Court of Justice of the European Communities (including Court of First Instance Decisions)

OPINION OF ADVOCATE GENERAL

TANCHEV

delivered on 9 September 2021(1)

Case C‑9/20

Grundstücksgemeinschaft Kollaustraße 136

v

Finanzamt Hamburg-Oberalster

(Request for a preliminary ruling from the Finanzgericht Hamburg (Finance Court, Hamburg, Germany))

(Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/EC – Article 66(b) – Article 167 – Timing of the right to deduct input VAT – Letting and subletting immovable property used for industrial or commercial purposes)

1.        This reference for a preliminary ruling concerns the proper point in time for a taxable person to deduct input VAT in respect of rental services supplied by a taxable person who uses cash accounting for VAT purposes.

2.        More specifically, the taxable person who received the services in question claimed the corresponding input VAT deductions at the time the taxable person made payments to the supplier who also uses cash accounting for VAT purposes (‘cash method supplier’), in apparent accordance with Article 167 of the VAT Directive, (2) read in conjunction with Article 66(b) of that directive. Those payments were in part made substantially later than the rental periods to which they related. The German tax authority subsequently claimed that the deductions should have been taken at the time of supply, that is to say when the rental property was made available to the taxpayer as recipient of the rental services.

3.        The referring court has submitted two questions for a preliminary ruling in this connection. As requested by the Court, I shall confine myself in this Opinion to examining the first of the questions referred, which concerns the interpretation of Article 167 of the VAT Directive.

I.      Legal framework

A.      EU law

1.      The VAT Directive

4.        Article 63 of the VAT Directive is worded as follows:

‘The chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.’

5.        Article 66 of the VAT Directive states:

‘By way of derogation from Articles 63, 64 and 65, Member States may provide that VAT is to become chargeable, in respect of certain transactions or certain categories of taxable person at one of the following times:

…

(b)      no later than the time the payment is received;

…’

6.        Article 167 of the VAT Directive provides:

‘A right of deduction shall arise at the time the deductible tax becomes chargeable.’

7.        Under Article 167a of the VAT Directive:

‘Member States may provide within an optional scheme that the right of deduction of a taxable person whose VAT solely becomes chargeable in accordance with Article 66(b) be postponed until the VAT on the goods or services supplied to him has been paid to his supplier.

…’

8.        Article 226 of the VAT Directive states:

‘Without prejudice to the particular provisions laid down in this Directive, only the following details are required for VAT purposes on invoices issued pursuant to Articles 220 and 221:

…

(7a)      where the VAT becomes chargeable at the time when the payment is received in accordance with Article 66(b) and the right of deduction arises at the time the deductible tax becomes chargeable, the mention “Cash accounting”;

…’

B.      German law

For purposes of the present Opinion, I refer to paragraph 11 of the order for reference for a description of the applicable German law.

II.    Facts, procedure and the questions referred

9.        Grundstücksgemeinschaft Kollaustraße 136 (the applicant in the main proceedings; ‘GK’) is a German company constituted under civil law, which generated turnover by leasing a commercial property to various lessees in the years at issue. GK had for its part rented that property from its lessor. Both GK and its lessor had waived the VAT exemption for such rental turnover and opted to pay VAT. Both had been authorised by the German tax authorities to calculate the tax on the basis of the remuneration received rather than on the basis of remuneration agreed, pursuant to Paragraph 20 of the Umsatzsteuergesetz (German Turnover Tax Law; ‘UStG’). With the rental contract, GK had a proper permanent invoice for the rent it was paying to its lessor.

10.      From 2004, GK’s rental payments were partly deferred. This meant that GK made payments for the lease of the property in the period from 2009 to 2012 in the later years at issue, 2013 to 2016. Furthermore, GK was released from the remaining debt of EUR 22 462.62 by its lessor in 2016. This amount of rent was therefore never paid.

11.      VAT at a rate of 19% was included in each of the payments mentioned. Irrespective of the rental period for which the payments were intended, GK always asserted its input tax deduction claim in the prepayment period or calendar year in which the payment was made.

12.      In connection with an audit, the Finanzamt Hamburg-Oberalster (‘the Finanzamt’) took the position that the correct years for GK to make the deductions for input VAT on the rental payments to its lessor were the rental years to which the payments related, and not the (later) years of actual payment. The tax authority took the view that irrespective of the fact that GK’s lessor used cash accounting for VAT purposes (the so-called ‘Ist-Versteuerung’), GK’s right of deduction still arose at the time of supply, that is to say, when the real estate was made available to GK pursuant to the lease agreement. As consequence, the Finanzamt disallowed deductions for input VAT that it considered were taken in the wrong years. The earlier tax years to which the Finanzamt attributed the input VAT deductions were in part time-barred at the time the VAT notices were issued, and consequently GK was denied those input VAT deductions.

13.      On 3 July 2017, GK filed objections to the notices of 15 June 2017 on VAT or VAT prepayments for the years 2013 to 2016. The objections were rejected on 8 November 2017. GK thereupon brought an action on 28 November 2017 before the referring court. In that context, GK claims that the contested notices infringe the VAT Directive. According to GK, the position of the Finanzamt that the right of deduction for input VAT always arises with the performance of the transaction is incorrect. If a service provider calculates his tax on the basis of remuneration received, the service recipient’s right of deduction for input VAT instead only arises when the service recipient has paid the remuneration. GK was therefore right to have always asserted its input tax claim in the year of the payment.

