C-77/01 EDM

JUDGMENT OF THE COURT (Fifth Chamber)

29 April 2004 *

In Case C-77/01,

REFERENCE to the Court under Article 234 EC by the Tribunal Central Administrativo (Portugal) for a preliminary ruling in the proceedings pending before that court between

Empresa de Desenvolvimento Mineiro SGPS SA (EDM), formerly Empresa de Desenvolvimento Mineiro SA (EDM),

and

Fazenda Pública,

intervener:

Ministério Público,

on the interpretation of Articles 2, 4(2), 13B(d) and 19(2) 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),

* Language of the CASE: Portuguese.

THE COURT (Fifth Chamber),

composed of: P. Jann, acting for the President of the Fifth Chamber, C.W.A. Timmermans and S. von Bahr (Rapporteur), Judges,

Advocate General: P. Léger, Registrar: H.A. Rühi, Principal Administrator,

after considering the written observations submitted on behalf of:

— Empresa de Desenvolvimento Mineiro SGPS SA (EDM), by D. Duarte, advogado,

— the Portuguese Government, by M. Prêtes, A. Seiça Neves and L. Fernandes, acting as Agents,

— the Commission of the European Communities, by T. Figueira and C. Giolito, acting as Agents,

after hearing the oral observations of Empresa de Desenvolvimento Mineiro SGPS SA (EDM), represented by D. Duarte, of the Portuguese Government, represented by V. Guimarães, acting as Agent, and of the Commission, represented by C. Giolito and M. França, acting as Agent, at the hearing on 29 May 2002,

having regard to the Report for the Hearing,

after hearing the Opinion of the Advocate General at the sitting on 12 September 2002,

gives the following

Judgment

Legal context and the dispute

1By order of 19 December 2000, received at the Court on 15 February 2001, the Tribunal Central Administrativo (Central Administrative Court) referred to the Court for a preliminary ruling under Article 234 EC three questions on the interpretation of Articles 2, 4(2), 13B(d) and 19(2) of Sixth Council Directive 77/388/FJEC 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, hereinafter 'the Sixth Directive').

2Those questions were raised in the course of a dispute between Empresa de Desenvolvimento Mineiro SGPS SA (hereinafter 'EDM') and the Fazenda Pública (Treasury) on the right to deduct value added tax (hereinafter 'VAT') paid as an input by EDM as a taxable person carrying out not only transactions in respect of which VAT is deductible under Article 17(2)(a) of the Sixth Directive, but also transactions which that undertaking does not regard as constituting an economic activity, within the meaning of Article 4(2) of that directive, or as incidental financial transactions, within the meaning of the second sentence of Article 19(2) thereof.

Legal background

Community legislation

3Under Article 2(1) of the Sixth Directive, VAT is chargeable on the supply of goods and services effected for consideration within the territory of the country by a taxable person acting as such.

4Under Article 4(1) of the Sixth Directive, 'taxable person' means any person who independently carries out any economic activity specified in Article 4(2). The term 'economic activities' is defined in Article 4(2) as comprising all activities of producers, traders and persons supplying services, including the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis.

5Under Article 11A(1)(a) of the Sixth Directive, the taxable amount is everything which constitutes the consideration which has been or is to be obtained by the supplier of goods or services from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies.

6Article 13B(d) of the Sixth Directive provides:

'Without prejudice to other Community provisions, Member States shall exempt

(d) the following transactions:

1. the granting and negotiation of credit and the management of credit by the person granting it;

2. 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;

3. transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;

5. transactions, including negotiation, excluding management and safe keeping, in shares, interests in companies or associations, debentures and other securities excluding:

— documents establishing title to goods

— the rights or securities referred to in Article 5(3).'

7Article 17(2)(a) of the Sixth Directive provides that 'in so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay ... value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person'.

8As regards goods and services used by a taxable person both for transactions in respect of which VAT is deductible and for transactions in respect of which it is not deductible, the first subparagraph of Article 17(5) of the Sixth Directive provides 'only such proportion of the value added tax shall be deductible as is attributable to the former transactions'. The second subparagraph of Article 17(5) states that 'this proportion shall be determined, in accordance with Article 19, for all the transactions carried out by the taxable person'.

9Paragraphs (1) and (2) of Article 19 of the Sixth Directive read as follows: '1. The proportion deductible under the first subparagraph of Article 17(5) shall be made up of a fraction having:

— as numerator, the total amount, exclusive of value added tax, of turnover per year attributable to transactions in respect of which value added tax is deductible under Article 17(2) and (3),

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

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

2. By way of derogation from the provisions of paragraph 1, there shall be excluded from the calculation of the deductible proportion, amounts of turnover attributable to the supplies of capital goods used by the taxable person for the purposes of his business. Amounts of turnover attributable to transactions specified in Article 13B(d), in so far as these are incidental transactions, and to incidental real estate and financial transactions shall also be excluded. ...' National legislation

10Article 23 of the Código do imposto sobre o valor acrescentado (VAT Code, hereinafter 'the CIVA') provides:

'1. Where the taxable person, in the course of his business, makes supplies of goods or services, some of which do not give rise to the right to deduct, input tax shall be deductible only in direct proportion to the annual turnover of the transactions which give rise to the right to deduct.

4. The specific proportion of deduction referred to in paragraph 1 is derived from a fraction whose numerator is the annual amount, exclusive of VAT, of the supplies of goods and services which give rise to the right to deduct under Articles 19 and Article 20(1) and whose denominator is the annual amount, exclusive of VAT, of all the transactions carried out by the taxable person, including exempt transactions and transactions outside the scope of VAT, particularly grants not subject to VAT other than grants for plant or equipment.

5. However, the calculation referred to in the preceding paragraph does not include supplies of fixed assets which have been used in the undertaking's business or real estate or financial transactions that are incidental to the business carried on by the taxable person.'

11Under Article 9(28) of the CIVA exempt activities are:

'(a) The granting and the negotiation of credit, in any form, including discount and rediscount transactions, and the administration and management of credit by the person who granted it.

(b) The negotiation and issuing of securities, bonds, sureties and other guarantees, and the administration and management of credit guarantees by the person who issued them.

(f) Transactions and services, including negotiation, but excluding mere safekeeping, administration or management, relating to shares, other interests in companies or associations, debentures and other securities, excluding documents establishing title to goods.

(g) Services and transactions relating to the placing, subscription for and firm purchase of issues of public or private securities.

(h) The administration or management of investment funds.'

12In Portuguese law, 'consortium' means a 'contract by which two or more natural or legal persons, who carry on an economic activity, agree with each other to carry on, in a concerted manner, a certain activity or to make a certain contribution' with a view to attaining one of the objectives set out, among which is prospecting or exploring for natural resources (Articles 1 and 2 of Decreto-lei (Decree-law) No 231/81 of 28 July 1981, Diário da República I, Series A, No 171, of 28 July 1981).

The main proceedings and the questions referred for a preliminary ruling

13It is apparent from the order for reference that EDM is a holding company in the mining sector which, after being a public undertaking, was converted into a legal entity governed by private law, in the form of a limited company, with effect from September 1989.

14Under Article 3(1) of its statutes, which derive from Decreto-lei No 313/89 of 21 September 1989 (Diário da República I, Series A, No 218, of 21 September 1989), EDM's main purpose is:

'(a) Prospecting and exploring for, extracting, developing and exploiting metallic and non-metallic minerals, and the marketing thereof and of the products and by-products resulting from their processing;

(b) Applied research and technological development aimed directly at productive investment, by means of joint ventures;

(c) Managing company shareholdings which it owns or whose management powers have been contractually entrusted to it, for companies whose purposes include the activities referred to in paragraph (a);

(d) Promoting investment projects and the formation of companies whose purpose is connected to the mining industry by encouraging, especially, the association of public and private interests.'

15Until its conversion into a limited company, one of EDM's main purposes was also, under its statutes then in force, to assist companies in which it had a shareholding to obtain loans from credit institutions, by being able to guarantee such loans.

16The referring court observes that the management of its shareholdings and scientific and technological research in the mining sector with a view to investment therein, particularly through the creation of new undertakings, were always EDM's principal activity and it has only occasionally sold its shareholdings in companies, even if the proceeds of those sales attained a considerable sum.

17EDM participates in three consortia the sole purpose of each of which is to discover mineral deposits in three different regions of Portugal and to examine the profitability of their exploitation. Under the contracts creating those consortia (hereinafter 'the consortium contracts'), if a mineral deposit whose exploitation would be profitable is discovered, a company is created to exploit it.

18EDM's activities in the context of each of those consortia consist in technical activity and coordination of operations as manager of the consortium, as well as participation in advisory councils and technical committees established for that purpose. Invoices describing the operations to be carried out and stating their costs are issued by each of the undertakings which are members of the consortium and sent to its manager, namely EDM. Those invoices are used solely for subsequent settlement of the accounts between the undertakings making up the consortium, in accordance with the percentages for sharing of the expenses agreed in each consortium contract.

19The order for reference shows that EDM was the subject of an inspection by the Portuguese tax authorities (hereinafter 'the tax authorities') in connection with the consideration of an application for repayment it had made. During that inspection, it was established that between 1988 and 1992, EDM deducted VAT as if it carried out only transactions conferring the right to deduct, although, according to those authorities, because of the type of transactions carried out, it should have been treated as a mixed taxable person, subject to the regime of Article 23 of the CIV A, that is to say to the use of the method of calculating the deductible proportion laid down by that provision.

