1. This reference for a preliminary ruling concerns the interpretation of Articles 63, 65, 73 and 80 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) (‘the VAT Directive’).
2. The reference has been made in proceedings between the Direktor na Direktsia ‘Obzhalvane i upravlenie na izpalnenieto’ - grad Burgas pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite (Director of the Burgas Directorate for Objections to and the Administration of Enforcement of the Central Administration of the Revenue Agency) (‘the Direktor’) and Orfey Balgaria EOOD (‘Orfey’) concerning an adjusted tax notice ordering Orfey to pay additional value added tax (‘VAT’). Legal context European Union law
3. Article 62 of the VAT Directive provides: ‘For the purposes of this Directive: 1. “chargeable event” shall mean the occurrence by virtue of which the legal conditions necessary for VAT to become chargeable are fulfilled; 2. VAT shall become “chargeable” when the tax authority becomes entitled under the law, at a given moment, to claim the tax from the person liable to pay, even though the time of payment may be deferred.’
4. Article 63 of the VAT Directive provides: ‘The chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.’
5. According to Article 65 of the VAT Directive: ‘Where a payment is to be made on account before the goods or services are supplied, VAT shall become chargeable on receipt of the payment and on the amount received.’
6. Article 73 of the VAT Directive provides: ‘In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.’
7. Article 80(1) of the VAT Directive provides that, in order to prevent tax evasion or avoidance, Member States may, in the cases listed therein, take measures to ensure that, in respect of the supply of goods or services involving family or other close personal ties, management, ownership, membership, financial or legal ties as defined by the Member State, the taxable amount is to be the open market value of the transaction.
8. Article 90(1) of the VAT Directive provides: ‘In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.’ Bulgarian law
9. In the version thereof applicable to the main proceedings, the Bulgarian Law on value added tax (Zakon za danak varhu dobavenata stoynost, DV No 63 of 4 August 2006, and DV No 113 of 28 December 2007) (‘the ZDDS’) provides in Article 25: ‘1. A “chargeable event” within the meaning of this law shall be a supply of goods or provision of services which is carried out by a taxable person for the purposes of this law … 2. The chargeable event shall occur on the date on which ownership of the goods is transferred or the service provided. ... 6. If full or partial payment for goods or services supplied is made on account in the context of a transaction prior to the occurrence of the taxable event pursuant to paragraph 2, 3 or 4, VAT shall become chargeable at the time of the receipt of the payment (on the amount received), unless the payment is made in connection with an intra-Community supply. In that case, the tax shall be considered to be included in the amount of payment.’
10. Article 26(2) and (7) of the ZDDS provides: ‘2. The taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, expressed in leva and stotinki, without the VAT for the purposes of the present Law ... ... 7. If the consideration made up entirely or partly of goods or services (payment is made entirely or partly in goods or services), the taxable amount shall be the open market value of the goods or services supplied, calculated at the time when the VAT became chargeable.’
11. According to Article 45 of the ZDDS: ‘1. Supplies exempt from tax shall be the transfer of the ownership of land, the establishment or transfer of limited interests in land and the letting or leasing thereof. 2. The establishment or transfer of a building right shall be regarded as a supply exempt from tax in accordance with paragraph 1 until the time of the completion of the carcass of the building for which the building right is established or transferred. The building right shall not extend to any assembly or installation work performed.’
12. Article 130 of the ZDDS provides: ‘1. Any transaction in respect of which the consideration is made up (entirely or partly) of goods or services shall be deemed to give rise to two correlative transactions, with each supplier being deemed to be the seller of what he gives and the purchaser of what he receives. 2. The chargeable event in respect of the two transactions described in paragraph 1 shall occur on the date of the chargeable event arising from the first completed transaction.’
13. The Law on ownership (Zakon za sobstvenostta, DV No 92 of 16 November 1951), in the version thereof applicable to the facts in the main proceedings (‘the ZZS’), provides in Article 63(1): ‘The owner may grant another person the right to construct a building on his land, that person becoming the owner of the building.’
