NCC Construction Danmark A/S v Skatteministeriet.

• Jurisdiction: European Union
• ECLI: ECLI:EU:C:2009:669
• Date: 29 October 2009
• Celex Number: 62008CJ0174
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling
• Docket Number: C-174/08

Case C-174/08

NCC Construction Danmark A/S

v

Skatteministeriet

(Reference for a preliminary ruling from the Østre Landsret)

(Sixth VAT Directive – Article 19(2) – Deduction of input tax – Hybrid taxable person – Goods and services used for both taxable and exempt activities – Calculation of the deductible proportion – Definition of ‘incidental real estate transactions’ – Self-supply – Principle of fiscal neutrality)

Summary of the Judgment

1. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax – Goods and services used both for transactions in respect of which tax is deductible, and for transactions in respect of which tax is not deductible

(Council Directive 77/388, Art. 19(2))

2. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax

(Council Directive 77/388)

1. Article 19(2) of the Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes is to be interpreted as meaning that the sale, in the case of a building business, of buildings constructed on its own account cannot be classified as an ‘incidental real estate transaction’ within the meaning of that provision, where that activity constitutes the direct, permanent and necessary extension of its business. In those circumstances, it is not necessary, in this case, to assess to what extent that sales activity, viewed separately, entails a use of goods and services on which value added tax is payable.

(see paras 34-35, operative part 1)

2. The principle of fiscal neutrality cannot preclude a building business, which is required to pay value added tax on supplies relating to construction effected on its own account (self-supply), from being unable fully to deduct the value added tax relating to the general costs incurred thereby, since the turnover from the sale of buildings thus constructed is exempt from value added tax.

Admittedly, that principle of fiscal neutrality was intended by the Community legislature to reflect, in matters relating to value added tax, the general principle of equal treatment. However, while that latter principle, like the other general principles of Community law, has constitutional status, the principle of fiscal neutrality requires legislation to be drafted and enacted, which requires a measure of secondary Community law. The principle of fiscal neutrality may, consequently, be the subject, in such a legislative measure, of detailed rules resulting from the application of Article 19(1) in conjunction with Article 28(3)(b) of the Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, and point 16 of Annex F to that directive, according to which a taxable person carrying out both taxable activities and exempt activities of selling real estate cannot deduct fully the value added tax on its general costs.

Furthermore, the principle of fiscal neutrality cannot properly be relied upon to preclude the application of the provisions of the Sixth Directive transposed by national legislation since, with the contested provisions transposing the Sixth Directive the national legislature, taking due account of the general principle of equal treatment and in order to avoid distortions of competition in the internal market, wished to put building businesses which carry on, beside their building activity, an exempt activity of selling real estate, on the same footing as building developers who, given the exempt nature of that latter activity, cannot deduct the value added tax on supplies relating to construction by third-party businesses to which they have recourse.

(see paras 41-43, 46-47, operative part 2)

JUDGMENT OF THE COURT (Fourth Chamber)

29 October 2009 (*)

(Sixth VAT Directive – Article 19(2) – Deduction of input tax – Hybrid taxable person – Goods and services used for both taxable and exempt activities – Calculation of the deductible proportion – Definition of ‘incidental real estate transactions’ – Self-supply – Principle of fiscal neutrality)

In Case C‑174/08,

REFERENCE for a preliminary ruling under Article 234 EC by the Østre Landsret (Denmark), made by decision of 17 April 2008, received at the Court on 28 April 2008, in the proceedings

NCC Construction Danmark A/S

v

Skatteministeriet,

THE COURT (Fourth Chamber),

composed of K. Lenaerts, President of the Third Chamber, acting as President of the Fourth Chamber, R. Silva de Lapuerta, E. Juhász, G. Arestis and J. Malenovský (Rapporteur), Judges,

Advocate General: Y. Bot,

Registrar: C. Strömholm, Administrator,

having regard to the written procedure and further to the hearing on 23 April 2009,

after considering the observations submitted on behalf of:

– NCC Construction Danmark A/S, by B. Møll Pederson, advokat,

– the Danish Government, by B. Weis Fogh, acting as Agent, and by D. Auken, advokat,

– the Commission of the European Communities, by D. Triantafyllou and S. Schønberg, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 18 June 2009,

gives the following

Judgment

1 This reference for a preliminary ruling concerns the interpretation of the second sentence of Article 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) (‘the Sixth Directive’), and the scope of the principle of fiscal neutrality with regard to turnover taxes.

2 The reference has been made in the course of proceedings between NCC Construction Danmark A/S (‘NCC’) and Skatteministeriet (Ministry of Fiscal Affairs) regarding the right to partial deduction of the value added tax (‘VAT’) on NCC’s general costs.

Legal context

Community legislation

3 Under Article 2(1) of the Sixth Directive, the following is to be subject to VAT: ‘the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such’.

4 Article 5(7)(a) of the Sixth Directive is worded as follows:

‘Member States may treat as supplies made for consideration:

(a) the application by a taxable person for the purposes of his business of goods produced, constructed, extracted, processed, purchased or imported in the course of such business, where the [VAT] on such goods, had they been acquired from another taxable person, would not be wholly deductible’.

5 Article 6(3) of the Sixth Directive states:

‘In order to prevent distortion of competition and subject to the consultations provided for in Article 29, Member States may treat as a supply of services for consideration the supply by a taxable person of a service for the purposes of his undertaking where the [VAT] on such a service, had it been supplied by another taxable person, would not be wholly deductible.’

6 Article 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 VAT due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable...