Opinion of Mr Advocate General Jacobs delivered on 22 February 2001. - Stichting "Goed Wonen" v Staatssecretaris van Financiën. - Reference for a preliminary ruling: Hoge Raad der Nederlanden - Netherlands. - Sixth VAT Directive - Power of a Member State to treat certain rights in rem in immovable property as tangible property capable of supply - Restriction of the exercise of that power to cases where the price of the right in rem is at least equal to the economic value of the property concerned - Letting and leasing of immovable property - Exemptions. - Case C-326/99.



European Court reports 2001 Page I-06831



Opinion of the Advocate-General

1. The present case referred by the Netherlands Hoge Raad (Supreme Court) concerns the interpretation of Articles 5(3) and 13B(b) of the Sixth VAT Directive. At issue is the value added tax treatment of the grant of a usufructuary right in respect of immovable property for a term of 10 years. One of the questions is whether a Member State may treat such a transaction as exempted leasing or letting of immovable property within the meaning of Article 13B(b) of the Sixth Directive.

Relevant provisions of the Sixth Directive

2. Under Article 2(1) of the Sixth Directive the supply of goods or services effected for consideration by a taxable person acting as such is subject to value added tax.

3. Three of the concepts referred to in Article 2(1) are defined in Articles 4, 5 and 6 of the Directive, namely the concepts of taxable person, supply of goods and supply of services.

4. Under Article 4(1) taxable person means any person who independently carries out any economic activity specified in paragraph 2 thereof.

5. Under Article 4(2) [t]he exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.

6. Article 5, which is the first provision of Title V Taxable transactions, provides:

1. "Supply of goods" means the transfer of the right to dispose of tangible property as owner.

...

3. Member States may consider the following to be tangible property:

(a) certain interests in immovable property;

(b) rights in rem giving the holder thereof a right of user over immovable property;

(c) shares or interests equivalent to shares giving the holder thereof de jure or de facto rights of ownership or possession over immovable property or part thereof.

...

7. According to Article 6(1) supply of services means any transaction which does not constitute a supply of goods within the meaning of Article 5.

8. Article 13 of the Directive concerns domestic exemptions from VAT. Article 13A enumerates activities which are exempted in the public interest. Article 13B contains a list of other exemptions. Article 13 C entitles Member States to grant taxpayers a right to opt for taxation in certain of the cases listed in Article 13B. It must be borne in mind that in some circumstances it may work to the advantage of a taxable person to opt for taxation of a supply in order to be able to reclaim the input tax incurred.

9. The exemption at issue in the present case is Article 13B(b) which exempts from VAT the leasing or letting of immovable property. The Member States may subject that exemption to conditions and certain transactions are excluded from its scope. Article 13B(b) provides:

B. Other exemptions

Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

...

(b) the leasing or letting of immovable property excluding:

1. the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;

2. the letting of premises and sites for parking vehicles;

3. lettings of permanently installed equipment and machinery;

4. hire of safes.

Member States may apply further exclusions to the scope of this exemption.

10. Article 13C provides for a related right to opt for taxation:

C. Options

Member States may allow taxpayers a right of option for taxation in cases of:

(a) letting and leasing of immovable property;

(b) ...

Member States may restrict the scope of this right of option and shall fix the details of its use.

11. In certain cases it might appear appropriate to authorise Member States to take or retain special measures derogating from the Directive in order to simplify the levying of tax or to avoid fraud or tax avoidance. Article 27(1) of the Sixth Directive therefore provides:

The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance. ...

The Netherlands legal background

12. In the Netherlands value added tax is governed by the Wet op de omzetbelasting 1968 (Law on turnover tax 1968, hereinafter the Law), as amended.

13. The present dispute centres essentially upon two amendments made to that Law by a Law of 18 December 1995. Those amendments were expressly designed to combat tax avoidance arrangements with regard to immovable property. They were given retroactive effect from 6 p.m. on 31 March 1995.

14. For the purpose of the analysis it is perhaps best to set out in full the text of the two amended provisions. The newly-introduced passages are printed in italics. Other relevant provisions of the Law will be summarised.

