# C_2004118EN.01000601.xml

| 30.4.2004 | EN | Official Journal of the European Union | C 118/6 |
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JUDGMENT OF THE COURT

(Fifth Chamber)

of 29 April 2004

in Case C-77/01 (Reference for a preliminary ruling from the Tribunal Central Administrativo): Empresa de Desenvolvimento Mineiro SGPS SA (EDM) v Fazenda Pública( 1 )

(Sixth VAT Directive - Articles 2, 4(2), 13B(d) and 19(2) - Meaning of ‘economic activities’ - Meaning of ‘incidental financial transactions’ - Services effected for consideration)

(2004/C 118/11)

Language of the case: Portuguese

In Case C-77/01: Reference to the Court under Article 234 EC from 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) — 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; P. Léger, Advocate General; H.A. Rühl, Principal Administrator, for the Registrar, has given a judgment on 29 April 2004, in which it has ruled:

| 1. | In a situation such as that in the main proceedings:
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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. | — | 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. |
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| — | 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. |
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( 1 )  OJ C 118, 21.4.2001.

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