Report for the Hearing delivered in Case 173/88
I — Facts and written procedure
1. Article 2 of the Sixth Council Directive (77/388) 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 (Official Journal L 145, p. 1), provides as follows: Article 13 of the same directive is entitled ‘Exemptions within the territory of the country’. Article 13B (‘Other exemptions’) provides as follows:
‘The following shall be subject to value-added tax:
1) the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;
2) ...’
‘Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:
a) ...
b) the leasing or letting of immovable property excluding : Member States may apply further exclusions to the scope of this exemption;
1) ...
2) the letting of premises and sites for parking vehicles;
3) ...
c) ... ’
2. Article 13B(b) was implemented in Denmark by Law No 204 of 10 May 1978 amending the Law on value-added tax. Article 2(3) of that law, as amended, provides as follows:
‘The following shall not be subject to tax:
...
h) the letting, leasing or management of immovable property. However tax shall be payable on the letting of rooms in hotels, inns, motels and the like, the letting of rooms in establishments for a period shorter than one month and the letting of sites for camping, parking and advertising.’
3. The main proceedings, between the Danish Ministry of Fiscal Affairs and Monen Henriksen, concern essentially the question whether the letting of garages situated in blocks of garages belonging to Mr Henriksen is exempt from value-added tax. The blocks of garages, consisting of two buildings each containing 12 garages, are situated on property acquired by the defendant in the main proceedings in June 1984. The blocks were erected in conjunction with a building development consisting of 37 linked one-family houses. Some of the garages were let to residents of that complex and some to other people resident in the neighbourhood. The garages are all closed and separated from each other by a wall, and each has a door. At first instance, the case came before the Østre Landsret (Eastern Division of the High Court) which, in a judgment of 27 June 1986, held that the Ministry of Fiscal Affairs was required to recognize that the letting of the garages at issue was not subject to tax. The Østre Landsret held in that regard that the exception to the principle of exemption normally applied to the letting, leasing or managment of immovable property provided for in Article 2(3)(h) of Law No 204, the effect of which was to make liable to tax ‘sites for... parking’, did not, in accordance with the literal meaning of that expression, encompass garages such as those at issue. The terms of Article 13B(b)(2) of the Sixth Directive did not support the contrary interpretation. The Ministry of Fiscal Affairs considers that a ‘site for parking’ is to be understood as meaning any place where motor vehicles may be parked. In those circumstances the Højesteret, before which the case had come on appeal, stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling under Article 177 of the EEC Treaty:
‘1. Should Article 13B(b) of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes (Sixth VAT Directive) be understood as meaning that tax liability on the letting of “premises and sites for parking vehicles” also encompasses the letting of garages of the type in question in the case?
2. If the above question is answered in the affirmative, must the said article be interpreted as meaning that the Member States are under a duty to subject the letting of garages of the type in question in the case to tax?’
4. The order for reference was received at the Court Registry on 27 June 1988. Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted by the Danish Government, represented by its Legal Adviser, Jørgen Molde, and by Ole Fentz, Kammeradvokat, and by the Commission of the European Communities, represented by its Legal Adviser, Johannes Fons Buhl. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided on 1 February 1989 to assign the case to the Third Chamber and to open the oral procedure without any preparatory inquiry.
II — Written observations
1. First question
The Danish Government considers that the reply to the first question should be in the affirmative. On the other hand, the Commission proposes that the Court's reply should be less categoric.
a) The Danish Government points out that according to Article 2, the basic principle of the directive is that the supply of all goods or services is subject to value-added tax unless expressly exempted therefrom. Having regard to the general structure of the directive, the provisions providing for exemptions must be regarded as exhaustive and must be interpreted strictly since they constitute an exception to the basic principle of the directive. In its normal meaning and usage, the expression ‘sites for parking vehicles’ means any place in which motor vehicles may be placed or parked. On that view, it is only the use which is of importance, whereas the form of construction or layout of the place or space is of no significance. It is also of no significance whether the site is open, covered or located inside a building. The English version in particular (‘premises and sites’) makes it clear that the provisions apply also to the letting of buildings used for parking motor vehicles. The same conclusion must be drawn from the Danish version (‘pladser’) and the German version (‘Plätze’). The objective which the directive seeks to achieve, namely the introduction of a common system of value-added tax, neutral from the consumer's point of view, also militates in favour of that interpretation. It would be contrary to that objective to exempt the letting of closed garages from value-added tax because if that were done, it would be more profitable for traders to let closed garages rather than any other form of parking. The general structure of the directive also suggests that Article 13B(b) does not mean that the letting of closed garages is exempt from value-added tax. That provision must be interpreted restrictively since it constitutes an exception to the general principle laid down in Article 2. To those considerations must be added the fact that interpreting Article 13B(b) so as to exclude the letting of garages would give rise to difficult distinctions, in particular in regard to parking places not at ground floor level and covered parking places without walls or having one, two or three lateral walls. An interpretation giving rise to such difficult distinctions is contrary to the first paragraph of Article 13B, according to which the Member States are to ensure ‘the correct and straightforward application of the exemptions’. Finally, the administrative practice of other Member States, in particular the United Kingdom, the Federal Republic of Germany, Belgium and France, appears to support the interpretation of Article 13B(b)(2) as extending to the letting of closed garages.