14. Article 67(1) of the ZZS provides: ‘The right to construct a building on another person’s land (Article 63(1)) reverts to the owner of the land if it is not exercised within a period of five years.’ The dispute in the main proceedings and the questions referred for a preliminary ruling
15. By certified document of 3 April 2008, four natural persons (‘the owners’) established a building right in favour of Orfey, by virtue of which Orfey was granted the right to construct a building on the land belonging to those owners and become the sole owner of certain of the real property built by it. By way of consideration for that building right, Orfey undertook to design the plans for the building, to build it entirely at its own cost until final completion and to deliver on a turn-key basis certain real property situated in that building to the owners, without their being required to make any additional payment whatsoever, the owners retaining and mutually establishing a building right on said property. Orfey undertook to complete the construction of the building and to obtain authorisation to operate it within 21 months of work commencing on the site.
16. On 5 April 2008, Orfey sent an invoice to each of the owners relating to the transaction ‘building right established in accordance with certified document’. Those four invoices amounted to a total of BGN 302 721.36, plus a total amount of BGN 60 544.27 in VAT.
17. In the course of a tax audit it was discovered that the taxable amount of the transaction had been determined by reference to the tax value of the building right in accordance with a certified document, that is, BGN 684 000, and not by reference to the open market value of the real property granted to the owners. It was also discovered that Orfey had not included those invoices in its sales log for the relevant tax period, namely April 2008, or for the following period, namely May 2008, and that it had not included those invoices in the relevant VAT declarations.
18. On 28 April 2009, the Bulgarian tax authorities issued a tax adjustment notice to Orfey for April 2008, although at that date the construction of the building had not been completed and it had not been put into use. They took the view that Orfey was supplying construction services and that, under Article 130 of the ZDDS, the chargeable event for VAT on that transaction had occurred on the date the building right was established. On the basis of the expert’s report drawn up as part of the tax audit, it was considered that the open market value of the established building right was equal to the value of the construction services of the building provided by Orfey, namely BGN 1 984 130. The VAT owing on the transaction was accordingly fixed in that notice at an amount of BGN 396 826, plus interest.
19. Orfey brought an administrative action against the tax adjustment notice before the Direktor. As that action was dismissed by decision of 6 July 2009, Orfey brought judicial proceedings against that notice before the Administrativen sad - Burgas (Administrative Court, Burgas). By decision of 30 April 2010, that court allowed Orfey’s action and set aside the tax adjustment notice. The Direktor appealed against that decision before the referring court.
20. Before the referring court the Direktor argues, in essence, that the national legislation is compatible with the VAT Directive. Orfey submits, on the other hand, that it lost its building right because the building was not built within the specified time period.
21. The referring court states that, in order to rule on the case before it, it must determine, first of all, the moment of the chargeable event for VAT on the construction services supplied by Orfey. It observes in that regard that, in its view, the chargeable event for VAT purposes in relation to the establishment of the building right occurred at the time of signature of the certified document, even though that transaction was exempt at the time. It further submits that it has doubts as to the compatibility of Article 130(2) of the ZDDS, which deems that the chargeable event occurs before completion of the transaction, with the VAT Directive.
22. It adds that, if that provision of the ZDDS should prove to be compatible with the VAT Directive, it must then assess the lawfulness of the determination of the taxable amount of the construction services. On that point, it has doubts as to the compatibility of Article 26(7) of the ZDDS, which in the present case leads to use of the open market value of the construction services as assessed by an expert, with Article 73 of the VAT Directive.
23. Lastly, it is unsure as to whether it is possible to consider the building right in question as payment on account for the future construction services to be performed by Orfey, given that the building right constitutes the entire consideration received by Orfey for those services and that a restrictive interpretation of Article 65 of the VAT Directive requires payment on account to be made in money. It observes in that regard that, under Article 67(1) of the ZZS, the building right conferred on Orfey is liable to be extinguished if the limitation period provided for in that provision is expressly relied on.
