Case C-77/01

Empresa de Desenvolvimento Mineiro SGPS SA (EDM), formerly Empresa de Desenvolvimento Mineiro SA (EDM)

v

Fazenda Pública

(Reference for a preliminary ruling from the Tribunal Central Administrativo)

(Sixth VAT Directive – Articles 2, 4(2), 13B(d) and 19(2) – Meaning of ‘economic activities’ – Meaning of ‘incidental financial transactions’ – Services effected for consideration)

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 VAT is deductible and for transactions in respect of which it is not deductible – Proportionate deduction – Calculation – Sale of shares and other securities such as holdings in investment funds – Excluded if they do not constitute an economic activity – Placements in investment funds – Excluded if they do not constitute supplies of services for consideration – Loans by a holding company to its subsidiaries or placements in bank deposits or securities – Included – Limit – Exempt activities constituting incidental transactions – Assessment criteria – Jurisdiction of the national court

(Council Directive 77/388, Arts 2(1), 4(2), 13B(d)(1) and (5), 17(5) and 19)

(Council Directive 77/388, Art. 2(1))

1. Under Article 17(5) of Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, if the taxable person uses goods and/or services, on which he has paid input tax, both for transactions in respect of which VAT is deductible and for transactions in respect of which it is not deductible, it is necessary to calculate, in accordance with Article 19 of that directive, the deductible proportion to be applied to the amount of the input tax paid, transactions outside the scope of the Sixth Directive which do not give rise to a right to deduct having to be excluded from the calculation of that proportion.

In that regard, activities which consist in the simple sale of shares and other securities, such as holdings in investment funds, do not constitute economic activities within the meaning of Article 4(2) of the Sixth Directive and therefore do not come within the scope of that directive.

Moreover, placements in investment funds do not constitute supplies of services ‘effected for consideration’ within the meaning of Article 2(1) of the Sixth Directive and therefore likewise do not come within the scope thereof.

The amount of turnover relating to those transactions must consequently be excluded from the calculation of the deductible proportion referred to in Articles 17 and 19 of that directive.

By contrast the annual granting by a holding company of interest-bearing loans to companies in which it has a shareholding and placements by that holding company in bank deposits or in securities, such as Treasury notes or certificates of deposit, constitute economic activities carried out by a taxable person acting as such within the meaning of Articles 2(1) and 4(2) of the Sixth Directive.

However, since the said transactions are exempted from value added tax under points 1 and 5 of Article 13B(d) of the Sixth Directive, turnover attributable to them must be excluded from the calculation of the deductible proportion if they are incidental transactions within the meaning of the second sentence of Article 19(2) of the directive. They must in that respect be regarded as such in so far as they involve only very limited use of assets or services subject to value added tax; although the scale of the income generated by financial transactions within the scope of the Sixth Directive may be an indication that those transactions should not be regarded as incidental within the meaning of that provision, the fact that income greater than that produced by the activity stated by the undertaking concerned to be its main activity is generated by such transactions does not suffice to preclude their classification as ‘incidental transactions’.

It is for the national court to establish whether transactions involve only very limited use of assets or services subject to value added tax and, if so, to exclude those transactions from the calculation of the deductible proportion.

(see paras 53-55, 80, operative part 1)

2. Operations carried out by the members of a consortium in accordance with the provisions of a consortium contract and corresponding to the share assigned to each of them in that contract do not constitute supplies of goods or services ‘effected for consideration’ within the meaning of Article 2(1) of Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, nor, consequently, a taxable transaction under that directive. The fact that such operations are carried out by the member of the consortium which manages it is irrelevant in that respect.