b) The Commission states that Parts A and B of Article 13 set out various transactions in respect of which the Member States are required to grant an exemption from value-added tax. According to the Court's case-law (see the judgment of 23 February 1988 in Case 353/85 Commission v United Kingdom [1988] ECR 817), exemptions must be interpreted strictly so that the Member States do not extend them as they wish by giving them a wide interpretation.
However, Article 13B(b) is formulated differently to Article 13A and B in general inasmuch as it begins by providing that the leasing or letting of immovable property is, with certain exceptions therein set out, exempt from value-added tax. It then adds that the Member States may apply further exclusions to the scope of the exemption, that is to say, they may levy value-added tax in cases other than those expressly set out.
It must be concluded that to a certain extent, the directive leaves the Member States free to determine in their national legislation whether or not the leasing or letting of immovable property is to be liable to value-added tax if the Member State can show that that is necessary to ensure ‘the correct and straightforward application’ of the exemptions and to prevent ‘any possible evasion, avoidance or abuse’. Thus, Article 13B(b) does not give the Member States an unlimited power to levy value-added tax on the leasing or letting of immovable property.
A comparative analysis of the tax legislation of several Member States (Belgium, the Federal Republic of Germany, Ireland, Italy, the Netherlands, the United Kingdom and Spain) shows that the expression ‘sites for parking vehicles’ constitutes, in certain Member States, the basis on which value-added tax is levied on the letting not only of parking spaces in a car park but also of garages or spaces in a garage when such letting is genuinely commercial in nature. On the other hand, none of those Member States levies value-added tax on the letting of parking places or garages when that letting is part of a contract for the letting of a dwelling, regardless of whether the dwelling is a house or a flat.
Since the expression ‘site for parking vehicles’ has not been clearly defined in the directive, it must be interpreted in accordance with its ordinary meaning, bearing in mind that the purpose of the directive is to determine the basis for the levying of value-added tax in a way which should preferably be uniform. In this case, it is reasonable to interpret Article 13B(b) in such a way as to conclude that the separate taxation of income from garages or parking places made available to the tenants of immovable property is incompatible with the exemption from value-added tax of the leasing of immovable property when the place in the garage is merely accessory to the purpose of the lease properly so-called. Thus, value-added tax should be levied in respect of parking spaces or garages only when a separate price is specified for the letting thereof. On the other hand, when the letting of a garage is an integral part of a letting of immovable property exempt from value-added tax, without a separate price being fixed for it in the lease, it comes within the scope of the exemption provided for in respect of the letting of immovable property.
In conclusion, the Commission proposes that the Court should reply to the first question as follows:
‘Article 13B(b) of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes exempts the letting of immovable property from value-added tax. By virtue of Article 13B(b)(2), the “letting of premises and sites for parking vehicles” is, however, excluded from that exemption. That means that the letting of sites for parking vehicles, and in particular garages, is subject to value-added tax when it is a separate letting. On the other hand, if it is part of a letting of immovable property which is exempt from value-added tax, without a separate price being fixed for the space or garage, it comes within the exemption from value-added tax applied in respect of the letting of immovable property.’
2. Second question
The Danish Government proposes that the reply to the second question should be in the affirmative. The Commission, for its pan, considers that that question is without purpose, having regard to the reply to the first question.
The Danish Government points out that the directive has been conceived in such a way that the Member States are required by Article 2 to tax the letting of garages of the kind at issue in this case unless such letting has been expressly exempted in the directive or the directive expressly permits the Member States to exempt such lettings.
According to the clear terms of Article 13B(b), the services listed under points 1 to 4 of that provision are not exempt and are, therefore, liable to value-added tax in accordance with the general principle laid down in Article 2. Article 13B(b) provides no legal basis for permitting the Member States to restrict the exceptions set out in points 1 to 4. On the contrary, the second subparagraph of paragraph (b) permits the Member States to apply further exclusions to the scope of the exemption. The terms employed show that the said subparagraph does not permit the Member States to restrict the exceptions set out.
Such a power to limit the exceptions set out in the directive would also be contrary to the purpose thereof because it would permit the Member States to restrict at their discretion the basis on which value-added tax is to be levied.
M. Zuleeg
Judge-Rapporteur
1 Language of the case: Danish.