C-73/85 Kerrutt

JUDGMENT OF THE COURT (Fifth Chamber)

8 July 1986*

In Case 73/85

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

Hans-Dieter and Ute Kerrutt, Markgröningen,

and

[Tax Office] Finanzamt Mönchengladbach-Mitte

on the interpretation of various provisions of the Sixth Council Directive, No 77/3 8 8/EEC of 17 May 1977, on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1),

THE COURT (Fifth Chamber)

composed of: U. Everling, President, R. Joliét, O. Due, Y. Galmot and C. Kakouris, Judges,

Advocate General: M. Darmon Registrar: P. Heim

after considering the observations presented on behalf of

(a) Hans-Dieter and Ute Kerrutt, by their agent, F. J. Müsers,

(b) the Finanzamt Mönchengladbach-Mitte, by its agent, Rembert Schwarze,

* Language of the Case: German. (c) the Federal Republic of Germany, by Martin Seidel, Ernst Roder and Jochim Sedemund, acting as Agents,

(d) the Commission of the European member of its Legal Department, Communities, by Jürgen Grunwald, a after hearing the Opinion of the Advocate General delivered at the sitting on 22 April 1986,

gives the following JUDGMENT

Facts and Issues The facts, the procedure and the written observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC may be summarized as follows:

I — Facts and written procedure

Legal context and the dispute

1 Article 2 of the Sixth Council Directive, No 77/388/EEC of 17 May 1977, on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1) provides that value-added tax is to be levied on :

inter alia

'the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such'.

Article 4 (3) provides that the Member States may treat as a taxable person anyone who carries out, on an occasional basis, in particular one of the following:

'(a) the supply before first occupation of buildings or parts of buildings and the land on which they stand;

(b) the supply of building land'.

In accordance with Article 13 B (g) Member States are to exempt inter alia:

'the supply of buildings or parts thereof, and of the land on which they stand, other than as described in Article 4 (3) (a);

...'

Under Article 28 (3) (b) the Member States may, continue to exempt the actiinter alia, vities set out in Annex F under conditions existing in the Member State concerned. Point 16 of Annex F refers to 'supplies of those buildings and land described in Article

4 (3)'.

2. By a contract dated 28 December 1982 and 3 February 1983 the plaintiffs in the main proceedings commissioned a firm of trustees to purchase a plot of land at Mönchengladbach/Hardt for DM 43 792 and to construct a building on it (dwelling No 2 on the plan) at a total cost of DM 445 063. By a contract of 7 February 1983 the plaintiffs acquired, as joint owners in equal shares, a co-proprietor's share amounting to 230/1 000 of a plot of land which had not been built on, located as mentioned above, at the agreed price. The conveyance was effected on 23 August 1983. The division of the property pursuant to paragraph 3 of the Wohnungseigentumsgesetz [Law on the ownership of apartments] was agreed on 14 September 1983 and was registered in the Land Register on 29 November 1983.

The 'Bauherrengemeinschaft' [Co-proprietors' Association] formed by the co-proprietors as an association governed by the Civil Code (paragraphs 705 et seq. of the Bürgerliches Gesetzbuch [Civil Code] concluded with a building company a contract dated 26 May 1983 for the construction of a dwelling ready for occupation by 31 December 1983 at a fixed price of DM 679 906.54 plus value-added tax at the rate of 13%. In addition the plaintiffs concluded on their own account the following contracts:

(a) A contract for the supervision of building works (Baubetreuungsvertrag) covering the commercial, financial, organizational and technical groundwork;

(b) A contract for the management of let accommodation;

(c) A contract for the assembly of documentation for tax purposes;

(d) A contract of guarantee;

(e) A contract for the procurement of finance.

The Finanzamt [Tax Office] Mönchengladbach-Mitte issued tax demands dated 12 August 1983 to both the plaintiffs in the main proceedings for real property transfer tax (Grunderwerbsteuer) of DM 2 888 assessed on the basis of a total amount of DM 288 855, all the sums paid by the plaintiffs being included in the taxable consideration in accordance with the definition laid down in the law on real property transfer tax. The Tax Office justified its approach by reference to recent decisions of the Bundesfinanzhof according to which the

2228 contract of sale for a plot of land and the contract for the construction of a building must be regarded as a single transaction within the meaning of the law on property transfer tax in so far as each of the two partial contracts is devoid of purpose without the other.

Before the Finanzgericht [Finance Court] Düsseldorf the dispute between the parties turns on whether transfer tax may also be levied on the consideration for the construction of a building.

3. The Finanzgericht takes the view that the dispute raises problems concerning the interpretation of the abovementioned provisions of the Sixth Council Directive (No 77/388/EEC of 17 May 1977). It considers that it is necessary to determine in the first place whether the goods and services supplied by building contractors, skilled workers of the building trade (hereinafter referred to as 'building workers'), trustees and so on under the building contract are subject to value-added tax by virtue of the directive. It is then necessary to consider whether the double taxation of such deliveries and services as a result of the charging of transfer tax in addition to value-added tax is in conformity with Community law.

Accordingly the Finanzgericht Düsseldorf stayed the proceedings and, pursuant to Article 177 of the EEC Treaty, requested the Court to give a ruling on the following questions:

'(1) Does the supply of goods and services under a parcel of contracts offered by a promoter for work and services in connection with the construction of a building, including a contract to purchase land (the "Bauherrenmodell', or co-proprietors' building scheme), together with a transfer of land effected by another undertaking, constitute a single "supply of buildings or parts thereof, and of the land on which they stand" for the purposes of Article 13 B (g) and Article 28 (3) (b) in conjunction with point 16 of Annex F to the Sixth Council Directive on the KERRUTT vFINANZAMT MÖNCHENGLADBACH-MITTE harmonization of turnover taxes (Directive No 77/388/EEC of 17 May 1977), or is value-added tax applicable under Article 2 (1) of that directive to the supply of such goods and services but not to the transfer of the land?