On the other hand, where the performance of more of the operations than the share thereof fixed by the said contract for a consortium member involves payment by the other members against the operations exceeding that share, those operations constitute a supply of goods or services ‘effected for consideration’ within the meaning of that provision

(see para. 91, operative part 2)

JUDGMENT OF THE COURT (Fifth Chamber) 29 April 2004 (1)

(Sixth VAT Directive – Articles 2, 4(2), 13B(d) and 19(2) – Meaning of ‘economic activities’ – Meaning of ‘incidental financial transactions’ – Services effected for consideration)

In Case C-77/01,

REFERENCE to the Court under Article 234 EC by the Tribunal Central Administrativo (Portugal) for a preliminary ruling in the proceedings pending before that court between

and

on the interpretation of Articles 2, 4(2), 13B(d) and 19(2) 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 (Fifth Chamber),,

composed of: P. Jann, acting for the President of the Fifth Chamber, C.W.A. Timmermans and S. von Bahr (Rapporteur), Judges,

Advocate General: P. Léger,

after considering the written observations submitted on behalf of:

after hearing the oral observations of Empresa de Desenvolvimento Mineiro SGPS SA (EDM), represented by D. Duarte, of the Portuguese Government, represented by V. Guimarães, acting as Agent, and of the Commission, represented by C. Giolito and M. França, acting as Agent, at the hearing on 29 May 2002,

having regard to the Report for the Hearing,

after hearing the Opinion of the Advocate General at the sitting on 12 September 2002,

gives the following

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

…

‘1.

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The proportion shall be determined on an annual basis, fixed as a percentage and rounded up to a figure not exceeding the next unit.

2....

...

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–

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The scope of the Sixth Directive

The concept of transactions exempted from VAT

The calculation of the deductible proportion

The derogation for incidental transactions

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placements in investment funds do not constitute supplies of services ‘effected for consideration’ within the meaning of Article 2(1) of the Sixth Directive and therefore likewise do not come within the scope thereof;

the amount of turnover relating to those transactions must consequently be excluded from the calculation of the deductible proportion referred to in Articles 17 and 19 of that directive;

–

however, such transactions are exempted from VAT under points 1 and 5 of Article 13B(d) of that directive;

in calculating the deductible proportion referred to in Articles 17 and 19 of the Sixth Directive, those transactions are to be regarded as incidental transactions within the meaning of the second sentence of Article 19(2) thereof in so far as they involve only very limited use of assets or services subject to VAT; although the scale of the income generated by financial transactions within the scope of the Sixth Directive may be an indication that those transactions should not be regarded as incidental within the meaning of that provision, the fact that income greater than that produced by the activity stated by the undertaking concerned to be its main activity is generated by such transactions does not suffice to preclude their classification as ‘incidental transactions’;

it is for the national court to establish whether the transactions concerned in the main proceedings involve only very limited use of assets or services subject to VAT and, if so, to exclude interest generated by those transactions from the denominator of the fraction used to calculate the deductible proportion.

On those grounds,

THE COURT (Fifth Chamber),

in answer to the questions referred to it by the Tribunal Central Administrativo by order of 19 December 2000, hereby rules:

placements in investment funds do not constitute supplies of services ‘effected for consideration’ within the meaning of Article 2(1) of Sixth Directive 77/388 and therefore likewise do not come within the scope thereof;

the amount of turnover relating to those transactions must consequently be excluded from the calculation of the deductible proportion referred to in Articles 17 and 19 of that directive;

however, the said transactions are exempted from value added tax under points 1 and 5 of Article 13B(d) of that directive;

in calculating the deductible proportion referred to in Articles 17 and 19 of Sixth Directive 77/388, those transactions are to be regarded as incidental transactions within the meaning of the second sentence of Article 19(2) thereof in so far as they involve only very limited use of assets or services subject to value added tax; although the scale of the income generated by financial transactions within the scope of Sixth Directive 77/388 may be an indication that those transactions should not be regarded as incidental within the meaning of that provision, the fact that income greater than that produced by the activity stated by the undertaking concerned to be its main activity is generated by such transactions does not suffice to preclude their classification as ‘incidental transactions’;

it is for the national court to establish whether the transactions concerned in the main proceedings involve only very limited use of assets or services subject to value added tax and, if so, to exclude interest generated by those transactions from the denominator of the fraction used to calculate the deductible proportion.

Jann

Timmermans

von Bahr

Delivered in open court in Luxembourg on 29 April 2004.

R. Grass

V. Skouris

Registrar

President