⁴ It can therefore be relied upon by taxable persons and applied directly by national courts in order to ensure that, except in cases for which the directive provides for a derogation, the taxable amount is the actual consideration obtained.

42If, on the other hand, the relevant parties did not enjoy a full right of deduction, the further question arises whether it is the State or the individual who seeks to rely on the direct effect of Article 80(1).

43In the former case, it must be remembered that a Member State cannot rely, against an individual, on the provisions of a directive or on its own failure validly to exercise an option available under a directive. ²⁵

44Where, however, an individual seeks to rely on the direct effect of a directive provision against a Member State which has failed to implement that provision correctly, it is settled case-law that such reliance is, in principle, possible where the provisions of the directive are sufficiently clear, precise and unconditional. ²⁶

45In that regard, it may be open to question whether the terms of a merely optional provision which has been incorrectly implemented by a Member State can be described as ‘sufficiently clear, precise and unconditional’ for that purpose.

46However, I do not think it necessary, or even appropriate, to address that issue in the context of the present cases.

47It is true that, in theory, the customer in a transaction falling within the circumstances set out in Article 80(1)(c) of Directive 2006/112, even though he had agreed to pay an artificially inflated price, might still seek to rely, against the tax authority, on the provisions of that paragraph in order to have VAT applied on the basis of the open market value. If such a customer did not himself have a full right of deduction, it would be to his advantage to pay less VAT on the transaction.

48That is not, however, the case in either of the disputes which gave rise to the requests for a preliminary ruling. According to settled case-law, the justification for a reference for a preliminary ruling is not that it enables advisory opinions on general or hypothetical questions to be delivered but rather that it is necessary for the effective resolution of a dispute. ²⁷ In the present regard, the question is not merely hypothetical in relation to the main proceedings but also rather unlikely to arise in the normal course of events, since it would mean that one of two connected parties who had agreed on an artificial price, with a view to obtaining a joint overall benefit, had gone back on the agreement between them.

49In those circumstances, I do not propose to consider that hypothesis, but to turn to two final matters which, although not raised by the referring court, may be of relevance to the main proceedings.

Assessment of open market value

50In any of the circumstances set out in Article 80(1) of Directive 2006/112 Member States may take measures to ensure that the taxable amount is the open market value. One of the conditions for doing so is that the actual consideration should be lower or higher than the open market value — namely ‘the full amount that, in order to obtain the goods or services in question at that time, a customer at the same marketing stage at which the supply of goods or services takes place, would have to pay, under conditions of fair competition, to a supplier at arm’s length within the territory of the Member State in which the supply is subject to tax’.

51In view of that definition, and of the fact that, in Case C-621/10, Balkan and Sea acquired the property concerned at a price which exceeded the licensed valuers’ assessment by less than 0.5%, while Bulgarian legislation provides for five methods of determining open market value, it may still be necessary for the national court to consider whether, on a proper interpretation of the national rules, the price concerned can truly be said to be higher than the open market value.

Taxable or exempt nature of the transactions

52The Commission queries the tax authority’s assessment of the transactions in Case C-129/11 as comprising both exempt and taxable supplies. I agree that the referring court should examine that assessment in the light of the relevant provisions of Directive 2006/112 and, if appropriate, disapply any national provisions which lead to a result which is not compatible with the directive. The relevant directive provisions are as follows.

53Article 12 provides:

‘1. Member States may regard as a taxable person anyone who carries out, on an occasional basis, … in particular one of the following transactions:

the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;

the supply of building land.

2. For the purposes of paragraph 1(a), “building” shall mean any structure fixed to or in the ground.

Member States may lay down the detailed rules for applying the criterion referred to in paragraph 1(a) to conversions of buildings and may determine what is meant by “the land on which a building stands”.

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

3. For the purposes of paragraph 1(b), “building land” shall mean any unimproved or improved land defined as such by the Member States.’

54Article 135(1) of Directive 2006/112 requires Member States to exempt certain transactions from VAT, including, in particular:

the supply of a building or parts thereof, and of the land on which it stands, other than the supply referred to in point (a) of Article 12(1);

the supply of land which has not been built on other than the supply of building land as referred to in point (b) of Article 12(1);

the leasing or letting of immovable property.’ ²⁸

55The first question is whether the greenhouses were buildings for the purposes of Article 12(1)(a) of Directive 2006/112, that is to say, whether they corresponded to the definition of ‘any structure fixed to or in the ground’ in the first subparagraph of Article 12(2). That is of course a matter for the national court, and may depend on the precise nature of the construction. However, it seems not unlikely that the greenhouses may have corresponded to that definition, at least if they were steel-framed.

