Opinion of Advocate General Kokott delivered on 7 September 2023.

JurisdictionEuropean Union
Date07 September 2023
CourtCourt of Justice (European Union)

Provisional text



delivered on 7 September 2023 (1)

Case C433/22

Autoridade Tributária e Aduaneira


HPA – Construções SA

(Request for a preliminary ruling from the Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal))

(Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/EC – Time limited option of a reduced tax rate for labour-intensive services – Reduced tax rate for the renovation of private dwellings – Concept of ‘private dwelling’ – Limits of a selective reduced tax rate – Principle of democracy and the legislature’s decision-making discretion – Principle of fiscal neutrality)

I. Introduction

1. These proceedings show once again how susceptible reduced rates of value added tax (VAT) are to litigation. Portugal applies a reduced rate of VAT to labour-intensive services relating to buildings. Such services must, however, involve the renovation, restoration, repair or maintenance of immovable properties used for residential purposes. In the year at issue, 2007, reduced tax rates were available for only a limited period of time (until 31 December 2010), in accordance with EU law, but have already prompted two references to be made to the Court of Justice for a preliminary ruling.

2. On 5 May 2022, in Case C‑218/21, the Court had to decide whether that same provision of Portuguese law also applied to the repairing of a lift in a building not used exclusively for residential purposes. Although the Court found that was the case, it emphasised in the grounds of that decision that a ‘pro-rata allocation’ should be made in the case of renovation and repair services relating to shared facilities in mixed-use buildings. (2)

3. The question here, on the other hand, is whether, for a property to be ‘used for residential purposes’, it is sufficient for the land register to state that it may be used only for residential purposes or whether it must actually be in use for that purpose at the time of the renovation. The latter scenario would prevent investors not entitled to deduct input tax from renovating old houses in advance at the reduced rate of tax and deferring their sale, as dwellings or speculative propositions, until later (in particular, until after the time limit applicable to the reduced rate of tax has expired). In essence, this case is about the power of the Member States to apply a reduced rate of tax selectively without, in so doing, impinging upon the principle of neutrality.

II. Legal framework

A. European Union law

4. Article 96 of Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’) (3) provides:

‘Member States shall apply a standard rate of VAT, which shall be fixed by each Member State as a percentage of the taxable amount and which shall be the same for the supply of goods and for the supply of services.’

5. Article 98(1) and (2) of the VAT Directive reads:

‘1. Member States may apply either one or two reduced rates.

2. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III. …’

6. At the time material to the main proceedings, Title VIII of the VAT Directive contained a Chapter 3 (‘Temporary provisions for particular labour-intensive services’). That chapter includes, inter alia, Articles 106 and 107 of that directive. Article 106 of the VAT Directive provided:

‘The Council [of the European Union] may, acting unanimously on a proposal from the [European] Commission, allow Member States to apply until 31 December 2010 at the latest the reduced rates provided for in Article 98 to services listed in Annex IV.

The reduced rates may be applied to services from no more than two of the categories set out in Annex IV.

In exceptional cases a Member State may be allowed to apply the reduced rates to services from three of those categories.’

7. Article 107 of that directive provided:

‘The services referred to in Article 106 must meet the following conditions:

(a) they must be labour-intensive;

(b) they must be largely provided to final consumers;

(c) they must be mainly local and not likely to cause distortion of competition.

There must also be a close link between the decrease in prices resulting from the rate reduction and the foreseeable increase in demand and employment. Application of a reduced rate must not prejudice the smooth functioning of the internal market.’

8. Annex IV to the VAT Directive contained a list of the services referred to in Article 106 of that directive. Point 2 of that annex read: (4)

‘renovation and repairing of private dwellings, excluding materials which account for a significant part of the value of the service supplied’.

B. Portuguese law

9. Portugal transposed the VAT Directive in the form of the Código do Imposto sobre o Valor Acrescentado (Value added tax (VAT) Code).

10. Article 18(1) of the VAT Code, in the version applicable to the facts of the main proceedings, provided:

‘The rates of tax shall be as follows:

(a) for the imports, supplies of goods and supplies of services mentioned in List I annexed to this Code, the rate shall be 5%’.

11. Paragraph 2.24 of List I annexed to the VAT Code read:

‘Works contracts for the improvement, refurbishment, renovation, restoration, repair or conservation of immovable properties and independent parts of immovable properties used for residential purposes, with the exception of cleaning services, grounds maintenance services and works on buildings which cover all or part of the constituent elements of swimming pools, saunas, tennis courts, golf courses or minigolf courses or similar facilities.

The reduced rate shall not apply to the materials incorporated unless their value exceeds 20% of the total value of the service supplied’.