20Goods were acquired and services received which were common to the different activities carried on by the taxable person, such as those carried out for its administration or for its headquarters, for which VAT was deducted globally without any apportionment being made between taxable and exempt transactions.

21During that inspection, it was established that EDM incorrectly deducted PTE 137 933 862 (around EUR 688 000).

22The referring court states that, according to the tax authorities, the following constitute revenue arising from the supply of goods and/or services which does not give rise to the right to deduct:

— dividends arising from shareholdings in the capital of companies;

— interest on loans to undertakings in which EDM has a shareholding;

— the proceeds of sale of shares and other negotiable securities;

— revenue from other treasury operations;

— the value of operations performed in connection with the consortia, of which EDM is a member and manager.

23The tax authorities consider that dividends, loan interest, revenue from short-term treasury operations, including shareholdings and the proceeds of sale of shares and other negotiable securities, are income from activities covered by the exemption in Article 9(28)(a) and (f) of the CIVA and do not therefore confer any right to deduct input tax. As regards operations performed by EDM in connection with the consortia, since it is responsible for the consortia and therefore the manager of their investments, those operations come under subparagraph (h) of the same provision of the CIVA and are therefore also exempt from VAT. Since it carries on simultaneously exempted and taxed activities, EDM is subject to the provision of Article 23 of the CIVA. All the abovementioned revenue should, therefore, be included in the denominator of the fraction used in calculating the deductible proportion, in accordance with Article 23(4), because all the activities in question form part of the principal activity of EDM, including the sale of securities and the other treasury operations, given that the volume of those transactions is greater than that of the taxable transactions.

24In those circumstances, the tax authorities calculated the amount of the deductible proportion and assessed the VAT and compensatory interest for the financial years 1988 to 1992.

25EDM contested the tax authorities' decisions as regards that assessment before the Tribunal Tributário de Primeira Instância de Lisboa (Tax Court of First Instance, Lisbon, Portugal) which dismissed its action save as regards the said dividends.

26EDM appealed to the Tribunal Central Administrativo in so far only as that judgment dismissed its claims at first instance.

27The national court states that, in the dispute before it, it is necessary to decide, first, whether the provision of interest-bearing loans granted annually by EDM to the undertakings in which it has a shareholding and the operations performed by it in connection with the three consortia of which it is a member and which it manages, in particular in respect of that part which exceeds its own share of those operations as fixed in the consortium contracts, against payment by the other members, comes within the meaning of 'economic activity'. According to that court, it is necessary to decide, secondly, whether the sale of shares and other negotiable instruments as well as the other treasury operations and the loans granted by EDM, if they are to be treated as taxable transactions for the purposes of VAT, are 'incidental transactions' within the meaning of Article 19(2) of the Sixth Directive.

28On the basis of those considerations, the Tribunal Central Administrativo decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

'1. Does the annual granting of interest-bearing loans by a holding company to companies in which it has a shareholding, where its principal activity is their management and, to a certain extent also, the guaranteeing of loans contracted by them, constitute an "economic activity" within the meaning of [Article 4(2) of] the Sixth Directive ...?

2. Does the performance of operations, in connection with a consortium, as in this case, by a company which both is a member thereof and manages it, particularly where they exceed its share as stipulated in the contract, against payment by the other members of the consortium constitute an "economic activity" within the meaning of the Sixth Directive?

3. Is an undertaking's financial activity which generates annual income which is clearly higher than that from the activity described in its statutes as its principal activity to be regarded as "incidental" for the purposes of Article 19 (2) of the Sixth Directive?'

The first and third questions

»9 By its first and third questions, which it is convenient to consider together, the national court is asking, in essence, whether the financial transactions of a holding company, consisting in the annual granting of interest-bearing loans to companies in which it has a shareholding, in the sale of shares and other negotiable securities and in other treasury operations, constitute 'economic activities' within the meaning of Article 4(2) of the Sixth Directive and, if so, since those financial transactions are exempted under Article 13B(d) of that directive, whether they are to be regarded as 'incidental' for the purposes of Article 19(2) of that directive and whether, therefore, the amount of turnover relating to those transactions is to be excluded from the denominator of the fraction used in calculating the deductible proportion.

Observations submitted to the Court

30EDM claims that the financial transactions to which the tax authorities refer, which include interest from securities, bank deposits and other short-term placements, like the interest on the loans granted by EDM to companies in which it has a shareholding and the proceeds of sale of securities and shares, do not correspond to its main corporate purpose as set out in Article 3 of its statutes but come within the scope of activities which it could carry on only incidentally.

31In that regard, it relies on the judgment in Case C-142/99 Floridienne and Berginvest [2000] ECR I-9567, pointing out particularly that the Court held that interest paid to a holding company by its subsidiaries on loans it has made to them, where the loan transactions do not constitute, for the purposes of Article 4 (2) of the Sixth Directive, an economic activity of that holding company, must be excluded from the denominator of the fraction used to calculate the deductible proportion.

32As regards interest from short-term placements, EDM submits that, given that for legal purposes short-term placements are regarded as loans, they are excluded from the field of EDM's main activities, like its loans to its subsidiaries. In addition, those loans are comparable to loans on debenture or share their nature and should therefore be classified as 'incidental financial transactions' (see Case C-80/95 Hamas & Helm [1997] ECR I-745).

» The result is the same for sales of shares and other negotiable securities, since their financial character is obvious as is also their incidental nature. So far as concerns the taking into account of the scale of the sales of shares and other securities by a non-financial entity, EDM refers to Case C-155/94 Wellcome Trust [1996] ECR I-3013.

34EDM concludes that the second sentence of Article 19(2) of the Sixth Directive is to be interpreted as meaning that the financial transactions by an undertaking whose economic activity, for the purposes of Article 4(1) and (2) of the Sixth Directive, includes only the management of its shareholdings in mining sector companies and scientific and technical research in the same sector, by supplying services to other mining undertakings in that domain, are to be excluded from the fraction used as the basis for calculating the deductible proportion.

35As a preliminary point, the Portuguese Government submits that EDM is not purely a holding company, but that it carries on directly a commercial and industrial business which is, in most cases, the same as that of the companies in which it has a shareholding.

36As regards loan interest, the Portuguese Government maintains that the interest rate is laid down in the loan contracts and that it is adapted to the amount of the principal lent, which distinguishes it from dividends, for which it is impossible to establish a direct connection between the payment of their amount and the value of the service provided (see Floridienne and Berginvest, cited above, paragraph 14). Likewise, as regards sales of shares and other negotiable securities, the price depends on and is quantitatively a function of the value of the interest sold.

37In view of the nature of EDM's activities and having regard, in particular, to the fact that it is only exceptionally that the commercial nature of the activities coming within Article 13B(d) of the Sixth Directive is recognised (see Wellcome Trust, paragraph 35, and Hamas & Helm, cited above, paragraph 16), it cannot be concluded that the loans and the sales of shares take place always and only in the domain of a holding company's non-commercial activity. Although those loans and sales of shares concern only EDM's subsidiaries, nothing prevents them being carried in such a way as also to constitute a source of revenue for EDM, which it uses for the purposes of its commercial activities.

38Consequently, the Portuguese Government takes the view that the annual grant of interest-bearing loans by a holding company to companies in which it has a shareholding and the sale of shares and other negotiable securities constitute an 'economic activity' within the meaning of Article 4(2) of the Sixth Directive.

39According to that Government, those loans and sales of shares and other negotiable securities are exempt financial transactions under point 5 of Article 13B(d) of the Sixth Directive, which constitute an extension of the activity of the taxable person. Those transactions cannot therefore be regarded as 'incidental' for the purposes of Article 19(2) of that directive (see Case C-306/94 Régie dauphinoise [1996] ECR I-3695, paragraph 22). The considerable amount of those transactions and their frequency confirm that conclusion.

40The Commission, basing itself on paragraphs 26 to 31 of the judgment in Floridienne and Berginvest, submits that the granting of loans by a holding company to its subsidiaries should be regarded, for the purposes of Article 4(2) of the Sixth Directive, as an economic activity, consisting in the exploitation of capital with a view to obtaining therefrom continuing income by way of interest, since such activity is not carried on an occasional basis, but in accordance with a business or commercial purpose, characterised by, in particular, a concern to maximise returns on the capital invested.

41If such is the case, the interest paid to the holding company by its subsidiaries constitutes consideration for the transactions exempted from VAT under Article 13B(d) of the Sixth Directive and they should be included in the denominator of the fraction used for calculating the deductible proportion, in accordance with Article 19 of that directive.

42So far as concerns the financial transactions other than EDM's loans to its subsidiaries, the Commission observes that three possible situations must be distinguished among them.

43As regards the first possible situation, the Commission maintains that, while the national court considers that EDM's financial activities are carried out in connection with a business objective or commercial purpose, they come within VAT's field of application (see Floridienne and Berginvest, paragraph 28), but are exempt from VAT. Since they cannot be regarded as 'incidental' transactions, whatever their scale, those transactions must be included in the denominator of the fraction used to calculate the deductible proportion, in accordance with Article 19 of the Sixth Directive.

44So far as concerns the second possible situation, if it is considered that the said financial activities do not correspond to a taxable activity, but that it is simply a question of the management of a private investment consequent on the mere holding of an asset, it is in that case an activity which remains outside the scope of VAT.

45As regards the third possible situation, the Commission makes clear that, although the transactions concerned come within the scope of VAT, they must be regarded as 'incidental', that is to say, they cannot be regarded as forming part of the usual business activity of the taxable person.

