The European Court of Justice (ECJ) ruled that art. 13(B)(c) of Council Directive 77/388 (‘the sixth directive’) did not preclude a national law which imposed VAT on transactions by which a taxable person, after having used them for the purposes of its business, resold goods on the acquisition of which, by virtue of art. 17(6) of the sixth directive, VAT did not become deductible, even where that acquisition, made from taxable persons who could not declare VAT, did not, for that reason, give rise to a right to deduct. Furthermore, an undertaking could be considered a ‘taxable dealer’ under art. 26A(A)(e) where it resold second-hand cars purchased originally for the purposes of its business of sale and leaseback and where the resale was only its secondary objective, ancillary to that of leasing.

Facts

The taxpayer operated a car-leasing business for which it purchased either new or second-hand motor cars. For the latter the purchase was made without the possibility of deducting the VAT included in the price as the vendors were unable under national law to declare VAT on the price of the car. Between 1 January 1999 and 31 May 2001, the taxpayer, at the end of the sale and leaseback, resold 145 vehicles purchased second-hand. In May 2001 the Danish tax authorities requested that the taxpayer pay VAT due on those resales. The taxpayer disputed that liability before the national court, 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 remained incorporated in the purchase price of second-hand cars and which was 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. The national court stayed the proceedings and made a reference to the ECJ for a preliminary ruling.

Issue

Whether the tax demand was contrary to art. 13(B)(c) of the sixth directive; and whether the taxpayer was entitled to rely on the special arrangements, provided for in art. 26A, for taxing the profit margin applicable to second-hand sales.

Decision

The ECJ (Third Chamber) (ruling accordingly) said that the exemption provided for by art. 13(B)(c) of the sixth directive could apply only to supplies of goods on the acquisition of which VAT did not become deductible in accordance with national legislation. The terms of that article were not capable, in that regard, of any other interpretation which would allow a taxable person, who could not take advantage of such an exemption, to avoid double taxation. Where national law provided that undertakings which carried on the business of leasing motor cars could deduct the tax on acquisitions for that activity, it followed that the acquisition of a car, by such an undertaking, was not, within the meaning of art. 13(B)(c), an acquisition of goods on which, by virtue of art. 17(6), VAT did not become deductible. The resale of that car could not therefore be regarded as being a supply benefiting from the exemption in art. 13(B)(c). The fact that such a purchase did not give rise to a right to deduct because it involved vendors who themselves could not, under national legislation, deduct the input tax relating to their purchase of cars and, accordingly, did not declare output VAT, had no bearing on the classification of that purchase for the application of art. 13. Article 26A, inserted by Directive 94/5, applied special arrangements for taxing the profit margin made by the taxable dealer on the supply of second-hand goods, works of art, collectors’ items and antiques. The provisions of art. 26A(A)(e) defined ‘taxable dealer’ as a taxable person who, in the course of his economic activity, purchased or acquired for the purposes of his undertaking, or imported with a view to resale, secondhand goods and/or works of art, collectors’ items or antiques.

Many versions of the sixth directive, including the English-language version, could suggest that the expression ‘with a view to resale’ only applied to the verb ‘import’, which appeared immediately before it. Where there was divergence between the various language versions of a Community text, the provision in question had to be interpreted by reference to the purpose and general scheme of the rules of which it formed part. It followed from the second, third and fifth recitals of Directive 94/5 that the Community legislature had sought to achieve some harmonisation of very different arrangements applicable in the member states concerning the taxation of second-hand goods, works of art, collectors’ items and antiques in order to avoid double taxation and distortions of competition, both within those member states and in relations between them. In the circumstances, to interpret the expression ‘with a view to resale’ as relating only to import activities would be contrary to the overall objective of putting in place uniform arrangements in the areas of second-hand goods, works of art, collectors’ items and antiques, which the Community legislature had thereby set itself. Consequently, that expression applied also to purchases and acquisitions for the purposes of the undertaking.

In determining the scope of a provision of Community law, its wording, context and objectives should all be taken into account. However, the interpretation of the terms used by art. 26A had to be consistent with the objectives pursued by the special arrangements established by that article and comply with the requirements of the principle of fiscal neutrality inherent in the common system of VAT. To tax, on the overall sale price, the supply by a sale and leaseback undertaking of a car which it purchased second-hand, when, at the time of that purchase it was not able to deduct the VAT which remained incorporated in the purchase price, gave rise to the risk of double taxation. Moreover, in accordance with the principle of fiscal neutrality on which, in particular, the common system of VAT established by the sixth directive was based, economic operators carrying out the same transactions might not be treated differently in relation to the levying of VAT.

On the market for sales of second-hand cars, taxation on the overall sale price of the supply by sale and leaseback undertakings would create a distortion of competition to their detriment and in favour, in particular, of firms trading in second-hand vehicles which benefited from the taxation scheme based on the profit margin. As a means of satisfying purchasers’ legitimate expectation to pay the same price for vehicles of the same quality, whether they were sold by an undertaking trading in second-hand cars or by a sale and leaseback undertaking, the latter could not reasonably be expected to absorb in the sale price the amount of the VAT owed by it and thereby reduce its margin. The application of the arrangements provided for in art. 26A to sale and leaseback undertakings allowed precisely the achievement of the aim of the Community legislature in adopting those arrangements, that was, to avoid double taxation and distortions of competition in the area of second-hand goods. In the circumstances, taking account of the aims of art. 26A, that article did not exclude from the category of taxable dealer sale and leaseback undertakings which purchased cars second-hand, when the resale formed part of their normal business and the intention to resell was present at the moment of purchase, even when the reselling was secondary in comparison with the leasing.

European Court of Justice (Third Chamber).

Judgment delivered 8 December 2005.