Case C-321/02

Finanzamt Rendsbug

v

Detlev Harbs

(Reference for a preliminary ruling from the Bundesfinanzhof)

(Sixth VAT Directive – Article 25 – Common flat-rate scheme for farmers – Leasing of part of a farm)

Summary of the Judgment

Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Common flat-rate scheme for farmers – Scope – Leasing of part of a farm – Exclusion

(Council Directive 77/388, Art. 25)

Article 25 of Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, which confers on the Member States the right to apply a common flat-rate scheme to farmers where the application to them of the normal VAT scheme or the simplified tax scheme would give rise to difficulties, is to be interpreted as meaning that a farmer who has leased and/or let on a long-term basis some of the material assets of his farming business but continues to farm with the rest of his assets and who, in respect of the continued farming activity, is subject to the common flat-rate scheme provided for in that article may not treat the income from such a lease and/or letting as being taxable under that scheme. The turnover from that arrangement must be taxed under the normal VAT scheme or, where appropriate, the simplified scheme.

Application of the scheme is not dependent on satisfaction of a sole criterion, namely the formal status of farmer, but is reserved to farmers whose situation is covered by all the provisions of Article 25 of the Sixth Directive.

Letting can be included in the services referred to in that provision only if it concerns equipment that the farmer normally uses in farming his own agricultural land. It follows that the letting, leasing or creation of a usufructuary right by which a farmer transfers exclusive enjoyment of immovable property to another farmer, with the result that the latter may enjoy the fruits of that property, does not fall within the scope of Article 25, because the transferring farmer can then no longer regularly use the assets concerned. For the same reason, this must also apply in the case of the long-term letting of other objects of the farm to which the lessee has exclusive rights of enjoyment.

(see paras 27, 31, 34, 37, operative part)

JUDGMENT OF THE COURT (First Chamber) 15 July 2004 (1)

(Sixth VAT Directive – Article 25 – Common flat-rate scheme for farmers – Leasing of part of a farm)

In Case C-321/02,

REFERENCE to the Court under Article 234 EC by the Bundesfinanzhof (Germany) for a preliminary ruling in the proceedings pending before that court between

and

on the interpretation of Article 25 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1),

THE COURT (First Chamber),,

composed of: P. Jann, President of the Chamber, A. Rosas, S. von Bahr (Rapporteur), R. Silva de Lapuerta and K. Lenaerts, Judges,

Advocate General: P. Léger,

after considering the written observations submitted on behalf of:

after hearing the oral observations of Mr Harbs and the Commission at the hearing on 12 February 2004,

after hearing the Opinion of the Advocate General at the sitting on 11 March 2004,

gives the following

‘Without prejudice to other Community provisions, Member States shall exempt the following …:

(b) the leasing or letting of immovable property …’.

‘1.

2.

3.Member States may fix varying flat-rate compensation percentages for forestry, for the different sub-divisions of agriculture and for fisheries.

5.

6.(a)

(b)

…

8.…

10.…’

‘List of agricultural production activities:

I. Crop production

1.…

II. Stock farming together with cultivation

1.…

III. Forestry

IV. Fisheries

…

V. Where a farmer processes, using means normally employed in an agricultural, forestry or fisheries undertaking, products deriving essentially from his agricultural production, such processing shall also be regarded as agricultural production.’

‘List of agricultural services

Supplies of agricultural services which normally play a part in agricultural production shall be considered the supply of agricultural services, and include the following in particular:

–

–

–

–

–

–

–

–

–

‘Where the owner of a farm:

–

–

may he treat the turnover from the lease – like the rest of his turnover – under the flat-rate scheme for farmers (Article 25 of Directive 77/388/EEC), or is the turnover from the lease taxable under the general rules?’

On those grounds,

THE COURT (First Chamber),

in answer to the question referred to it by the Bundesfinanzhof by order of 4 July 2002, hereby rules:

Jann

Rosas

von Bahr

Silva de Lapuerta

Lenaerts

Delivered in open court in Luxembourg on 15 July 2004.

R. Grass

P. Jann

Registrar

President of the First Chamber