(2) If value-added tax is chargeable under Article 2 (1) of the Sixth Directive, does Community law prohibit double taxation so that no additional transfer tax (in this case the German tax on the transfer of real property) may be levied in respect of the aforementioned supply of goods and services?'

4. The order requesting a preliminary ruling was registered at the Court on 19 March 1985.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by the government of the Federal Republic of Germany, represented by Martin Seidel and Ernst Röder, acting as Agents, and by the Commission of the European Communities, represented by Jürgen Grunwald, a member of the Commission's Legal Department, acting as Agent.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry.

By an order of 11 November 1985, pursuant to Article 95 of the Rules of Procedure, the Court decided to assign the case to the Fifth Chamber.

II — Written observations submitted to the Court

1. The first question

The Federal Government and the Commission both take the view that supplies of goods and services under a 'Bauherren' scheme are subject to value-added tax by virtue of Article 2 (1) of the Sixth Directive and that they do not qualify for exemption from that tax either under Article 13 B (g) of the directive or — in so far as they do not concern the land transaction — under Article 28 (3) (b) in conjunction with point 16 of Annex F to the directive.

(a) The states that the Federal Government supplies of goods and services referred to in the national court's question, which are effected by different taxable persons, do not constitute a single 'supply of buildings or parts thereof, and of the land on which they stand' for the purposes of Article 13 B (g) and Article 28 (3) (b) in conjunction with point 16 of Annex F to the Sixth Directive. In its view such supplies are subject to VAT individually by virtue of Article 2 (1) of the directive.

Article 13 B (g) is not applicable because the exemption it provides for does not extend to the matters covered by Article 4 (3) (a), which refers to 'the supply before first occupation of buildings or parts of buildings and the land on which they stand'. Since the purpose of 'Bauherren' schemes is precisely to construct new buildings, exemption under Article 13 B (g) must be ruled out.

Exemption from VAT during the transitional period on the basis of Article 28 (3) (b) in conjunction with point 16 of Annex F for services supplied for consideration by contractors under the 'Bauherren' scheme is likewise excluded. Point 16 of Annex F does indeed refer to supplies of buildings and land as described in Article 4 (3), in other words the delivery of new buildings and the land on which they stand. However, work done by building contractors and building workers in connection with the construction of a building cannot be regarded as constituting with the delivery of the land by the vendor only a single supply of a building, since in that respect Article 2 (1) applies to the various supplies of goods and services individually.

The Federal Government adds that the fact that the construction, the work done by the building workers and the land transactions, which are all operations carried out by different taxable persons, are economically linked does not affect the requirement laid down by the directive that they be assessed individually. The directive does not authorize exemption for the supply of buildings before first occupation unless the supply of the building and the land represents in law a single transaction, in other words where land which has been built on is supplied by a single taxable person.

The services relating to the construction of the building and the services provided by building workers, which are legally distinct from the land transaction and which are supplied by a taxable person other than the vendor of the land, cannot be reclassified as land transactions. Such a reclassification would be contrary to the principle of the equality of taxation and the requirement that taxation must be non-discriminatory from the point of view of competition, because it would mean that construction services would be exempted from turnover tax where the co-proprietor, as the recipient of the services, accepted a parcel of services, whereas construction services which were not parcelled together would be liable to tax. An exemption under Article 28 (3) (b) in conjunction with point 16 of Annex F can therefore be accorded only in respect of the supply of building land.

In conclusion the Federal Government proposes that the Court should reply to the first question as follows:

2230 'Supplies of goods and services which are effected by different taxable persons must always be assessed separately for the purposes of turnover tax and cannot therefore be regarded as constituting only a single transaction. The fact that under a scheme such as the 'Bauherrenmodell' the recipient of services enters into a group of transactions (for example works contracts, contracts for the provision of services and a transfer of land) with a view to the construction of a building is immaterial in that respect. The labour and services supplied by the contractors are subject to value-added tax by virtue of Article 2 (1) of the Sixth Directive. They are not covered by the exemption provided for in Article 13 B (g) of the directive, and they cannot be exempted from value-added tax during the transitional period on the basis of Article 28 (3) (b) in conjunction with point 16 of Annex F to the directive.'

(b) The Commission expresses the view that all the supplies of goods and services under the scheme known as the 'Bauherrenmodell' are in principle subject to VAT under Article 2 of the Sixth Directive. However, it considers that it is necessary to determine whether one of the exemptions provided for by the directive applies.

In its view, Article 13 B (g) does not apply in this case because it excludes the goods described in Article 4 (3) (a), namely the supply of buildings or parts of buildings and the land on which they stand 'before first occupation' (new buildings). The same applies, mutatis mutandis, for the exemption laid down in Article 13 B (h) (the supply of land which has not been built on), which expressly excludes the building land described in Article 4 (3) (b).

The Commission adds that exemption is, on the other hand, accorded for 'the granting and the negotiation of credit and the management of credit by the person granting it' and 'the negotiation of or any dealings in credit guarantees or any other security for money and the management of credit guarantees by the person who is granting the credit' (Article 13 B (d) (1) and (2)). It follows that in so far as such transactions are part of a scheme such as the 'Bauherrenmodell', they are exempt from VAT.