24. In those circumstances, the Varhoven administrativen sad (Administrative Supreme Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling: ‘1. Is Article 63 of [the VAT Directive] to be interpreted as meaning that it does not permit a derogation where the chargeable event relating to the performance of work for the construction of certain individual properties in a building occurs before the actual performance of the construction work and that that chargeable event is linked to the time of the occurrence of the chargeable event relating to the transaction to be performed in return, which consists in the establishment of a building right relating to other properties in that building, which also forms the consideration for the construction work? 2. Is a national provision which provides that, whenever the consideration is made up entirely or partly of goods or services, the taxable amount for the transaction is to be the open market value of the goods or services supplied, compatible with Articles 73 and 80 of [the VAT Directive]? 3. Is Article 65 of [the VAT Directive] to be interpreted as meaning that it does not permit VAT to be charged on the value of a payment on account in cases where the payment is not made in the form of money, or is that provision to be interpreted broadly, to the effect that VAT is also chargeable in such cases and that it is to be charged at the level of the financial equivalent of the transaction performed in return? 4. If, in the third question, the second variant given is correct, can the building right established in the present case be regarded, in view of the specific circumstances, as a payment on account within the meaning of Article 65 of [the VAT Directive]? 5. Do Articles 63, 65 and 73 of [the VAT Directive] have direct effect?’ The questions referred for a preliminary ruling The first, third and fourth questions
25. By its first, third and fourth questions, which should be considered together, the referring court asks, in essence, whether Articles 63 and 65 of the VAT Directive must be interpreted as meaning that, where a building right is established in favour of a company in order to erect a building, by way of consideration for construction services of certain real property in that building and that company has undertaken to deliver on a turn-key basis to the persons who established that building right, they preclude the VAT on those construction services from becoming chargeable as from the moment when the building right is established, that is to say, before those services are performed.
26. The Direktor, the Bulgarian Government and the European Commission submit, in essence, that that question should be answered in the negative. The Direktor and the Bulgarian Government submit, inter alia, that the concept of ‘payment … on account’ in Article 65 of the VAT Directive cannot be restricted to covering only payments in money and that, for the purposes of applying that provision, it is sufficient that the value of the payment made be capable of determination.
27. It should be borne in mind that Article 63 of the VAT Directive provides that the chargeable event for VAT occurs and VAT becomes chargeable at the time when the goods or services are supplied. Article 65 of the same directive, which provides that where a payment is to be made on account before the goods or services are supplied, VAT is to become chargeable on receipt of the payment and on the amount received, constitutes a derogation from the rule laid down in Article 63 and, as such, must be interpreted strictly (Case C-419/02 BUPA Hospitals and Goldsborough Developments [2006] ECR I-1685, paragraph 45).
28. Thus, in order for VAT to be chargeable before the supply of goods or services is made, all the relevant information concerning the chargeable event, namely the future supply of goods or services, must already be known and therefore, in particular, the goods or services must be precisely identified at the time the payment on account is made ( BUPA Hospitals and Goldsborough Developments , paragraph 48, and Case C-520/10 Lebara [2012] ECR, paragraph 26). Therefore, payments on account of supplies of goods or services that have not yet been clearly identified cannot be subject to VAT ( BUPA Hospitals and Goldsborough Developments , paragraph 50, and Case C-270/09 MacDonald Resorts [2010] ECR I-13179, paragraph 31).
29. Consequently, the possibility cannot be ruled out that, under Article 65 of the VAT Directive, the VAT owing on construction services becomes chargeable at the time when the building right, which constitutes the entire consideration for those services, is established in favour of the company which is to supply those services, provided that, at that time, all the relevant information concerning that future supply of services is already known and, therefore, the services in question are precisely identified.
30. The referring court also asks, however, whether that provision may be applied when the payment on account made consists of a payment in kind.
31. It is true, as indicated inter alia by the Commission, that the wording of Article 65 of the VAT Directive seems to suggest, in particular in the Bulgarian and French versions, that the provision covers only payments on account consisting of an amount of money.
32. However, it is settled case-law that a provision of secondary Community law should as far as possible be given the interpretation which renders the provision consistent with the Treaty and the general principles of EU law (Case C-314/89 Rauh [1991] ECR I-1647, paragraph 17, and Case C-413/06 P Bertelsmann and Sony Corporation of America v Impala [2008] ECR I-4951, paragraph 174 and the case-law cited).
33. It is also settled case-law that the general principle of equal treatment, of which the principle of fiscal neutrality is a particular expression at the level of secondary EU law and in the specific area of taxation, requires similar situations not to be treated differently unless differentiation is objectively justified (Case C-309/06 Marks & Spencer [2008] ECR I-2283, paragraphs 49 and 51, and Case C-174/08 NCC Construction Danmark [2009] ECR I-10567, paragraph 44).
