The European Court of Justice ruled that, under art. 13(B)(b) of Council Directive 77/388, a legal relationship under which a person had been granted the right to occupy and use exclusively, public property, in this case areas of state maritime property, for a specified period and against payment, was covered by the concept of ‘leasing or letting of immovable property’ within the meaning of that article.

Facts

The Italian Maritime Code provided that the maritime authorities, in a manner compatible with the requirements of public use, might grant occupation and use, including exclusive use, of property owned by the state and areas of territorial waters for a fixed term. After classifying the concession of areas of state maritime property as transactions not subject to VAT, the taxpayer was issued with invoices in respect of such use without VAT being applied. However, the tax authorities served VAT adjustment notices for the years 1991 to 1993. The taxpayer challenged those adjustment notices, arguing that the supplies of the services in question did not fall within the charge to VAT.

The national court found in favour of the taxpayer but the authorities lodged an appeal against that judgment, on the ground that the transactions carried out should be subject to VAT inasmuch as they constituted supplies of services effected in the course of an economic activity. The regional tax court dismissed the appeal, accepting the taxpayer's argument that concessions of state-owned property, unlike leases of immovable property in the strict sense, could not be regarded either as assignments of property or as supplies of services for the purpose of the VAT legislation and, consequently, VAT might not be charged on them.

The authorities appealed but the appeal court decided to stay the proceedings and to refer to the European Court of Justice for a preliminary ruling.

Issue

Whether there was in the circumstances a leasing or letting of immovable property exempt from VAT under art. 13(B)(b) of the sixth directive.

Decision

The European Court of Justice (Second Chamber) ruling accordingly) said that, so far as the taxpayer was concerned, the cumulative conditions required to apply the rule of treatment as a non-taxable person under the first subparagraph of art. 4(5) of the sixth directive, namely, that the activities must be carried out by a body governed by public law, as a public authority, were not fulfilled.

As regards the question of whether the legal relationship at issue was covered by the concept of leasing or letting of immovable property’ within the meaning of art. 13(B)(b) of the sixth directive, the terms used to specify the exemptions provided for by art. 13 were to be interpreted strictly since they constituted exceptions to the general principle that VAT was to be levied on all services supplied for consideration by a taxable person. However, the requirement of strict interpretation did not mean that the terms used to specify exemptions had to be construed so as to deprive the exemptions of their intended effect. Furthermore, art. 13(B)(b) did not define ‘leasing or letting’, nor did it refer to relevant definitions adopted under the laws of the member states. Accordingly, that provision had to be interpreted in the light of the context in which it was used, and of the objectives and the scheme of the sixth directive, having particular regard to the underlying purpose of the exemption which it established. The leasing or letting of immovable property within the meaning of art. 13(B)(b) was essentially the conferring by a landlord on a tenant, for an agreed period and in return for payment, of the right to occupy property as if that person were the owner and excluding any other person from enjoyment of such a right. The legal relationship in the present case was one in which a company had been granted the right to occupy and use, including exclusively, areas of state maritime property, namely a coastal warehouse for the storage, manufacture and handling of mineral oils, for a specified period and against payment of an amount much lower than the value of the property. Having regard to its substance, such a relationship was similar to a contract forming part of the industrial and commercial activities of the taxpayer.

The fundamental characteristic of that relationship, which it had in common with the leasing or letting of immovable property, consisted in the provision of an area, i.e., part of the state maritime property, in return for payment, together with the grant to the other contracting party of the right to occupy it or use it and to exclude all other persons from the enjoyment of that right. Consequently, observance of the principle of the neutrality of VAT and the requirement that the provisions of the sixth directive be applied consistently, in particular, those relating to exemptions, entailed treating a relationship such the present in the same way as the leasing or letting of immovable property for the purpose of art. 13(B)(b).

European Court of Justice (Second Chamber).
Judgment delivered 25 October 2007.