The Commission points out that under Article 28 (3) (b) in conjunction with point 16 of Annex F Member States are authorized to 'continue to exempt' supplies of the buildings and land described in Article 4 (3) 'under conditions existing in the Member State concerned' during the transitional period referred to in Article 28 (4). In fact the period of five years (from 1 January 1978 to 31 December 1982) initially fixed in the first sentence of Article 28 (4) expired before the construction work at issue in these proceedings was effected. Nevertheless, by virtue of the second sentence of Article 28 (4) the transitional period must be deemed to have been extended for an indefinite period because the Council has yet to determine whether 'any or all of these derogations shall be abolished'.

The Commission adds, however, that Article 28 (3) (b) indicates that the exemption cannot be accorded at will but only under the conditions existing in the Member State concerned when the directive was adopted. Community law prohibits the unilateral extension by the Member States of their national practice regarding exemption after the adoption of the directive.

In the Federal Republic of Germany and in the sector with which this case is concerned, 'transactions subject to the Grunderwerbsteuergesetz [Law on real property transfer tax]' (paragraph 4 (9) (a) of the Umsatzsteuergesetz [Law on turnover tax] of 1973) were not liable to turnover tax when the directive was adopted. The decisions of the Bundesfinanzhof concerning real property transfer tax with regard to 'Bauherren' schemes have in the meantime effectively extended that exemption unlawfully, since services which were not previously exempt, such as those of building contractors, building workers, builders and trustees, are now exempted from turnover tax in addition to the land transaction.

In conclusion, the Commission proposes that the Court should reply to the first question as follows:

'The supply of goods and services under a parcel of contracts offered by a promoter for the construction of a building, including building contracts and contracts for the provision of services and a contract for the sale of a plot of land, (the scheme known as the "Bauherrenmodell") are subject to value-added tax by virtue of Article 2 (1) of Directive No 77/388/EEC.

In so far as transactions of the kind described in Article 13 B (d) (1) and (2) of the directive are effected in connection with a scheme such as the "Bauherrenmodell", such transactions are exempt from that tax. In addition, in accordance with Article 28 (3) (b) in conjunction with point 16 of Annex F to the directive, Member States may grant exemptions under the conditions laid down by national law in force when the directive was adopted.'

2. The second question

The Federal Government and the Commission both point out that according to Article 33 of the Sixth Directive the provisions of the directive do not prohibit the maintenance or introduction of 'stamp duty' 1 by the Member States.

The German Government adds that although in adopting the exemptions laid down in Article 13 B of the directive the Community legislature excluded in some

1 — Transistor's note: 'Grunderwerbsteuer' [real property transfer tax] in the German version of Art. 33.

cases the double taxation of certain transactions which would result from the charging of turnover tax with other taxes, at the same time it deliberately tolerated such double taxation in others. In that respect the Sixth Directive has harmonized exemptions from turnover tax; it has not, however, harmonized the rules governing the collection of other taxes.

Nor does Article 33 of the directive limit the right of the Member States to levy transfer tax in connection with transactions involving new buildings and the land on which they stand, which are in principle subject to VAT and which, in accordance with Article 28 (3) (b) in conjunction with point 16 of Annex F and Article 4 (3) (a), may not be exempted after the expiry of a transitional period. The expiry of the transitional period removes the possibility of exemption; it does not, however, render unlawful the levying of transfer tax.

III — Reply to the questions put by the Court

In reply to the questions put by the Court in order to obtain additional information on the German legislation, the government of the Federal Republic of Germany stated as follows :

1. The German tax authorities continue to levy turnover tax on services supplied in connection with a 'Bauherren' scheme on the basis of a contract for the construction of a building (in other words the services of the building contractors and the building workers), even after the recent decisions of the Bundesfinanzhof concerning transfer tax. They take the view that the services of building contractors and building workers do not come within the scope of the exemption from turnover tax provided for in paragraph 4 (9) (a) of the Umsatzsteuergesetz.

2. Depending on the structure of the 'Bauherren' scheme, the administrative practice is based either on the assumption that the building contractors and the

2232 building workers supply their services directly to the individual co-propreitors, or that they supply them to the co-proprietors' association. In this case it is necessary to proceed on the assumption that since the work was entrusted to the building contractor by the co-proprietors as a group, they must be regarded as a single entity vis-à-vis third parties ('Außengesellschaft'), and, accordingly, as the recipient of the service provided by the building contractor.

(a) The service provided by the building contractor consists in the supply of a dwelling ready for occupation constructed on a plot of land belonging to the co-proprietors. That service is subject to VAT.

(b) Where the association of co-proprietors is — as in this case — the recipient of the building works, it must be assumed that it in its turn transfers the completed individual dwellings to the various co-proprietors. The latter transfer is subject to turnover tax only where the co-proprietors' association is to be regarded as a contractor within the meaning of paragraph 2 (1) of the Umsatzsteuergesetz (which corresponds to a taxable person within the meaning of Article 4 of the Sixth Directive). The general administrative practice is to recognize that the association may be regarded as a contractor.

(c) Where the association is deemed to be a contractor another question arises, namely whether the supply of the completed dwellings by the association to the various co-proprietors is liable to the tax or, on the contrary, exempted by virtue of paragraph 4 (9) (a) of the Umsatzsteuergesetz. The reply to that question is determined by reference to the nature and the extent of the service provided by the association (thus the supply of the dwelling without the land on which it stands is liable to the tax whereas the supply of a plot of land which has been built on is exempted).