15. Article 1(a) of the Law describes the scope of value added tax in terms almost identical to Article 2(1) of the Directive.

16. Article 3 of the Law clarifies the concept of supplies of goods. Under Article 3(1)(e) a supply of goods consists for example in a transfer of goods as a result of which the goods in question leave the taxable person's business assets.

17. The first of the two amended provisions which are in issue in the present case is Article 3(2) of the Law. It establishes a deemed supply of goods and is intended to make use of the possibility afforded by Article 5(3) of the Directive. It provides in its amended version:

2. The grant, transfer, modification, waiver or termination of limited rights over immovable property, with the exception of mortgages and ground rents must also be viewed as a supply of goods, save where the sum paid therefor plus turnover tax amounts to less than the economic value of those rights. The economic value shall be not less than the cost price of the immovable property to which the right relates, including turnover tax, which would result if it were created by an independent third party at the time of the transaction.

18. Article 11(1)(b) as amended is the second contentious provision. It is intended to implement Article 13B(b) and 13C(a) of the Directive and provides:

1. The following are exempted from tax, subject to the conditions to be laid down by general administrative regulation:

...

(b) the letting (including the leasing) of immovable property, excluding:

(1) ...

...

(5) the letting of immovable property, apart from buildings and parts thereof which are used as accommodation, to persons using such property for purposes in respect of which there exists a complete or virtually complete right to deduct tax pursuant to Article 15, provided that the lessor and lessee have jointly submitted a request to that effect to the Inspector and provided that they otherwise fulfil the conditions to be laid down by Ministerial regulation;

"letting of immovable property" shall be taken to mean, inter alia, any other form in which immovable property is made available for use otherwise than by way of the supply thereof.

The facts and the main proceedings

19. At the material time in 1995 the appellant in the main proceedings was a housing association called Woningbouwvereniging Goed Wonen. In 1997 it changed its legal form and became a foundation called Stichting Goed Wonen. Since that change has no bearing on the present case and in order to prevent confusion with the distinct Stichting De Goede Woning introduced below I will refer to the housing association and the succeeding foundation simply as the appellant.

20. In the course of the second trimester of 1995 three new-built housing complexes with dwellings designed for letting (hereinafter the new houses) were supplied to the appellant.

21. By notarial act dated 28 April 1995 the appellant set up the Stichting De Goede Woning (hereinafter the Stichting).

22. By a further notarial act of the same date, the appellant granted the Stichting a usufructuary right for a term of 10 years in respect of the new houses in return for a sum lower than the cost price of those houses.

23. The act granting the usufructuary right provided also that the Stichting was to commission the appellant to

- manage the buildings and carry out large and small-scale maintenance work or have the same carried out,

- collect and administer the rents, issue receipts for rents received, conclude, modify and terminate agreements for the rental of the buildings and issue invoices in respect of rent increases,

- carry out all such (legal) acts on behalf of the usufructuary in relation to the aforesaid management as the Stichting may deem appropriate.

24. In its tax declaration for the period 1 April 1995 to 30 June 1995 the appellant indicated the turnover tax for the grant of the usufructuary right to the Stichting (HFL 645 067) and offset the amount of the turnover tax charged to it in connection with the construction of the new houses (HFL 1 285 059). On the basis of that declaration the appellant initially recouped HFL 639 992.

25. The setting-up of the Stichting and the grant of the usufructuary right may thus have been to the appellant's advantage in particular because under the law in force before the amendments it was able to deduct the input tax.

26. Presumably after the entry into force (with retroactive effect) of the amendments made by the law of 18 December 1995 the Netherlands tax authorities issued a supplementary assessment in the sum of HFL 1 285 059 corresponding to the amount deducted by the appellant as input tax. The appellant lodged an objection against that supplementary assessment. The Netherlands authorities initially confirmed their decision. By decision of 14 February 1997 they however reduced the assessment to the sum of HFL 639 992 which corresponds to the amount recouped by the appellant on the basis of the declaration.