46In that regard, the Commission maintains, relying on paragraph 21 of the judgment in Régie dauphinoise, cited above, that the fact that the yield from the financial transactions carried out by E DM may exceed that from its principal activity does not mean that the concept of an incidental transaction cannot apply. On the contrary, in the case of an undertaking such as E D M, whose prospecting and exploration activity is profitable only in the medium term and may even turn out to be unprofitable in the long term, the inclusion of its financial transactions in the denominator of the fraction used to calculate the deductible proportion would have precisely the effect of distorting the calculation of the deduction and, therefore, of putting the neutrality of VAT in question. Therefore, activities which do not come within the compass of the usual business activities of that undertaking must be regarded as 'incidental transactions' within the meaning of Article 19(2) of the Sixth Directive, irrespective of the profits they generate.

Grounds

Findings of the Court

47As a preliminary point, it is appropriate to note that, although Article 4 of the Sixth Directive gives a very wide scope to VAT (see Case C-186/89 Van Tiem [1990] ECR I-4363, paragraph 17), only activities of an economic nature are covered by that provision (see Régie dauphinoise, paragraph 15).

48Under Article 4(1) of the Sixth Directive, a taxable person means any person who independently carries on such economic activities. Economic activities are defined in Article 4(2) as encompassing all activities of producers, traders and persons supplying services, in particular the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis. That concept of 'exploitation' refers, in accordance with the requirements of the principle that the common system of VAT should be neutral, to all those transactions, whatever their legal form (see Van Tiem, cited above, paragraph 18, and Régie dauphinoise, paragraph 15).

49In that regard, it follows from the Court's consistent case-law that only payments which are the consideration for a transaction or an economic activity come within the scope of VAT and that such is not the case of those which arise simply from ownership of the asset (see Case C-333/91 Sofitam [1993] ECR I-3513, paragraph 13, Régie dauphinoise, paragraph 17, and Floridienne and Berginvest, paragraph 26).

so Furthermore, it follows from Article 2(1) of the Sixth Directive that a taxable person must act 'as such' in order for a transaction to be subject to VAT (see Régie dauphinoise, paragraph 15).

51It follows from the foregoing that, in a case such as the main proceedings, it is appropriate, first, to establish whether the various financial transactions in question are activities which are among those referred to in Articles 2(1) and 4(1) and (2) of the Sixth Directive or whether they are outside its scope.

52As regards financial transactions which come within the Sixth Directive, it is necessary, secondly, to determine whether they are exempted under Article 13B(d) of that directive.

53Thirdly, under Article 17(5) of the Sixth Directive, if the taxable person uses goods and/or services, on which he has paid input tax, both for transactions in respect of which VAT is deductible and for transactions in respect of which it is not deductible, it is necessary to calculate, in accordance with Article 19, the deductible proportion to be applied to the amount of the input tax paid.

54It is appropriate to point out in that regard that it follows from the Court's case-law that, in order not to compromise the objective of neutrality which the common system of VAT guarantees, transactions outside the scope of the Sixth Directive which do not therefore give rise to a right to deduct must be excluded from the calculation of the deductible proportion referred to in Articles 17 and 19 of the Sixth Directive (see to that effect, among others, Sofitam, cited above, paragraphs 13 et 14, and Case C-16/00 Cibo Participations [2001] ECR I-6663, paragraph 44).

55Fourthly, in calculating the deductible proportion, it is appropriate to examine whether the financial transactions in question which come within the Sixth Directive, but which are exempted under Article 13B(d) thereof, are to be regarded as incidental transactions, since in that case, under the second sentence of Article 19(2) and by way of derogation from Article 19(1), amounts of turnover attributable to such transactions must be excluded from the calculation of the deductible proportion.

The scope of the Sixth Directive

56Apart from interest received by EDM in consideration of the loans granted to companies in which it has a shareholding, the national court refers to the sale of negotiable securities and to other treasury operations. It seems to be clear from the observations submitted to the Court and from the replies to its written questions to EDM that it is, in fact, a matter of sales of shares and of holdings in investment funds, of payment of interest produced by bank deposits and by securities such as Treasury notes and certificates of deposit, and of the yield from placements in investment funds.

57In that regard, it must be noted at the outset that under consistent case-law the mere acquisition and holding of shares in a company is not to be regarded as an economic activity within the meaning of the Sixth Directive, conferring on the holder the status of a taxable person. The mere acquisition of financial holdings in other undertakings does not amount to the exploitation of property for the purpose of obtaining income therefrom on a continuing basis because any dividend yielded by those holdings is merely the result of ownership of the property and is not the consideration for any economic activity within the meaning of that directive (see Hamas & Helm, paragraph 15, and Floridienne and Berginvest, paragraph 21). If such activities do not therefore in themselves constitute an economic activity within the meaning of that directive, the same must be true of activities consisting in the sale of such holdings (see Wellcome Trust, cited above, paragraph 33, and Case C-442/01 KapHag [2003] ECR I-6851, paragraphs 38 and 40).

58Likewise, the simple acquisition and the mere sale of other negotiable securities cannot amount to exploitation of an asset intended to produce revenue on a continuing basis, the only consideration for those transactions consisting of a possible profit on the sale of those securities.

59Such transactions cannot as a rule constitute, by themselves, economic activities within the meaning of the Sixth Directive. Admittedly, it follows from point 5 of Article 13B(d) thereof that transactions affecting securities may come within the scope of VAT. However, the transactions covered by that provision are those which consist in drawing revenue on a continuing basis from activities which go beyond the compass of the simple acquisition and sale of securities, such as transactions carried out in the course of a business trading in securities.

60It follows that an undertaking which pursues activities consisting in the simple sale of shares and other negotiable securities, such as holdings in investment funds, is to be regarded, so far as those activities are concerned, as confining itself to managing an investment portfolio in the same way as a private investor (see Wellcome Trust, cited above, paragraph 36).

61It is important to observe in that regard that neither the scale of a share sale, nor the employment in connection with such a sale of consultancy undertakings, can constitute criteria for distinguishing between the activities of a private investor, which fall outside the scope of the Sixth Directive, and those of an investor whose transactions constitute an economic activity (see Wellcome Trust, paragraph 37).

62Therefore, it must be held that activities which consist in the simple sale of shares and other negotiable securities, such as holdings in investment funds, do not constitute economic activities within the meaning of Article 4(2) of the Sixth Directive and, therefore, they do not come within the scope of that directive.

63As regards the yield from placements in investment funds, it must be held that it does not constitute direct consideration for supplies of services consisting in making capital available for the benefit of a third party (see Régie dauphinoise, paragraphs 16 and 17). Like dividends, such yield cannot be regarded as the effective exchange for services rendered. Consequently, those placements do not constitute supplies of services 'effected for consideration', within the meaning of Article 2(1) of the Sixth Directive, and therefore do not come within the scope of VAT (see, to that effect, Case C-305/01 MKG-Kraftfahrzeuge-Factoring [2003] ECR I-6729, paragraph 47).

64It follows from the case-law noted in paragraph 54 of this judgment that since the simple sale of shares and other negotiable securities, such as holdings in investment funds, and the yield from placements in investment funds do not come within the scope of the Sixth Directive, the amount of turnover relating to those transactions is to be excluded from the calculation of the deductible proportion referred to in Articles 17 and 19 of that directive.

65On the other hand, in accordance with the Court's case-law, interest received by a holding company in consideration of loans granted to companies in which it has shareholdings cannot be excluded from the scope of VAT, since that interest does not arise from the simple ownership of the asset, but is the consideration for making capital available for the benefit of a third party (see, to that effect, Régie dauphinoise, paragraph 17).

66As regards the question whether, in such a situation, a holding company supplies that service in the capacity of a taxable person, the Court has held, at paragraph 18 of the judgment in Régie dauphinoise, that a person carrying out transactions which constitute the direct, continuous, and necessary extension of the person's taxable activity, such as the receipt by a managing agent of interest resulting from the placements of monies received from clients in the course of managing those clients' properties, acts in that capacity.

67That is with stronger reason the case when the transactions concerned are carried out with a business or commercial purpose characterised by, in particular, the wish to maximise returns from capital invested.

68It is clear that an undertaking acts thus if it uses funds forming part of its assets to supply services constituting an economic activity within the meaning of the Sixth Directive, such as the granting of interest-bearing loans by a holding company to companies in which it has shareholdings, whether those loans are granted as economic support to those companies or as placements of treasury surpluses or for other reasons.

69Interest paid to an undertaking in consideration of bank deposits or placements in securities such as Treasury notes or certificates of deposit likewise cannot be excluded from the scope of VAT, since the interest paid does not arise from the simple ownership of the asset but constitutes the consideration for making capital available for the benefit of a third party (see, to that effect, Régie dauphinoise, paragraph 17). It follows from the preceding paragraph that an undertaking acts as a taxable person if it thus uses funds forming part of its assets.

70Therefore, it must be held that the annual granting by a holding company of interest-bearing loans to companies in which it has a shareholding and placements by that holding company in bank deposits or in securities, such as Treasury notes or certificates of deposit, constitute economic activities carried out by a taxable person acting as such within the meaning of Articles 2(1) and 4(2) of the Sixth Directive.

The concept of transactions exempted from VAT

71Since the granting by a holding company of loans to companies in which it has a shareholding and placements by that holding company in bank deposits or in securities, such as Treasury notes or certificates of deposit, are to be regarded as supplies of services within the scope of the Sixth Directive, it must be held that such activities are exempted from VAT under points 1 and 5 of Article 13B(d) of the Sixth Directive.

