Hansgeorg Lennartz v Finanzamt München III.
Date: 1991-07-11
8 Pursuant to Article 17(1) of the Sixth Directive, which is entitled "Origin and scope of the right to deduct", the right to deduct arises at the time when the deductible tax becomes chargeable. Consequently, only the capacity in which a person is acting at that time can determine the existence of the right to deduct. By virtue of Article 17(2), in so far as a taxable person, acting as such, uses the goods for the purposes of his taxable transactions, he is entitled to deduct the tax due or paid in respect of those goods.
9 Conversely, where the goods are not used for the taxable person' s economic activities within the meaning of Article 4 but are used by him for his private consumption, no right to deduct can arise.
11 The very wording of paragraph 2 of Article 20, which is entitled "Adjustments of deductions", confirms that interpretation. That article contains no provision concerning the origin of any right to deduct. Since it does no more than refer to adjustments of deductions provided for in respect of capital goods it must be concluded that the origin of the right to make such deductions is dealt with in other provisions of the Sixth Directive.
12 It is apparent from the scheme of the Sixth Directive and from the actual wording of Article 20(2) that the latter provision does no more than establish the procedure for calculating the adjustments to the initial deduction. It cannot therefore give rise to any right to deduct or convert the tax paid by a taxable person in respect of his non-taxable transactions into a tax that is deductible within the meaning of Article 17.
The second part of the first question
13 In order to answer the second part of the first question, it must be borne in mind that, according to the judgment of the Court in Case 268/83 Rompelman v Minister van Financiën [1985] ECR 655, paragraph 22, the economic activities referred to in Article 4(1) may consist in several consecutive transactions, as is indeed suggested by the wording of Article 4(2). Amongst such transactions preparatory activities, such as the acquisition of operating assets, must be treated as constituting economic activities within the meaning of that article.
14 It follows from that judgment that a person who acquires goods for the purposes of an economic activity within the meaning of Article 4 does so as a taxable person, even if the goods are not used immediately for such economic activities.
15 Consequently, it is the acquisition of the goods 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 are put, or intended to be put, merely determines the extent of the initial deduction to which the taxable person is entitled under Article 17 and the extent of any adjustments in the course of the following periods.
16 It follows that the immediate use of the goods for taxable or exempt supplies does not in itself constitute a condition for the application of Article 20(2).
20 The answer to that question depends on an assessment of all the relevant circumstances, inter alia the nature of the goods concerned and the period which elapsed between their acquisition and their use for the taxable person' s economic activities. However, the adjustment periods provided for in Article 20(2) of the Sixth Directive do not as such have any bearing on the question whether the goods are acquired for the purposes of those economic activities.
21 It must therefore be stated in reply to the first two parts of the third question that whether, in a particular case, a taxable person has acquired goods for the purposes of his economic activity within the meaning of Article 4 of the Sixth Directive is a question of fact which must be determined in the light of all the circumstances of the case, including the nature of the goods concerned and the period between the acquisition of the goods and their use for the purposes of the taxable person' s economic activity.
The validity of a rule imposing a restriction on the right to deduct VAT (Question 3(c) )
26 In reply to the national court' s question, it must be emphasized in the first place that, pursuant to Article 6 of the Sixth Directive, the use of capital goods for the private use of a taxable person or for purposes other than those of his business, where the VAT on such goods is wholly or partly deductible, is treated as a supply of services for consideration. It is apparent from the combined provisions of Article 6(2)(a) and of Article 11A(1)(c) that, where a taxable person acquires goods which he employs partly for private use, he is deemed to effect for consideration a supply of services taxed on the basis of the cost of providing the services. Consequently, a person who uses goods partly for the purposes of taxable business transactions and partly for private use and who, upon acquiring the goods, recovered all or part of the input VAT, is deemed to use the goods entirely for the purposes of his taxable transactions within the meaning of Article 17(2). Consequently, such a person is in principle entitled to a right of total and immediate deduction of the input tax paid on purchasing the goods.
27 The provisions concerning the apportionment of input tax contained in Article 17(5) concern only the adjustment after the initial deduction. As the Court observed in its judgment in Case 50/87 Commission v France [1988] ECR 4797, paragraphs 16 and 17, it is apparent from the scheme of the Sixth Directive, and in particular from Articles 4 and 17, that in the absence of any provision empowering the Member States to limit the right of deduction granted to taxable persons, that right must be exercised immediately in respect of all the taxes charged on transactions relating to inputs. Such limitations on the right of deduction must be applied in a similar manner in all the Member States and therefore derogations are permitted only in the cases expressly provided for in the directive.
33 The Court has already held that, by virtue of the third paragraph of Article 189 of the Treaty, Member States are bound to observe all the provisions of the Sixth Directive. In so far as a derogation has not been established in accordance with Article 27, which imposes a duty of notification on the Member States, the tax authorities of a Member State may not rely, as against a taxable person, on a provision derogating from the scheme of the directive (judgment in Case 5/84 Direct Cosmetics [1985] ECR 617, paragraph 37).
34 Since the measure in question has neither been notified to the Commission under Article 27(5) nor authorized by a Council decision pursuant to Article 27(1), the German Government cannot rely on that measure to the detriment of taxable persons.
35 It must therefore be stated in reply to the national court that a taxable person who uses goods for the purposes of an economic activity has a right on the acquisition of those goods to deduct input tax in accordance with the rules laid down in Article 17, however small the proportion of business use. A rule or administrative practice imposing a general restriction on the right of deduction in cases where there is limited, but none the less genuine, business use constitutes a derogation from Article 17 of the Sixth Directive and is valid only if the requirements of Article 27(1) or Article 27(5) of the directive are met.