(d) In accordance with paragraph 15 of the Umsatzsteuergesetz the association is entitled to the deduction of the prepaid tax only where it is deemed to be a contractor and where the services which it provides are liable to the tax — and to that end, if necessary, it must waive the exemption provided for in paragraph 4 (9) (a) of the Umsatzsteuergesetz.

(e) Where the service provided by the association to its members is liable to VAT, a member may, by virtue of paragraph 15 of the Umsatzsteuergesetz, deduct as prepaid tax the tax thus invoiced to him separately if he is a contractor and uses the dwelling to carry out transactions subject to VAT.

The Federal Government then states that where, under a 'Bauherren' scheme, the building contractors and the building workers provide their construction services not to the association but directly to the members, those services are also subject to VAT. The members are entitled to deduct the prepaid tax under the same conditions as those set out under point (e).

3. By virtue of paragraph 2 (1) of the Umsatzsteuergesetz, the co-proprietors' association or its members are deemed to be contractors (in other words taxable persons within the meaning of the Sixth Directive) where they carry out independently and on a continuing basis an economic activity for the purpose of obtaining income therefrom.

(a) An association of co-proprietors satisfies that requirement where it intervenes as a single entity vis-à-vis third parties in the chain of services between the building contractor (and the building workers) and the co-proprietors and where it provides a continuing service.

(b) A co-proprietor is deemed to be a contractor when he lets out a dwelling which has been constructed; he is not when he uses it for his own accommodation.

IV — Oral procedure

At the sitting on 25 February 1986 oral argument was presented by the following: the plaintiffs in the main proceedings, represented by their Agent, F. J. Müsers; the defendant in the main proceedings, represented by its Agent, Rembert Schwarze; the Federal Republic of Germany, represented by Jochim Sedemund, Rechtsanwalt; and the Commission of the European Communities, represented by Jürgen Grunwald, a member of its Legal Department.

The Federal Government and the Commission essentially expanded upon the observations which they had submitted in the written procedure.

The plaintiffs in the main proceedings argued that supplies of goods and services under a 'Bauherren' scheme, with the exception of the land transaction, are subject to VAT by virtue of the Sixth Directive. In their view, the land transaction is, as such, exempt from VAT both on the basis of the Sixth Directive, which harmonizes exemptions, and on the basis of national law, which precludes the double taxation of a single transaction as the result of the charging of transfer tax and value-added tax. They consider, therefore, that in order to resolve this dispute it is necessary to separate the land transaction, referred to in Article 13 B (g) of the directive, from the supplies of goods and services subject to VAT.

The defendant in the main proceedings submitted observations inter alia concerning the recent decisions of the Bundesfinanzhof.

The Advocate General delivered his Opinion at the sitting on 22 April 1986. Decision

1By an order of 17 December 1984, which was received at the Court on 19 March 1985, the Finanzgericht [Finance Court] Düsseldorf referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions concerning the interpretation of various provisions of the Sixth Council Directive (No 77/388/EEC of 17 May 1977), on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1).

2The questions were raised in proceedings between Hans-Dieter and Ute Kerrutt, a married couple, and the Finanzamt [Tax Office] Mönchengladbach-Mitte. The dispute concerns tax demands issued to the plaintiffs in the main proceedings for real property transfer tax on a building transaction known as the 'Bauherrenmodell' [a co-proprietors' building scheme].

3It appears from the order requesting a preliminary ruling and the explanations provided in the course of the proceedings that the transaction in question operated as follows: the Kerrutts and other persons desirous of building a home commissioned a firm of trustees to purchase on their behalf building land and to construct on it a residential building. By virtue of that contract, they acquired a co-proprietor's share of a plot of land which had not been built on. The division of property provided for in the Wohnungseigentumsgesetz [Law on the ownership of apartments] was lawfully completed and registered in the Land Register. In addition, all the co-proprietors, grouped together in a Bauherrengemeinschaft [an association governed by the Civil Code] concluded a contract with a construction company for the construction of the building. The Kerrutts also concluded on their own account a certain number of contracts, namely a contract for the supervision of building works, a contract for the management of let accommodation, a contract for the assembly of documentation for tax purposes, a contract of guarantee and a contract for the procurement of finance.

4The plaintiffs in the main proceedings contest the tax demands in so far as the transfer tax was calculated on the basis of the consideration for all the various transactions, in accordance with certain recent decisions of the Bundesfinanzhof. According to those decisions, the contract for the sale of the land and the contract for the construction of the building must be regarded as a single transaction within the meaning of the law on transfer tax if each of the two partial contracts is devoid of purpose without the other. That view is disputed by the plaintiffs in the main proceedings who claim, on the contrary, that only the purchase of the land, and therefore not the construction of the building, is liable to transfer tax.

5The national court takes the view that the dispute turns upon the interpretation of various provisions of the Sixth Directive (No 77/388/EEC), cited above. By virtue of a provision of national law, paragraph 4 (9) (a) of the Umsatzsteuergesetz [Law on turnover tax], transactions subject to the Grunderwerbsteuergesetz [Law on real property transfer tax] are exempt from turnover tax. It follows that if transfer tax is charged on all the transactions, in other words on the purchase of the land and the construction of the building, turnover tax cannot be levied on the supplies of goods and services of building contractors, building workers and the trustees, which could be contrary to the obligations arising under the Sixth Directive.

