Grundstückgemeinschaft Schloßstraße GbR v Finanzamt Paderborn.
Date: 2000-06-08
28 Nevertheless, querying whether such an interpretation of the relevant provisions of German law is consistent with the case-law of the Court of Justice on Article 17 of the Sixth Directive, the Bundesfinanzhof stayed proceedings pending a preliminary ruling from the Court on the following questions:
(1) According to the case-law of the Court of Justice (Case C-37/95 Ghent Coal Terminal NV, in which reference is made to Case C-110/94 INZO), a taxable person can retain the right to deduct tax charged on goods and services where, by reason of circumstances beyond his control, he has not made use of those goods and services for the purpose of carrying out taxable transactions.
According to that principle, does a taxable person also retain the right to deduct tax if he does in fact use the goods or services to carry out (leasing) transactions but, following a change in the law, is no longer entitled, after acquiring the goods or services, to opt to waive the tax exemption for the transactions carried out with them, and so cannot in fact carry out any taxable transactions?
(2) In such a case, where there is a subsequent change in circumstances, does the right to deduct tax also continue to exist if, under national law, the tax assessments were allowed to be subject to a subsequent review, enabling a quick tax assessment to be made solely on the basis of information supplied by the taxable person, but giving the revenue authority the right to correct the tax assessment in every respect on the basis of factual and legal considerations?
34 On that point, the Court has held that a Member State which has availed itself of the possibility provided for by Article 13C of the Sixth Directive and has thus granted its taxpayers the right to opt for taxation of certain lettings of immovable property may, by means of a subsequent law, abolish that right of option and thus reintroduce the exemption for such operations (Case C-381/97 Belgocodex v Belgian State [1998] ECR I-8153, paragraph 27).
36 In that connection, it must be borne in mind that a person who has the intention, confirmed by objective evidence, to commence independently an economic activity within the meaning of Article 4 of the Sixth Directive and who incurs the first investment expenditure for those purposes must be regarded as a taxable person. Acting in that capacity, he has therefore, in accordance with Article 17 et seq. of the Sixth Directive, the right immediately to deduct the VAT payable or paid on the investment expenditure incurred for the purposes of the transactions which he intends to carry out and which give rise to the right to deduct, without having to wait for the actual operation of his business to begin (Ghent Coal Terminal, cited above, paragraph 17, and Joined Cases C-110/98 to C-147/98 Gabalfrisa and Others [2000] ECR I-1577, paragraph 47).
37 It is important to note that it is the acquisition of the goods or services by a taxable person acting as such that gives rise to the application of the VAT system and therefore of the deduction mechanism. The use to which the goods or services are put, or are intended to be put, merely 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 (Case C-97/90 Lennartz [1991] ECR I-3795, paragraph 15).
39 Moreover, any other interpretation of Article 4 of the Sixth Directive would run counter to the principle that VAT should be neutral, in that it would burden the trader with the cost of VAT in the course of his economic activity without allowing him to deduct it in accordance with Article 17, and would create an arbitrary distinction between investment expenditure incurred before actual operation of a business and expenditure incurred during operation (Case 268/83 Rompelman [1985] ECR 655, paragraph 23; INZO, cited above, paragraph 16; and Gabalfrisa, cited above, paragraph 45).
40 Article 4 of the Sixth Directive does not, however, preclude the tax authority from requiring objective evidence in support of the declared intention to commence economic activities which will give rise to taxable transactions. In that context, it is important to point out that a taxable person acquires that status definitively only if he made the declaration of intention to begin the envisaged economic activities in good faith. In cases of fraud or abuse, in which, for example, the person concerned, on the pretext of intending to pursue a particular economic activity, in fact sought to acquire as his private assets goods in respect of which a deduction could be made, the tax authority may claim, with retroactive effect, repayment of the sums deducted on the ground that those deductions were made on the basis of false declarations (Rompelman, paragraph 24, INZO, paragraphs 23 and 24, and Gabalfrisa, paragraph 46).
42 In the absence of fraud or abuse and subject to any adjustments to be made under the conditions laid down in Article 20 of the Sixth Directive, entitlement to deduct, once it has arisen, is retained even if the taxable person has been unable to use the goods or services which gave rise to a deduction in the context of taxable transactions by reason of circumstances beyond his control. In such a case, there is no risk of fraud or abuse capable of justifying subsequent repayment of the sums deducted (Ghent Coal Terminal, paragraphs 20 and 22).
44 It should be borne in mind that in paragraph 25 of the judgment in Belgocodex, cited above, the Court held, with respect to retroactive removal of the right to opt for taxation and of entitlement to deduction which had already arisen under the Sixth Directive, that the principles of the protection of legitimate expectations and of legal certainty form part of the Community legal order and must be observed by the Member States when they exercise the powers conferred on them by Community directives.
45 In the specific circumstances of the Belgocodex case, the Court held in paragraph 26 of its judgment that it was for the national court to determine whether a breach of those principles had been committed by the retroactive repeal of the law which had introduced the right of option. In view of the fact that detailed arrangements had never been laid down for the implementation of that law, the Court considered that it was not in a position to decide whether the provisions of that law might have given rise to a legitimate expectation on the part of the taxable person which should be protected.
47 In those circumstances, provided that the national court finds that the intention to commence economic activities giving rise to taxable transactions was declared in good faith and that that intention is supported by objective evidence, the taxable person is entitled immediately to deduct the VAT due or paid on the goods or services supplied with a view to the performance of the economic activities which it envisages carrying out and the principles of the protection of legitimate expectations and of legal certainty preclude its being deprived retroactively of that right by a legislative amendment post-dating the supply of those goods or services.