CELEX: 62022CJ0239
Reference for a preliminary ruling
Common system of value added tax (VAT)
Directive 2006/112/EC
Article 12(1) and (2)
Supply, before first occupation, of a building or parts of a building and of the land on which the building stands
No provisions in national law providing for detailed rules for applying the criterion relating to first occupation
Article 135(1)(j)
Exemptions
Supply, after conversion, of a building which was the subject of a first occupation before the conversion
National administrative legal commentary treating buildings which have undergone substantial conversions in the same way as new buildings

This request for a preliminary ruling concerns the interpretation of Article 12(1) and (2) and of Article 135(1)(j) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’).
The request has been made in proceedings between Promo 54 SA, active in the development of real estate projects, and the État belge (Belgian State) concerning the amount of value added tax (VAT) payable by that company in respect of the conversion of a former school into apartments and offices.

Legal context

European Union law
Article 2(1) of the VAT Directive provides:
‘The following transactions shall be subject to VAT:
(a)      the supply of goods for consideration within the territory of a Member State by a taxable person acting as such; …’
Article 9(1) of that directive provides:
‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’
Article 12(1) and (2) of that directive provides:
‘1.      Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:
(a)      the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;
(b)      the supply of building land.
2.      For the purposes of paragraph 1(a), “building” shall mean any structure fixed to or in the ground.
Member States may lay down the detailed rules for applying the criterion referred to in paragraph 1(a) to conversions of buildings and may determine what is meant by “the land on which a building stands”.
Member States may apply criteria other than that of first occupation, such as the period elapsing between the date of completion of the building and the date of first supply, or the period elapsing between the date of first occupation and the date of subsequent supply, provided that those periods do not exceed five years and two years respectively.’
Article 135(1) of that directive states:
‘1.      Member States shall exempt the following transactions:
…
(j)      the supply of a building or parts thereof, and of the land on which it stands, other than the supply referred to in point (a) of Article 12(1);
…’

Belgian law
Article 1(9) of the VAT Code provides:
‘For the purposes of this Code, the following definitions shall apply:
1.      building or parts of a building means any structure fixed to or in the ground;
2.      land on which it stands means land for which a building permit has been granted which is transferred by the same person and at the same time as the building and on which the building stands.
Subparagraph 1(2) shall not apply to Article 44(3)(2)(d).’
Article 44(3) of the VAT Code, relating to exemptions, provides:
‘The following shall also be exempt from the tax:
1.      The following operations:
(a)      Supplies of immovable property;
However, this does not include supplies of buildings, parts of buildings and the land on which the buildings stand referred to in Article 1(9), where they are transferred no later than 31 December of the second year following the year in which the property referred to in Article 1(9)(1) was first occupied or used by:
–        a taxable person as referred to in Article 12(2) who has constructed, had constructed or acquired with VAT the  goods referred to in Article 1(9)(1);
–        a taxable person as referred to in Article 8(1);
–        any other taxable person, where he or she has expressed, in the form and manner determined by the King, an intention to carry out such a transfer subject to the tax.
…’