6It is in those circumstances that the Finanzgericht Düsseldorf stayed the proceedings and referred to the Court for a preliminary ruling on the following questions:

'(1) Does the supply of goods and services under a parcel of contracts offered by a promoter for work and services in connection with the construction of a building, including a contract to purchase land (the "Bauherrenmodell", or co-proprietors' scheme) together with a transfer of land effected by another undertaking, constitute a single "supply of buildings or parts thereof, and of the land on which they stand" for the purposes of Article 13 B (g) and Article 28 (3) (b) in conjunction with point 16 of Annex F to the Sixth Council Directive on the harmonization of turnover taxes (Directive No 77/388/EEC of 17 May 1977), or is value-added tax applicable under Article 2 (1) of that directive to the supply of such goods and services but not to the transfer of the land?

(2) If value-added tax is chargeable under Article 2 (1) of the Sixth Directive,

does Community law prohibit double taxation so that no additional transfer tax (in this case the German tax on the transfer of real property) may be levied in respect of the aforementioned supply of goods and services?'

The first question

7By the first question the national court seeks essentially to establish whether supplies of goods and services, other than the supply of the building land, under a parcel of contracts for work and services in connection with the construction of a building (the 'Bauherrenmodell') are subject to VAT by virtue of Article 2 (1) of the Sixth Directive, or whether they qualify for the exemptions in respect of the 'supply of buildings or parts thereof and the land on which they stand' provided for in Article 13 B (g) and Article 28 (3) (b) in conjunction with point 16 of Annex F to the Sixth Directive.

8The plaintiffs in the main proceedings submit, with regard to the first question, that the supplies of goods and services described in the question submitted by the national court are subject to VAT by virtue of the Sixth Directive. On the other hand they consider that the land transaction is exempt from that tax both under the Sixth Directive, which is intended to harmonize exemptions, and under a provision of national law prohibiting the double taxation of the same transaction by the imposition of transfer tax and value-added tax.

9The Federal Government and the Commission both take the view that supplies of goods and services of the kind in question are subject as such to VAT in accordance with Article 2 (1) of the Sixth Directive and cannot be regarded as forming part of a 'supply of buildings or parts thereof, and the land on which they stand' for the purposes of Article 13 B (g) and Article 28 (3) (b) in conjunction with point 16 of Annex F to the Sixth Directive. Moreover, Article 13 B (g) does not apply to supplies of buildings and the land on which they stand before first occupation, in other words new constructions such as those built under the 'Bauherrenmodell'. The Commission notes in addition that the transitional provision in Article 28 (3) precludes any extension of the national practice regarding exemption decided unilaterally by the Member States after the date of the adoption of the directive.

10It is common ground that supplies of goods and services under a scheme such as the Bauherrenmodell fall within the scope of Article 2 (1) of the directive as determined by the definitions of the expressions 'taxable persons' and 'taxable transactions' contained in Articles 4, 5 and 6 of the directive. Consequently, they are subject to VAT by virtue of Article 2 (1) unless they qualify for one of the exemptions provided for in the directive. In this case it is necessary to consider whether the exemptions laid down in Article 13 B (g) or Article 28 (3) (b) in conjunction with point 16 of Annex F to the directive apply.

11According to Article 13 B (g) of the directive Member States must exempt under certain conditions which they are to lay down 'the supply of buildings or parts thereof, and of the land on which they stand, other than as described in Article 4 (3) (a)'; Article 4 (3) (a) refers to supplies effected before first occupation. Under Article 28 (3) (b) Member States may 'continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned'. Point 16 of Annex F refers to 'supplies of those buildings and land described in Article 4 (3)'.

12It must be noted in the first place that both the provisions providing for exemptions use the same expression, namely 'the supply of buildings or parts thereof and the land on which they stand'. Their applicability in a case such as that which is the subject of the main proceedings therefore depends on whether the supplies of goods and services in question for the construction of a building, together with the land transaction, constitute a single property transaction which may be regarded as falling within the scope of the expression 'supply of buildings ... and the land on which they stand' because of the economic connection between the partial transactions concerned and their common aim, which is the construction of the building on the land purchased.

13It is clear from the words 'supply of buildings ... and the land on which they stand' that such a single transaction can be said to have taken place only where the two categories of goods supplied, namely the building and the land, are, for the purposes of the law governing the sale of property, the subject of a single delivery inasmuch as the delivery is of land which has been built on.

14That view corresponds to the aim of the Sixth Directive. As the Federal Government stressed, in order to render tax non-discriminatory from the point of view of competition, the directive is intended to make separate taxable transactions which cannot be grouped together in a single transaction individually liable to VAT.

15Those considerations lead to the conclusion that in this case supplies of goods and the services of contractors and building workers under a scheme such as the 'Bauherrenmodell', which are transactions legally separate from the land transaction which was completed with another contractor, cannot be regarded as forming, together with that transaction, a unity capable of being classified as a single 'supply of buildings or parts of buildings and the land on which they stand'.

16It must be added that as regards in the first place the exemption provided for in Article 13 B (g), that article, in conjunction with Article 4 (3) (a), to which it refers, makes the exemption of the supply of buildings and the land on which they stand subject to the condition that the supply is not effected before first occupation; in other words it does not apply to new buildings. It follows that an exemption under that provision is precluded in this case since a scheme such as the 'Bauherrenmodell' caters by definition for the construction of new buildings.

17Secondly, with regard to the possibility of exemption under Article 28 (3) (b) in conjunction with point 16 of Annex F it must be conceded that under that transitional provision Member States may 'continue to exempt' new constructions 'under conditions existing in the Member State concerned'. However, its wording precludes the introduction of new exemptions or the extension of the scope of existing exemptions after the date of the entry into force of the directive. A possible extension of transfer tax after the implementation of the directive, even if derived from the decisions of the courts, cannot therefore affect the scope of the exemption from turnover tax.