12. On the expression ‘immovable properties used for residential purposes or independent parts of such properties’ contained in paragraph 2.24 (now paragraph 2.27) of List I annexed to the VAT Code, the Tax and Customs Authority issued administrative guidelines, including Circular No 30025 of 7 August 2000, from which the following may be extracted for the purposes of the present case:

‘2. Immovable properties

This paragraph covers only services provided in an immovable property, or a part thereof, which, without being authorised for use for other purposes, is used for residential purposes.

An immovable property, or a part thereof, shall be regarded as being used for residential purposes if it is in actual use as a private dwelling when the works start and continues to be in actual use as such once the works are completed.’

III. Facts and preliminary ruling procedure

13. HPA – Construções SA (‘HPA’) is a commercial enterprise in the form of a public limited company whose purpose is the ‘supply of construction and trade services, the conclusion of contracts for works and the purchase of immovable properties, and trade in building materials’.

14. In 2007, HPA performed a number of contracts for works relating to the renovation of buildings in Lisbon (Portugal). According to the relevant land registry certificates, the properties in question had previously (in 2004 and 2005) and subsequently (2008) been acquired by several commercial companies (including the commercial company Paço – Investimentos Imobiliários, SA, the commercial company Brown House – Empreendimentos Imobiliários, SA, and the commercial company Sociedade Imobiliária do Palácio Alagoas, Lda.) and are largely intended for residential use.

15. In accordance with paragraph 2.24 of List I annexed to the VAT Code, HPA applied a VAT rate of 5% to the renovation services provided, charged this to the aforementioned commercial companies and paid the VAT [to the tax authority]. On 19 January 2011, the Serviços de Inspeção Tributária da Direção de Finanças de Lisboa (Tax Inspection Services of the Directorate of Finances, Lisbon, Portugal) initiated an external inspection of HPA in relation to the tax year 2007. On 10 May 2011, the Serviço de Finanças de Sintra-1 (Sintra-1 Tax Office, Portugal) issued VAT adjustment notices for the year 2007.

16. The adjustment is based on the application of the standard 21% tax rate instead of the reduced 5% tax rate. It stated that HPA had not been able to prove that the works contracts in question related to immovable properties actually used for residential purposes, and HPA bore the burden of proving that they did, in accordance with Article 74 of the Lei Geral Tributária (General Law on Tax).

17. HPA brought an action against the adjustment notices before the Tribunal Administrativo e Fiscal de Sintra (Administrative and Tax Court, Sintra, Portugal). By judgment of 26 June 2020, it upheld the action and annulled the adjustment notices, on the ground that properties intended or used for residential purposes within the meaning of paragraph 2.24 [of List I annexed to the VAT Code] include all properties authorised to be used for residential purposes, not only those that are actually occupied. The Tax and Customs Authority brought an appeal against that judgment before the referring court.

18. The Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal) stayed the proceedings before it and referred the following question to the Court of Justice for a preliminary ruling under Article 267 TFEU:

‘Does paragraph 2 of Annex IV to the VAT Directive preclude a provision of national law under which the reduced rate of VAT may be applied only to works contracts for the repair and renovation of buildings in private dwellings which are inhabited at the time when those works are carried out?’

19. In the proceedings before the Court, only Portugal and the European Commission submitted written observations. In accordance with Article 76(2) of its Rules of Procedure, the Court decided not to hold a hearing.

IV. Legal assessment

A. The question referred and the course of the examination

20. The national court...

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1 practice notes
  • Opinion of Advocate General Kokott delivered on 14 March 2024.
    • European Union
    • Court of Justice (European Union)
    • 14 March 2024
    ...EU:C:2023:739), apartado 46 y jurisprudencia citada. 28 Véanse ya mis conclusiones presentadas en el asunto HPA — Construções (C‑433/22, EU:C:2023:655), puntos 50 y Edizione provvisoria CONCLUSIONI DELL’AVVOCATO GENERALE JULIANE KOKOTT del 14 marzo 2024(1) Cause riunite da C‑639/22 a C‑644/......
1 cases
  • Opinion of Advocate General Kokott delivered on 14 March 2024.
    • European Union
    • Court of Justice (European Union)
    • 14 March 2024
    ...on hot dairy beverages) (C‑146/22, EU:C:2023:739, paragraph 46 and the case-law cited). 28 See my Opinion in HPA – Construções (C‑433/22, EU:C:2023:655, points 50 and Edizione provvisoria CONCLUSIONI DELL’AVVOCATO GENERALE JULIANE KOKOTT del 14 marzo 2024(1) Cause riunite da C‑639/22 a C‑64......

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