The calculation of the deductible proportion

72Where the undertaking concerned carries out both transactions in respect of which VAT is deductible and transactions in respect of which it is not, it follows from the second subparagraph of Article 17(5) of the Sixth Directive that the deductible proportion to be applied to the amount of input tax paid is to be calculated in accordance with Article 19 of that directive.

73In that regard, it is clear from Article 19(1) of the Sixth Directive that the deductible proportion is the product of a fraction whose numerator is the total amount, exclusive of VAT, of turnover attributable to transactions in respect of which VAT is deductible and whose denominator is the total amount, exclusive of VAT, of the turnover attributable to transactions included in the numerator and to transactions in respect of which VAT is not deductible, such as those exempted under Article 13B(d). As follows from paragraph 54 of this judgment, transactions which are outside the scope of the Sixth Directive must be excluded from the calculation of that proportion.

The derogation for incidental transactions

74It is appropriate therefore to consider whether the granting by a holding company of loans to companies in which it has a shareholding and placements by that holding company in bank deposits or in securities, such as Treasury notes or certificates of deposit, which are exempt under points 1 and 5 of Article 13B(d) of the Sixth Directive, constitute incidental transactions within the meaning of the second sentence of Article 19(2) thereof, in which case the latter provision requires those transactions to be left out of the calculation of the deductible proportion.

75In that regard, it is appropriate to observe that, for the purposes of applying Article 19(1) of the Sixth Directive, an increase of the amount of the turnover relating to transactions in respect of which VAT is not deductible leads to a decrease in the amount of VAT which the taxable person may deduct. The purpose of excluding certain incidental transactions from the denominator of the fraction used to calculate the deductible proportion, in accordance with the second sentence of Article 19(2), is to neutralise the negative effects for the taxable person of that consequence inherent in the said calculation in order to avoid such transactions distorting that calculation and to thus meet the objective of neutrality guaranteed by the common system of VAT.

76As the Court held at paragraph 21 of the judgment in Régie dauphinoise, if all receipts from a taxable person's financial transactions linked to a taxable activity were to be included in that denominator, even where the creation of such receipts did not entail the use of goods or services subject to VAT, or at least entailed only their very limited use, calculation of the deduction would be distorted.

77In that regard, it is appropriate to observe that the scale of the income generated by financial transactions within the scope of the Sixth Directive may be an indication that those transactions should not be regarded as incidental within the meaning of the second sentence of Article 19(2). However, the fact that income greater than that produced by the activity stated to be its main activity by the undertaking concerned is generated by such transactions does not suffice to preclude their classification as 'incidental transactions' within the meaning of that provision. As the Commission correctly observed, in a situation such as that in the main proceedings, in which the activity of prospecting is profitable in the medium term only or may even prove to be unprofitable and the turnover from transactions in respect of which VAT is deductible may, as a result, be very small, the inclusion of those transactions solely because of the extent of the income they produce would clearly result in distortion of the calculation of the deduction.

78It follows from the foregoing that the annual granting of loans by a holding company to companies in which it has a shareholding and placements in bank deposits or in securities such as Treasury notes or certificates of deposit, in so far as those transactions involve only very limited use of assets or services subject to VAT, are to be regarded as incidental transactions within the meaning of the second sentence of Article 19(2) of the Sixth Directive. In that regard, although the scale of the income generated by financial transactions within the scope of the Sixth Directive may be an indication that those transactions should not be regarded as incidental within the meaning of that provision, the fact that income greater than that produced by the activity stated by the undertaking concerned to be its main activity is generated by such transactions does not suffice to preclude their classification as 'incidental transactions'.

79It is for the national court to establish whether the transactions concerned in the main proceedings involve only very limited use of assets or services subject to VAT and, if so, to exclude interest generated by those transactions from the denominator of the fraction used to calculate the deductible proportion.

80Therefore the answer to the first and third questions must be that, in a situation such as that in the main proceedings,

— activities which consist in the simple sale of shares and other securities, such as holdings in investment funds, do not constitute economic activities within the meaning of Article 4(2) of the Sixth Directive and therefore do not come within the scope of that directive;

placements in investment funds do not constitute supplies of services 'effected for consideration' within the meaning of Article 2(1) of the Sixth Directive and therefore likewise do not come within the scope thereof;

the amount of turnover relating to those transactions must consequently be excluded from the calculation of the deductible proportion referred to in Articles 17 and 19 of that directive;

— by contrast the annual granting by a holding company of interest-bearing loans to companies in which it has a shareholding and placements by that holding company in bank deposits or in securities, such as Treasury notes or certificates of deposit, constitute economic activities carried out by a taxable person acting as such within the meaning of Articles 2(1) and 4(2) of the Sixth Directive;

however, such transactions are exempted from VAT under points 1 and 5 of Article 13B(d) of thatd irective;

in calculating the deductible proportion referred to in Articles 17 and 19 of the Sixth Directive, those transactions are to be regarded as incidental transactions within the meaning of the second sentence of Article 19(2) thereof in so far as they involve only very limited use of assets or services subject to VAT; although the scale of the income generated by financial transactions within the scope of the Sixth Directive may be an indication that those transactions should not be regarded as incidental within the meaning of that provision, the fact that income greater than that produced by the activity stated by the undertaking concerned to be its main activity is generated by such transactions does not suffice to preclude their classification as 'incidental transactions';

it is for the national court to establish whether the transactions concerned in the main proceedings involve only very limited use of assets or services subject to VAT and, if so, to exclude interest generated by those transactions from the denominator of the fraction used to calculate the deductible proportion.

The second question

81By its second question the national court is asking, in essence, whether operations such as those at issue in the main proceedings, performed under the terms of a consortium contract made by a company which is a member of that consortium and manages it, constitute taxable transactions under the Sixth Directive, in particular where the performance by that company of more of the operations than the share for which it is responsible under the said contract entails payment by the other members of that consortium against the operations exceeding the said share.

Observations submitted to the Court

82EDM submits that it follows from Article 2(1) of the Sixth Directive that in order to ascertain whether there is a supply of services for VAT purposes it is sufficient to determine whether it can be described as a transaction effected 'for consideration'.

83In that regard, EDM points out that the obligation assumed by each undertaking which is a member of the consortium to perform certain operations, to which a given value is attributed, is not such as to constitute consideration for the similar obligations assumed by the other undertakings which are members of the consortium. The services supplied are not consideration for each other, but are intended rather to achieve a common result. The values which the parties attribute to them are not determined in order to be paid. On the contrary, the purpose of the contract concluded between the members of the consortium is precisely that there should be no such payment, by stipulating that each undertaking is to perform the operations for which it is responsible. The said values serve therefore only as an economic measure of each undertaking's share. The result is that those operations cannot be described as transactions 'effected for consideration', either for a part equal to or lower than the share attributed to the undertaking concerned, or for the part exceeding that share.

84The Commission observes that one of the limits of the scope of VAT, which encompasses all stages of the production, distribution and supply of services, is the determination that they are supplied for consideration, within the meaning of Article 2(1) of the Sixth Directive.

85The operations performed by EDM in connection with the consortia of which it is a member should be regarded as an economic activity for the purposes of the Sixth Directive if the ultimate aim of those operations is the effecting of taxable transactions for consideration.

Findings of the Court

86For VAT purposes, operations performed in connection with a consortium, for its account, by each of its members are not generally different from those carried out by an undertaking for its own account and should therefore be treated in the same way. As is clear from Article 2(1) of the Sixth Directive, VAT is chargeable only on the supply of goods and services effected for consideration. Therefore, in so far as supplies of goods and services are not effected for consideration for a third party, they cannot, as a rule, constitute taxable transactions, except, in particular, in the cases laid down in Article 6(2)(b) of the Sixth Directive.

87In the main proceedings, it is clear from the order for reference and from the observations submitted to the Court that the operations carried out by the members of the consortia in question which correspond to the share contractually assigned to each of them are not paid for. In respect of those operations, no taxable transaction has therefore been effected.

88Consequently, operations such as those at issue in the main proceedings, carried out by the members of a consortium in accordance with the provisions of a consortium contract and corresponding to the share assigned to each of them in that contract, do not constitute supplies of goods or services 'effected for consideration' within the meaning of Article 2(1) of the Sixth Directive, nor, consequently, a taxable transaction thereunder. The fact that such operations are carried out by the member of the consortium which manages it is irrelevant in that respect.

89On the other hand, where the performance of more of the operations than the share thereof fixed by the said contract for a consortium member involves payment by the other members against the operations exceeding that share, those operations constitute a supply of goods or services 'effected for consideration' within the meaning of Article 2(1) of the Sixth Directive.

90In that case, under Article 11A(1)(a) of the Sixth Directive, the taxable amount is the sum received by the consortium member concerned as payment for the part of the operations which exceeds its share as laid down in the consortium contract.

91Therefore, the reply to the second question must be that operations such as those at issue in the main proceedings, carried out by the members of a consortium in accordance with the provisions of a consortium contract and corresponding to the share assigned to each of them in that contract, do not constitute supplies of goods or services 'effected for consideration' within the meaning of Article 2(1) of the Sixth Directive, nor, consequently, a taxable transaction under that directive. The fact that such operations are carried out by the member of the consortium which manages it is irrelevant in that respect. On the other hand, where the performance of more of the operations than the share thereof fixed by the said contract for a consortium member involves payment by the other members against the operations exceeding that share, those operations constitute a supply of goods or services 'effected for consideration' within the meaning of that provision. Costs

92The costs incurred by the Portuguese Government and by the Commission, which have submitted observations to the Court, are not recoverable. Since 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.