The dispute in the main proceedings and the question referred for a preliminary ruling
On 6 June 2008, Promo 54 and another company, Immo 2020, concluded a cooperation agreement under which Immo 2020, the owner of the land on which a former school was established, in this case a college, entrusted Promo 54 with the task of taking responsibility for supervising the conversion of that college into apartments and offices, as well as the sale of that immovable property. By document of 18 February 2009, Immo 2020 also waived the right to the vesting of constructions on the land  in favour of Promo 54.
The sale of those future apartments formed part of a legal arrangement consisting of two separate contracts drawn up  with the purchasers. First, the purchasers concluded a contract with Immo 2020 for the sale of a part of the former school building being  converted  as well as a part of the land on which it was built. Secondly, on the same day, Promo 54 concluded a works contract with the purchasers for the renovation works.
The Belgian tax authorities considered that the transaction was artificially split in order to obtain a wrongful  tax advantage. That transaction is, in fact, a single supply of new apartments subject to VAT at the rate of 21%, instead of a sale of a former building and the land on which it is constructed, followed by a renovation of that building, subject to the reduced rate of 6%.
Promo 54 challenged that reclassification before the tribunal de première instance de Liège (Court of First Instance, Liège, Belgium), which nevertheless dismissed its action.
Hearing the case on appeal, the cour d’appel de Liège (Court of Appeal, Liège, Belgium) took the view that determining the ‘new’ nature of a property necessarily entailed the exercise of some discretion on the part of the tax authorities and that implementation of the option given to the Member States by the second subparagraph of Article 12(2) of the VAT Directive was not necessary to treat old buildings which had undergone sufficiently significant conversions as ‘new’ buildings referred to in Article 44(3)(1)(a) of the VAT Code. In the present case, according to that court, new buildings, capable of being the subject of first occupation, were constructed, so that they could not benefit from the exemption provided for in favour of the supply of immovable property by type referred to in Article 44(3)(1)(a) of the VAT Code.
The Belgian State and Promo 54 both appealed on a point of law against the judgment of the cour d’appel de Liège (Court of Appeal, Liège).
According to Promo 54, only new buildings, namely those that have not yet been occupied, are able to be subject to VAT. Promo 54 therefore submits that, from its first occupation or use, any building ceases to be new, given that the Belgian State has not made use of the possibility of laying down  detailed rules applying the criterion of ‘first occupation’, provided for in Article 12(1)(a) of the VAT Directive, to conversions of buildings. In the absence of such implementation, the competent authorities could not extend the concept of ‘first occupation’ to a renovated building which had already been occupied before it was converted.
In those circumstances, the Cour de cassation (Court of Cassation, Belgium) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:
‘Must Article 12(1) and (2) and Article 135(1)(j) of Directive 2006/112  be interpreted as meaning that, where the Member State has not defined the detailed rules applying the criterion of first occupation to converted immovable property, the supply, after conversion, of a building in respect of which, before conversion, there had been first occupation within the meaning of Article 12(1)(a) or [the third subparagraph of]  Article 12(2) of [Directive 2006/112] remains exempt from [VAT]?’