56If the greenhouses were buildings, each transaction must be treated as a single supply because, for the purposes of VAT, buildings or parts of buildings and the land on which they stand cannot be dissociated from each other. ²⁹

57In that case, the next question is whether the supply of land and buildings was ‘before first occupation’ or met such other criteria as may have been prescribed by national law, within the respective two- or five-year limits laid down in the third subparagraph of Article 12(2). In that regard, it seems relevant that Provadinvest argued before the national court that the greenhouses had been in use for over 30 years.

58If the supply was ‘before first occupation’ or met other validly applicable criteria, it may be regarded as taxable under Article 12(1)(a). If it was not, it must be exempted under Article 135(1)(j), subject to the exercise of any possible right to opt for taxation.

59If the greenhouses were not buildings for the purposes of Article 12(1)(a), it must still be considered whether the transactions are to be regarded as distinct transactions whose VAT treatment is to be assessed separately or as single complex transactions comprising a number of elements.

60According to settled case-law, where a transaction comprises a bundle of elements, regard must be had to all the circumstances in order to determine whether there are two or more distinct supplies or one single supply. Although every transaction must normally be regarded as distinct and independent, a transaction which comprises a single supply from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system. There is a single supply in particular where two or more elements supplied are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split, or where one or more elements constitute the principal supply, while other elements are ancillary. It will be for the national court to determine whether that is so in the main proceedings. ³⁰

61If the national court decides in that light that there were separate supplies of land and of other elements, the tax authority’s approach would appear to be correct.

62If, however, it decides that each transaction was a single complex supply comprising a principal element and ancillary elements, it seems likely that the principal element was the supply of land, and the VAT treatment should be based on that supply.

63In either of those cases, it may have to be determined whether the land was building land defined as such by the Member State in accordance with Article 12(3) of Directive 2006/112. If so, the supply may be taxed under Article 12(1)(b). If not, it must be exempted under Article 135(1)(k), again subject to the exercise of any possible right to opt for taxation.

Conclusion

64I am therefore of the opinion that the Court should answer the questions raised by the Administrativen Sad Varna to the following effect:

Article 80(1)(a), (b) and (c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax comprise an exhaustive list of the circumstances in which a Member State may levy VAT on a transaction on the basis of its open market value rather than of the consideration actually paid.

Those provisions do not authorise a Member State to take such an approach where the supplier or customer, as the case may be, has a full right of deduction.

A national provision which requires VAT to be levied on the basis of open market value in all cases where the parties are connected is incompatible with Article 80(1) of Directive 2006/112, at least to the extent that it covers cases where the relevant party to the transaction has a full right of deduction.

It is for the national court, to the full extent of its discretion under national law, to interpret and apply such a national provision in conformity with Article 80(1) of Directive 2006/112. Where such an interpretation is not possible, that court must disapply the provision to the extent that it is incompatible with that paragraph.

Article 73 of Directive 2006/112 has direct effect and can be relied upon by taxable persons, and applied directly by national courts, in order to ensure that, except in cases for which the directive provides for a derogation, the taxable amount is the actual consideration obtained.

If a Member State has not validly exercised the option available under Article 80(1) of Directive 2006/112, it may not rely on the provisions of that paragraph against a taxable person in order to tax a transaction on the basis of its open market value.

ANNEX I

See point 38 et seq. of the Opinion

ANNEX II

See point 55 et seq. of the Opinion

¹ Original language: English.

² Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

³ Previously Article 11A(1)(a) 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, amended on numerous occasions; ‘the Sixth Directive’).

⁴ Those articles lay down specific rules for determining the taxable amount in cases of, respectively, disposal or retention of business assets, private use of business assets or services, transfer to another Member State and supply by a taxable person of a service for the purposes of his business.

⁵ Articles 167 to 169 concern the right of taxable persons to deduct input VAT on supplies used for their taxable outputs; Articles 170 and 171 concern refunds of VAT in certain cross-border transactions; Articles 173 to 175 lay down a system of proportional deduction where taxed inputs are used for both taxed and exempt outputs; and Articles 176 and 177 provide for the possibility that some categories of input VAT may not be deductible.

⁶ Articles 132, 135 and 136 provide for certain categories of supply to be exempt from VAT (without deduction of input tax) in all Member States (see also point 54 below); the other articles cited allow individual Member States to continue to apply certain other such exemptions, by way of derogation.