Operative part

On those grounds,

THE COURT (Fifth Chamber),

in answer to the questions referred to it by the Tribunal Central Administrativo by order of 19 December 2000, hereby rules:

1. In a situation such as that in the main proceedings:

— activities which consist in the simple sale of shares and other securities, such as holdings in investment funds, do not constitute economic activities within the meaning of Article 4(2) 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, and therefore do not come within the scope of that directive;

placements in investment funds do not constitute supplies of services 'effected for consideration' within the meaning of Article 2(1) of Sixth Directive 77/388 and therefore likewise do not come within the scope thereof;

the amount of turnover relating to those transactions must consequently be excluded from the calculation of the deductible proportion referred to in Articles 17 and 19 of that directive;

— by contrast the annual granting by a holding company of interest-bearing loans to companies in which it has a shareholding and placements by that holding company in bank deposits or in securities, such as Treasury notes or certificates of deposit, constitute economic activities carried out by a taxable person acting as such within the meaning of Articles 2(1) and 4(2) of Sixth Directive 77/388;

however, the said transactions are exempted from value added tax under points 1 and 5 of Article 13B(d) of that directive;

in calculating the deductible proportion referred to in Articles 17 and 19 of Sixth Directive 77/388, those transactions are to be regarded as incidental transactions within the meaning of the second sentence of Article 19(2) thereof in so far as they involve only very limited use of assets or services subject to value added tax; although the scale of the income generated by financial transactions within the scope of Sixth Directive 77/388 may be an indication that those transactions should not be regarded as incidental within the meaning of that provision, the fact that income greater than that produced by the activity stated by the undertaking concerned to be its main activity is generated by such transactions does not suffice to preclude their classification as 'incidental transactions';

it is for the national court to establish whether the transactions concerned in the main proceedings involve only very limited use of assets or services subject to value added tax and, if so, to exclude interest generated by those transactions from the denominator of the fraction used to calculate the deductible proportion.

2. Operations such as those at issue in the main proceedings, carried out by the members of a consortium in accordance with the provisions of a consortium contract and corresponding to the share assigned to each of them in that contract, do not constitute supplies of goods or services 'effected for consideration' within the meaning of Article 2(1) of Sixth Directive 77/388, nor, consequently, a taxable transaction under that directive. The fact that such operations are carried out by the member of the consortium which manages it is irrelevant in that respect. On the other hand, where the performance of more of the operations than the share thereof fixed by the said contract for a consortium member involves payment by the other members against the operations exceeding that share, those operations constitute a supply of goods or services 'effected for consideration' within the meaning of that provision.

Jann Timmermans von Bahr

Delivered in open court in Luxembourg on 29 April 2004.

R. Grass V. Skouris

Registrar President

OPINION OF ADVOCATE GENERAL

LÉGER delivered on 12 September 2002 1

Introduction

1In this case, the Court is called upon to interpret 'economic activities' and 'incidental transactions', concepts referred to in Articles 4 and 19 respectively of Sixth Directive 77/388/EEC. 2

2This case arises from a dispute between the Portuguese tax authorities and a mixed holding company which has deducted the input value added tax (hereinafter 'VAT') globally without distinguishing between its various activities. The Tribunal Central Administrativo (Central Administrative Court), Portugal, has asked the Court to determine the extent to which the loans granted by that holding company to the companies in which it holds shares, its other financial activities and the operations it has performed in the context of three consortia affect its entitlement to deduct VAT.

I — Relevant legislation

The scope of the Sixth Directive

3For the purposes of securing the European Community's own resources and ensuring that the common system of turnover taxes is non-discriminatory, the Community legislature sought to include in the scope of the Sixth Directive the broadest possible range of economic transactions whilst making provision for some of those transactions to be covered by an exemption.

4The Community legislature thus defined the scope of the Sixth Directive by reference to very broad criteria relating to both the nature of the transaction concerned and the person carrying it out.

5Under point 1 of Article 2 of the Sixth Directive, '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.

6Under Article 4(1) of the Sixth Directive, 'taxable person' means any person who independently carries out any economic activity specified in Article 4(2).

7Article 4(2) of the Sixth Directive provides:

'The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.'

8Some transactions, which constitute economic activities and are therefore, in principle, covered by the Sixth Directive, are exempt from VAT. Under Article 13B (d) of the directive, that exemption applies inter alia to the following transactions:

'1. the granting and the negotiation of credit and the management of credit by the person granting it;

2. 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;

3. transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;

5. transactions, including negotiation, excluding management and safekeeping, in shares, interests in companies or associations, debentures and other securities ...'

The right to deduct

9VAT must be neutral as regards economic operators, that is to say it must be borne by the final consumer alone.

10The Community legislature therefore provided for a deduction system under which a taxable person is entitled to deduct, for the purposes of his taxable transactions, all the VAT he has paid in respect of the goods or services supplied to him.

11The taxable person effects that deduction by way of subtraction from the total amount of value added tax due for a given tax period. Where for a given tax period the amount of authorised deductions exceeds the amount of tax due, the Member States may either make a refund or carry the excess forward to the following period according to conditions which they determine.

12Where a taxable person uses taxable goods or services both for transactions in respect of which value added tax is deductible and for exempt transactions in respect of which no such right is enjoyed, only such proportion of the VAT is deductible as is attributable to the former transactions. The proportion is determined, in accordance with Article 19 of the Sixth Directive, for all the transactions carried out by the taxable person.

13Under Article 19(1), that proportion is made up of a fraction having as numerator the total amount, exclusive of VAT, of turnover per year attributable to transactions in respect of which VAT is deductible, and as denominator the total amount, exclusive of VAT, of turnover per year attributable to transactions included in the numerator and to transactions in respect of which VAT is not deductible.

14Article 19(2) reads:

'By way of derogation from the provisions of paragraph 1, there shall be excluded from the calculation of the deductible proportion, amounts of turnover attributable to the supplies of capital goods used by the taxable person for the purposes of his business. Amounts of turnover attributable to transactions specified in Article 13B(d), in so far as these are incidental transactions, and to incidental real estate and financial transactions shall also be excluded. ...'

II — Facts and procedure

15Empresa de Desenvolvimento Mineiro SGPS SA (EDM), formerly Empresa de Desenvolvimento Mineiro SA (EDM), (hereinafter 'EDM') is a holding company in the mining sector. It carried out its activities as a public undertaking before it was converted, in September 1989, into a legal person governed by private law and continued its activities as a limited company.

16Its principal object is, on the one hand, prospecting and exploitation in the mineral sector with a view to investment therein, in particular through the setting-up of undertakings and, on the other hand, managing the shares it holds in companies in that sector. Until it was converted into a legal person governed by private law, its principal object was also to assist the companies in which it has shares in obtaining loans from credit institutions and to provide loan guarantees.

17It and various other undertakings formed three consortia. The aim of all three consortia is to discover mineral deposits and to investigate the viability of exploiting them. The contracts concluded to establish those consortia stipulated that, where a deposit was discovered whose exploitation would be viable, a company would be formed to carry out that activity.

18EDM's participation in those consortia involved developing activities of a technical nature and coordinating operations in its capacity as manager and taking part in advisory boards and technical committees established for that purpose.

19Each consortium member issued invoices to the management setting out the operations carried out and indicating their cost. Those invoices were to be taken as the basis for settling the accounts at a later date between the members of the respective consortia in accordance with the proportional distribution of the expenditure agreed in the respective contracts.

20Following its application for a refund of excess VAT, EDM was the subject of an inspection by the Portuguese tax authority which covered the financial years 1988 to 1992.

21The tax authority noted that in the course of those financial years EDM had deducted all the input VAT, which would suggest that it had been carrying out only those transactions in respect of which VAT is deductible.

22However, EDM was considered by the tax authority also to have carried out exempt transactions and should consequently be considered to be a mixed taxable person required to apply the proportional method for calculating deduction.

23According to the tax authority, there is no right to deduct in respect of:

— dividends from capital shares in companies;

— interest on loans granted to undertakings in which EDM has shares;

— proceeds from the sale of shares and other negotiable securities;

— profits from other treasury operations; and — the value of the operations carried out by the consortia in so far as EDM was responsible for those consortia and administered their investments.

24The tax authority also pointed out that, even though EDM only occasionally sold its company shares, its disposal of securities and its other treasury operations had generated revenue greater than the proceeds from its taxable transactions. 11

25The tax authority therefore concluded that all of that revenue should be included in the denominator of the fraction used to calculate the deductible proportion on the ground that it constituted the principal activity pursued by EDM. 12

26It set the amount of VAT improperly deducted by EDM at PTE 137 933 862.

27The Tribunal Tributário de Primeira Instância de Lisboa (Tax Court of First Instance, Lisbon), Portugal, allowed EDM's claim as regards the dividends from its shares in companies and held that they should be excluded from the abovementioned denominator because they fell outside the scope of the Sixth Directive. It dismissed the remainder of EDM's claims in that action.

28EDM lodged an appeal with the Tribunal Central Administrativo, claiming that the interest on loans, the proceeds from the sale of shares and other negotiable securities and revenue from other treasury operations accrued from transactions incidental to the managing of its shares and mineral prospecting. It maintained that those amounts should therefore be excluded from the denominator of the fraction used to calculate the deductible proportion pursuant to Article 19(2) of the Sixth Directive.

29It submitted that the operations carried out in the context of the consortia did not constitute transactions subject to VAT for the purposes of Article 4(2) of the Sixth Directive and that the value of those operations should not be included in that fraction.