34. Thus, the principle of fiscal neutrality, which is a fundamental principle of the common system of VAT, precludes treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes and, further, precludes economic operators who carry out the same activities from being treated differently as far as the levying of VAT is concerned (see, inter alia, Case C-29/08 SKF [2009] ECR I-10413, paragraph 67 and the case-law cited).
35. Furthermore, the Court has held previously that barter contracts, under which the consideration is by definition in kind, and transactions for which the consideration is in money are, economically and commercially speaking, two identical situations (see, to that effect, Case C-330/95 Goldsmiths [1997] ECR I-3801, paragraphs 23 and 25).
36. It follows that the principle of equal treatment would be disregarded if the application of Article 65 of the VAT Directive contributed to which form was taken by the consideration received by the taxable person. Accordingly, that principle calls for an interpretation of Article 65 to the effect that it applies also when the payment on account is made in kind, once the conditions referred to in paragraph 28 above are met. It is necessary, however, that that value of that payment on account may be expressed in monetary terms. According to settled case-law, the consideration for a supply of services may consist of a supply of goods, and so constitute the taxable amount within the meaning of Article 73 of the VAT Directive, if there is a direct link between the supply of services and the supply of goods and if the value of those goods can be expressed in monetary terms (see, to that effect, Case C-380/99 Bertelsmann [2001] ECR I-5163, paragraph 17 and the case-law cited).
37. The fact that the establishment of the building right at issue in the main proceedings represents the entire consideration, and not only part thereof, for the construction services which Orfey undertook to perform does not cast doubt on such an interpretation. Firstly, Article 65 provides that VAT becomes chargeable ‘on the amount received’. The wording of that provision does not, therefore, preclude the amount received from equalling the entire consideration for the supply of services on which the VAT becomes chargeable. Furthermore, as observed by the Court previously, in the explanatory memorandum to the proposal for the Sixth Council Directive on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment, COM(73) 950 final of 20 June 1973 ( Bulletin of the European Communities , supplement 11/73, p. 13), henceforth replaced by the VAT Directive, the Commission observed that ‘… receipt of [payments on account] gives rise to a charge to tax, since the parties to the transaction in this way demonstrate their intention that all the financial consequences of the chargeable event should arise in advance’ ( BUPA Hospitals and Goldsborough Developments , paragraph 49). That is also precisely the case when the payment on account amounts to the entire consideration agreed upon.
38. Within that framework, the referring court also seeks clarification on the relevance, for the purpose of interpreting Articles 63 and 65 of the VAT Directive, of the fact that the building right established in favour of Orfey may be extinguished. It should be noted that the referring court indicates that the building right in question may be extinguished only if the limitation period provided for in Article 67(1) of the ZZS is expressly relied on. That possibility should accordingly be regarded as a mere cancellation condition for the purposes of Article 90(1) of the VAT Directive. Therefore, as rightly pointed out by the Bulgarian Government and the Commission, the fact that such a condition may potentially be relied on in the future does not cast doubt on the fact that the transaction is completed at the time the building right is established since, as indicated in paragraph 29 above, at that time all the relevant information concerning that future supply of services is already known and, therefore, in particular, the services in question are precisely identified. Consequently, such an eventuality does not affect that interpretation.
39. Lastly, it should be noted that, in order to determine whether the conditions for chargeability of the VAT owing on such a future supply of services are satisfied, it does not matter whether the consideration for that future supply of services itself constitutes a transaction which is subject to VAT. Under the case-law referred to in paragraphs 28 and 36 above, in order for the VAT owing on such a future supply of services to become chargeable in circumstances such as those present in the main proceedings, it is sufficient that all the relevant information concerning that future supply of services is already known and that the value of the corresponding consideration may be expressed in monetary terms.
40. It follows from all the foregoing that the answer to the first , third and fourth questions is that Articles 63 and 65 of the VAT Directive must be interpreted as meaning that, in circumstances such as those of the main proceedings, where a building right is established in favour of a company in order to erect a building, by way of consideration for construction services of certain real property in that building and that company has undertaken to deliver on a turn-key basis to the persons who established that building right, they do not preclude the VAT on those construction services from becoming chargeable as from the moment when the building right is established, that is to say, before those services are performed, provided that, at the time that right is established, all the relevant information concerning that future supply of services is already known and, therefore, in particular, the services in question are precisely identified, and the value of that right may be expressed in monetary terms, which it is for the national court to verify. The second question
41. By its second question, the referring court asks, in essence, whether Articles 73 and 80 of the VAT Directive must be interpreted as precluding a national provision, such as that at issue in the main proceedings, under which, when the consideration for a transaction is made up entirely of goods or services, the taxable amount of the transaction is the open market value of the goods or services supplied.
