Judgment;Summary — ECLI:EU:C:2020:546
Date: 2020-07-09
Language of the case: German
Court formation: Eighth Chamber
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Germany

Anonymised version 
Translation  C-374/19 — 1 
Case C-374/19 
Request for a preliminary ruling 
Date lodged: 
13 May 2019 
Referring court: 
Bundesfinanzhof (Federal Finance Court, Germany) 
Date of the decision to refer: 
27 March 2019 
Appellant in the appeal on a point of law: 
HF 
Respondent in the appeal on a point of law: 
Finanzamt Bad Neuenahr-Ahrweiler (Bad Neuenahr-Ahrweiler Tax 
Office) 
  
[...] 
FEDERAL FINANCE COURT 
[...] 
ORDER 
In the case of 
HF, [...], 
applicant and appellant in the appeal on a point of law, 
[...] 
v 
EN 
REQUEST FOR A PRELIMINARY RULING OF 27. 3. 2019 — CASE C-374/19 
 
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Finanzamt Bad Neuenahr-Ahrweiler, [...] 
defendant and respondent in the appeal on a point of law, 
concerning turnover tax from 2009 to 2012 
the 5th Chamber 
[...] 
made the following order on 27 March 2019: [Or. 2] 
I. The following question is referred to the Court of Justice of the 
European Union for a preliminary ruling: 
Does a taxable person who produces an investment object with regard to 
taxable use with entitlement to input tax deduction (in this case: construction 
of a building for the operation of a cafeteria) have to adjust the input tax 
deduction under Article 185(1) and Article 187 of the VAT Directive if he 
ceases the sales activity justifying the input tax deduction (in this case: 
operation of the cafeteria) and the investment object now remains unused in 
the scope of the previously taxable use? 
II. The proceedings are stayed until the Court of Justice of the European 
Union has given a ruling. 
Grounds 
I. 
The applicant and appellant in the appeal on a point of law (applicant) is the 
parent company of a limited liability company which operates a retirement and 
care home with exemption from taxation. In 2003, the limited liability company 
constructed in an annex a cafeteria which was accessible to visitors through an 
outside entrance and to residents through the care home’s dining room. 
The applicant initially assumed that it would use the cafeteria exclusively for 
taxable transactions. According to an audit opinion of the defendant and 
respondent in the appeal on a point of law (Finanzamt, ‘the FA’) referred to by the 
Finance Court (Finanzgericht, ‘the FG’), no separate records were kept in the 
cafeteria as, according to the applicant’s indications, the [Or. 3] residents of the 
home never frequented the cafeteria. The vast majority were so physically 
impaired that a visit to the cafeteria was out of the question. Only few would 
receive visits from relatives, friends and acquaintances, and would even then stay 
in the recently extended dining room, as that also served as a sitting room where 
coffee and sometimes cakes were also provided free of charge. The cafeteria itself 
had been intended for outside guests only, who were ideally not supposed to sit 
next to a resident in slippers and dressing gown. According to the opinion, these 
FINANZAMT BAD NEUENAHR-AHRWEILER 
 
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were arguments which the FA could not ignore in the scope of the special turnover 
tax audit. Nonetheless, it seemed unlikely to the FA that absolutely no residents 
frequented and used the cafeteria with their visitors. It was thereupon agreed to 
assume tax-exempt use of the cafeteria at 10%. This led to the assumption of an 
adjustment under Paragraph 15a of the Umsatzsteuergesetz (Turnover Tax Law; 
‘UStG’) for the years from 2003. 
Following an external audit, the FA assumed that the limited liability company 
had no longer carried out goods transactions in the cafeteria in the years at issue 
(2009 to 2012). In February 2013, the business in this regard had been 
deregistered. This had led to a further adjustment under Paragraph 15a UStG, as 
there was now absolutely no use for transactions with entitlement to input tax 
deduction. 
The objection and action before the FG were unsuccessful. In its [...] judgment, 
the FG assumed a cessation of operation in the years at issue. Although premises 
standing empty was not a transaction and did not give rise to a change in [Or. 4] 
circumstances, account was to be taken of the intended use. This had changed, as 
the intended use for taxable hospitality transactions no longer applied. The 
cafeteria had not stood completely empty, but had now been used exclusively, 
with tax exemption, by the residents. As use by outside visitors, which was subject 
to turnover tax, had been discontinued, the proportions of use had inevitably 
changed to the effect that there is now 100% use by residents. There is no use for 
purposes other than those with turnover tax exemption. 
The applicant opposes this by way of the appeal on a point of law. If there was no 
longer use of an object of the company assets without a private use option, there 
was no change in use which led to an input tax adjustment under Paragraph 15a 
UStG. The cafeteria was a bad investment. Account had been taken of the possible 
use by the retirement home. A bad investment should not lead to an input tax 
adjustment for reasons of fiscal neutrality. The cafeteria was fully functional. The 
use by the residents was still restricted to 10%. The assumption of further use was 
contrary to the actual circumstances. For reasons of traffic safety and accident 
prevention, the access to the cafeteria had been closed. The refusal of a write-off 
to the lower going-concern value proved that there was still an intention for use. 
The FA counters this by stating that the use had changed, as there was no longer 
an intention to carry out taxable transactions. There was therefore still use only for 
tax-exempt transactions. 
II. 
This Chamber refers the question set out in the operative part to the Court of 
Justice of the European Union (Court of Justice) for interpretation of Council 
Directive [Or. 5] 2006/112/EC of 28 November 2006 on the common system of 
value added tax (VAT Directive) and stays the proceedings until the Court of 
Justice has given a ruling. 
REQUEST FOR A PRELIMINARY RULING OF 27. 3. 2019 — CASE C-374/19 
 
