delivered on 22 April 1986 (*1)

Mr President,

Members of the Court,

Without reciting all the facts and the procedure, which are set out in the Report for the Hearing, it may be recalled that the dispute in the main proceedings, which is between the Kerrutts, a married couple, and their tax office, concerned initially the application of Grunderwerbsteuer [real property transfer tax] to a property transaction involving a complex legal fiction, known as the ‘Bauherrenmodell’, which is, it seems, common in the Federal Republic of Germany.

It appears from the order requesting a preliminary ruling and the information provided in the course of the proceedings that that fiction operates as follows. Through the intermediary of an agent, in this instance a trustee, building land is acquired, then divided up between different mandators who thus become co-proprietors. The latter join together to form a ‘Bauherrengemeinschaft’ (an association governed by the Civil Code, represented by the same trustee), which concludes a contract with a building contractor for the construction of a block of apartments on the land and the supply of the various dwellings. Other contracts may, as in this case, be concluded individually by each co-proprietor, represented by the trustee, with other companies. Such contracts may include contracts for the supervision of building works, contracts for the management of let accommodation, contracts of guarantee and contracts for the procurement of finance. Delivery may be taken of the building and the supply of the various dwellings effected by the association or by each co-proprietor dealing directly with the building contractor.

There is therefore a series of essentially separate transactions, effected by a single agent. The advantage of such a scheme for the co-proprietors is that although they must pay the fees of the agent and the various intermediaries, they save a considerable amount of time and effort and obtain the benefit of the experience of a specialized agent. There is also a tax advantage. The co-proprietors may deduct their costs from income tax.

The dispute arose when the competent local tax authorities issued to the Kerrutts, the plaintiffs in the main proceedings, demands for transfer tax, assessed on the basis of the various transactions, which, in accordance with decisions of the Bundesfinanzhof [Federal Finance Court], were treated as a single transaction. According to those decisions, the successive contracts, in particular those for the purchase of land and for construction work, are regarded as contingent on each other, since each contract is devoid of purpose without the other. There is therefore an ‘inherent connection’, to quote the expression used by the Bundesfinanzhof and cited by the Finanzgericht.

Before that court the Kerrutts claimed that the transactions were separate and that under national law only the acquisition of the building land was liable to transfer tax.

The national court, however, took the view that although on the face of it the case concerned only the application of national law, it also raised questions as to the application of the Community rules on value-added tax contained in the Sixth Directive.

The connection was found in a provision of the Umsatzsteuergesetz [Law on turnover tax], namely paragraph 4 (9) (a), which exempts from VAT transactions subject to transfer tax. The national court concluded that, on the basis of the decisions of the Bundesfinanzhof according to which the entire ‘Bauherren’ scheme is subject to transfer tax, the goods and services supplied by building contractors, skilled workers of the building trade (hereinafter referred to as ‘building workers’), trustees and other parties intervening in the scheme should be exempted from VAT. The national court took care to point out that the Federal Minister for Finance did not share the view that the scheme in question was an ‘integrated but divisible service’. It is clear from the observations submitted to the Court by the German Government that in practice such supplies are not exempted, although that exemption is provided for by law.

In order to determine to what extent those national provisions may be regarded as compatible with Community law, the national court submitted two questions, which are reproduced in the Report for the Hearing, and the substance of which is as follows :

(1)Can the ‘Bauherren’ scheme be regarded as 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, of the Sixth Directive, which authorize exemptions from VAT, or do the transactions other than the acquisition of the land come within the scope of Article 2 (1) of the Sixth Directive, according to which ‘the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such’ is subject to VAT?

In other words, do the transactions in question constitute a single transaction exempt from VAT under the directive or are they, with the exception of the transaction concerning the land, subject to it by virtue of Article 2 of the directive?

(2)If the reply to the first question is that the transactions other than the transfer of the land are subject to VAT, is it contrary to the objective of harmonization pursued by the directive to levy on them a second tax, such as transfer tax?

‘During the transitional period’, initially fixed as five years from 1 January 1978, ‘Member States may:

(b) continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned’.

Point 16 of Annex F refers to the ‘supplies of those buildings and land described in Article 4 (3)’; Article 4 (3) (b) refers to the ‘supply of building land’.

It is not denied that the German law in force when the directive was adopted exempted transactions of that type from such taxation. It is also accepted that, where no measure was adopted within the abovementioned period, the transitional rules continue to apply.

The first question to be resolved is whether the supplies and services provided by the contractor and the building workers or the trustee under the scheme which I have described constitute, with the purchase of the land, a single transaction. The Federal Government and the Commission have proposed an identical solution. In their view such supplies and services, which cannot come within the scope of the exemptions referred to by the national court, are subject to VAT by virtue of Article 2 (1) of the Sixth Directive.

At this point a clarification would seem necessary. Although, according to its written observations, the Commission considered, on the basis of the order requesting a preliminary ruling, that in its decisions the Bundesfinanzhof had extended the exemptions provided for in paragraph 4 (9) (a) of the Umsatzsteuergesetz, it emerged from the oral argument, as I have stated, that in practice the German tax authorities levy VAT on the supplies and services in question. The national court therefore refers to a non-cumulation of the taxes which is made theoretically possible by the combination of national law and the case-law of the Bundesfinanzhof but which in practice does not occur.

As regards the second question, the German Government and the Commission consider that in the light of Article 33, the directive does not preclude the maintenance or introduction by a Member State of transfer tax on the sale of real property.

The Kerrutts presented only oral argument, and laid particular emphasis on the second question. In their view, the objective pursued by both Community and national law is to prevent the double taxation of a single transaction.