III — The questions referred for a preliminary ruling

30In the view of the Tribunal Central Administrativo, an interpretation of the abovementioned provisions of the Sixth Directive is essential to the decision in the main proceedings. It has therefore decided to stay the proceedings and refer the following questions to the Court for a preliminary ruling:

'(1) Does the annual granting of interest-bearing loans by a holding company to companies in which it has a shareholding, where its principal activity is their management and, to a certain extent also, the guaranteeing of loans contracted by them, constitute an "economic activity" within the meaning of [Article 4(2) of] the Sixth Directive ...?

(2) Does the performance of operations, in connection with a consortium, as in this case, by a company which both is a member thereof and manages it, particularly where they exceed its share as stipulated in the contract, against payment by the other members of the consortium constitute an "economic activity" within the meaning of the Sixth Directive?

(3) Is an undertaking's financial activity which generates annual income which is clearly higher than that from the activity described in its statutes as its principal activity to be regarded as "incidental" for the purposes of Article 19(2) of the Sixth Directive?'

IV — Assessment

Introductory remarks

31According to the grounds of the order for reference, 13 the referring court seeks to ascertain whether the operations performed by EDM in the context of the three consortia, the interest on the loans it has granted, the proceeds from the sale of shares and other negotiable securities and the revenue from other treasury operations it has made must be included in the denominator of the fraction used to calculate the deductible proportion.

32In order to answer that question, it is necessary to establish whether the transactions concerned fall within the scope of the Sixth Directive. 4

33It must be recalled that the deduction system is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. 5

34As the Court has held on a number of occasions with regard to the receipt of dividends, where the transaction concerned does not fall within the scope of VAT, it falls outside the entitlement to deduct.

35This means, first, that the revenue from activities falling outside the scope of VAT must not be included in the fraction used to calculate the deductible proportion. Secondly, the taxable person may not deduct the tax he has paid for the supply of goods or services attributable to activities falling outside the scope of the Sixth Directive since, as far as that tax is concerned, he is in the position of the final consumer.

36The first stage in the reasoning process to establish EDM's deduction entitlements in respect of the transactions at issue therefore involves an assessment as to whether those transactions constitute economic activities carried out by a taxable person acting as such, that is to say whether they are caught by Article 4(2) of the Sixth Directive.

The first question

37By its first question, the referring court seeks essentially to ascertain whether Article 4(2) of the Sixth Directive must be interpreted as meaning that the annual granting of interest-bearing loans by a holding company to the companies in which it holds shares constitutes an economic activity, where the holding company's principal activity is to manage those shareholdings and, to a certain extent, also to guarantee the loans taken out by them.

38It should be noted that Article 4 of the Sixth Directive gives VAT a very wide scope. Thus, under Article 4(2) of the Sixth Directive, 'economic activities' include, inter alia, any exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis. 18

39However, the Court has also consistently held that mere exercise of the right of ownership by its holder cannot, in itself, be regarded as an economic activity. 19

40In Floridienne and Berginvest, cited above, the Court inferred from all of the abovementioned judgments that the granting of loans by a holding company to its subsidiaries was subject to VAT on fulfilment of one of two possible conditions, either if those loans in themselves constitute an economic activity of the operator, or if those loans are the direct, permanent and necessary extension of a taxable activity.

41As to the first of those conditions, the Court described the circumstances in which the granting of such loans could, in itself, be considered an economic activity within the meaning of Article 4(2) of the Sixth Directive.

42According to the Court, that activity must not be carried out merely on an occasional basis and must not be confined to managing an investment portfolio in the same way as a private investor. On the contrary, it must be carried out with a business or commercial purpose characterised, in particular, by a concern to maximise returns on capital investment. 21

43The Court did not explain specifically what is meant by 'business or commercial purpose'. It is not easy to give a more specific definition of that concept on a theoretical approach. 22

44The business purpose, as I see it, involves a holding company introducing permanent human and logistical resources arranged in the same way as the resources of a credit institution and on a greater scale than the resources belonging to a private investor which are used merely for his own needs.

45Commercial purpose presupposes the intention by a holding company to maximise returns on its capital investment, and therefore the loans must be agreed on conditions which are comparable to the relevant market conditions, as though they had been agreed between a financial institution and its customers. 3

46In all cases, the granting of loans by a holding company to its subsidiaries must not be an occasional activity; on the contrary, it must take place with a degree of regularity so that the holding company can obtain income from it on a continuing basis.

47The second condition to which the Court alludes in the abovementioned judgment in Floridienneand Berginvest and which is based on the concept of 'the direct, permanent and necessary extension of a taxable activity' is taken from Régie dauphinoise, cited above, a judgment to which the Court expressly refers.

48In Régie dauphinoise, 25 the Court pointed out that services such as placements made with banks by the manager of a condominium would not be subject to VAT if supplied by a person not acting as a taxable person. However, it added that, in the circumstances of that case, the receipt by such a manager of interest resulting from the placement of monies received from clients in the course of managing their properties constituted the direct, permanent and necessary extension of the taxable activity, so that the manager was acting as a taxable person in making such an investment.

49It is therefore necessary to consider the extent to which the granting of loans by EDM to its subsidiaries fulfils the requirements corresponding to the two conditions described by the Court in Floridienne and Berginvest, cited above.

50The order for reference contains no further information on the loans at issue other than as regards the interest they generated in the financial years 1988 to 1991.

51To my mind, that information is insufficient to assess whether the granting of the loans in point in itself constitutes an economic activity for the purposes of the first condition referred to in Floridienne and Berginvest, cited above. For instance, I have no information concerning the frequency with which those loans are granted, the human and material resources given over by EDM to the granting and management of those loans, the conditions on which those loans have been taken out as compared with the market conditions or the origin of the funds loaned by EDM.

52It is therefore for the national court to assess whether, in the present case, the loans granted by EDM to its subsidiaries correspond to an occasional transaction or whether they serve a business or commercial purpose to provide income for EDM on a continuing basis.

53However, it is necessary to assess whether those loans constitute the direct, permanent and necessary extension of the taxable activity on the part of EDM within the meaning of Régie dauphinoise, cited above.

54It should be borne in mind that EDM's principal object is, on the one hand, prospecting and exploitation in the mineral sector with a view to investment therein, in particular through the setting-up of undertakings and, on the other hand, managing the shares it holds in companies in that sector. 29

55Furthermore, it is apparent from the order for reference that the referring court considered that the sales of shares and other negotiable securities by EDM during the period in question, as well as its other treasury operations, likewise constituted an economic activity.

56Contrary to the view expressed by the 31 Portuguese Government, I take the view that the granting of loans to companies in which EDM holds shares cannot be considered the direct, permanent and necessary extension of any of those various activities.

57Nor is there such a direct, permanent and necessary link, to my mind, with the activity assigned to EDM prior to its conversion into a legal person governed by private law, that is to say with the assistance it afforded to the companies in which it holds shares in obtaining loans from credit institutions or with its furnish ing of loan guarantees.

58I thus consider that the concept of 'direct, permanent and necessary extension' should be interpreted strictly. I base that view on the considerations set out below.

59First of all, that concept has been established by case-law but is not included in the Sixth Directive. In that directive, the criterion for application of VAT is performance of an economic activity by a taxable person acting as such.

60Next, the circumstances of the Régie dauphinoise case, cited above, used by the Court to establish that concept, were very specific. As I see it, the Court considered that the receipt by the manager of a condominium of interest resulting from the placement of monies he receives from clients in the course of managing their properties constituted the direct, permanent and necessary extension of the taxable activity because it cannot seriously be considered, from either a practical or an economic point of view, that that manager would place those funds elsewhere than in a credit institution without obtaining any income in that respect. The receipt of such interest therefore constituted the logical and indissociable consequence of the manager's taxable activity.

61Lastly, that strict interpretation is also justified by the consideration that the concept of 'incidental transactions', referred to in Article 19(2) of the Sixth Directive, must not be made redundant. As the Court pointed out very logically in Régie dauphinoise, cited above, an activity which constitutes the direct, permanent and necessary extension of the taxable activity of taxable persons cannot, by its nature, be characterised as an incidental transaction because it is a systematic consequence of that activity.

62In the light of those considerations, I propose that the Court's answer to the first question referred should be that Article 4(2) of the Sixth Directive must be interpreted as meaning that the annual granting of inter est-bearing loans by a holding company to the companies in which it holds shares, where the holding company's principal activity is to manage those shareholdings and, to a certain extent, also to guarantee the loans taken out by those companies, constitutes an economic activity provided that those loans are not granted on an occasional basis and are effected with a business or commercial purpose characterised, in particular, by a concern to maximise returns on capital investment.

63If the referring court considers those conditions to be met, those loans, which fall within the scope of the Sixth Directive, constitute an activity which is exempt from VAT in accordance with point 1 of Article 13B(d) of that directive. It is therefore necessary to establish the extent to which the interest from those loans must be included in the denominator of the fraction used to calculate the deductible proportion.

64This matter is specifically covered in the third question referred.

The second question

65By its second question, the national court seeks to establish whether the performance of operations, in the context of consortia as in the present case, by a company which is both a member and the administrator of the consortia, in return for payment in consideration of the value of those operations by the other members of the consortia, constitutes an economic activity within the meaning of Article 4(2) of the Sixth Directive, particularly where those operations exceed the company's share as stipulated in the respective contracts.

taxable activity, without, however, being incidental to that activity. The part of the sentence that I have italicised does not introduce an additional condition, although it could be interpreted as such on a first reading. It would, after all, be illogical to assume that the Court sought to add a further condition at that point in the reasoning process in the light of the successive stages of the assessment process under which it is necessary first of all to establish whether a transaction falls within the scope of the Sixth Directive before it can be assessed whether it is an incidental transaction.