14.      In the order for reference, the referring court states that under national law, as the referring court interprets it, the right of deduction arises for a service recipient when the turnover is generated, irrespective of whether the supplier uses the cash or accrual method of accounting for VAT purposes. (3) That implies that the Finanzamt’s position would be correct on that point under national law. However, the referring court is uncertain as to whether the national rules are compatible with certain provisions of the VAT Directive.

15.      In those circumstances, the referring court decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

‘(1)      Does Article 167 of Directive 2006/112/EC of 28 November 2006 on the common system of valued added tax preclude a provision of national law according to which the right of input tax deduction already arises at the time the transaction is performed, even if, under national law, the tax claim against the supplier or service provider arises only when the remuneration is received and the remuneration has not yet been paid?

(2)      If the first question is answered in the negative: Does Article 167 of [Directive 2006/112] preclude a provision of national law according to which the right of input tax deduction cannot be asserted for the tax period in which the remuneration has been paid if the tax claim against the supplier or service provider arises only when the remuneration is received, the service has already been provided in an earlier tax period and, under national law, due to the matter being time-barred, it is no longer possible to assert the input tax claim for that earlier tax period?’

16.      Written observations were submitted by Grundstücksgemeinschaft Kollaustraße 136, the German and Swedish Governments, and the European Commission. No hearing was requested and none was held.

17.      As mentioned in point 3, above, I shall confine myself in this Opinion to examining the first of those two questions.

III. Analysis

A.      Preliminary remarks

18.      It is common ground that GK satisfied the substantive requirements for the right of deduction of the input VAT at issue. It is also common ground that GK held a valid permanent invoice in the form of the lease agreement with GK’s lessor and thus satisfied that formal requirement in respect of the deductions at issue. The dispute between the parties in the main proceedings concerns the proper time for GK to exercise its right to make those deductions.

19.      However, in practice, for GK, the Finanzamt’s position would nevertheless entail the effective loss of part of those deductions, as some of the years in respect of which the Finanzamt insists that the deductions should have been taken are now time-barred.

20.      The difficulties of interpretation that the referring court has encountered and the arguments put forward by the German and Swedish Governments relate to two separate issues.

21.      First, the referring court is uncertain as to whether Article 167 of the VAT Directive itself is a binding rule that the Member States are obliged to follow when implementing the VAT Directive, or whether it is merely the expression of a ‘guiding idea’ (the order for reference uses the expression ‘Leitidee’) that the Member States may derogate from in their implementation of the VAT Directive. In possible support for that proposition, the referring court refers to a declaration included in the Council minutes which relates to the predecessor provision to Article 167 of the VAT Directive, Article 17(1) of the Sixth VAT Directive, at the time that directive was adopted.

22.      Second, the German and Swedish Governments both argue, in essence, that the reference in Article 167 of the VAT Directive to ‘the time the deductible tax becomes chargeable’ should be understood as a reference to the time the deductible tax would have become chargeable pursuant to Article 63 of the VAT Directive if no derogation applied, thus disregarding in particular the effect of any national derogation pursuant to Article 66(b) of that directive.

23.      I will first address the doubts that the referring court has expressed concerning the binding nature of Article 167 of the VAT Directive. Given the facts of the case in the main proceedings and the arguments put forward, in particular by the German and Swedish Governments, I consider it useful next to consider, briefly, the VAT treatment that would follow from a straightforward application of the clear and unambiguous language of Article 167 of the VAT Directive to a taxable person that receives services from another taxable person who accounts for VAT using the cash method of accounting for VAT purposes in accordance with a national derogation pursuant to Article 66(b), such as the German ‘Ist-Besteuerung’ at issue in the main proceedings, before I address some of the arguments put forward by the German and Swedish Governments and explain why, in my view, those arguments are not convincing.

B.      The binding nature of Article 167 of the VAT Directive

24.      In the order for reference, the referring court expresses the view that the German VAT rules are in conflict with a strict application of Article 167 of the VAT Directive as that provision is worded. (4)

25.      The referring court notes, however, that the German VAT legislation in question could be compatible with EU law if Article 167 of the VAT Directive is not a mandatory specification, but merely a ‘guiding idea’ and it specifically queries whether a statement included in the minutes of the Council concerning Article 17(1) of the Sixth VAT Directive (5) could be relied upon as support for that interpretation of Article 167 of the VAT Directive. (6) The Council and the Commission state in that declaration that the Member States may derogate from the general rule of Article 17(1), where the supplier is subject to taxation based on his receipts. (7)

26.      The referring court refers, in that connection, to the Court’s judgment of 19 June 2008, Commission v Luxembourg (8), in which the Court accepted that a declaration by the Council and the Commission, recorded in the minutes of the Council at the time when Directive 96/71/EC (9) was adopted, could be relied upon in support of an interpretation of a provision of that directive; but the referring court also notes that, according to the case-law of the Court, such statements generally cannot be relied upon if their content has not found expression in the text of the relevant rules. (10) Neither the German nor the Swedish Government has sought to rely in their observations on the argument that Article 167 of the VAT Directive merely expresses a ‘guiding idea’ or claimed that the statement mentioned in point 25 of this Opinion means that Article 167 of that directive is not binding on the Member States.