18For all those reasons the reply to the first question must be that under a scheme such as the 'Bauherrenmodell referred to in the order requesting a preliminary ruling the supply of goods and services under a parcel of contracts for work and services in connection with the construction of a building, except the supply of the building land, are subject to value-added tax by virtue of Article 2 (1) of the Sixth Council Directive (No 77/388/EEC of 17 May 1977).

The second question

19By the second question the national court seeks essentially to establish whether Community law precludes a Member State from levying on a transaction already subject to VAT other taxes on transfers and transactions, such as, for example, the German 'Grunderwerbsteuer'.

20The plaintiffs in the main proceedings submit in that respect that the Sixth Directive, which is intended to harmonize, inter alia, exemptions from VAT, would be deprived of its useful effect if a single property transaction could be taxed twice as a result of the application of both VAT and transfer tax.

21On the other hand, the Federal Government and the Commission consider that the reply is to be found in Article 33 of the Sixth Directive which expressly authorizes the maintenance or introduction by the Member States of any taxes which cannot be characterized as turnover taxes, and in particular 'stamp duty'. The Federal Government states in addition that although by means of the exemptions which it lays down the directive in part excludes the double taxation of certain transactions, it allows such double taxation for other transactions.

22The argument put forward by the Federal Government and the Commission must be accepted. Article 33 of the Sixth Directive states clearly that 'without prejudice to other Community provisions, the provisions of this directive shall not prevent a Member State from maintaining or introducing ... stamp duties and, more generally, any taxes, duties or charges which cannot be characterized as turnover taxes'. Since Community law as it now stands does not contain any specific provision excluding or limiting the power of Member States to introduce taxes on transfers and transactions other than turnover taxes, and thus permits concurrent systems of taxation, it must be concluded that such taxes may be levied even where, as in this case, charging them on a transaction which is already subject to VAT may result in the double taxation of that transaction.

23In reply to the second question it must therefore be stated that no provision of Community law prohibits a Member State from levying on a transaction which is subject to value-added tax under the Sixth Directive other taxes on transfers and transactions, such as the German 'Grunderwerbsteuer', provided that such taxes cannot be characterized as turnover taxes.

Costs

Costs

24The costs incurred by the German Government and the Commission, which have submitted observations to the Court, are not recoverable. Since the proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the proceedings pending before the national court, the decision on costs is a matter for that court.

Operative part

On those grounds,

THE COURT (Fifth Chamber)

in reply to the questions referred to it by the Finanzgericht Düsseldorf by an order of 17 December 1984, hereby rules:

(1) Under a scheme such as the 'Bauherrenmodell' referred to in the order requesting a preliminary ruling the supply of goods and services under a parcel of contracts for work and services in connection with the construction of a building, except the supply of the building land, are subject to value-added tax by virtue of Article 2 (1) of the Sixth Council Directive (No 77/388/EEC of 17 May 1977).

(2) No provision of Community law prohibits a Member State from levying on a transaction which is subject to value-added tax under the Sixth Directive other taxes on transfers and transactions, such as the German 'Grunderwerbsteuer', provided that such taxes cannot be characterized as turnover taxes.

Everling Joliét

Due Galmot Kakouris

Delivered in open court in Luxembourg on 8 July 1986.

P. Heim U. Everling

Registrar President of the Fifth Chamber

OPINION OF MR ADVOCATE GENERAL DARMON

delivered on 22 April 1986 ( *1 )

Mr President,

Members of the Court,

1In these proceedings the Finanzgericht [Finance Court] Düsseldorf has referred to the Court for a preliminary ruling two questions concerning the interpretation of the Sixth Council Directive (No 77/388/EEC of 17 May 1977) on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1; hereinafter referred to as ‘the Sixth Directive’) and the relationship between value-added tax and real property transfer tax.

Without reciting all the facts and the procedure, which are set out in the Report for the Hearing, it may be recalled that the dispute in the main proceedings, which is between the Kerrutts, a married couple, and their tax office, concerned initially the application of Grunderwerbsteuer [real property transfer tax] to a property transaction involving a complex legal fiction, known as the ‘Bauherrenmodell’, which is, it seems, common in the Federal Republic of Germany.

It appears from the order requesting a preliminary ruling and the information provided in the course of the proceedings that that fiction operates as follows. Through the intermediary of an agent, in this instance a trustee, building land is acquired, then divided up between different mandators who thus become co-proprietors. The latter join together to form a ‘Bauherrengemeinschaft’ (an association governed by the Civil Code, represented by the same trustee), which concludes a contract with a building contractor for the construction of a block of apartments on the land and the supply of the various dwellings. Other contracts may, as in this case, be concluded individually by each co-proprietor, represented by the trustee, with other companies. Such contracts may include contracts for the supervision of building works, contracts for the management of let accommodation, contracts of guarantee and contracts for the procurement of finance. Delivery may be taken of the building and the supply of the various dwellings effected by the association or by each co-proprietor dealing directly with the building contractor.

There is therefore a series of essentially separate transactions, effected by a single agent. The advantage of such a scheme for the co-proprietors is that although they must pay the fees of the agent and the various intermediaries, they save a considerable amount of time and effort and obtain the benefit of the experience of a specialized agent. There is also a tax advantage. The co-proprietors may deduct their costs from income tax.