27. By judgment of 20 May 1998 the Gerechtshof te Arnhem (Regional Court of Appeal, Arnhem) annulled the tax authorities' initial assessment but confirmed the assessment in its corrected form of 14 February 1997. The Gerechtshof held that the setting-up of the Stichting and the grant of the usufructuary right were of no relevance for VAT purposes and argued essentially as follows.

28. In the first place, the Stichting had to be assimilated to the appellant, because the role of the appellant in its relationship with the Stichting was so dominant. The grant of the usufructuary right was not therefore a transaction between two different taxable persons.

29. Secondly, even if such an assimilation was not possible, the grant of the usufructuary right could not be viewed as giving rise to taxation and to the related right to deduct input tax:

- it could not be regarded as a transfer of the right to dispose of the asset in question as owner within the meaning of Article 5(1) of the Sixth Directive and Article 3(1)(e) of the Law, since it involved merely the grant of a limited right;

- it could also not be regarded as a supply of goods within the meaning of Article 3(2) of the Law as amended, since the sum paid for it amounted to less than the cost price of the houses in question;

- since it could not be considered as a supply of goods it had to be considered as a supply of services, taxable in principle; but that supply had to be considered as exempted letting of immovable property within the meaning of the new definition contained in Article 11(1)(b) of the Law as amended, since it constituted a form in which immovable property is made available for use otherwise than by way of supply thereof.

30. The appellant lodged an appeal against that judgment before the Hoge Raad.

31. The Hoge Raad appears to have no doubt about three issues. In the Hoge Raad's view the Gerechtshof was wrong in assimilating the appellant to the Stichting, because the legal transactions at issue resulted in the creation of a separate legal entity, in the form of a foundation, which was distinct from the appellant. However, the Gerechtshof had rightly held that there was no transfer of the right to dispose of the assets in question as owner within the meaning of Article 5(1) of the Sixth Directive and Article 3(1)(e) of the Law. The Stichting obtained only a limited right which did not encompass the right to dispose freely of the houses in question. Finally, it was in the present case not open to the courts to question the retroactive effect of the Law of 19 December 1995.

32. The Hoge Raad considers however that several of the appellant's arguments raise questions regarding the interpretation of the Sixth Directive.

33. Before the referring court the appellant maintained in substance, first, that Article 3(2) of the Law infringes Article 5(3)(b) of the Directive. In its view, the Netherlands legislature wrongly established a link between the amount of the consideration paid for the grant of a right in rem and the question whether that grant is to be regarded as a taxable supply. Secondly, before amending Article 3(2) of the Law the Netherlands should have sought authorisation pursuant to Article 27 of the Directive. Thirdly, Article 11(1)(b) of the Law is contrary to Article 13B(b) and 13C(a) of the Directive in that it exempts from value added tax transactions such as the grant of an usufructuary right which cannot be regarded as leasing or letting of immovable property within the meaning of the Directive.

34. In the light of those arguments the Hoge Raad submitted the following questions for a preliminary ruling:

1. Is Article 5(3) of the Sixth Directive to be interpreted as meaning that rights in rem entitling the holder thereof to use immovable property may be treated by the national legislature as tangible property only if the remuneration agreed in respect of the grant, transfer, modification, waiver or termination of those rights is at least equivalent to the financial value of the immovable property concerned?

2. Are Article 13B(b) and Article 13C(a) of the Sixth Directive to be interpreted as meaning that the national legislature may treat the terms "leasing or letting" as covering not only leasing and/or letting in the sense applied to those terms by civil law but also any other form in which immovable property is made available for use otherwise than by way of the supply thereof?

35. Written observations have been submitted by the Netherlands Government and the Commission. At the hearing the appellant, the Netherlands and German Governments, and the Commission were represented.

Question 1: Article 5(3) of the Sixth Directive

36. By its first question the referring court wishes to ascertain whether Article 5(3)(b) of the Sixth Directive must be interpreted as precluding a national provision such as Article 3(2) of the Law as amended which subjects the classification as supply of goods of the grant, transfer, modification, waiver or termination of rights in rem, with the exception of mortgages and ground rents, to the condition that the sum paid therefor plus turnover tax amounts at least to the economic value of the immovable property to which the rights in rem relate.