27.      I should add that, in addition to the statement included in the minutes of the Council concerning the Sixth VAT Directive, to which the referring court explicitly refers, another statement by the Council and the Commission relating to Article 167a was included in the Council minutes in connection with the adoption of that provision in Directive 2010/45/EU. (11) That statement is worded as follows: ‘The Council and the Commission state that Member States may derogate from the principle laid down in Article 167 of Directive 2006/112/EC, where the supplier of goods or services is subject to taxation based on his receipts’. (12)

28.      In my view, neither of the two declarations mentioned in points 25 and 27 of this Opinion can serve to justify the notion that Article 167 of the VAT Directive should be considered to serve merely as a ‘guiding idea’ or to grant the Member States a right to derogate from the clear wording of that provision.

29.      The Court has repeatedly addressed the interpretational value of declarations recorded in the Council minutes at the time secondary legislation is adopted. The Court has already held, in its judgment of 23 February 1988, Commission v Italy, (13) that ‘an interpretation based on a declaration by the Council cannot give rise to an interpretation different from that resulting from the actual wording of [the relevant provision of secondary legislation in question]’.

30.      Subsequently, the Court ruled in its judgment of 26 February 1991, Antonissen, (14) that ‘a [declaration recorded in the Council minutes at the time of the adoption of the relevant secondary legislation] cannot be used for the purpose of interpreting a provision of secondary legislation where … no reference is made to the content of the declaration in the wording of the provision in question’ and that that declaration ‘therefore [had] no legal significance’.

31.      The Antonissen standard for the use of statements in Council minutes for the purpose of interpreting secondary legislation has since been confirmed in numerous decisions, given both before and after the Luxembourg judgment, concerning the interpretation of secondary legislation on subjects as diverse as the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, (15) liability for defective products, (16) compulsory insurance for civil liability in respect of motor vehicles (17) and common rules for direct support schemes for farmers under the common agricultural policy, (18) amongst others, and also concerning the interpretation of various VAT directives. (19) The Antonissen standard is thus firmly established in the settled case-law of the Court.

32.      It is clear, in my view, that neither of the two statements included in the Council minutes concerning Article 17(1) of the Sixth VAT Directive and Article 167a of the VAT Directive, respectively, meet the Antonissen standard. Neither Article 17(1) of the Sixth VAT Directive nor Article 167 of the VAT Directive contains the slightest reference to the statements in question.

33.      However, in the Luxembourg judgment, the Court accepted that a declaration by the Council and the Commission, recorded in the minutes of the Council at the time Directive 96/71 was adopted, could be relied upon in support of an interpretation of an expression found in a provision of that directive. That declaration was entitled ‘Declaration No 10 on Article 3(10) of Directive 96/71’ and provided clarification as to how the expression ‘public policy provisions’, contained in that provision, should be construed.

34.      Article 3(10) of Directive 96/71 makes no reference to the declaration, which would appear to place the Luxembourg judgment at odds with the case-law of the Court in Antonissen. However, in contrast to the latter judgment, the declaration at issue in the Luxembourg judgment provided a contemporaneous explanation of the precise meaning intended by a particular expression. It did not purport to alter the content of the provision in question or the meaning of the words used in the expression. Furthermore, as Advocate General Trstenjak pointed out in her Opinion in Commission v Luxembourg, Declaration No 10 did not conflict with the concept of public policy but rather contributed to determining the content of a derogation in a way that was in conformity with the case-law of the Court. (20)

35.      Moreover, the judgment in Luxembourg concerned an infringement case initiated by the Commission by reason of Luxembourg’s failure to fulfil its obligations under the relevant provision of the directive in question and the pertinent Treaty provisions. The expression ‘public policy provisions’ was found in a provision (21) addressed to the Member States which permitted them, as a derogation, to apply certain ‘terms and conditions of employment’ other than those set out in Article 3(1) of Directive 96/71. The declaration at issue supported the view that the Member States had a narrower discretion than the interpretation claimed by Luxembourg. As Advocate General Trstenjak pointed out in her Opinion in that case, the Luxembourg Government could not, as the constitutional representative of a Member State represented in the Council, deny having knowledge of Declaration No 10. The failure to publish Declaration No 10 in the Official Journal of the European [Union] therefore did not reduce its legal significance in a case against that Member State.

36.      By contrast, in the present case, the statement to which the referring court refers in its order for reference is in direct contradiction to the plain words of Article 167 of the VAT Directive, as is the statement included in the Council minutes concerning Article 167a of the VAT Directive in connection with the adoption of that provision. Reliance on either of those statements in the present case in order to deny the binding character of Article 167 of the VAT Directive would, in the case before the Court, be to the detriment of a taxable person who should not be tasked with seeking out internal Council documents such as the Council minutes. As the Court stated in Denkavit International (22) and Gaz de France – Berliner Investissement: (23) ‘Legislation is addressed to those affected by it. They must, in accordance with the principle of legal certainty, be able to rely on what it contains’.

