Flashback on ECJ Cases C-280/04 (Jyske Finans) – Exemption for delivery of goods for which the right to deduct is excluded – Resale of used vehicles by the lease company

On December 8, 2005, the ECJ issued its decision in the case C-280/04 (Jyske Finans).

Context: Sixth VAT Directive – Article 13B(c) – Exemptions – Exemption of supplies of goods excluded from the right to deduct – Resale of motor cars purchased second-hand by a leasing company – Article 26a – Special arrangements for sales of second-hand goods.

Article in the EU VAT Directive

Articles 13B(c), 26aA(e) of the Sixth VAT Directive (Articles 136(1), 136(b), 311 of the EU VAT Directive 2006/112/EC).

Article 136
Member States shall exempt the following transactions:
(a) the supply of goods used solely for an activity exempted under Articles 132, 135, 371, 375, 376 and 377, Article 378(2), Article 379(2) and Articles 380 to 390c, if those goods have not given rise to deductibility;
(b) the supply of goods on the acquisition or application of which VAT was not deductible, pursuant to Article 176.

Article 311
1. For the purposes of this Chapter, and without prejudice to other Community provisions, the following definitions shall apply:
(1) ‘second-hand goods’ means movable tangible property that is suitable for further use as it is or after repair, other than works of art, collectors’ items or antiques and other than precious metals or precious stones as defined by the Member States;

Facts

Jyske Finans operates a car-leasing business. In operating this business, it purchases either new or second-hand motor cars. For the latter, the purchase is made without the possibility of deducting the VAT included in the price, the vendors being unable, according to the national legislation, to declare VAT on the price of the car.
Between 1 January 1999 and 31 May 2001, Jyske Finans, at the end of the sale-and-leaseback, resold 145 vehicles which had been purchased second-hand. In May 2001 the Danish tax authorities requested that Jyske Finans pay VAT, which, according to them, was due on those resales in the amount of DKK 2 236 413 (approximately EUR 299 500).
Jyske Finans disputed this liability before the Vestre Landsret, maintaining that to pay the VAT would mean double taxation, as it had not been able to exercise the right to deduct the VAT which remains incorporated in the purchase price of second-hand cars and which is not declared. It maintained that the decision of the tax authorities had no legal basis in the VAT Law and was contrary to the Sixth Directive. Nordania Finans A/S and BG Factoring A/S intervened in that action in support of Jyske Finans.
The Vestre Landsret considered that the main proceedings related to whether, firstly, the tax demand was contrary to Article 13B(c) of the Sixth Directive and, secondly, whether Jyske Finans was entitled to rely on the special arrangements, provided for in Article 26a of that same directive, for taxing the profit margin applicable to second-hand sales. It considered that the outcome of the main proceedings depended on the interpretation which it was appropriate to give to those two provisions of that directive.

Questions

(1) Must Article 13B(c), in conjunction with Articles 2(1) and 11A(1)(a), of the Sixth Directive … be construed as precluding a Member State from maintaining a legal situation under its law on value added tax pursuant to which a taxable person who has introduced capital goods to a significant extent into his business assets is, in contrast to second-hand car dealers and other traders who sell second-hand cars, liable to VAT on the sale of those capital items, even in the case where the items were purchased from taxable persons who did not declare tax on the price of the items, with the result that there was no possibility of deducting VAT at the time of acquisition?

(2) Must Article 26aA(e) of the Sixth Directive be construed as meaning that the term “taxable dealer” covers only persons whose principal activity consists in the purchase and sale of second-hand goods in cases where the second-hand goods in question are acquired with the sole or principal purpose of obtaining a financial profit on their resale, or does that term also cover persons who normally dispose of those goods by sale at the end of a leasing period as a subsidiary link in the overall economic leasing activity under the circumstances outlined above?

AG Opinion

1) Article 13B(c), in conjunction with Articles 2(1) and 11.A(1)(a) 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 (the ‘Sixth VAT Directive’) should not be construed as precluding a Member State from maintaining a legal situation under its law on value added tax pursuant to which a taxable person is liable to VAT on the resale of second-hand cars used in its business, even where that person cannot deduct VAT paid on acquiring the cars because no such VAT was in fact paid.

2) The term ‘taxable dealer’ under Article 26a(A)(e) of the Sixth VAT Directive extends to a taxable person who, at the time of purchase, intended that the goods be resold at a later point in time after first using them for his own business purposes.

Decision

1. The provisions of Articles 13B(c) 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, as amended by Council Directive 94/5/EC of 14 February 1994 are to be construed as meaning that they do not preclude a national law which imposes value added tax on transactions by which a taxable person, after having used them for the purposes of its business, resells goods on the acquisition of which, by virtue of Article 17(6), value added tax did not become deductible, even where that acquisition, made from taxable persons who could not declare value added tax, did not, for that reason, give rise to a right to deduct.

2. Article 26aA(e) of Sixth Directive 77/388, as amended by Directive 94/5, is to be construed as meaning that an undertaking which, in the normal course of its business, resells cars which it had purchased second-hand with a view to using them for the purposes of its business of sale and leaseback and for which the resale is not, at the time of the purchase of the second-hand goods, the principal objective but only its secondary objective, ancillary to that of leasing, can be considered to be a ‘taxable dealer’ within the meaning of that provision.

Summary

Exemption for delivery of goods for which the right to deduct is excluded – Resale of used vehicles by the lease company

Allowed is national legislation under which VAT is due on transactions whereby a taxable person resells goods, after having used them for his business, which were not excluded from the right to deduct at the time of purchase in accordance with Article 17(6) of this Directive , even if these goods had been purchased from taxable persons who could not have submitted a VAT return, so that no right of deduction was therefore opened.

A company which, in the course of its normal business activities, resells vehicles that it had bought second-hand for its leasing activities, where the resale was not the main purpose at the time of the purchase of the used good, but a secondary purpose to the leasing, can be regarded as as a ‘taxable reseller’.

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