37. The appellant maintains that the amendment of Article 3(2) of the Law is incompatible with Article 5(3)(b) of the Directive. In its view the Directive allows the Member States only to select within the catalogue of rights in rem existing in their national legal order the rights which should be assimilated to tangible property. It does not however allow them to differentiate on the basis of the sum paid for a transaction over such a right. The effect of the criterion chosen by the Netherlands is that depending on the sum paid a given right in rem is regarded as tangible property in some cases and not in others. It follows that before amending Article 3(2) of the Law the Netherlands should have sought authorisation pursuant to Article 27 of the Directive. Neither at the moment of the grant of the usufructuary right nor when the amendments were adopted by the legislature did the Netherlands have such an authorisation. The authorisation granted in 1996 came too late, allowed a derogation from a different provision of the Sixth Directive and was in any event never used by the Netherlands.

38. The Netherlands Government and the Commission maintain - and I agree with them on this point - that a national provision such as Article 3(2) as amended is compatible with Article 5(3)(b) of the Sixth Directive.

39. According to Article 5(1) of the Sixth Directive supply of goods means the transfer of the right to dispose of tangible property as owner. The two key elements in the definition are that the supply must entail the transfer of the right to dispose of [the] property as owner and that the supply must concern tangible property.

40. As regards the first element, the Court has held that supply of goods does not refer to the transfer of ownership in accordance with the procedures prescribed by the applicable national law but covers any transfer of tangible property by one party which empowers the other party actually to dispose of it as if he were the owner of the property.

41. As regards the second element, Article 5(3)(b) provides that the Member States may consider rights in rem giving the holder thereof a right of user over immovable property to be tangible property. That provision was prompted by the existence in the private law of several Member States of limited rights in rem such as usufruct, emphyteusis and superficie which give the holder certain rights of economic utilisation over immovable property.

42. On a literal interpretation of Article 5(1) and (3)(b) Member States may consider only the transfer of the rights in rem mentioned in Article 5(3)(b) as a supply of goods within the meaning of the directive. It follows however from Van Tiem that where a Member State has made use of the possibility provided for by Article 5(3)(b) to consider certain rights in rem to be tangible property, the term transfer in Article 5(1) must be interpreted as also covering the creation of such a right.

43. As regards the appellant's main argument that the Member States are not entitled to differentiate on the basis of the sum paid for a transaction over a given right, Article 5(3)(b) provides expressly that Member States may consider rights in rem giving the holder a right of user over immovable property as tangible property. No provision in the Sixth Directive subjects the discretion which the Member States enjoy under that provision to an express limitation. Since the Member States are free to consider the rights in rem mentioned in Article 5(3)(b) not to be tangible property at all, they may a fortiori also subject their classification as tangible property to restrictive conditions. The only limitation which the Member States have to respect is that the conditions imposed must not fundamentally alter the nature of the choice offered by Article 5(3)(b).

44. It will be recalled that the distinguishing criterion chosen by the Netherlands legislature is the sum paid for the transaction over the right in rem. That in my view is not contrary to the objective of Article 5(3) and does not fundamentally alter the nature of the choice offered by that provision. The objective of Article 5(3)(b) is to allow the Member States to treat as supplies of goods certain transactions which are similar in their economic effects to the supplies covered by Article 5(1). That similarity will in practice often be stronger where the sum paid for the transaction over the right in rem corresponds to the economic value of the immovable property concerned and weaker where no price or a price below the economic value of the immovable property in question is paid.

45. An alternative criterion could have been the period for which a limited right in rem is granted. That is illustrated by a Council Decision authorising Ireland to apply a measure derogating from the Sixth Directive. It appears incidentally from that decision that Ireland treats the supply of long-term lease interests (i.e. a lease of 10 years or more) in immovable property as a supply of goods. The Council stated in that context that Community law gives the Member States a great deal of discretion in determining the VAT treatment to be applied to immovable property, and its transposition has led to considerable variations in the national laws applied in that field.