Consideration of the question referred
By its question, the referring court asks, in essence, whether Article 135(1)(j) of the VAT Directive, read in conjunction with Article 12(1) and (2) thereof, must be interpreted as meaning that the exemption provided for by that first provision for the supply of a building or parts of a building and of the land on which the building stands, other than those buildings which are supplied before their first occupation, also applies to the supply of a building first occupied before its conversion, even if the Member State concerned has not laid down, in national law, the detailed rules applying the criterion of first occupation to conversions of buildings, as the second of those provisions authorised it to do.
In that regard, it should be recalled that, under Article 12(1)(a) of the VAT Directive, Member States may regard as a taxable person anyone who carries out, on an occasional basis, the supply, before first occupation, of a building or parts of a building and of the land on which the building stands.
Article 135(1)(j) of the VAT Directive provides for an exemption from VAT in favour of the supply of buildings, other than those referred to in Article 12(1)(a) thereof, that is to say apart from those whose supply is carried out before their ‘first occupation’ (see, to that effect, judgment of 4 September 2019,
KPC Herning
, C‑71/18, EU:C:2019:660, paragraph 55).
Those provisions, in practice, make a distinction between old buildings, the sale of which  is not,  in principle, subject to VAT, and new buildings, the sale of which is subject to VAT, whether carried out in the context of an economic activity carried out on a permanent or occasional basis (see, to that effect, judgment of 4 September 2019,
KPC Herning
, C‑71/18, EU:C:2019:660, paragraph 56 and the case-law cited). Consequently, the supply, by a taxable person, of a building before its ‘first occupation’ is subject to taxation, whereas the supply of a building following its ‘first occupation’ to a final consumer is exempt.
The
ratio legis
of those provisions is the relative lack of added value generated by the sale of an old building. Indeed, the sale of a building following its first supply to a final consumer, which marks the end of the production process, does not generate any significant added value and must therefore, as a rule, be exempt (judgment of 4 September 2019,
KPC Herning
, C‑71/18, EU:C:2019:660, paragraph 57 and the case-law cited).
Although the VAT Directive introduces the concept of ‘first occupation’ in Article 12(1)(a) without defining it, the preparatory documents for the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), which remain relevant for the purposes of the VAT Directive, make clear that the criterion of the ‘first occupation’ of a building must be understood as corresponding to the first use of the immovable property by its owner or tenant.
In so far as the supply of an old building that has undergone a conversion  generates, like the supply of a new building before its first occupation, added value, it fulfils the criterion of ‘first occupation’ referred to in Article 12(1)(a) of the VAT Directive and gives rise to a transaction subject to taxation.
Although the Member States are therefore entitled, under the second subparagraph of Article 12(2) of the VAT Directive, to lay down the detailed rules applying the criterion of ‘first occupation’ to conversions of buildings, that provision cannot, however, be interpreted as meaning that the Member States are thus authorised to alter the concept of ‘first occupation’ in their national laws, without harming the effectiveness of the exemption provided for in Article 135(1)(j) of that directive (see, to that effect, judgment of 16 November 2017,
Kozuba Premium Selection
,  C‑308/16, EU:C:2017:869, paragraph 45).
The Court has thereby  defined the scope of the concept of ‘conversion of a building’  by finding that the building concerned must have been subject to substantial modifications intended to modify the use or alter considerably the conditions of its occupation (see, to that effect, judgment of 16 November 2017,
Kozuba Premium Selection
, C‑308/16, EU:C:2017:869, paragraph 52).
Subject to observing the scope of that concept, Member States may implement the option provided for in the second subparagraph of Article 12(2) of the VAT Directive by imposing, for example, a quantitative criterion, according to which the costs of such a conversion must amount to a certain percentage of the initial value of the building concerned to lead to liability for VAT (see, to that effect, judgment of 16 November 2017,
Kozuba Premium Selection
, C‑308/16, EU:C:2017:869, paragraph 48).
Whilst, in the present case, the Belgian legislature did not exercise that power by adopting such binding provisions, the Belgian authorities, in their administrative practice relating to Article 44(3)(1) of the VAT Code, treated old buildings, which have undergone conversions such as to acquire the characteristics of a new building, in the same way as new buildings.
It is true that, according to settled case-law of the Court, when transposing a directive, it is particularly important, in order to satisfy the requirement for legal certainty, that individuals should have the benefit of a clear and precise legal situation enabling them to ascertain the full extent of their rights and, where appropriate, to rely on them before the national courts (judgment of 7 June 2007,
Commission
v
Greece
, C‑178/05, EU:C:2007:317, paragraph 33 and the case-law cited).
It cannot, however, be maintained that, in so far as the Member State concerned has not made use of the option to lay down detailed rules for applying the criterion of first occupation to conversions of buildings, given by the second subparagraph of Article 12(2) of the VAT Directive, by means of binding provisions of national law, some conversions of buildings cannot be subject to VAT, in accordance with Article 135(1)(j) of that directive, read in conjunction with Article 12(1)(a) thereof and the case-law of the Court, by means of an interpretation of the ‘first occupation’ concept provided for by the provisions of national law.
That would be tantamount to a Member State using the power to lay down the detailed rules for applying the criterion of first occupation to conversions of buildings amounting to liability to VAT for a building, whereas that in fact follows from the fundamental principle that it is the added value and the definitions arising from the case-law of the Court which determines the liability to tax. In that regard, it should be noted that, in the present case, the ‘substantial’ nature of the modifications, within the meaning of the case-law cited in paragraph 25 of the present judgment, does not appear to be in doubt, which it is for the referring court to confirm.
In the light of the foregoing, the absence of a binding definition, in national law, of detailed rules for applying the criterion of first occupation to conversions of buildings, does not have a direct effect on the exemption of those converted buildings, even though an interpretation of national law in accordance with Article 135(1)(j) of the VAT Directive, read in conjunction with Article 12(1)(a) thereof, and the related case-law of the Court leads, on the contrary, to the refusal of the exemption demanded.
The answer to the question referred is therefore that Article 135(1)(j) of the VAT Directive, read in conjunction with Article 12(1) and (2) thereof, must be interpreted as meaning that the exemption provided for by that first provision for the supply of a building or a part of a building, and of the land on which the building stands, other than those which are supplied before their first occupation, also applies to the supply of a building which was first occupied before its conversion, even if the Member State concerned has not laid down, in national law, the detailed rules for applying the criterion of first occupation to conversions of buildings, as the second of those provisions authorised it to do.

Costs
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. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Eighth Chamber) hereby rules:
Article 135(1)(j) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Article 12(1) and (2) thereof,
must be interpreted as meaning that the exemption provided for by that first provision for the supply of a building or a part of a building, and of the land on which the building stands, other than those which are supplied before their first occupation, also applies to the supply of a building which was first occupied before its conversion, even if the Member State concerned has not laid down, in national law, the detailed rules for applying the criterion of first occupation to conversions of buildings, as the second of those provisions authorised it to do.
[Signatures]
*
Language of the case: French.