37.      The referring court also expresses the view in the order for reference that the application of the declaration in the Council minutes concerning Article 17(1) of the Sixth VAT Directive for the purposes of interpreting the VAT Directive ‘depends on whether the content of the statement has found its way into the provisions of the VAT Directive’. It takes the view that that is not the case as far as Article 167 is concerned, but it queries whether the statement in the Council minutes concerning Article 17(1) of the Sixth VAT Directive could have found expression in Article 226(7a) of the VAT Directive. (24)

38.      There are, in my view, at least four strong reasons why Article 226(7a) of the VAT Directive cannot serve that purpose.

39.      First, under the Antonissen standard, the reference to the statement has to be made in the provision in question. The statement mentioned by the referring court concerns Article 17(1) of the Sixth VAT Directive and the statement that I refer to in point 27 of this Opinion concerns Article 167 of the VAT Directive; therefore a reference in Article 226(7a) of the VAT Directive would fall short of that requirement.

40.      Second, Article 226(7a) of the VAT Directive does not contain any reference to either of those statements.

41.      Third, the Antonissen standard applies to declarations recorded in the Council minutes at the time of adoption of the provision to be interpreted. That requirement of contemporaneousness is clearly not met with respect to either of the two statements as far as Article 167 of the VAT Directive is concerned. As to the statement referred to by the referring court concerning Article 17(1) of the Sixth VAT Directive, it would in theory be possible to argue that the statement, which was contemporaneous to the adoption of that article, somehow and by some means carried over to its successor provision when the VAT Directive was adopted. (25) I do not see how that could conceivably be argued to occur through the addition of Article 226(7a) to the VAT Directive when that provision was added in connection with the adoption of Directive 2010/45 almost four years after the adoption of the VAT Directive. Likewise, the statement recorded in the Council minutes concerning Article 167a of the VAT Directive at the time the Invoicing Directive was adopted is not contemporaneous to the adoption of Article 167 of the VAT Directive.

42.      Fourth, the content and the origins of Article 226(7a) of the VAT Directive do not support the notion that Article 167 should be regarded as not binding on the Member States. The requisite information to be included in an invoice pursuant to Article 226(7a) of the VAT Directive is necessary in order to ensure that all taxable persons are in a position to know when to deduct input VAT in respect of goods or services supplied by a cash method supplier. I would note that at least one leading German commentator on VAT has even taken the view that the adoption of Article 226(7a) now makes the application of Article 167 of the VAT Directive mandatory, according to the wording of the provision. (26)

43.      For all of those reasons, it is my opinion that the statements entered in the Council minutes concerning Article 17(1) of the Sixth VAT Directive and Article 167a of the VAT Directive cannot be used for the purposes of interpreting Article 167 the VAT Directive and have no legal significance.

C.      Application of the German derogation pursuant to Article 66(b) and of Article 167 of the VAT Directive in the case of a cash method supplier

44.      According to the order for reference, GK’s lessor had applied for and been granted permission by the German tax authority to use cash accounting for VAT purposes. Accordingly, the VAT became chargeable to the lessor in respect of a payment of rent received from GK at the time when the lessor received that payment.

45.      According to the plain wording of Article 167, the right of deduction would correspondingly arise for GK at that same time, that is to say, when GK paid the sums due and the lessor received that payment for the various lease periods.

46.      I should point out that the fact that GK also used cash accounting for VAT purposes is irrelevant to this outcome. The same result would also follow if GK had been using accrual accounting for VAT purposes and follows from the simple application of the clear and unambiguous wording of Article 167 where the supplier (i.e., the recipient of the payment) is a taxable person using cash accounting and where the VAT in respect of a given supply of goods or services consequently became chargeable to that person at the time of payment. The method of accounting for output VAT used by the recipient of the goods or services is irrelevant for this purpose. (27)

D.      Key points in the parties’ observations for the Court

1.      Article 63 of the VAT Directive determines the point in time for the deduction of input VAT

47.      The German Government argues in its written observations submitted to the Court that the first question referred should be answered in the negative.

48.      In support of that position, the German Government argues that Article 63 of the VAT Directive sets out the basic principle that VAT becomes chargeable when the goods or services are supplied. Article 167 in turn links the right of deduction to that point in time. The tax therefore becomes chargeable and the right of deduction arises at the same time. According to the German Government, that is, however, not necessarily the case if a Member State makes use of the option pursuant to Article 66(b) of the VAT Directive to derogate from the basic principle set out in Article 63 of that directive by enacting a cash accounting scheme such as the ‘Ist-Versteuerung’ in Germany. In those circumstances, a recipient of services may still be entitled to a VAT deduction based on the accrual method of accounting for VAT purposes (i.e., at the time of supply, or specifically in Germany, under the so-called ‘Soll-Versteuerung’ scheme), even where those services are received from a service provider that is taxed under the German ‘Ist-Versteuerung’ scheme, as is the case for GK.

