Volker Ludwig v Finanzamt Luckenwalde.
Date: 2007-06-21
17. It follows from Article 2(1) of the Sixth Directive, which determines the scope of the directive, that every supply of a service must normally be regarded as distinct and independent and that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, with the consequence that the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer – envisaged as being a typical consumer – with several distinct principal services or with a single service (Case C 349/96 CPP  [1999] ECR I-973, paragraph 29).
18. In that regard, there is in particular a single supply in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied (see Joined Cases C‑308/96 and C-94/97 Madgett and Baldwin  [1998] ECR I-6229, paragraph 24, and CPP , paragraph 30).
20. The answer to the first question should therefore be that the fact that a taxable person analyses the financial situation of clients canvassed by him with a view to obtaining credit for them does not preclude recognition of the service supplied as being a negotiation of credit which is exempt under Article 13B(d)(1) of the Sixth Directive if, in the light of the foregoing interpretative criteria, the negotiation of credit offered by that taxable person falls to be considered as the principal service to which the provision of financial advice is ancillary, in such a way that the latter shares the same tax treatment as the former. It is for the national court to determine whether that is the case in the proceedings before it.
Question 2
Preliminary observations
21. The terms used to specify the exemptions covered by 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 services supplied for consideration by a taxable person (Case 348/87 Stiching Uitvoering Financiële Acties  [1989] ECR I-1737, paragraph 13, and Case C-2/95 SDC  [1997] ECR I‑3017, paragraph 20).
22. It is also settled case‑law that those exemptions constitute independent concepts of Community law whose purpose is to avoid divergences in the application of the VAT system as between one Member State and another and which must be placed in the general context of the common system of VAT (C-240/99 Skandia  [2001] ECR I-1951, paragraph 23, and Case C-472/03 Arthur Andersen  [2005] ECR I-1719, paragraph 25).
23. The term ‘negotiation’ used in points (1) to (5) of Article 13B(d) of the Sixth Directive is not defined by that directive. The Court has nevertheless held in the context of point (5) of that provision that the concept of ‘negotiation’ applies to the activity of an intermediary who does not occupy the position of a party to a contract relating to a financial product and whose activity amounts to something other than the provision of contractual services typically undertaken by the parties to such contracts. Negotiation is, in effect, a service rendered to and remunerated by a contractual party as a distinct act of mediation. In that regard, the purpose of such an activity is to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the content of the contract (see, to that effect, Case C-235/00 CSC Financial Services  [2001] ECR I-10237, paragraph 39). On the other hand, it is not negotiation where one of the parties entrusts to a sub-contractor some of the clerical formalities related to the contract (see, to that effect, CSC Financial Services , paragraph 40).
25. It should be noted that the transactions exempted under Article 13B(d)(1) of the Sixth Directive are defined in terms of the nature of the services provided and not in terms of the person supplying or receiving the service. That provision, in fact, makes no reference to the person supplying or receiving the service (see, by analogy, with regard to Article 13B(d)(3) and 13B(d)(5) of the Sixth Directive, SDC , paragraph 32, and, with regard to Article 13B(d)(6) of that directive, Case C-169/04 Abbey National [2006] ECR I-4027, paragraph 66).
27. The Court’s case-law makes clear that, in order to be regarded as exempt transactions for the purposes of Article 13B(d) of the Sixth Directive, the services provided must, viewed broadly, form a distinct whole, fulfilling in effect the specific and essential functions of the service of negotiation (see, to that effect, with regard to Article 13B(d)(5) of the Sixth Directive, SDC , paragraph 66, and CSC Financial Services , paragraph 25, and with regard to Article 13B(d)(6) of that directive, Abbey National , paragraph 70).
28. In that regard, the Court has held that negotiation is an act of mediation, which may consist, amongst other things, in pointing out to one of the parties to the contract suitable opportunities for the conclusion of such a contract, in making contact with another party or negotiating, in the name and on behalf of a client, the detail of the payments to be made by either side, the purpose of such an activity being to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of that contract (see, to that effect, with regard to Article 13B(d)(5) of the Sixth Directive, CSC Financial Services , paragraph 39).
30. Contrary to the argument of the German Government, that finding is not affected by the Court’s statement in paragraph 39 of CSC Financial Services  that negotiation is a service rendered to and remunerated by a contractual party as a distinct act of mediation.
31. First of all, in CSC Financial Services , the question of the existence of a contract between the provider and the recipient of the service – in that case, CSC Financial Services Ltd and Sun Alliance Group respectively – was not in dispute. As is clear from paragraph 7 of that judgment, such a contractual link existed in that case. Notwithstanding that fact, the Court held, subject to the assessment of the facts of the case by the national court, that CSC Financial Services Ltd appeared to exercise an activity comparable to that of a subcontractor to whom one of the parties had entrusted some basic formalities related to the contract but not falling within the scope of points (3) to (5) of Article 13B(d) of the Sixth Directive ( CSC Financial Services , paragraph 40). The finding of the Court with regard to the existence of a contractual link between the provider and the recipient of the service could not, therefore, have the significance in the line of argument developed by the Court which is attributed to it by the German Government in its observations.
32. It must be observed, next, that in CSC Financial Services , the Court, with reference to paragraphs 64 and 66 of SDC , stressed that the nature of the activities of CSC Financial Services Ltd was the essential element in determining whether the latter provided a service which was exempt for the purposes of points (3) to (5) of Article 13B(d) of the Sixth Directive ( CSC Financial Services , paragraphs 23 to 28). Second, the Court held at the beginning of paragraph 39 of that judgment that it was not necessary to consider the precise meaning of the term ‘negotiation’.
34. It should be emphasised that the wording of Article 13B(d)(1) of the Sixth Directive does not, in principle, preclude the activity of negotiation from being broken down into separate services which may then fall under the concept of ‘negotiation of credit’ for the purposes of that provision and benefit from the exemption for which it provides (see, to that effect: with regard to Article 13B(d)(3) of the Sixth Directive, SDC , paragraph 64; with regard to Article 13B(d)(5) of that directive, CSC Financial Services , paragraph 23; and with regard to Article 13B(d)(6) of that directive, Abbey National , paragraph 67).
35. In those circumstances, it follows from the principle of fiscal neutrality that operators must be able to choose the form of organisation which, from the strictly commercial point of view, best suits them, without running the risk of having their operations excluded from the exemption provided for in Article 13B(d)(1) of the Sixth Directive (see, to that effect, with regard to Article 13B(d)(6) of the Sixth Directive, Abbey National , paragraph 68).
38. As stated in paragraph 39 of CSC Financial Services , negotiation is an act of mediation which may consist, amongst other things, in pointing out to one party to the contract suitable opportunities for the conclusion of such a contract, the purpose of such an activity being to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of that contract. The concept of negotiation does not, therefore, necessarily presuppose that the negotiator, as subagent of the main agent, enters into direct contact with both parties to the contract, in order to negotiate its terms, provided, however, that his activity is not limited to dealing with some of the clerical formalities related to the contract.