Uudenkaupungin kaupunki.
Date: 2006-03-30
24. First, according to the structure of the system introduced by the Sixth Directive, input taxes on goods or services used by a taxable person for his taxable transactions may be deducted. The deduction of input taxes is linked to the collection of output taxes.  Where goods or services acquired by a taxable person are used for purposes of transactions that are exempt or do not fall within the scope of VAT, no output tax can be collected or input tax deducted.  However, where goods or services are used for the purposes of transactions that are taxable as outputs, deduction of the input tax on them is required in order to avoid double taxation.
25. The period laid down in Article 20 of the Sixth Directive for adjustment of deductions makes it possible to avoid inaccuracies in the calculation of deductions and unjustified advantages or disadvantages for a taxable person where, in particular, changes occur in the factors initially taken into consideration in order to determine the amount of deductions after the declaration has been made. The likelihood of such changes is particularly significant in the case of capital goods, which are often used over a number of years, during which the purposes to which they are put may alter. The Sixth Directive therefore provides for an adjustment period of five years, extendable to 20 years in the case of immovable property, with varying deductions staggered over the whole period.
26. The system of adjustment of deductions is an essential element of the system introduced by the Sixth Directive in that its purpose is to ensure the accuracy of deductions and hence the neutrality of the tax burden.  Article 20(2) of the Sixth Directive concerning capital goods, which are relevant in the main proceedings, is moreover drafted in terms which leave no doubt as to its binding nature.
27. It also follows from settled case-law that limitations on the right of deduction, and hence adjustments to deductions, must be applied in a similar manner in all the Member States and derogations are permitted only in the cases expressly provided for in the Sixth Directive (see, to that effect, Case C-97/90 Lennartz  [1991] ECR I-3795, paragraph 27). The fact that Article 20(5) of the Sixth Directive lays down very specific conditions that must be met in order for a Member State to be able, by way of derogation, to refrain from applying Article 20(2) strengthens the binding nature of the latter provision.  It should be noted in this connection that there was disagreement at the hearing, between the Finnish Government and the Commission, over whether the committee set up under Article 29 of the Sixth Directive had been consulted, as provided for in Article 20(5) of that directive, and what the outcome had been.  However, the purpose of the questions referred by the national court is clearly not to ascertain whether the conditions for applying that derogation are met in the present case.
28. As regards the Finnish Government’s argument that Article 20(4) of the Sixth Directive allows Member States to define the term ‘capital goods’ and that the provision of building services need not necessarily be covered by that term, suffice it to say the Finnish Government acknowledges that that term has not been defined in Finnish law, since the procedure laid down in Article 20(2) to (5) of the Sixth Directive has not been transposed into national law.  It is clear from the Court’s case-law that a Member State which has failed to transpose the provisions of a directive into national law cannot rely, as against Community citizens, upon limitations that might have been laid down on the basis of those provisions (see, to that effect, Joined Cases C-6/90 and C-9/90 Francovich and Others  [1991] ECR I-5357, paragraph 21, and Case C-142/04 Aslanidou  [2005] ECR I-0000, paragraph 35).
30. Although Article 20, on one hand, and Articles 5 and 6, on the other hand, are, according to their wording, liable to apply in principle in a situation where goods, the use of which is eligible for deduction, are then put to a use which is not eligible for deduction, and even though the two mechanisms have the same economic effect in that situation (see, to that effect, Joined Cases C-487/01 and C-7/02 Gemeente Leusden and Holin Groep  [2004] ECR I-5337, paragraph 90), that is not the case in the reverse situation, which is relevant here in the main proceedings, where goods the use of which is not eligible for deduction are then put to a use which is so eligible. Eligibility for adjustment of deductions for the benefit of a taxable person, which is relevant in the second situation, may only be based soley on the provisions of Article 20 of the Sixth Directive and not on those of Articles 5 and 6 of that directive.  In such situations, application of the provisions of Article 20 of the Sixth directive is therefore essential, irrespective of the application under national law of Articles 5 and 6 thereof.