⁷ In 2006, as Article 11A(6) of the Sixth Directive; see Article 1(3) of Council Directive 2006/69/EC of 24 July 2006 amending Directive 77/388/EEC as regards certain measures to simplify the procedure for charging value added tax and to assist in countering tax evasion or avoidance, and repealing certain Decisions granting derogations (OJ 2006 L 221, p. 9). recitals 1 and 3 in the preamble to Directive 2006/69 set out its aim of replacing a number of derogations granted to individual Member States by a general enabling provision; Member States should be able to intervene as regards the value of supplies and acquisitions in specific limited circumstances, to ensure that there is no loss of tax through the use of connected parties to derive tax benefits. See also the explanatory memorandum accompanying the proposal for that directive (COM(2005) 89 final), in particular at pp. 5 and 6.

⁸ Under Articles 167 and 168 of Directive 2006/112, essentially, taxable persons have a right to deduct, at the time when it becomes chargeable, any VAT due or paid on supplies made to them, provided that those supplies are used for the purposes of their taxed output transactions. VAT is thus fiscally neutral for the traders concerned (see also Case C-174/08 NCC Construction Danmark [2009] ECR I-10567, paragraph 39 et seq. and case-law cited).

⁹ Since the right to deduct under Articles 167 and 168 of Directive 2006/112 is confined to cases where the supplies are used for the purposes of taxed output transactions, supplies used for the purposes of exempt outputs do not give rise to deduction. Where the use of input supplies cannot be allocated to particular output supplies made by a taxable person whose outputs are both taxed and exempt, Article 173 et seq. of Directive 2006/112 provide for proportional deduction determined by the ratio between taxed and exempt supplies.

¹⁰ It may be noted that property transactions (sales, leases or lets) may be either taxable or exempt pursuant to Article 135(1)(j) to (l) or Article 137(1)(b) to (d) — see point 54 below.

¹¹ The value of the Bulgarian lev was, at the relevant time, approximately half that of the euro.

¹² From which it may be deduced that the transaction was not exempt pursuant to Article 135(1)(j) or (k), or else that an option for taxation pursuant to Article 137(1)(b) or (c) had been exercised.

¹³ The relevant rate of VAT being 20%.

¹⁴ The reference to a ‘correction’ pursuant to those articles is perhaps not the best choice of wording, in that the articles cited concern proportional deduction and restrictions on the right of deduction — see footnote 5 above.

¹⁵ See footnote 14 above.

¹⁶ See Case C-412/03 Hotel Scandic Gåsabäck [2005] ECR I-743, paragraph 21 and case-law cited; Case C-285/10 Campsa Estaciones de Servicio [2011] ECR I-5059, paragraph 28.

¹⁷ See, for example, Case C-41/09 Commission v Netherlands [2011] ECR I-831, paragraph 58 and case-law cited.

¹⁸ See Article 1(2) of Directive 2006/112.

¹⁹ For a succinct summary of the reasoning which follows, in tabular form, see Annex I to this Opinion.

²⁰ See, for example, Joined Cases C-395/08 and C-396/08 Bruno and Others [2010] ECR I-5119, paragraph 74.

²¹ See, to that effect, Case 14/83 von Colson and Kamann [1984] ECR 1891, paragraphs 26 and 27.

²² See, for example, Bruno and Pettini and Others, cited in footnote 20 above, paragraph 74.

²³ See Case C-62/00 Marks & Spencer [2002] ECR I-6325, paragraph 47.

²⁴ See Campsa Estaciones de Servicio, cited in footnote 16, paragraph 40.

²⁵ See, for example, Case C-227/09 Accardo and Others [2010] ECR I-10273, paragraphs 44 to 47 and case-law cited. In order to use such an option, Member States must make the choice to rely on it (see Joined Cases C-180/10 and C-181/10 Słaby and Others [2011] ECR I-8461, paragraph 33).

²⁶ See, for example, Case C-150/99 Stockholm Lindöpark [2001] ECR I-493, paragraphs 30 and 31 and case-law cited.

²⁷ See, for example, the order in Case C-155/11 PPU Mohammed Imran [2011] ECR I-5095, paragraph 21 and case-law cited.

²⁸ The requirement to exempt is not absolute in these cases, as, under Article 137(1)(b) to (d), Member States may allow taxable persons a right of option for taxation in each of these cases. For a succinct summary of the reasoning which follows, in tabular form, see Annex II to this Opinion.

²⁹ Case C-400/98 Breitsohl [2000] ECR I-4321, paragraph 50.

³⁰ See, for example, Joined Cases C-497/09, C-499/09, C-501/09 and C-502/09 Bog and Others [2011] ECR I-1457, paragraph 51 et seq. and case-law cited.