66The referring court is seeking in fact to establish whether the operations performed by EDM in the context of each of the three consortia, of which it is both a member and the administrator, must be regarded as having been carried out for consideration where they exceed the share of the operations which that company had undertaken to perform.

67It should be noted that economic activities carried out by taxable persons are subject to tax only if they have been performed for consideration. This means that the taxable person must be in receipt of consideration and that there must be a direct link between the supply of goods or services and the consideration received. It is precisely that consideration which constitutes the taxable amount in terms of VAT.

68In that regard, the Court has held that the consideration must be capable of being expressed in money, a requirement also applying to reductions in the price of main supplies.

69It is clear from the description of the consortia contained in the order for reference that EDM's participation in each of those consortia involved developing activities of a technical nature and coordinating operations in its capacity- as manager and taking part in advisory boards and technical committees established for that purpose.

70On that basis, EDM issued invoices setting out the operations carried out and indicating their cost for the purpose of settling the accounts between the members of the respective consortia.

71EDM takes the view that such settling of accounts must not be treated as a payment but, rather, as a refund or reimbursement based on the principle that there should be no unjustified enrichment. It its view, those operations did not, therefore, constitute the supply of goods or services in return for consideration and was outside the scope of the Sixth Directive.

72That argument, in my view, cannot be accepted.

73It need only be pointed out that those operations are clearly identified, that their cost may be expressed in money and that, in the accounts of the individual consortia, that cost is credited to EDM and debited against the other members.

74However, as regards those operations covered by EDM's contractual obligations, I have difficulty in accepting that the company is performing a taxable transaction given that it receives no consideration from the other members of the consortia.

75In this regard, the operations performed by the other members of the consortia cannot, to my mind, be regarded as consideration for the operations performed by EDM since they are carried out in performance of the consortium contracts. I therefore consider there to be no direct link between the operations performed by EDM in accordance with its contractual obligations and the operations carried out by the other members of the consortia.

76I therefore propose that the Court's answer to the second question referred should be that the performance of operations, in the context of consortia as in the present case, by a company which is both a member and the administrator of the consortia, in return for payment in consideration of the value of those operations by the other members of the consortia, constitutes an economic activity within the meaning of Article 4(2) of the Sixth Directive, where those operations exceed the company's share as stipulated in the respective contracts.

77It follows that the turnover attributable to those operations not covered by EDM's contractual obligations must be included in the denominator of the fraction used to calculate the deductible proportion. However, as pointed out by EDM, inasmuch as those operations do not constitute an activity exempt of VAT, it must also be included in the numerator.

The third question

78By its third question, the national court seeks essentially to ascertain whether Article 19(2) of the Sixth Directive must be interpreted as meaning that the financial activity of an undertaking whose annual revenue is considerably higher than that produced by the activity which is its principal object, according to its statutes, constitutes an incidental activity.

79It is apparent from the order for 37 reference that the financial transactions at issue here do not merely involve the annual granting of loans by EDM to the companies in which it holds shares; they also involve sales of shares and other negotiable securities as well as other treasury operations.

80As I have already mentioned, for the purpose of answering the third question referred, it must first be established whether the transactions concerned fall within the scope of the Sixth Directive.

81I have already set out the circumstances in which the granting of loans by EDM to the companies in which it holds shares can constitute an economic activity within the meaning of Article 4(2) of the Sixth Directive.

82I take the view that the same conditions must be fulfilled as regards sales of shares and other negotiable securities and as regards the other treasury operations effected by EDM during the period in point.

83In this connection, it may be seen from EDM's answer to the Court's written questions that that company made placements during that period which were, for the most part, short-term placements. It is also apparent from consideration of the income received by EDM in the course of its financial activities that, although the proceeds from the sale of its shares decreased continuously from 1988 to 1991, that drop was largely offset by increasing revenue from the sale of its other negotiable securities and from its other treasury operations. In view of those factors, it is not impossible for EDM to have used all its assets to carry out transactions which went beyond the activities of a mere investor and by which it was sought to obtain income on a continuing basis. 40

84Moreover, it is not disputed that, in accordance with point 5 of Article 13B(d) of the Sixth Directive, transactions in shares, interests in companies and associations, debentures and other securities are exempt from VAT.

85Like the interest on the loans granted by EDM to its subsidiaries, the revenue from the sale of shares and other negotiable securities must be included in the denominator of the fraction used to calculate the deductible proportion pursuant to Article 19(1) of the Sixth Directive unless, in accordance with Article 19(2), incidental transactions are involved.

86There is no definition of 'incidental transactions' in the Sixth Directive. To date, no definition has been provided by the Court either. In Régie dauphinoise, cited above, the Court merely explained what they are not, stating that an activity which constitutes the direct, permanent and necessary extension of the taxable activity of the taxable person cannot, by its nature, be considered an incidental transaction for the purposes of Article 19(2) of the Sixth Directive.

87In order to answer the question referred by the national court, the wording, the scheme and the objectives of the Community provisions should be considered in turn, following the Court's methods of interpretation.

88As regards, first of all, the literal meaning of the adjective 'accessoire'' (incidental), it denotes something happening in connection with or resulting from the main event or something subordinate to something more important. Applied to the transactions referred to in the Sixth Directive, 'accessoire' (incidental) therefore means that the transactions concerned do not belong directly to the main activity of the taxpayer but are closely linked to it and that they cannot be on a larger scale than the main activity.

89Accordingly, incidental transactions must, in principle, fulfil two cumulative conditions. The first, qualitative, condition stipulates that those transactions must stand in a certain relationship to the principal activity and the second, quantitative, condition stipulates that they cannot be on a larger scale than the activity itself.

90However, such consideration of the wording provides no insight into the criterion to be taken as the basis for assessing that quantitative condition or, in particular, into whether, as the national court seeks to establish, such an assessment must be based on the turnover from the activities concerned or, for example, on the size of the workload they represented.

91In my view, the scheme of the rules governing deduction suggests that account should be taken of the turnover from the activities concerned.

92It is, after all, apparent from Article 17 (2) of the Sixth Directive that the right to deduct arises only in respect of the goods and services used by the taxable person for the purposes of his taxable transactions.

93It also follows from Article 17(3)(c) of the Sixth Directive that that directive provides for deductibility of VAT in respect of goods or services used for the purposes of exempt transactions only by way of a derogation. 47

94Lastly, Article 19(2) of the Sixth Directive opens with 'by way of derogation from the provisions of paragraph 1', indicating that it constitutes an exception to the rule laid down in Article 19(1) that turnover attributable to exempt transactions must be included in the denominator of the fraction used to calculate the deductible proportion.

95The objectives of the rules governing deduction contained in the Sixth Directive support the interpretation I propose.

96The purpose of excluding incidental financial transactions from the denominator of the fraction used to calculate the deductible proportion in accordance with Article 19 of the Sixth Directive is to comply with the objective of complete neutrality guaranteed by the common system of VAT. If all receipts from a taxable person's financial transactions linked to a taxable activity were to be included in that denominator, even where the creation of such receipts did not entail the use of goods or services subject to VAT or, at least, entailed only their very limited use, calculation of the deduction would be distorted. 48

97By way of exception to the rule that a right to deduct does not arise in respect of exempt transactions, those transactions are not included in the denominator of the fraction and consequently do not reduce the taxable person's deduction entitlements because they are assumed to have called for negligible use of the taxed economic goods used for the principal activity.

98Such a general assumption can no longer be made if the exempt financial activities generate revenue higher than that produced by the activity described in the statutes of the taxable person as the principal activity.

99If the opposite reasoning were adopted, a company intending mainly to pursue exempt financial activities could as a result circumvent the rule laid down by the Sixth Directive that input VAT may not be deducted in respect of such activities. It would merely need to name a taxed economic activity as its principal activity in its statutes and use the goods and services it acquires to perform both that activity and its financial activities.

100Consequently, economic activities cannot be regarded as 'incidental transactions' within the meaning of Article 19(2) of the Sixth Directive if, as is true of the present case, they generate turnover higher than that produced by the taxed activity.

101Unlike EDM, I see no contradiction whatsoever between that interpretation and case-law. As I have already mentioned, the Court had no occasion in Régie dauphinoise, cited above, to present a positive definition of 'incidental transactions'. It did no more than conclude, very logically, from its analysis that the investment activities at issue in that case constituted the direct, permanent and necessary extension of the taxable activity of the taxable person, that they did not constitute incidental transactions.

102Similarly, the abovementioned judgment in Wellcome Trust, also relied on by EDM, does not contradict my interpretation. Admittedly, the Court stated therein that the scale of a share sale cannot constitute a criterion for distinguishing between the activities of a private investor, which fall outside the scope of the Sixth Directive, and those of an investor whose transactions constitute an economic activity. Nevertheless, that statement by no means contradicts the view that financial activities covered by the Sixth Directive cannot be regarded as incidental transactions within the meaning of Article 19(2) of that directive if they generate turnover higher than that produced by the taxable activity.

103Therefore, in the circumstances of this case, the interest on the loans granted on an annual basis by EDM to the companies in which it holds shares, in so far as those loans constitute an economic activity within the meaning of Article 4(2) of the Sixth Directive, and the revenue from EDM's other financial activities must be included in the denominator of the fraction used to calculate the deductible proportion.

