Kretztechnik AG v Finanzamt Linz.
Date: 2005-05-26
18. In that connection, it must be borne in mind that it is clear from Article 2(1) of the Sixth Directive, which defines the scope of VAT, that, within a Member State, only activities of an economic nature are subject to VAT. Economic activities are defined in Article 4(2) of the Sixth Directive as encompassing all activities of producers, traders and persons supplying services, in particular the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis ( KapHag , paragraph 36).
19. It is settled case‑law that the mere acquisition and holding of shares is not to be regarded as an economic activity within the meaning of the Sixth Directive. The mere acquisition of financial holdings in other undertakings does not amount to the exploitation of property for the purpose of obtaining income therefrom on a continuing basis because any dividend yielded by that holding is merely the result of ownership of the property and is not the product of any economic activity within the meaning of that directive (see Harnas & Helm , paragraph 15; KapHag , paragraph 38, and Case C-8/03 Banque Bruxelles Lambert (BBL)  [2004] ECR I‑0000, paragraph 38). If, therefore, the acquisition of financial holdings in other undertakings does not in itself constitute an economic activity within the meaning of that directive, the same must be true of activities consisting in the sale of such holdings (see Case C-155/94 Wellcome Trust  [1996] ECR I-3013, paragraph 33; KapHag , paragraph 40, and BBL , paragraph 38).
20. On the other hand, transactions that consist in obtaining income on a continuing basis from activities which go beyond the compass of the simple acquisition and sale of securities, such as transactions carried out in the course of a business trading in securities, do fall within the scope of the Sixth Directive but are exempted from VAT under Article 13B(d)(5) of that directive (see Case C-77/01 EDM  [2004] ECR I-0000, paragraph 59, and BBL , paragraph 41).
24. In that connection the Court has already held that a partnership which admits a partner in consideration of payment of a contribution in cash does not effect to that partner a supply of services for consideration within the meaning of Article 2(1) of the Sixth Directive ( KapHag , paragraph 43).
33. In that connection, it must be borne in mind that, according to settled case-law, the right of deduction provided for in Articles 17 to 20 of the Sixth Directive is an integral part of the VAT scheme and in principle may not be limited.  It must be exercised immediately in respect of all the taxes charged on transactions relating to inputs (see, in particular, Case C-62/93 BP Soupergaz  [1995] ECR I‑1883, paragraph 18, and Joined Cases C-110/98 to C-147/98 Gabalfrisa and Others  [2000] ECR I‑1577, paragraph 43).
34. The deduction system is meant 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 complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT (see, to that effect, Case 268/83 Rompelman  [1985] ECR 655, paragraph 19; Case C-37/95 Ghent Coal Terminal  [1998] ECR I-1, paragraph 15; Gabalfrisa and Others , paragraph 44; Midland Bank , paragraph 19, and Abbey National , paragraph 24).
35. It is clear from the last-mentioned condition that, for VAT to be deductible, the input transactions must have a direct and immediate link with the output transactions giving rise to a right of deduction.  Thus, the right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them was a component of the cost of the output transactions that gave rise to the right to deduct (see Midland Bank , paragraph 30, and Abbey National , paragraph 28, and also Case C-16/00 Cibo Participations  [2001] ECR I-6663, paragraph 31).
36. In this case, in view of the fact that, first, a share issue is an operation not falling within the scope of the Sixth Directive and, second, that operation was carried out by Kretztechnik in order to increase its capital for the benefit of its economic activity in general, it must be considered that the costs of the supplies acquired by that company in connection with the operation concerned form part of its overheads and are therefore, as such, component parts of the price of its products. Those supplies have a direct and immediate link with the whole economic activity of the taxable person (see BLP Group , paragraph 25; Midland Bank , paragraph 31; Abbey National , paragraphs 35 and 36, and Cibo Participations , paragraph 33).
37. It follows that, under Article 17(1) and (2) of the Sixth Directive, Kretztechnik is entitled to deduct all the VAT charged on the expenses incurred by that company for the various supplies which it acquired in the context of the share issue carried out by it, provided, however, that all the transactions carried out by that company in the context of its economic activity constitute taxed transactions. A taxable person who effects both transactions in respect of which VAT is deductible and transactions in respect of which it is not may, under the first subparagraph of Article 17(5) of the Sixth Directive, deduct only that proportion of the VAT which is attributable to the former transactions ( Abbey National , paragraph 37, and Cibo Participations , paragraph 34).