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1. Legal context 
a) EU law 
Article 185(1) of the VAT Directive states: 
‘Adjustment shall, in particular, be made where, after the VAT return is made, 
some change occurs in the factors used to determine the amount to be deducted, 
for example where purchases are cancelled or price reductions are obtained.’ 
Article 187 of the VAT Directive reads as follows: 
‘(1) In the case of capital goods, adjustment shall be spread over five years 
including that in which the goods were acquired or manufactured. 
Member States may, however, base the adjustment on a period of five full years 
starting from the time at which the goods are first used. 
In the case of immovable property acquired as capital goods, the adjustment 
period may be extended up to 20 years. 
(2) The annual adjustment shall be made only in respect of one-fifth of the VAT 
charged on the capital goods, or, if the adjustment period has been extended, in 
respect of the corresponding fraction thereof. 
The adjustment referred to in the first subparagraph shall be made on the basis of 
the variations in the deduction entitlement in subsequent years in relation to that 
for the year in which the goods were acquired, manufactured or, where applicable, 
used for the first time.’ 
b) National law 
Paragraph 15a(1) UStG stipulates: 
‘If, in the case of an asset that is not only used once for executing transactions, the 
circumstances valid for the original deduction of input tax should change within a 
period of five years from the date of its first use, an offset is to be made for each 
calendar year of the change by adjusting the deduction of the input tax amounts 
attributable to the acquisition or production costs. In the case of immovable 
property, including the essential parts thereof, [Or. 6] entitlements governed by 
provisions of civil law relating to immovable property and buildings on a third 
party’s land, a period of ten years shall be substituted for the period of five years.’ 
2. The question referred 
a) Lack of success beyond the taxable person’s control 
There is a need for clarification and, in the opinion of this Chamber, a ruling by 
the Court of Justice as to whether a lack of success, beyond the taxable person’s 
FINANZAMT BAD NEUENAHR-AHRWEILER 
 
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control, which leads to mere non-use of capital goods brings about a change in the 
factors used to determine the input tax deduction amount (Article 185(1) of the 
VAT Directive). 
aa) The input tax deduction relieves the trader entirely of the burden of the VAT 
payable or paid in the course of all his economic activities. This ensures complete 
neutrality of taxation of all economic activities, whatever their purpose or results, 
provided that they are themselves subject to VAT (judgment, in Centralan 
Property, of 15 December 2005, C-63/04, EU:C:2005:773, paragraph 51, and 
Imofloresmira — Investimentos Imobiliariós, of 28 February 2018, C-672/16, 
EU:C:2018:134, paragraph 38). 
bb) In this case, the right to deduct remains acquired even where the taxable 
person has subsequently been unable to use the goods and services which gave 
rise to a deduction in the context of taxed transactions by reason of circumstances 
beyond his control (judgment in INZO, of 29 February 1996, C-110/94, 
EU:C:1996:67, paragraph 20; Ghent Coal Terminal judgment of 15 January 1998, 
C-37/95, EU:C:1998:1, paragraphs 19 and 20, and Imofloresmira — Investimentos 
Imobiliariós, EU:C:2018:134, paragraphs 40 and 42). There would otherwise be 
the establishment, contrary to the [Or. 7] principle of neutrality, of arbitrary 
differences, in that final acceptance of the deductions would depend on whether 
investments resulted in taxable transactions (INZO, EU:C:1996:67, paragraph 22, 
and Imofloresmira — Investimentos Imobiliariós, EU:C:2018:134, paragraph 43). 
It is therefore incompatible with the principle of fiscal neutrality to make the final 
acceptance of the VAT deductions dependent on the results of the taxable person’s 
economic activity. This would create, as regards the tax treatment of identical 
investment activities, unjustified differences between undertakings with the same 
profile and carrying on the same activity (Imofloresmira — Investimentos 
Imobiliariós, EU:C:2018:134, paragraph 44). 
b) Equivalence of non-use without intent and non-use with intended 
taxable use 
Non-use, beyond the trader’s control, without further intended use may have to be 
equated with non-use despite the intention of taxable use, as forming the basis for 
the Court of Justice’s judgment in Imofloresmira — Investimentos Imobiliariós 
(EU:C:2018:134). 
If the trader has produced an asset with the intention of use justifying the 
deduction of input tax and he is unable sustainably to realise the intended use due 
to a lack of success beyond his control, the lack of any use and any intention of 
use resulting therefrom would not bring about a change in the circumstances 
which leads to an input tax adjustment. [Or. 8] 
3. Relevance of the question referred for a preliminary ruling. 
According to the findings of the FG [...] which are binding for the adjudicating 
chamber, the closure of the operation of the cafeteria, which had already taken 
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place in the years at issue, was due to the lack of economic viability and therefore 
to the lack of success of the applicant, which did not in itself establish a change in 
circumstances. 
The closure of the operation of the cafeteria did not lead to exclusively tax-exempt 
use by the residents. This is because the closure did not change the scope of the 
tax-exempt use by the residents. Rather, this instead remained unchanged in 
consideration of the circumstances which, according to the audit opinion referred 
to by the FG, led to the assumption of tax-exempt co-use. The use for the taxable 
operation of the cafeteria was discontinued without replacement, without 
increased use by the residents substituting that previous use. Therefore, alongside 
the unchanged use by the residents, instead of the earlier operation of the 
cafeteria, there was a now inactive operation with premises that are unused in this 
respect. It could be legally erroneous to interpret this lack of use as meaning that 
there is now exclusive use for tax-exempt purposes. 
There are no other circumstances which could lead to an input tax adjustment. 
[Further comments on this subject with regard to national law] 
[...] [Or. 9] [...] 
4. Legal basis of the reference 
The reference is based on Article 267 of the Treaty on the Functioning of the 
European Union. 
[Procedural Matters] 
[...]