46. Since the disputed amendment is allowed by Article 5(3) of the Directive, the Netherlands did not need an authorisation pursuant to Article 27 of the Directive. It is therefore not necessary to discuss the appellant's arguments concerning the authorisation of 1996.

47. It is perhaps possible to imagine transactions by which certain rights in rem over immovable property are granted for a sum below the economic value of that property and which at the same time actually empower the other party to dispose of the property as if he were the owner thereof. If Article 3(2) were to be interpreted as causing those transactions to be classified as supplies of services, a conflict with Article 5(1) as interpreted by the Court could perhaps arise. Since the present case does not concern a transaction of that type and since no question on the interpretation of Article 5(1) was referred, the Court does not need to pursue that hypothesis further.

48. I accordingly conclude that Article 5(3)(b) of the Sixth Directive must be interpreted as allowing a Member State to subject the classification as supply of goods of a transaction concerning a limited right over immovable property to the condition that the sum paid for the transaction plus turnover tax amounts at least to the economic value of the immovable property to which the right relates.

Question 2: Article 13B(b) of the Sixth Directive

The disputed amendment and the formulation of the question

49. The referring court asks:

Are Article 13B(b) and Article 13C(a) of the Sixth Directive to be interpreted as meaning that the national legislature may treat the terms "leasing or letting" as covering not only leasing and/or letting in the sense applied to those terms by civil law but also any other form in which immovable property is made available for use otherwise than by way of the supply thereof?

50. The question is thus formulated in abstract terms by reference to the wording of the disputed amendment of Article 11(1)(b) of the Law which defines letting of immovable property as inter alia, any other form in which immovable property is made available for use otherwise than by way of supply thereof.

51. Despite the broad scope of the referring court's question the arguments of the parties in the main proceedings and the observations submitted to the Court have concentrated almost exclusively on the concrete problem discussed in the main proceedings, namely the grant of a usufructuary right and its classification for VAT purposes. It would moreover be difficult to give the referring court a general reply which takes into account all legal forms available under the laws of the Member States through which immovable property can be made available for use.

52. I therefore propose to reformulate the second question in the light of the facts of the main proceedings and to consider whether a Member State may regard the grant of a usufructuary right over immovable property for a limited period of time (for example 10 years) as leasing or letting of immovable property within the meaning of Article 13B(b) and C(a) of the Sixth Directive.

The nature of usufruct

53. According to Article 3:021 of the Netherlands Civil Code a usufructuary right gives the holder thereof the right to use the property of another and to take the fruits of that property.

54. Usufruct has its origin in Roman law where it was defined as the right to use and enjoy the things of another without impairing their substance. Its primary purpose was essentially alimentary, e.g. provision for a widow. Initially Roman lawyers were not sure how to classify it and it was argued that in many respects usufruct was a fraction of ownership. Only at a later stage did it come to be thought of as a limited ius in rem which was to be classified as a personal servitude. A servitude was a right which encumbered another person's property and could be either praedial or personal. Praedial servitudes such as rights of way attached to land: they were rights that a person had by virtue of ownership of land over the land of another. Personal servitudes such as usufruct attached to a particular person and died with him.

55. Today in the Community usufruct exists in Austria, Belgium, France, Germany, Greece, Italy, Luxembourg, the Netherlands, Portugal and Spain. In those legal orders it is still classified as a personal servitude. It is mainly used in family arrangements and/or for tax reasons.

56. Usufruct's main features under the national laws concerned are the following:

- it is the exclusive right in rem to use and take the fruits of a property belonging to another as if the usufructuary were the owner of that property;

- the usufructuary is not allowed to alter fundamentally the nature or the use of the property;

- a usufructuary right is granted for life or any fixed period; if given to a legal entity it may in many legal orders not exceed a period fixed by law (e.g. 30 years);

- as a personal servitude it cannot survive the death of the original usufructuary or its dissolution if a legal entity;

- usufruct is created inter alia by contract, will, operation of law (e.g. usufruct over the family home for the surviving spouse) or court decision;

- in many legal orders the transfer of a usufructuary right is excluded by law or at least subject to the agreement of the owner.