The dispute arose when the competent local tax authorities issued to the Kerrutts, the plaintiffs in the main proceedings, demands for transfer tax, assessed on the basis of the various transactions, which, in accordance with decisions of the Bundesfinanzhof [Federal Finance Court], were treated as a single transaction. According to those decisions, the successive contracts, in particular those for the purchase of land and for construction work, are regarded as contingent on each other, since each contract is devoid of purpose without the other. There is therefore an ‘inherent connection’, to quote the expression used by the Bundesfinanzhof and cited by the Finanzgericht.

Before that court the Kerrutts claimed that the transactions were separate and that under national law only the acquisition of the building land was liable to transfer tax.

The national court, however, took the view that although on the face of it the case concerned only the application of national law, it also raised questions as to the application of the Community rules on value-added tax contained in the Sixth Directive.

The connection was found in a provision of the Umsatzsteuergesetz [Law on turnover tax], namely paragraph 4 (9) (a), which exempts from VAT transactions subject to transfer tax. The national court concluded that, on the basis of the decisions of the Bundesfinanzhof according to which the entire ‘Bauherren’ scheme is subject to transfer tax, the goods and services supplied by building contractors, skilled workers of the building trade (hereinafter referred to as ‘building workers’), trustees and other parties intervening in the scheme should be exempted from VAT. The national court took care to point out that the Federal Minister for Finance did not share the view that the scheme in question was an ‘integrated but divisible service’. It is clear from the observations submitted to the Court by the German Government that in practice such supplies are not exempted, although that exemption is provided for by law.

In order to determine to what extent those national provisions may be regarded as compatible with Community law, the national court submitted two questions, which are reproduced in the Report for the Hearing, and the substance of which is as follows :

Can the ‘Bauherren’ scheme be regarded as a single ‘supply of buildings or parts thereof, and of the land on which they stand’ for the purposes of Article 13 B (g) and Article 28 (3) (b), in conjunction with point 16 of Annex F, of the Sixth Directive, which authorize exemptions from VAT, or do the transactions other than the acquisition of the land come within the scope of Article 2 (1) of the Sixth Directive, according to which ‘the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such’ is subject to VAT?

In other words, do the transactions in question constitute a single transaction exempt from VAT under the directive or are they, with the exception of the transaction concerning the land, subject to it by virtue of Article 2 of the directive?

If the reply to the first question is that the transactions other than the transfer of the land are subject to VAT, is it contrary to the objective of harmonization pursued by the directive to levy on them a second tax, such as transfer tax?

2It is not contested that the transaction involving the building land is exempted under Article 28 (3) (b) of the directive, according to which:

‘During the transitional period’, initially fixed as five years from 1 January 1978, ‘Member States may:

...

continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned’.

Point 16 of Annex F refers to the ‘supplies of those buildings and land described in Article 4 (3)’; Article 4 (3) (b) refers to the ‘supply of building land’.

It is not denied that the German law in force when the directive was adopted exempted transactions of that type from such taxation. It is also accepted that, where no measure was adopted within the abovementioned period, the transitional rules continue to apply.

The first question to be resolved is whether the supplies and services provided by the contractor and the building workers or the trustee under the scheme which I have described constitute, with the purchase of the land, a single transaction. The Federal Government and the Commission have proposed an identical solution. In their view such supplies and services, which cannot come within the scope of the exemptions referred to by the national court, are subject to VAT by virtue of Article 2 (1) of the Sixth Directive.

At this point a clarification would seem necessary. Although, according to its written observations, the Commission considered, on the basis of the order requesting a preliminary ruling, that in its decisions the Bundesfinanzhof had extended the exemptions provided for in paragraph 4 (9) (a) of the Umsatzsteuergesetz, it emerged from the oral argument, as I have stated, that in practice the German tax authorities levy VAT on the supplies and services in question. The national court therefore refers to a non-cumulation of the taxes which is made theoretically possible by the combination of national law and the case-law of the Bundesfinanzhof but which in practice does not occur.

As regards the second question, the German Government and the Commission consider that in the light of Article 33, the directive does not preclude the maintenance or introduction by a Member State of transfer tax on the sale of real property.

The Kerrutts presented only oral argument, and laid particular emphasis on the second question. In their view, the objective pursued by both Community and national law is to prevent the double taxation of a single transaction.

3Before considering whether the supplies of goods or the provision of services under the scheme in question may, together with the transaction involving the land, be regarded as a single transaction and qualify for the exemption provided for in the directive, it is necessary to determine to what extent they come within the scope of the general principle laid down in Article 2 (1) of the directive.

It appears to be beyond question that such transactions fall within the very broad categories laid down in that provision, whose terms are defined in Articles 4 (1), 5 (1) and 6 (1). The directive contains no provision which provides a basis for arguing that several supplies of goods or services may be grouped together because of their common purpose — in this case the supply of a building — and treated as a single transaction. Article 10 of the directive reinforces the idea that each supply or each service is in itself a chargeable event and determines whether the tax is chargeable. Indeed the chargeable event occurs when the goods or services are supplied (Article 10 (2) of the directive). Therefore their effect cannot be postponed for taxation purposes pending completion of the entire property transaction.

The first consequence of that is that the supplies and services of contractors and building workers under a scheme such as the ‘Bauherrenmodell’ are in principle subject to VAT and may not be regarded as forming, together with the land transaction, a set of related but legally autonomous operations constituting a single transaction.