49.      I must point out here that the German Government’s reading of Article 167 of the VAT Directive is in direct contradiction with the clear wording of that provision. Article 167 of the VAT Directive links the time of deduction (of input VAT, for the recipient of goods or services) to the time the corresponding VAT becomes chargeable (to the supplier). That point of time is specifically defined in Article 62(2) of the VAT Directive as the time ‘when the tax authority becomes entitled under the law, at a given moment, to claim the tax from the person liable to pay, even though the time of payment may be deferred’. Article 167 of the VAT Directive thus expresses a general rule and a general principle, pursuant to which the recipient’s deduction of input VAT is matched on a transaction basis to the time when the output VAT becomes chargeable to the supplier. In that respect, Article 167 does not give any preference to the principle set out in Article 63 of the VAT Directive over the modifications, exceptions or derogations set out in Articles 64 to 66 of that directive.

50.      Article 63 of the VAT Directive not only lays down the general rule (subject to the modifications, exceptions and derogations set out in Articles 64 to 66 of the directive) on when the VAT ‘becomes chargeable’. It also lays down the general rule on when the ‘chargeable event’ – defined in Article 62(1) of the VAT Directive as ‘the occurrence by virtue of which the legal conditions necessary for VAT to become chargeable are fulfilled’ – occurs. Pursuant to Article 63 of the VAT Directive, both the ‘chargeable event’ and the point in time where the VAT ‘becomes chargeable’ occur ‘when the goods or the services are supplied’. The point in time where the chargeable event occurs is not modified by Articles 64 to 66 of the VAT Directive, whereas the point in time where the VAT becomes chargeable is subject to those modifications, exceptions and derogations.

51.      I should also point out that if the EU legislature had intended that the right of deduction should invariably arise at the time of supply, as the German Government appears to claim, it could have linked the timing of the right of deduction to the chargeable event which is not modified by the special rules contained in Articles 64 to 66 of the VAT Directive, rather than to the time the VAT becomes chargeable, which is subject to those rules.

52.      It thus follows from the clear wording of Article 167 of the VAT Directive that where the time the (output) VAT becomes chargeable to the supplier is determined pursuant to Articles 64, 65 or 66 of that directive, the right of deduction to the recipient of services correspondingly arises at that point in time. That outcome is also consistent with the context of Article 167.

53.      This is borne out by the case-law of the Court on the operation of Article 167 of the VAT Directive read in conjunction with Article 65 of that directive. Pursuant to the latter provision, VAT ‘shall become chargeable’ on receipt of payment and on the amount received where a payment is to be made on account before supply. In the judgments of 13 March 2014, FIRIN (28) and of 31 May 2018, Kollroß and Wirtl (29) the Court addressed situations where payments on account were made to a supplier by the recipient in respect of a supply of goods that never took place. In Kollroß and Wirtl, the Court recalled that ‘according to Article 167 of the VAT Directive, a right to deduct the input VAT is to arise at the time the deductible tax becomes chargeable’ and held that where certain conditions specific to Article 65 of the VAT Directive were met, the right to deduct arises and the taxable person who has made the payment on account is justified in exercising that right from the moment the payment on account is received by the supplier. (30)

54.      The German Government has not provided any rationale as to why Article 167 of the VAT Directive should apply differently in the case of Article 65 of that directive, compared with Article 66(b) of the directive.

2.      The systematic context of Article 167 of the VAT Directive

55.      The German Government admits that a reading of Article 167 of the VAT Directive without taking into consideration the systematic context thereof could lead to the understanding expressed above in point 44 et seq. that the right of deduction arises at the time when the VAT in question becomes chargeable to the supplier also in a case where the supplier has opted for cash accounting pursuant to the German ‘Ist-Versteuerung’ scheme, that is to say, at the time of payment. However, the German Government maintains that its view is supported by the systematic context of Article 167 et seq. of the VAT Directive, and in particular Article 167a of that directive. In short, the German Government argues that Article 167a(1) of the directive permits a derogation from the basic rule under Article 167 and that that derogation – and consequently that provision – would lose its scope if the right of deduction pursuant to Article 167 of the VAT Directive, read in conjunction with Article 66(b) of that directive, arose upon payment even before the application of the derogation pursuant to Article 167a of the directive. The German Government further refers to the case-law of the Court to the effect that EU legal provisions cannot be interpreted in such a way as to be devoid of content.

56.      I find that argument flawed. It is not factually correct that Article 167a of the VAT Directive would be devoid of content or lose its scope, if Article 167 of that directive were taken to mean that which the clear wording of the provision states. The German Government’s argument thus appears to me to be based on an incorrect assumption.

57.      Article 167 of the VAT Directive links the timing of the right of deduction for the recipient of goods or services to the timing of the VAT becoming chargeable for the supplier of those goods or services. When that provision operates in conjunction with Article 66(b) of that directive, that is to say, where the supplier is using cash accounting, the recipient’s right of deduction for input VAT arises when the supplier receives payment (coincidentally with the time the recipient of the goods or services in question pays). The generally applied method of accounting for output VAT by the recipient – cash or accrual – is without incident to this. Article 167 requires consistent treatment of the transaction in question by the supplier and the recipient.

58.      Article 167a, by way of derogation, permits the Member States to require that a taxable person who, as a supplier, uses cash accounting for output VAT also must use that method of accounting when making deductions of input VAT for goods or services received. Article 167a thus requires consistent treatment of the taxable person in question.

