The Commissioners for Her Majesty’s Revenue & Customs v RBS Deutschland Holdings GmbH.
Date: 2010-12-22
27. In those circumstances, the Court of Session (Scotland), after finding that the case which has been brought before it is characterised by the following facts:
– a German subsidiary of a United Kingdom bank purchased cars in the United Kingdom with a view to leasing them, with a put option, to an unconnected company in the United Kingdom and paid VAT on those purchases;
– under the relevant United Kingdom legislation, the supplies consisting of the rental of cars were treated as supplies of services made in Germany and accordingly not subject to VAT in the United Kingdom. Under German law, these supplies were treated as supplies of goods in the United Kingdom and accordingly not subject to VAT in Germany. The consequence was that no output tax was charged on those supplies in either Member State;
– the United Kingdom bank selected its German subsidiary as lessor and determined the duration of the leasing arrangements with a view to obtaining the tax advantage of no VAT being chargeable on the rental payments,
decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
‘(1) Is Article 17(3)(a) of the [directive] … to be interpreted as entitling the United Kingdom tax authorities to refuse to allow the German subsidiary to deduct VAT which it paid in the United Kingdom in respect of the purchase of the cars?
(2) In determining the answer to the first question, is it necessary for the national court to extend its analysis to consider the possible application of the principle of prohibiting abusive practices?
(3) If the answer to Question 2 is yes, would the deduction of input tax on the purchase of the cars be contrary to the purpose of the relevant provisions of the [directive] and thus satisfy the first requirement for an abusive practice as described in paragraph 74 of the decision of the Court in [Case C‑255/02 Halifax and Others  [2006] ECR I‑1609] having regard among other principles to the principle of the neutrality of taxation?
(4) Again if the answer to Question 2 is yes, should the court consider that the essential aim of the transactions is to obtain a tax advantage, so that the second requirement for an abusive practice as described in paragraph 75 of the said decision of the Court [in Halifax and Others ] is satisfied, in circumstances where, in a commercial transaction between parties operating at arm’s length, the choice of a German subsidiary to lease the cars to a United Kingdom customer, and of the terms of the leases, are made with a view to obtaining the tax advantage of no output tax being charged on the rental payments?’
Consideration of the questions referred
First question
31. In accordance with Article 17(3)(a) of the directive, the Member States are required to grant a taxable person the right to a deduction of VAT in so far as the input goods are used for the purposes of subsequent transactions carried out in another country, which would be eligible for deduction of tax if they had occurred in the territory of the Member State concerned.
32. The right to deduct input VAT for certain transactions in respect of other output transactions carried out in another Member State therefore depends, under that provision, on whether that right to deduct exists where all of those transactions are carried out within the territory of the same Member State.
35. The Court has indeed held that the deduction of input VAT is linked to the collection of output VAT (see Case C-184/04 Uudenkaupungin kaupunki  [2006] ECR I-3039, paragraph 24, and Case C-72/05 Wollny  [2006] ECR I-8297, paragraph 20).
38. As regards the right to deduct under Article 17(2) of the directive, relating to the input VAT on the goods and services used by the taxable person for the purposes of his taxable output transactions, the Court has emphasised that the deduction mechanism is intended 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 neutrality of taxation of all economic activities, provided that those activities are themselves subject in principle to VAT (see Case C-408/98 Abbey National  [2001] ECR I-1361, paragraph 24; Case C-435/05 Investrand [2007] ECR I-1315, paragraph 22; and Case C-174/08 NCC Construction Danmark  [2009] ECR I-10567, paragraph 27).
39. In addition, the right to deduct VAT, as an integral part of the VAT scheme, is a fundamental principle underlying the common system of VAT and in principle may not be limited (see Joined Cases C-110/98 to C-147/98 Gabalfrisa and Others  [2000] ECR I‑1577, paragraph 43, and Case C‑74/08 PARAT Automotive Cabrio  [2009] ECR I‑3459, paragraph 15).
40. If follows that a taxable person may deduct the VAT levied on goods and services acquired for the exercise of his taxable activities (see NCC Construction Danmark , paragraph 39).
41. Accordingly, and in view of the facts of the main proceedings, the right to deduct VAT cannot depend on whether the output transaction has in fact given rise to the payment of VAT in the Member State concerned.
48. In order to answer those questions, it must, first of all, be recalled that preventing possible tax evasion, avoidance and abuse is an objective which is recognised and encouraged by the directive (see, inter alia, Joined Cases C-487/01 and C-7/02 Gemeente Leusden and Holin Groep  [2004] ECR I-5337, paragraph 76, and Halifax and Others , paragraph 71).
49. At paragraphs 74 and 75 of Halifax and Others , the Court held, inter alia, that, in the sphere of VAT, an abusive practice can be found to exist only if, first, the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions of the directive and the national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of the relevant provisions of the directive and, second, it is apparent from a number of objective factors that the essential aim of the transactions concerned is solely to obtain that tax advantage.
51. As the national court has observed, the characteristics of the transactions at issue in the main proceedings and the nature of the relations between the companies that carried out those transactions contain nothing to suggest an artificial arrangement that does not reflect economic reality and the sole aim of which is to obtain a tax advantage (see, to that effect, Case C-162/07 Ampliscientifica and Amplifin  [2008] ECR I-4019, paragraph 28), since RBSD is a company established in Germany carrying on business providing banking and leasing services.
53. It is important to add that taxable persons are generally free to choose the organisational structures and the form of transactions which they consider to be most appropriate for their economic activities and for the purposes of limiting their tax burdens.
54. The Court has held that a trader’s choice between exempt transactions and taxable transactions may be based on a range of factors, including tax considerations relating to the neutral system of VAT (see Case C‑108/99 Cantor Fitzgerald International  [2001] ECR I-7257, paragraph 33). In that connection, the Court has made clear that, where it is possible for the taxable person to choose from among a number of transactions, he may choose to structure his business in such a way as to limit his tax liability (see Halifax and Others , paragraph 73).