It appears to be beyond question that such transactions fall within the very broad categories laid down in that provision, whose terms are defined in Articles 4 (1), 5 (1) and 6 (1). The directive contains no provision which provides a basis for arguing that several supplies of goods or services may be grouped together because of their common purpose — in this case the supply of a building — and treated as a single transaction. Article 10 of the directive reinforces the idea that each supply or each service is in itself a chargeable event and determines whether the tax is chargeable. Indeed the chargeable event occurs when the goods or services are supplied (Article 10 (2) of the directive). Therefore their effect cannot be postponed for taxation purposes pending completion of the entire property transaction.

The first consequence of that is that the supplies and services of contractors and building workers under a scheme such as the ‘Bauherrenmodell’ are in principle subject to VAT and may not be regarded as forming, together with the land transaction, a set of related but legally autonomous operations constituting a single transaction.

The structure of Article 4 (3) of the directive confirms that analysis. Article 4 (3) (a) refers to ‘the supply before first occupation of buildings or parts of buildings and the land on which they stand’, and that is a single financial and legal transaction inasmuch as it involves the transfer of ownership of land which has been built on. Article 4 (3) (b) concerns specifically and solely the supply of building land, which suggests that the supply of such land does not necessarily form, together with subsequent and legally distinct supplies and services relating to the construction of the building, a group of transactions constituting a single chargeable event for the purposes of VAT.

4. I turn now to the exemptions referred to by the national court.

In the first place Article 13 B (g) of the directive exempts from VAT ‘the supply of buildings or parts thereof, and of the land on which they stand, other than as described in Article 4 (3) (a)’.

By definition it applies solely to buildings which have already been occupied at least once. The case before the Court, which concerns a building which has never been occupied, does not, therefore, fall within its scope.

As regards the possibility of exemption under Article 28 (3) (b), in conjunction with Annex F, a distinction must be made between the supply of buildings and the land on which they stand and that of building land, referred to in Article 4 (3) (a) and (b) of the directive respectively.

As I have already stated and as is confirmed by the opinion of the Federal Ministry of Finance of 14 June 1984(Bundessteuerblatt I, 1984, p. 430), supplies of building land (Article 4 (3) (b) of the directive), which were exempted from VAT when the directive came into force, remain exempted by virtue of that provision.

On the other hand, in connection with the supply of a building or a part of a building and the land on which it stands, which is a single transaction and legally distinct from those which precede it (purchase of the land, various supplies and services), it should be noted that supplies of goods and services under the ‘Bauherren’ scheme have never as such been exempted from VAT in the Federal Republic of Germany, either before or, as we have seen, after the entry into force of the directive. It follows that the transactions in question do not qualify for exemption under Article 28 (3) (b) of the directive.

I can only endorse that approach, which is in conformity with the Court's decisions. Only recently, in its judgment of 20 March 1986 (Case 35/85 Procureur de la République v Tissier [1986] ECR 1207) the Court repeated its view that

‘In order to provide a satisfactory answer to a national court which has referred a question to it, the Court of Justice may deem it necessary to consider provisions of Community law to which the national court has not referred in the text of its question’ (paragraph 9 of the decision).

In the light of the information provided in the order requesting a preliminary ruling, it appears that some of the subsidiary contracts concluded by the plaintiffs in the main proceedings — contracts of guarantee, contracts for the procurement of finance — may fall within the scope of Article 13 B (d) (1) and (2) of the directive, according to which:

‘... Member States shall exempt... under conditions which they shall lay down...

the following transactions:

(1)the granting and the negotiation of credit and the management of credit by the person granting it;

(2)The negotiation of or any dealings in credit guarantees or any other security for money and the management of credit guarantees by the person who is granting the credit’.

In accordance with the Court's dictum in Case 35/85 (paragraph 9 of the decision), it is for the national court, if it is necessary and if the question has also been raised before it, to consider whether certain contracts concluded under the scheme in question do indeed fall within the scope of Article 13 B (d) of the directive.

To sum up I consider that even if, for the purpose of establishing the basis of assessment of another tax, a group of supplies and services may under national law be regarded as a single transaction, that is not the case as regards the application of VAT under the directive. Each of the transactions carried out within that group is subject to it unless exemption is provided for or permitted by the Community directive.

It is therefore necessary to consider the second question concerning the possibility of double taxation.

In that respect Article 33 of the directive is clear. It is worded as follows:

‘Without prejudice to other Community provisions, the provisions of this directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties (*) and, more generally, any taxes, duties or charges which cannot be characterized as turnover taxes.’

As the Federal Government correctly points out and as its own title suggests, the Sixth Directive is intended to harmonize the laws of the Member States on turnover taxes. Article 33 shows that that harmonization does not extend to other taxes, which the Member States are free to maintain or introduce provided that they cannot be characterized as turnover taxes. That is the case of real property transfer tax.

I propose that the Court should reply to the second question accordingly. In the last paragraph of the statement of the grounds on which its order is based, the national court states that in such circumstances it will be necessary in the light of the case-law of the Bundesverfassungsgericht [Federal Constitutional Court], to consider the German legislation on real property transfer tax from the point of view of constitutional law with a view to avoiding double taxation of a single service. However, that falls within the scope of the legal order administered by the national court and has no effect on Community law provided that the rules of Community law are observed.

Consequently I propose that the Court should reply to the Finanzgericht Düsseldorf as follows:

1.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).

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.

(*) Translated from the French.

(*) Translator's note: ‘Grunderwerbsteuer’ [real property transfer tax] in the German version of Art. 33.