59.      To illustrate:

Taxable person (‘TP’) A uses cash accounting for VAT purposes in accordance with a national derogation pursuant to Article 66(b) of the VAT Directive. So does TP B.

TP C uses accrual accounting in accordance with Article 63 of the VAT Directive.

TP A receives services performed by TP B and TP C. As described in point 44 et seq., TP A’s right of deduction will arise at the time of payment in respect of the services supplied by TP B and at the time of performance in respect of the services supplied by TP C.

While it does not alter the timing of TP A’s right of deduction in respect of input VAT for the services performed by TP B if the Member State in question makes use of its option pursuant to Article 167a and requires TP A to postpone the right of deduction until payment is made, it does alter the timing of the right of deduction in respect of input VAT for the services performed by TP C. Those deductions would then be postponed until payment.

60.      It is therefore factually incorrect when the German Government asserts that Article 167a of the VAT Directive would be devoid of content, if Article 167 were taken to mean what it literally states. That argument must therefore be rejected.

3.      The origins of Articles 167a and 226(7a) of the VAT Directive

61.      The German Government argues that the origins of Articles 167a and 226(7a) of the VAT Directive support its position.

62.      In that respect, the German Government points out that prior to the enactment of Article 167a of the VAT Directive, certain Member States were permitted to derogate from Article 167 of that directive. The German Government refers, in that connection, to Council Decision 2007/133/EC, (31) by which the Council, pursuant to Article 395(1), authorised Estonia, Slovenia, Sweden and the United Kingdom to apply certain simplified cash accounting schemes. The German Government states that this option to derogate was extended to all Member States by the addition of Article 167a to the VAT Directive with the adoption of the Invoicing directive. The German Government further argues that neither the prior individual authorisations, nor the addition of Article 167a of the VAT Directive would have been necessary, if the right of deduction arose at the time of payment pursuant to Article 167 of the VAT Directive.

63.      I disagree with the German Government’s position which, to my mind, misstates the law. Article 167 of the VAT Directive provides that the right of deduction arises at the time the deductible tax becomes chargeable, which may, according to Articles 63 to 66 of that directive, be either at the time of supply (Article 63), the time of payment (national derogation pursuant to Article 66(b) or, in the case of payment on account, pursuant to Article 65), or at certain other times (for example, Articles 66(a) and 66(c)).

64.      As described in the example in point 59, for any taxable person – whether that person uses accrual accounting for VAT purposes or cash accounting in accordance with a national derogation pursuant to Article 66(b) of the VAT Directive – input VAT deductions may arise in respect of transactions where the deductible tax becomes chargeable at the time of supply (as per Article 63 of the VAT Directive) or at the time of payment (as per a national derogation pursuant to Article 66(b) of the VAT Directive, or, for that matter, though not directly relevant to this case, as per Article 65 of that directive).

65.      The enactment of Article 167a of the VAT Directive and the prior individual authorisations concerning cash accounting schemes only changed that in certain limited cases. Those prior cash accounting schemes, which applied only to smaller businesses which did not exceed certain ceilings for their annual turnover, were optional schemes that the qualifying businesses could apply for. That system was carried over into Article 167a of the VAT Directive, which also contains an optionality requirement and an annual turnover ceiling. Article 167a thus only covers a limited part of what is covered by Article 66(b) of the VAT Directive.

66.      Article 66(b) of the VAT Directive, which is the successor provision to the third subparagraph of Article 10(2) of the Sixth VAT Directive, permits the Member States to derogate in respect of ‘certain transactions’ or ‘certain categories of taxable person’. The provision is much broader in scope than Article 167a of the VAT Directive and was not initially enacted with cash accounting schemes for smaller businesses in mind. No turnover ceiling is laid down and there is no requirement that the derogation be ‘optional’ for the taxable persons concerned. The category ‘certain transactions’ may even be defined so broadly by the Member State in question as to encompass all services. (32)

67.      The German Government argues that Article 226(7a) of the VAT Directive supplements the cash accounting schemes permitted by Article 167a of that directive by expanding the required details on invoices in order to make those cash accounting schemes possible in practice.

68.      I find that argument unconvincing.

69.      First, Article 226(7a) of the VAT Directive does not refer to Article 167a but refers instead to Article 66(b) of that directive.

70.      Second, a taxable person whose right of deduction is postponed within an optional cash accounting scheme pursuant to a national derogation in accordance with Article 167a of the VAT Directive knows that that is so. That taxable person has opted into the regime and, unlike a taxable person who has not done so, is actually not dependent on receiving information concerning the VAT accounting treatment of the transaction, because, irrespective of the treatment of that transaction by the supplier, that taxable person is permitted to exercise his right of deduction only when ‘the VAT on the goods or services supplied to him has been paid to his supplier’. That point of time, of course, is known to the taxable person, as he is the one making the payment.

71.      In the example in point 59, TP A, who is not subject to treatment in accordance with a national derogation pursuant to Article 167a of the VAT Directive, cannot know when to exercise his right of deduction unless he knows how the transaction is treated by the supplier. That is precisely the issue addressed by Article 226(7a).

