On July 8, 1986, the ECJ issued its decision in the case C-73/85 (Kerrutt).
Article in the EU VAT Directive
Article 2(1) of the Sixth Directive (Article 2 of the EU VAT Directive 2006/112/EC)
Article 2
1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
(b) the intra-Community acquisition of goods for consideration within the territory of a Member State by:
(i) a taxable person acting as such, or a non-taxable legal person, where the vendor is a taxable person acting as such who is not eligible for the exemption for small enterprises provided for in Articles 282 to 292 and who is not covered by Articles 33 or 36;
(ii) in the case of new means of transport, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1), or any other non-taxable person;
(iii) in the case of products subject to excise duty, where the excise duty on the intra-Community acquisition is chargeable, pursuant to Directive 92/12/EEC, within the territory of the Member State, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1);
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
(d) the importation of goods.
Facts
- By a contract dated 28 December 1982 and 3 February 1983 the plaintiffs in the main proceedings commissioned a firm of trustees to purchase a plot of land at Mönchengladbach/Hardt for DM 43 792 and to construct a building on it (dwelling No 2 on the plan) at a total cost of DM 445 063. By a contract of 7 February 1983 the plaintiffs acquired, as joint owners in equal shares, a co-proprietor’s share amounting to 230/1 000 of a plot of land which had not been built on, located as mentioned above, at the agreed price. The conveyance was effected on 23 August 1983. The division of the property pursuant to paragraph 3 of the Wohnungseigentumsgesetz [Law on the ownership of apartments] was agreed on 14 September 1983 and was registered in the Land Register on 29 November 1983.
- The ‘Bauherrengemeinschaft’ [Coproprietors’ Association] formed by the coproprietors as an association governed by the Civil Code (paragraphs 705 et seq. of the Bürgerliches Gesetzbuch [Civil Code] concluded with a building company a contract dated 26 May 1983 for the construction of a dwelling ready for occupation by 31 December 1983 at a fixed price of DM 679 906.54 plus value-added tax at the rate of 13%. In addition the plaintiffs concluded on their own account the following contracts:
(a) A contract for the supervision of building works (Baubetreuungsvertrag) covering the commercial, financial, organizational and technical groundwork;
(b) A contract for the management of let accommodation;
(c) A contract for the assembly of documentation for tax purposes;
(d) A contract of guarantee;
(e) A contract for the procurement of finance. - The Finanzamt [Tax Office] Mönchengladbach-Mitte issued tax demands dated 12 August 1983 to both the plaintiffs in the main proceedings for real property transfer tax (Grunderwerbsteuer) of DM 2 888 assessed on the basis of a total amount of DM 288 855, all the sums paid by the plaintiffs being included in the taxable consideration in accordance with the definition laid down in the law on real property transfer tax. The Tax Office justified its approach by reference to recent decisions of the Bundesfinanzhof according to which the contract of sale for a plot of land and the contract for the construction of a building must be regarded as a single transaction within the meaning of the law on property transfer tax in so far as each of the two partial contracts is devoid of purpose without the other.
Before the Finanzgericht [Finance Court] Düsseldorf the dispute between the parties turns on whether transfer tax may also be levied on the consideration for the construction of a building. - The Finanzgericht takes the view that the dispute raises problems concerning the interpretation of the abovementioned provisions of the Sixth Council Directive (No 77/388/EEC of 17 May 1977). It considers that it is necessary to determine in the first place whether the goods and services supplied by building contractors, skilled workers of the building trade (hereinafter referred to as ‘building workers’), trustees and so on under the building contract are subject to value-added tax by virtue of the directive. It is then necessary to consider whether the double taxation of such deliveries and services as a result of the charging of transfer tax in addition to value-added tax is in conformity with Community law.
Questions
(1) Does the supply of goods and services under a parcel of contracts offered by a promoter for work and services in connection with the construction of a building, including a contract to purchase land (the “Bauherrenmodell’, or co-proprietors’ building scheme), together with a transfer of land effected by another undertaking, constitute a single “supply of buildings
or parts thereof, and of the land on which they stand” for the purposes of Article 13 B (g) and Article 28 (3) (b) in conjunction with point 16 of Annex F to the Sixth Council Directive on the harmonization of turnover taxes (Directive No 77/388/EEC of 17 May 1977), or is value-added tax applicable under Article 2 (1) of that directive to the supply of such goods and services but not to the transfer of the land?
(2) If value-added tax is chargeable under Article 2 (1) of the Sixth Directive, does Community law prohibit double taxation so that no additional transfer tax (in this case the German tax on the transfer of real property) may be levied in respect of the aforementioned supply of goods and services?
AG Opinion
- A transaction consisting of a contract for the sale of land which has not been built on and contracts for the supply of work and services in connection with the construction and supply of a building on the land does not constitute a ‘supply of buildings or parts thereof, and the land on which they stand’ within the meaning of Articles 4 (3) (a) or 13 B (g) of the Sixth Council Directive (No 77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment. That transaction must be regarded as a supply of building land within the meaning of Article 4 (3) (b) of the Sixth Directive, followed by a number of supplies of goods and services. Value-added tax is chargeable on those supplies and services by virtue of Article 2 (1) of the Sixth Directive subject to the exemptions provided for in that directive, in particular those concerning transactions covered by Article 13 B (d) (1) and (2).
- It follows from Article 33 of the Sixth Directive that a Member State may maintain or introduce real property transfer tax on property transactions which are also subject to value-added tax.
Decision
(1) Under a scheme such as the ‘Bauherrenmodell’ referred to in the order requesting a preliminary ruling the supply of goods and services under a parcel of contracts for work and services in connection with the construction of a building, except the supply of the building land, are subject to value-added tax by virtue of Article 2 (1) of the Sixth Council Directive (No 77/388/EEC of 17 May 1977). (2) No provision of Community law prohibits a Member State from levying on a transaction which is subject to value-added tax under the Sixth Directive other taxes on transfers and transactions, such as the German ‘Grunderwerbsteuer’, provided that such taxes cannot be characterized as turnover taxes.
Summary
The supply of goods and the provision of services (other than the supply of the building site) in the context of a “package” of contracts for the contracting of work and the provision of services including the erection of a building (of the type described in referred to in the order for reference “Bauherrenmodell”) are subject to VAT.
Source
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