104Should such an outcome be detrimen 105. In the light of those considerations I tal to EDM because it would mean that its propose that the Court's answer to the third deduction entitlements are reduced to a question referred should be that Article 19 level below that which corresponds to the (2) of the Sixth Directive must be inter use of goods and services in respect of its preted as meaning that, in so far as it exempt activities, it is for EDM, in my view, constitutes an economic activity, the finan to take the necessary steps as far as the cial activity of an undertaking whose competent tax authorities are concerned in annual revenue is higher than that pro order to distinguish in future between those duced by the activity which is its principal activities, or some of those activities, and its activity, according to its statutes, does not taxed activities. constitute an incidental activity.

V — Conclusion

106In the light of all the foregoing considerations, I propose that the Court should answer the questions referred by the Tribunal Central Administrativo as follows:

(1) Article 4(2) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment must be interpreted as meaning that the annual granting of interest-bearing loans by a holding company to the companies in which it holds shares, where the holding company's principal activity is to manage those shareholdings and, to a certain extent, also to guarantee the loans taken out by those companies, constitutes an economic activity provided that those loans are not granted on an occasional basis and are effected with a business or commercial purpose characterised, in particular, by a concern to maximise returns on capital investment.

(2) The performance of operations in the context of consortia as in the present case, by a company which is both a member and the administrator of the consortia, in return for payment in consideration of the value of those operations by the other members of the consortia, constitutes an economic activity within the meaning of Article 4(2) of Sixth Directive 77/388, where those operations exceed the company's share as stipulated in the respective contracts.

(3) Article 19(2) of Sixth Directive 77/388 must be interpreted as meaning that, in so far as it constitutes an economic activity, the financial activity of an undertaking whose annual revenue is higher than that produced by the activity which is its principal activity, according to its statutes, does not constitute an incidental activity.

Notes

(1) Original language: French.

(2) Council Directive of 17 May 1977 on the harmonisation or 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, hereinafter 'the Sixth Directive').

(3) A mixed holding company is a company which carries out both a holding activity consisting in holding shares in other companies, which is not subject to VAT, and a taxable activity.

(4) In this case a consortium should be understood as referring to a contract whereby two or more natural or legal persons who carry out an economic activity enter into a mutual arrangement to perform in a concerted manner a certain activity or make a certain contribution for the purpose of pursuing any of the purposes specified, which include research or exploration of natural resources (Articles 1 and 2 of Decreto-lei (Decree-law) No 231/81 of 28 July

(198) 1).

(5) Second, fourth and fifth recitals in the preamble to the Sixth Directive.

(6) Article 17(2) of the Sixth Directive.

(7) Article 18(2) and (4) of the Sixth Directive.

(8) Article 17(5) of the Sixth Directive.

(9) Order for reference, pp. 4 to 9,14,16 and 17 [of the original language version].

(10) Order for reference, pp. 15 and 16.

(11) Order for reference, p. 22.

(12) Order for reference, pp. 17 and 18.

(13) Page 3, under the heading 'The matter at issue'.

(14) See, with regard to investments, Case C-306/94 Regie dauphinoise [1996] ECR I-3695, paragraph 14.

(15) Case 268/83 Rompelman [1985] ECR 655, paragraph 19, and Case 50/87 Commission v France [1988] ECR 4797, paragraph 15.

(16) Case C-333/91 Sofitam [1993] ECR I-3513, paragraph 13, and Case C-142/99 Floridienne and Berginvest [20001 ECR I-9567, paragraph 21.

(17) Case C-186/89 Van Tiem [1990] ECR I-4363, paragraph

(17) .

(18) Case C-80/95 Hamas & Helm [1997] ECR I-745, paragraph 12. In the abovementioned judgment in Régie dauphinoise (paragraph 17), the Court concluded that interest received by a property management company on placements made for its own account of sums paid by co-owners or lessees cannot be excluded from the scope of VAT, since that interest does not arise simply from ownership of the asset; it is the consideration for placing capital at the disposal of a third party.

(19) As regards the mere acquisition and holding of shares in a company, see Case C-60/90 Polysar Investments Netherlands [1991] ECR I-3111, paragraph 13, and Sofitam, cited above, paragraph 12. In Case C-155/94 Wellcome Trust [1996] ECR I-3013, paragraph 36, the Court drew the conclusion that management by a charitable trust of the assets it holds which consists essentially in the acquisition and sale of shares and other securities with a view to maximising the dividends and capital yields for the purpose of promoting medical research does not constitute an economic activity. In Harnas & Helm, cited above, paragraphs 18 and 19, it held that there was no reason to treat bondholding differently from shareholding, since the income from the bonds derives from the mere fact of holding them.

(20) Paragraph 27.

(21) Floridienne and Berginvest, cited above, paragraph 28.

(22) In Case C-230/94 Enkler [1996] ECR I-4517, paragraphs

(28) and 29, the Court held that where, by reason of its nature, property can be used for both economic and private purposes, it is necessary to examine all the circumstances in which the person concerned uses the property and to compare those circumstances, where appropriate, with those in which the corresponding economic activity is usually carried out. It also held that criteria based on the results of the activity in question cannot in themselves be a decisive factor but that the actual length of the period for which the property is hired, the number of customers and the amount of earnings may be taken into account.

(23) In this regard, see the Opinion of Advocate General Fennelly in Floridienne and Berginvest, cited above, point

(34) .

(24) Floridienne and Berginvest, cued above, paragraph 27.

(25) Paragraph 18.

(26) PTE 19 509 803 in 1988, PTE 33 224 443 in 1989, PTE

(43) 603 040 in 1990 and PTE 157 066 829 in 1991 (order for reference, p. 22).

(27) See, to that effect, Wellcome Trust, cited above, paragraph

(37) . In that judgment, the Court stated that the scale of a share sale cannot constitute a criterion for distinguishing between the activities of a private investor, which fall outside the scope of the Sixth Directive, and those of an investor whose transactions constitute an economic activity.

(28) As regards the origin of the funds, the Court held at paragraph 30 of the abovementioned judgment in Floridienne and Berginvest that where a holding company merely reinvests dividends received from its subsidiaries in loans to those subsidiaries, this in no way constitutes a taxable activity. The interest on such loans must, on the contrary, be considered to be merely the result of ownership of the asset and is therefore outside the system of deductions.

(29) Sec point 16 of this Opinion.

(30) Page 22.

(31) Paragraph 41 of its observations.

(32) See paragraph 22 of Régie dauphinoise, cited above. Having pointed out that the receipt of interest from the placements in question constitutes the direct, permanent and necessary extension of the taxable activity of property management companies, the Court states: 'Such placements cannot therefore be characterised as incidental financial transactions within the meaning of Article 19(2) of the Sixth Directive.' The Court reasserted that view in Floridienne and Berginvest, cited above, paragraph 27, pointing out that the loans in point are subject to VAT if they constitute either an economic activity of the operator or the direct, permanent and necessary extension of a

(33) Under Article 11A(1)(a) of the Sixth Directive, the taxable amount corresponds to everything which constitutes the consideration which has been or is to be obtained by the supplier of goods or services from the purchaser, the customer or a third party for such supplies of goods or services including subsidies linked to the price of such supplies.

(34) Case 154/80 Coöperatieve Aardappelenbewaarplaats [1981] ECR 445, paragraph 13.

(35) Case 230/87 Naturally Yours Cosmetics [1988] ECU 6365, paragraphs 17 and 18.

(36) See point 18 of this Opinion.

(37) Page 22.

(38) PTE 482 431 400, PTE 301 040 000, PTE 624 452 and PTE 314 840 from 1988 to 1991 respectively.

(39) Sales or other negotiable securities brought m revenue of PTE 27 849 6 2 4 . 7 0, PTE 112 169 9 5 9 . 1 0, PTE 311 100 000 and PTE 927 430 231.70 from 1988 to 1991 respectively and the other treasury operations yielded PTE 11 171 205, PTE 212 227 393.30 and PTE 208 359 328.20 from 1989 to 1991 respectively.

(40) See, to that effect, the Opinion of Advocate General Van (¡erven in the abovementioned case of Palysar Investments Netherlands (point 12).

(41) Case C-191/99 Kvaerner [2001] ECR I-4447, paragraph

(30) .

(42) See Le Petit Robert, Dictionnaire de la langue française, Paris, ed. Dictionnaires Le Robert, 1996.

(43) See Hachette, Dictionnaire de la langue française, Paris, ed. Hachette, 1980.

(44) That literal interpretation corresponds to the wording used in several other language versions. See, in this connection, the Opinion of Advocate General Lenz in the abovementioned case of Régie dauphinoise (point 38).

(45) Idem.

(46) See, to this effect, the explanatory memorandum to the first Commission proposal for the Sixth Directive, Bulletin of the European Communities, Supplement 11/73, p. 20.

(47) That article provides that 'Member States shall also grant to every taxable person the right to a deduction or refund of the value added tax referred to in paragraph 2 in so far as the goods and services are used for the purposes of ... any of the transactions exempted under Article 13B(a) and (d), paragraphs 1 to 5, when the customer is established outside the Community or when these transactions are directly linked with goods intended to be exported to a country outside the Community'.

(48) Régie dauphinoise, cited above, paragraph 21.

(49) EDM's income from its taxed activities amounted to PTE

(82) 079 528, PTE 72 836 992, PTE 22 597 883 and PTE

(73) 019 855 from 1988 to 1991 respectively. It should be noted at this point that the financial transactions carried out by EDM, excluding interest on the loans granted to its subsidiaries, generated, over the same years, revenue of PTE 510 281 024.70, PTE 424 381 164.10, PTE 523 961 845.30 and PTE 1 136 104 399.90 respectively.

(50) Paragraph 37.