72.      Prior to the enactment of Article 226(7a), an argument could be made that, since the recipient of goods and services frequently would not be in a position to know the output VAT treatment of a given supply of goods or services by the supplier, the recipient should be allowed to make the deduction at the time of supply. It would appear that the German ‘Ist-Versteuerung’ scheme may well have that result.

73.      That argument – which appears to have formed the basis for the view expressed by at least one leading German commentator that Article 167 of the VAT Directive was merely a ‘guiding idea’ (33) – does not seem convincing to me. Article 66(b) of the directive provides the Member States with an option to derogate, which they can elect to use if they so wish. It is not an obligation.

74.      If a Member State elects to use that option, it is incumbent on that Member State to do so in a manner that enables its taxable persons to comply with their obligations and to exercise their rights under the VAT directives. That Germany may have chosen to enact, pursuant to the derogation laid down in Article 66(b) of the VAT Directive, a scheme that entails practical compliance problems for German taxable persons cannot have the effect of making the clear wording of Article 167 – ‘a right of deduction shall arise at the time the deductible tax becomes chargeable’ – a non-binding ‘guiding idea’, or refer to something other than the time the deductible tax becomes chargeable.

75.      I would add that many types of derogation pursuant to Article 66(b) of the VAT Directive could be envisaged that do not carry with them the problems which apparently characterise the German cash accounting scheme. As an example, the Italian derogation that was the subject of the Italittica case encompassed all services. The recipients of services presumably knew whether supplies were properly characterised as goods or services, and presumably would not have had problems identifying the correct time for the input VAT deductions in respect of those transactions. Purely as an example, a derogation applying to specific professions would also not have caused such problems even prior to the adoption of Article 226(7a).

76.      Following the adoption of Article 226(7a), the argument referred to in point 72 loses any validity. A recipient of goods and services is now entitled, pursuant to the provisions of the VAT Directive, to receive the necessary information.

77.      It is therefore my view that a correct analysis of the origins and context of Articles 167a and 226(7a) of the VAT Directive argues strongly in favour of an answer in the affirmative to the first question referred by the referring court.

4.      The travaux préparatoires to Directive 2010/45

78.      The Swedish Government argues in its observations that the travaux préparatoires to Directive 2010/45 support the notion that the right of deduction in a case such as that at issue in the main proceedings would arise at the time of delivery or supply and not at the (generally later) point in time when the supplier using cash accounting receives payment. In that connection, the Swedish Government specifically cites an excerpt from the Explanatory Memorandum to the Commission’s ‘Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards the rules on invoicing’ of 28 January 2009, according to which ‘a concession should be made for the recipient of … supplies’ from a supplier who accounts for VAT on receipt of payment ‘to nevertheless claim an immediate right of deduction’.

79.      To be clear, the proposal referred to by the Swedish Government envisaged a change in the law so that a recipient of goods or services (such as GK) from a taxable person using cash accounting (such as GK’s lessor) should be allowed, after that change, to deduct input VAT at the time goods or services are supplied. That proposed change was included as a new Article 167a(1) in the proposal, which read as follows:

‘Where the deductible tax becomes chargeable upon receipt of payment, Member States may provide that the right of deduction is to arise when the goods or services are supplied or at the time the invoice is issued.’

80.      By implication, the proposed directive and the associated Explanatory Memorandum were based on the understanding that the right of deduction for input VAT in respect of a supply made by a taxable person using cash accounting, prior to the enactment of the proposed change, arose at the time the deductible tax became chargeable as provided by Article 167 of the VAT Directive, that is to say, at the time of payment.

81.      Further, the proposed text was drafted as a permission for the Member States to derogate from the link established by Article 167 between the time the deductible tax becomes chargeable (to the supplier) and the time the corresponding right of deduction arises (for the recipient of the supplies). Moreover, the proposed directive and the associated Explanatory Memorandum thus by implication took the position that, even after the enactment of the proposed Article 167a(1), the main rule would still – in the absence of a national derogation on the basis of that provision – be that the right of deduction would arise when the deductible tax became chargeable.

82.      The proposed Article 167a(1) was never adopted. However, a declaration concerning the version of Article 167a ultimately adopted was included in the Council minutes. I have addressed that declaration and the reasons why it has no legal significance in point 31 et seq. of this Opinion.

83.      The part of the travaux préparatoires cited by the Swedish Government therefore does not support its position at all: first, because it concerns a provision that was never enacted and, second, because the view that the Commission was expressing concerning the applicable law prior to the proposed change is the opposite of what the Swedish Government is trying to argue.

84.      This becomes even clearer if one also reads the immediately following section of the Explanatory Memorandum, which states:

‘There is also an amendment to the details required on a full VAT invoice which will oblige the supplier to state the date of the chargeability to tax on the invoice. Currently without this requirement the recipient, in certain cases, is unable to know at what point the right of deduction can be exercised’ (emphasis added).

85.      That explanatory statement relates to the proposed Article 226(7) and (7a), which reads as follows:

‘[… Only the following details are required for VAT purposes on invoices …]:

(7)      the date on which VAT becomes chargeable, in so far as that date differs from the date of issue of the invoice, or, if the date on which VAT becomes chargeable is not known, a reference to the chargeable event concerned;

(7a)      where the VAT becomes chargeable on receipt of payment, the date on which the goods or services are supplied if the date of supply precedes the date of payment.’