57. Usufruct as such does not exist in Denmark, Finland, Sweden, Ireland or the United Kingdom.

58. In Denmark, Finland, Sweden and Ireland there are comparable but much more limited rights to take the produce from another's land for a determined period (e.g. timber felling rights, grazing licences).

59. Close equivalents to usufruct in England and Wales, Ireland and Northern Ireland are perhaps life estates and the long lease which may be determinable on death to make it similar to a usufruct for life. In Scotland the liferent apparently fulfils a similar purpose.

60. In England and Wales, Northern Ireland, Ireland and Scotland there was historically no need for the legal institution of usufruct. In those legal orders the lease may be used to obtain very similar results, namely to grant to the lessee an exclusive right (similar to limited ownership) to occupy or take the profits from land or buildings for a fixed period of time. In English law there was also the trust - especially to fulfil the alimentary function.

The grant of a usufructuary right as leasing or letting within the meaning of Article 13B(b) of the Sixth Directive

61. The appellant and the Commission maintain that the grant of a usufructuary right cannot be regarded as exempted leasing or letting within the meaning of Article 13B(b) of the Sixth Directive.

62. In the first place, they recall the Court's settled case-law that the exemptions provided for in Article 13 of the Sixth Directive are to be interpreted strictly since they constitute exceptions to the general principle that VAT is to be levied on all supplies of goods or services made for consideration by a taxable person.

63. Moreover, it follows in their view from the terminology employed in the Sixth Directive that the concept of leasing or letting in Article 13B(b) must be interpreted by reference to the common principles of the civil laws of the Member States as they derive from Roman law.

64. They refer to the Sixth Directive which uses inter alia the following concepts:

- rights in rem giving the holder thereof a right of user of immovable property in Article 5(3)(b);

- leasing or letting of immovable property (in Netherlands verpachting en verhuur) in Article 13B(b);

- exploitation of property for the purpose of obtaining income therefrom on a continuing basis in Article 4(2).

65. The appellant and the Commission maintain that the authors of the Directive were thus aware of the fundamental differences in civil law between, on the one hand, the grant of a right in rem such as a usufructuary right and, on the other hand, leasing or letting (in Netherlands verpachting en verhuur). The latter concept must be read as relating only to personal rental contracts which do not give rise to rights in rem. If the Community had wanted to bring the grant of rights in rem within the scope of the exemption it could have used in Article 13B(b) a more neutral formula similar to that used in Article 4(2).

66. According to the appellant and the Commission the main differences between, on the one hand, a rental contract creating rights in personam which is to be considered as exempted leasing or letting and, on the other hand, the grant of a usufructuary right which is not exempted from VAT are the following:

- usufruct grants the holder a right in rem, whilst rental contracts grant only rights in personam;

- a usufructuary right does not survive the death of the original usufructuary, whilst a rental agreement continues in principle with the successors of the tenant;

- a usufructuary right may be granted without remuneration, whilst the concept of a rental contract presupposes the payment of a remuneration;

- the usufructuary has the right to use the property in question fully and thus also to sublet it; in a rental agreement subletting is in principle precluded if not exceptionally allowed by the owner.

67. I am not convinced by those arguments. In my view the Netherlands and German Governments are right to maintain that a Member State may regard the grant of a usufructuary right as exempted leasing or letting within the meaning of Article 13B(b) of the Sixth Directive.

68. The Sixth Directive does not expressly define the concept of leasing or letting. Nor does it leave that definition to the legal orders of the Member States.

69. It follows from the 11th recital of the preamble to the Sixth Directive that the common list of exemptions in Article 13 is designed to guarantee that VAT is collected in a uniform manner in all the Member States. It is therefore well-established case-law that the terms used to specify the exemptions provided for by Article 13 constitute independent concepts of Community law which must be given a Community definition.

70. The wording of Article 13B(b) of the Sixth Directive does not shed any light on the scope of the concept of leasing or letting of immovable property.

71. The appellant and the Commission appear to suggest, if I understand their arguments correctly, that leasing or letting (in Netherlands verpachting en verhuur) must be taken to refer only to personal rental contracts which do not give rise to rights in rem as they are known in the civil laws of the Member States most strongly influenced by Roman law.