The structure of Article 4 (3) of the directive confirms that analysis. Article 4 (3) (a) refers to ‘the supply before first occupation of buildings or parts of buildings and the land on which they stand’, and that is a single financial and legal transaction inasmuch as it involves the transfer of ownership of land which has been built on. Article 4 (3) (b) concerns specifically and solely the supply of building land, which suggests that the supply of such land does not necessarily form, together with subsequent and legally distinct supplies and services relating to the construction of the building, a group of transactions constituting a single chargeable event for the purposes of VAT.

4I turn now to the exemptions referred to by the national court.

In the first place Article 13 B (g) of the directive exempts from VAT ‘the supply of buildings or parts thereof, and of the land on which they stand, other than as described in Article 4 (3) (a)’.

By definition it applies solely to buildings which have already been occupied at least once. The case before the Court, which concerns a building which has never been occupied, does not, therefore, fall within its scope.

As regards the possibility of exemption under Article 28 (3) (b), in conjunction with Annex F, a distinction must be made between the supply of buildings and the land on which they stand and that of building land, referred to in Article 4 (3) (a) and (b) of the directive respectively.

As I have already stated and as is confirmed by the opinion of the Federal Ministry of Finance of 14 June 1984(Bundessteuerblatt I, 1984, p. 430), supplies of building land (Article 4 (3) (b) of the directive), which were exempted from VAT when the directive came into force, remain exempted by virtue of that provision.

On the other hand, in connection with the supply of a building or a part of a building and the land on which it stands, which is a single transaction and legally distinct from those which precede it (purchase of the land, various supplies and services), it should be noted that supplies of goods and services under the ‘Bauherren’ scheme have never as such been exempted from VAT in the Federal Republic of Germany, either before or, as we have seen, after the entry into force of the directive. It follows that the transactions in question do not qualify for exemption under Article 28 (3) (b) of the directive.

5In view of the purpose of the first question, the Commission considered, in its written observations, the question whether exemptions provided for in the directive other than those referred to by the national court could apply to some of the transactions effected under the scheme in question.

I can only endorse that approach, which is in conformity with the Court's decisions. Only recently, in its judgment of 20 March 1986 (Case 35/85 Procureur de la République v Tissier [1986] ECR 1207) the Court repeated its view that

‘In order to provide a satisfactory answer to a national court which has referred a question to it, the Court of Justice may deem it necessary to consider provisions of Community law to which the national court has not referred in the text of its question’ (paragraph 9 of the decision).

In the light of the information provided in the order requesting a preliminary ruling, it appears that some of the subsidiary contracts concluded by the plaintiffs in the main proceedings — contracts of guarantee, contracts for the procurement of finance — may fall within the scope of Article 13 B (d) (1) and (2) of the directive, according to which:

‘... Member States shall exempt... under conditions which they shall lay down...

the following transactions:

The granting and the negotiation of credit and the management of credit by the person granting it;

The negotiation of or any dealings in credit guarantees or any other security for money and the management of credit guarantees by the person who is granting the credit’.

In accordance with the Court's dictum in Case 35/85 (paragraph 9 of the decision), it is for the national court, if it is necessary and if the question has also been raised before it, to consider whether certain contracts concluded under the scheme in question do indeed fall within the scope of Article 13 B (d) of the directive.

To sum up I consider that even if, for the purpose of establishing the basis of assessment of another tax, a group of supplies and services may under national law be regarded as a single transaction, that is not the case as regards the application of VAT under the directive. Each of the transactions carried out within that group is subject to it unless exemption is provided for or permitted by the Community directive.

It is therefore necessary to consider the second question concerning the possibility of double taxation.

6In that respect Article 33 of the directive is clear. It is worded as follows:

‘Without prejudice to other Community provisions, the provisions of this directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties ¹ and, more generally, any taxes, duties or charges which cannot be characterized as turnover taxes.’

As the Federal Government correctly points out and as its own title suggests, the Sixth Directive is intended to harmonize the laws of the Member States on turnover taxes. Article 33 shows that that harmonization does not extend to other taxes, which the Member States are free to maintain or introduce provided that they cannot be characterized as turnover taxes. That is the case of real property transfer tax.

I propose that the Court should reply to the second question accordingly. In the last paragraph of the statement of the grounds on which its order is based, the national court states that in such circumstances it will be necessary in the light of the case-law of the Bundesverfassungsgericht [Federal Constitutional Court], to consider the German legislation on real property transfer tax from the point of view of constitutional law with a view to avoiding double taxation of a single service. However, that falls within the scope of the legal order administered by the national court and has no effect on Community law provided that the rules of Community law are observed.

Conclusion

7Consequently I propose that the Court should reply to the Finanzgericht Düsseldorf as follows:

1A transaction consisting of a contract for the sale of land which has not been built on and contracts for the supply of work and services in connection with the construction and supply of a building on the land does not constitute a ‘supply of buildings or parts thereof, and the land on which they stand’ within the meaning of Articles 4 (3) (a) or 13 B (g) of the Sixth Council Directive (No 77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment.

That transaction must be regarded as a supply of building land within the meaning of Article 4 (3) (b) of the Sixth Directive, followed by a number of supplies of goods and services.

Value-added tax is chargeable on those supplies and services by virtue of Article 2 (1) of the Sixth Directive subject to the exemptions provided for in that directive, in particular those concerning transactions covered by Article 13 B (d) (1) and (2).

2It follows from Article 33 of the Sixth Directive that a Member State may maintain or introduce real property transfer tax on property transactions which are also subject to value-added tax.

( *1 ) Translated from the French.

¹ Translator's note: ‘Grunderwerbsteuer’ [real property transfer tax] in the German version of Art. 33.