Centralan Property Ltd v Commissioners of Customs & Excise.
Date: 2005-12-15
50. According to settled case-law, the right to deduct provided for in Articles 17 to 20 of the Sixth Directive is an integral part of the VAT scheme and in principle may not be limited. It must be exercised immediately in respect of all the taxes charged on transactions relating to inputs (see, among others, Case C-62/93 BP Supergas  [1995] ECR I‑1883, paragraph 18, and Joined Cases C-110/98 to C‑147/98 Gabalfrisa and Others  [2000] ECR I-1577, paragraph 43).
51. As the Court has repeatedly held, the deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject to VAT (see, among others, Case 268/83 Rompelman  [1985] ECR 655, paragraph 19; Case 50/87 Commission  v France  [1988] ECR 4797, paragraph 15; Case C-37/95 Ghent Coal Terminal  [1998] ECR I-1, paragraph 15; and Case C-465/03 Kretztechnik  [2005] ECR I‑4357, paragraph 34).
52. It is clear from the wording of Article 17(2) of the Sixth Directive that, for a person concerned to be entitled to the right to deduct, first, he must be a ‘taxable person’ within the meaning of that directive and, second, the goods and services in question must be used for the purposes of his taxable transactions (see, to that effect, Case C‑137/02 Faxworld  [2004] ECR I-5547, paragraph 24).
53. As regards goods and services which are used by a taxable person both for transactions giving rise to the right to deduct and for transactions not giving rise to that right, Article 17(5) of the Sixth Directive provides that only such proportion of the VAT shall be deductible as is attributable to the taxable transactions. That proportion is calculated according to the rules in Article 19 of that directive (see, to that effect, Case C-306/94 Régie Dauphinoise  [1996] ECR I‑3695, paragraphs 3 and 4, and Case C‑136/99 Monte Dei Paschi Di Siena  [2000] ECR I‑6109, paragraph 24).
54. It follows that the decisive criterion for the deduction of input VAT is the use of the goods and services concerned for taxable transactions. As the Court has already held, it is only to the extent that an item is used for the purposes of his taxable transactions that a taxable person may deduct from the VAT for which he is liable the VAT paid or payable in respect of that item (Case C‑291/92 Armbrecht  [1995] ECR I‑2775, paragraph 27). It is thus clear from the case-law that the use to which the goods or services are put, or are intended to be put, determines the extent of the initial deduction to which the taxable person is entitled under Article 17 of the Sixth Directive and the extent of any adjustments in the course of the following periods, which must be made under the conditions laid down in Article 20 of that directive (see, to that effect, Case C-97/90 Lennartz  [1991] ECR I‑3795, paragraph 15, and Case C-396/98 Schloβstraβe  [2000] ECR I‑4279, paragraph 37).
55. As regards capital goods, Article 20 of the Sixth Directive lays down a special system of adjustment. In that regard, it should be noted that, in the context of Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes – Structure and procedures for application of the common system of value added tax (OJ, English Special Edition 1967, p. 16), the Court held that the special system reserved for capital goods by that directive is explained and justified by the durable use of those goods and the attendant writing-off of their acquisition costs (see, to that effect, Case 51/76 Verbond van Nederlandse Ondernemingen  [1977] ECR 113, paragraphs 12 and 13). Those considerations apply, mutatis mutandis, to the special system of adjustment of deductions relating to capital goods laid down in Article 20 of the Sixth Directive.
56. Article 20(3) of the Sixth Directive governs the particular case of the supply of capital goods before the end of the period of adjustment. In that case, the annual adjustment is replaced by a single adjustment, based on the presumed use of the capital goods in question for the period still to run. Under that provision, the deductibility of the input VAT depends on whether the supply made is or is not subject to VAT.
57. It follows from the foregoing that the rules laid down by the Sixth Directive in respect of adjustment are intended to enhance the precision of deductions so as to ensure the neutrality of VAT, with the result that transactions effected at an earlier stage continue to give rise to the right to deduct only to the extent that they are used to make supplies subject to VAT. By those rules, that directive is thus intended to establish a close and direct relationship between the right to deduct input VAT and the use of the goods and services concerned for taxable transactions.
62. However, without it being necessary to take a position on the validity of that last assertion, the Court not having competence to interpret the Member States’ national laws, it must be stated that it is clear from the wording of Article 5(1) of the Sixth Directive 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 (Case C‑320/88 Shipping and Forwarding Enterprise Safe  [1990] ECR I‑285, paragraph 7, and Case C‑185/01 Auto Lease Holland  [2003] ECR I-1317, paragraph 32).
63. In that context, it is for the national court to determine in each individual case, on the basis of the facts of the case, whether a given transaction in respect of property results in the transfer of the right to dispose of the property as owner within the meaning of Article 5(1) of the Sixth Directive (see, to that effect, Shipping and Forwarding Enterprise Safe , paragraph 13).
78. Furthermore, such an interpretation finds support in the Court’s case-law. Thus, the Court has held that a proportional approach is required even in circumstances where the wording of the relevant provision of the Sixth Directive does not provide for it expressly ( Armbrecht , paragraphs 29 and 32, and Case C-230/94 Enkler  [1996] ECR I‑4517, paragraph 38).
79. Centralan and the Commission however highlighted the practical difficulties which may result, in their submission, from taking into account two supplies for the purposes of the application of Article 20(3) of the Sixth Directive. In that regard, they cite particularly the example of two supplies which occur in the course of different intervals.
80. Without it being necessary in this case to consider such an example, since it is hypothetical, it is sufficient to observe that while, admittedly, taking into account more than one supply occurring during the period of adjustment is liable to give rise to certain practical difficulties, it still does not lead to insurmountable difficulties capable of affecting the application of the VAT system. As the Advocate General suggested in points 56 and 58 of her Opinion, in such a case, one might consider, for example, continuing, in application of Article 20(2) of the Sixth Directive, the adjustment of the part of the initial deduction which relates to the interest remaining in the taxable person’s ownership until, as the case may be, the transfer of that interest or the end of the period of adjustment.