72. I consider however that the Community definition of leasing or letting cannot be found by simply referring to legal concepts used by only some of the national laws.

73. That is, first, because there are important substantive differences between the legal institutions used in the different Member States.

74. For example the lease to which the wording of the English version refers is a peculiar institution of the common law jurisdictions. Leasehold is considered as one of two main types of interests in land, the other being freehold (akin to absolute ownership). Leasehold is traditionally regarded as a kind of limited ownership and may thus be even stronger than limited rights in rem. A lease may be used to grant a right to occupy or take the profits from land or buildings either for a fixed term, commonly up to 999 years, or by way of periodic tenancy, e.g. on a recurring monthly or yearly basis until determined by notice.

75. In order to obtain the same range of economic results the civil law jurisdictions use several distinct legal vehicles such as rental contracts and rights in rem (e.g. usufruct or building rights). In that respect the Germanic and Romanist legal orders appear to attach importance to the systematic distinction between contracts over immovable property which grant only rights in personam such as rental contracts and arrangements which create rights in rem. The Nordic legal orders do not appear to insist so strongly on those systematic differences.

76. Secondly, those substantive differences are reflected in important linguistic differences of terminology within Article 13B(b) as regards the phrase leasing or letting. The wording of the Danish, Dutch, French, German, Italian and Swedish language versions refers to two distinct types of contracts. One of those contracts (udlejning, location, Vermietung, locazione, verhuur, uthyrning) consists of granting the tenant the right to use the property of another. The other type of contract (bortforpagtning, affermage, Verpachtung, affitto, verpachting, utarrendering) consists of allowing the tenant also to enjoy the gains produced by the property. The English and Spanish versions also use two words (leasing or letting, arrendiamento y alquiler), but the words do not correspond to two technically distinct types of contracts. The Finnish, Greek and Portuguese versions use only one word referring to one type of contract.

77. Finally, it appears from the first subparagraph of Article 13B(b) that the authors of the Directive did not have a purely formalistic idea of the concept of leasing or letting. That provision excludes from the scope of the exemption inter alia the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites. It might be argued that the existence of the exclusion in question logically presupposes that the contract for a hotel room constitutes leasing or letting for the purposes of Article 13B(b). The authors of the Directive were however certainly aware that such a contract - in view of the overriding importance of the services provided by the hotelier and the control he retains over the use of the premises - is in some national laws not considered to be a contract to let.

78. It does not therefore come as a surprise that the Court's case-law on the concept of leasing or letting of immovable property instead of referring to legal categories of national law takes a functional approach which takes into account the context in which the concept is used and the general structure of the Sixth VAT Directive.

79. The Court held for example in two of the road toll cases that the definition of leasing or letting of immovable property under Article 13B(b) is certainly wider in some respects than that enshrined in various national laws. In the same cases the Court did not attempt to classify the contract granting access to roads on payment of a toll by reference to categories of national law. It held instead that the concept leasing or letting could not be considered to cover contracts in which the parties have not agreed on any duration for the right of enjoyment of the immovable property, which was an essential element of a contract to let. Where access to roads was provided, the duration of the use of the road was not a factor taken into account by the parties, in particular in determining the price. More recently in Stockholm Lindöpark, which concerned the making available of a golf course, the Court repeated that agreement on the duration of the right of enjoyment of the immovable property was an essential element of leasing or letting. In my Opinion in the same case I emphasised also another essential element: that a lease or let necessarily involved the grant of some right to occupy the property as one's own and to exclude or admit others, a right which is, moreover, linked to a defined piece or area of property.

80. A functional interpretation of the concept of leasing or letting of immovable property moreover guarantees the equal treatment of taxable persons who in economic terms perform equivalent transactions and facilitates the uniform application of exemptions throughout the Community as postulated in the 11th recital of the preamble to the Sixth Directive. It is also in line with the Court's functional interpretation of the concept of the transfer of the right to dispose of [the] property as owner within the meaning of Article 5(1).