42. The Bulgarian Government submits, inter alia, that the consideration must be appraised in the light of market mechanisms and that only use of the open market value can guarantee equal treatment of traders paying in kind and traders paying in money.
43. The Commission considers, by contrast, that when the taxed transaction is completed in exchange for goods or services supplied in advance, the VAT owing on the transaction must be calculated on the basis of the monetary value of the goods or services supplied in consideration for that transaction.
44. It is settled case-law that the taxable amount for the supply of goods or services effected for consideration is represented by the consideration actually received for them by the taxable person. That consideration is thus the subjective value, that is to say, the value actually received, and not a value estimated according to objective criteria. In addition, that consideration must be capable of being expressed in monetary terms (see, to that effect, Case C-40/09 Astra Zeneca UK [2010] ECR I-7505, paragraph 28 and the case-law cited).
45. Where that value is not a sum of money agreed between the parties, it must, in order to be subjective, be the value which the recipient of the services constituting the consideration for the supply of goods attributes to the services which he is seeking to obtain and must correspond to the amount which he is prepared to spend for that purpose (Case C-33/93 Empire Stores [1994] ECR I-2329, paragraph 19).
46. It should also be remembered that Article 80(1) of the VAT Directive provides that, in order to prevent tax evasion or avoidance, Member States may, in the cases listed therein, take measures to ensure that, in respect of the supply of goods or services involving family or other close personal ties, management, ownership, membership, financial or legal ties as defined by the Member State, the taxable amount is to be the open market value of the transaction.
47. Moreover, the conditions of application laid down in that provision are exhaustive and, consequently, national legislation cannot on the basis of that provision provide that the taxable amount is to be the open market value of the transaction in cases other than those listed in that provision (Joined Cases C-621/10 and C-129/11 Balkan and Sea Properties [2012] ECR, paragraph 51).
48. In the present case, there is nothing in the order for reference to indicate that the transaction at issue in the main proceedings was made between persons having ties amongst themselves as referred to in Article 80(1) of the VAT Directive, which it is for the national court to verify. In such circumstances, that article cannot be interpreted as allowing the open market value of that transaction to be the taxable amount.
49. It follows from the foregoing that the answer to the second question that, in circumstances such as those of the main proceedings, where the transaction is not completed between parties having ties within the meaning of Article 80 of the VAT Directive, which it is for the national court to verify, Articles 73 and 80 of that directive must be interpreted as precluding a national provision, such as that at issue in the main proceedings, under which, when the consideration for a transaction is made up entirely of goods or services, the taxable amount of the transaction is the open market value of the goods or services supplied. The fifth question
50. By its fifth question, the referring court asks whether Articles 63, 65 and 73 of the VAT Directive have direct effect.
51. According to settled case-law of the Court, whenever the provisions of a directive appear, so far as their subject-matter is concerned, to be unconditional and sufficiently precise, they may be relied on before the national courts by individuals against the State where the State has failed to transpose the directive into national law within the time-limit or has transposed it incorrectly (see Joined Cases C-397/01 to C-403/01 Pfeiffer and Others [2004] ECR I-8835, paragraph 103, and Joined Cases C-55/11, C-57/11 and C-58/11 Vodafone España [2012] ECR, paragraph 37).
52. The Court has held previously that Article 10(2) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), now Article 63 of the VAT Directive, meets those criteria (see, to that effect, Case C-10/92 Balocchi [1993] ECR I-5105, paragraphs 34 and 35). It has held the same in respect of Article 73 of the VAT Directive ( Balkan and Sea Properties , paragraph 61).
53. It is, moreover, clear that Article 65 of the VAT Directive sets out in a clear and unconditional manner the circumstances in which the VAT becomes chargeable before the goods or services are supplied and the amount on which it thus becomes chargeable. That provision therefore also meets those criteria.
54. It follows that the answer to the fifth question is that Articles 63, 65 and 73 of the VAT Directive have direct effect. Costs
55. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.