34. The applicability of each of the provisions in question will depend on whether the taxable person has decided to use the property in question permanently for his private use or rather envisages the possibility of using it in future for the purposes of his business and therefore decides to keep it as one of the assets of that business. In the first case, Articles 5(6) and 6(2) of the Sixth Directive will apply, and in the second case, Article 20 of the directive will apply.  The fact that it is possible for a taxable person to choose whether or not to integrate into his business, for the purposes of applying the Sixth Directive, part of an asset which is given over to his private use follows from settled case-law (see, in particular, Case C-291/92 Armbrecht  [1995] ECR I-2775, paragraph 20, and Case C-434/03 Charles and Charles-Tijmens  [2005] ECR I-0000, paragraph 23).  In the example cited by the Finnish Government, there is therefore no real conflict.
37. As the Advocate General observed in points 36 and 37 of her Opinion, application of the adjustment mechanism depends on the existence of a right to deduct based on Article 17 of the Sixth Directive.
38. Pursuant to Article 17(1) of the Sixth Directive, which is entitled ‘Origin and scope of the right to deduct’, the right to deduct VAT 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 ( Lennartz , paragraph 8).
39. The Court has also held that the use to which capital goods are 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, but does not affect whether a right to deduct arises. It follows that the immediate use of the goods for taxable supplies does not in itself constitute a condition for the application of the system of adjustment of deductions ( Lennartz , paragraphs 15 and 16).
45. The Member States are of course free to lay down the procedural requirements under which a right of option may be exercised, which includes the possibility of providing that taxation will be effective only after the application has been made and that only after that date will deduction of input taxes be possible (Case C-269/03 Vermietungsgesellschaft Objekt Kirchberg  [2004] ECR I-8067, paragraph 23).  However, such rules must not result in restricting the right to deduct in connection with taxable transactions where the right of option has been properly exercised in accordance with those rules. In particular, application of national procedural rules must not result in restricting the period in which deductions may be made to a period that is shorter than that laid down in the Sixth Directive for the adjustment of deductions.
46. Moreover, restricting deductions in connection with taxable transactions after the right of option has been exercised would affect, not the ‘scope’ of the right of option, referred to in the second subparagraph of Article 13(C) of the Sixth Directive, but the consequences of exercising that right.  That provision does not therefore permit Member States to restrict the right to deduct provided for in Article 17 of the Sixth Directive or the need to adjust such deductions under Article 20 of that directive.
49. Analysis of the origin of Article 17(6) of the Sixth Directive shows that the option given to Member States by the second subparagraph of that provision applies only to maintaining exclusions from deduction with regard to categories of expenditure defined by reference to the nature of the goods or services acquired rather than by reference to the use to which they are put or the way in which they are used (see, to that effect, Case C-305/97 Royscot and Others  [1999] ECR I-6671, paragraphs 21 to 25).
53. According to settled case-law, the interpretation which, in the exercise of the jurisdiction conferred on it by Article 234 EC, the Court gives to a rule of Community law clarifies and defines, where appropriate, the meaning and scope of that rule as it must be, or ought to have been, understood and applied from the time it was brought into force. It follows that the rule as thus interpreted may, and must, be applied by the courts even to legal relationships which arose and were established before the judgment ruling on the request for interpretation, provided that in other respects the conditions for bringing a dispute relating to the application of that rule before the competent courts are satisfied (see, in particular, Case 24/86 Blaizot  [1988] ECR 379, paragraph 27, and Case C-415/93 Bosman  [1995] ECR I-4921, paragraph 141).
54. Also according to settled case-law, individuals are entitled to obtain repayment of national charges levied in breach of Community provisions (see, in particular, Case 199/82 San Giorgio  [1983] ECR 3595, paragraph 12, and Joined Cases C-192/95 to C-218/95 Comateb and Others  [1997] ECR I-165, paragraph 20).
55. It is only exceptionally that the Court may, in application of the general principle of legal certainty inherent in the Community legal order, be moved to restrict the possibility for any person concerned of relying on a provision it has interpreted with a view to calling in question legal relationships established in good faith. Two essential criteria must be fulfilled before such a limitation can be imposed, namely that those concerned should have acted in good faith and that there should be a risk of serious difficulties (see, in particular, Case C-57/93 Vroege  [1994] ECR I-4541, paragraph 21, and Case C-402/03 Skov and Bilka  [2006] ECR I-0000, paragraph 51).