81. What then are the essential elements of the concept of leasing or letting of immovable property?

82. In his Opinion in Lubbock Fine Advocate General Darmon used a definition which was common ground between the parties, namely that a letting was a contract by which the owner transfers in return for a rent certain rights in his property, such as the right of enjoyment of the property, whatever the nuances of national law on that point. In a footnote he added that leasing or letting for the purposes of Community law included in his view a lease, a licence, a bail or a convention d'occupation précaire.

83. In the light of the Court's subsequent case-law I would tentatively suggest a more specific interpretation which takes into account the different language versions of Article 13B(b) and the divergences between the laws of the Member States.

84. Leasing or letting of immovable property within the meaning of Article 13B(b) includes in my view agreements whereby one party grants the other the right to occupy a defined immovable property as his own and to use or even take profits from that property for an agreed (definite or indefinite) duration in exchange for remuneration linked to that duration.

85. If one applies that interpretation to the present case the grant of a usufructuary right as in issue in the main proceedings can properly be considered as exempted leasing or letting of immovable property.

86. It may be recalled that the appellant granted the Stichting a usufructuary right over the new houses for a period of 10 years. There was thus an agreement whereby one party grants the other the right to occupy and to use and even take the profits from a specified immovable property. That right was granted for remuneration and for an agreed duration.

87. The particularities of usufruct emphasised by the appellant and the Commission cannot affect that result.

88. The fact that usufruct grants the holder a right in rem whilst rental contracts grant only rights in personam is irrelevant. Even in the civil law jurisdictions the practical differences between usufruct and rental contract are much narrower than suggested by the abstract and theoretical distinction between rights in personam and rights in rem. For example in most civil law jurisdictions the tenant does not lose his rights arising from a rental contract - which are in theory in personam only - where the owner sells the property to a third person. Conversely a usufructuary right (a personal servitude) can rarely be transferred freely to third persons and cannot survive the death of the original usufructuary. Those are probably the main reasons why the classification both of the rights flowing from a rental contract as rights in personam and of usufruct as a right in rem were historically disputed. It must also be recalled that in the common law jurisdictions the lease serves the purposes of both rental contracts and usufruct and may grant the tenant rights which are stronger than limited rights in rem.

89. The fact mentioned by the Commission that usufruct does not survive the death of the original usufructuary whilst a rental contract continues in principle with the successors of the tenant only confirms my thesis about the irrelevance of the abstract distinction between the legal effects of rental contracts and of usufruct. The theoretical distinction between rights in rem and rights in personam would lead one to expect exactly the opposite.

90. The fact that a usufructuary right may be granted without remuneration is also irrelevant. It is true that a usufructuary right granted without remuneration for example in family arrangements cannot be assimilated to leasing or letting. It must however be borne in mind that supplies effected for no consideration fall in any event outside the scope of the Sixth Directive.

91. Finally, I am not convinced that the Commission's contention that the usufructuary may always sublet the property whilst the tenant in a rental contract needs the authorisation of the owner is correct. It appears that the right of the usufructuary to sublet may also be limited by contract. In any event, it cannot be decisive for the classification of usufruct as leasing or letting whether subletting is allowed subject to contractual limitations or forbidden subject to contractual authorisation.

92. In the light of the foregoing, I conclude that a Member State can properly regard the grant of a usufructuary right over immovable property for a limited period of time (for example 10 years) as leasing or letting of immovable property within the meaning of Article 13B(b) and C(a) of the Sixth Directive.

Conclusion

93. For the above reasons the questions referred should in my view be answered as follows:

(1) Article 5(3)(b) of the Sixth VAT Directive must be interpreted as allowing a Member State to subject the classification as a supply of goods of a transaction concerning limited rights over immovable property to the condition that the sum paid for the transaction plus turnover tax amounts to no less than the economic value of the immovable property to which the rights relate;

(2) Article 13B(b) and C(a) of the Sixth VAT Directive must be interpreted as allowing a Member State to regard the grant of a usufructuary right over immovable property for a limited period of time (for example 10 years) as leasing or letting of immovable property within the meaning of those provisions.