Case C-174/08

NCC Construction Danmark A/S

v

Skatteministeriet

(Reference for a preliminary ruling from the Østre Landsret)

(Sixth VAT Directive – Article 19(2) – Deduction of input tax – Hybrid taxable person – Goods and services used for both taxable and exempt activities – Calculation of the deductible proportion – Definition of ‘incidental real estate transactions’ – Self-supply – Principle of fiscal neutrality)

Summary of the Judgment

1.        Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax – Goods and services used both for transactions in respect of which tax is deductible, and for transactions in respect of which tax is not deductible

(Council Directive 77/388, Art. 19(2))

2.        Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax

(Council Directive 77/388)

1.        Article 19(2) of the Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes is to be interpreted as meaning that the sale, in the case of a building business, of buildings constructed on its own account cannot be classified as an ‘incidental real estate transaction’ within the meaning of that provision, where that activity constitutes the direct, permanent and necessary extension of its business. In those circumstances, it is not necessary, in this case, to assess to what extent that sales activity, viewed separately, entails a use of goods and services on which value added tax is payable.

(see paras 34-35, operative part 1)

2.        The principle of fiscal neutrality cannot preclude a building business, which is required to pay value added tax on supplies relating to construction effected on its own account (self-supply), from being unable fully to deduct the value added tax relating to the general costs incurred thereby, since the turnover from the sale of buildings thus constructed is exempt from value added tax.

Admittedly, that principle of fiscal neutrality was intended by the Community legislature to reflect, in matters relating to value added tax, the general principle of equal treatment. However, while that latter principle, like the other general principles of Community law, has constitutional status, the principle of fiscal neutrality requires legislation to be drafted and enacted, which requires a measure of secondary Community law. The principle of fiscal neutrality may, consequently, be the subject, in such a legislative measure, of detailed rules resulting from the application of Article 19(1) in conjunction with Article 28(3)(b) of the Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, and point 16 of Annex F to that directive, according to which a taxable person carrying out both taxable activities and exempt activities of selling real estate cannot deduct fully the value added tax on its general costs.

Furthermore, the principle of fiscal neutrality cannot properly be relied upon to preclude the application of the provisions of the Sixth Directive transposed by national legislation since, with the contested provisions transposing the Sixth Directive the national legislature, taking due account of the general principle of equal treatment and in order to avoid distortions of competition in the internal market, wished to put building businesses which carry on, beside their building activity, an exempt activity of selling real estate, on the same footing as building developers who, given the exempt nature of that latter activity, cannot deduct the value added tax on supplies relating to construction by third-party businesses to which they have recourse.

(see paras 41-43, 46-47, operative part 2)