86.      This statement in the Explanatory Memorandum would not make sense if the right of deduction always arose at the time of supply. The time of supply is generally known to a recipient of goods or services, but the recipient will ordinarily only know how its supplier accounts for the transaction, be it the cash or accrual methods, if so informed, or if the national derogation pursuant to Article 66(b) of the VAT Directive concerns categories of transactions which or taxable persons who are easily identifiable for the recipient.

87.      The amendments ultimately adopted took a different direction. Instead of requiring the statement of the date on which VAT becomes chargeable (required by the recipient of supplies in order to know the time for making the input VAT deduction, as per Article 167 of the VAT Directive) and the date of supply where VAT becomes chargeable on receipt of payment, and the date of supply is earlier (required if the Member State in question were to exercise the right to derogate pursuant to the proposed Article 167a(1) which was not enacted), the EU legislature, in the version of Article 226(7) which was enacted, requires mention of the date on which the supply was made or completed (required for transactions where the time the right of deduction arises is governed by Article 167 read in conjunction with Article 63) or the date on which payment on account was made (required for transactions where the time the right of deduction arises is governed by Article 167 read in conjunction with Article 65) in so far as that date can be determined and differs from the date of issue of the invoice.

88.      Article 226(7a), as enacted, requires the mention ‘Cash accounting’ where the output VAT becomes chargeable to the supplier at the time when the payment is received by the supplier. This information is relevant to the recipient of the invoice because it tells the recipient of the invoice for the supplies in question which set of rules apply to the supplier in respect of that supply – cash or accrual accounting – and thus enables the recipient of the supplies to determine the point in time its right of deduction arises for the associated input VAT. Without that information, a recipient of supplies would not know when to exercise its right of deduction for input VAT correctly.

89.      I therefore do not consider that the travaux préparatoires referred to by the Swedish Government support its position.

E.      Final remarks

90.      I find it useful, as a final point, to look past the legal arguments and focus for a moment on the treatment of the taxable person in question, taking the viewpoint of that person. As discussed above in point 44 et seq., the plain language of the VAT Directive requires GK as a taxable person and as the recipient of rental services to deduct the input VAT on those rental services at the time that VAT (as output VAT) became chargeable to its lessor. GK, knowing that its lessor was using cash accounting for VAT, did exactly that.

91.      The information before the Court does not suggest even the slightest attempt to secure any benefit, let alone any undue benefit on the part of GK. No accusations of fraud have emerged before the Court. On the contrary, making the input VAT deduction at the earlier point in time, as required in line with the position adopted by the Finanzamt, would entail a substantial cash-flow benefit to GK to the detriment of the tax authority.

92.      The taxable person in question has followed the letter of the VAT Directive. No VAT advantage has been secured by the taxable person by doing so.

93.      Based on all of the above, I see no argument justifying an interpretation that differs from the plain meaning of the words of the VAT Directive.

IV.    Conclusion

94.      In light of the foregoing considerations, I propose that the Court should reply as follows to the first question referred by the Finanzgericht Hamburg (Finance Court, Hamburg, Germany):

Article 167 of Directive 2006/112/EC of 28 November 2006 on the common system of valued added tax must be interpreted as precluding a provision of national law according to which the right to deduct input tax arises already at the time the transaction is performed even if, in accordance with a national derogation pursuant to Article 66(b) of the that directive, the tax claim against the supplier or service provider arises only when the remuneration is received and the remuneration has not yet been paid.

1      Original language: English.

2      Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 347, p. 1), as amended by Council Directive 2010/45/EU of 13 July 2010 (OJ 2010 L 189, p. 1) (‘the VAT Directive’).

3      Paragraphs 14 and 18 of the order for reference.

4      Paragraph 20 of the order for reference, penultimate sentence.

5      Sixth Council Directive 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 (OJ 1977 L 145, p. 1).

6      Article 167 of the VAT Directive is substantially identical to its predecessor provision, Article 17(1) of the Sixth VAT Directive.

7      The German language version of the declaration is reproduced in Frye in Rau/Dürrwächter, UStG, § 20 Anm. 47.1, footnote 1 (169th update – October 2016).

8      C‑319/06, EU:C:2008:350 (‘the judgment in Luxembourg’).

9      Directive 96/71/EC of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services (OJ 1997 L 18, p. 1).

10      The referring court specifically refers to the judgments of 23 February 1988, Commission v Italy (429/85, EU:C:1988:83, paragraph 9); of 26 February 1991, Antonissen (C‑292/89, EU:C:1991:80, paragraph 18); of 29 May 1997, VAG Sverige (C‑329/95, EU:C:1997:256, paragraph 23); and of 3 December 1998, Generics (UK) and Others (C‑368/96, EU:C:1998:583, paragraph 26).

11      Council Directive 2010/45/EU of 13 July 2010 amending Directive 2006/112/EC on the common system of value added tax as regards the rules on invoicing (OJ 2010 L 189, p. 1) (‘the Invoicing Directive’).

12      Reproduced in Ben Terra, Kajus: Commentary on European VAT, p. 1595. See Minutes for the 3027th meeting of the Council of the European Union (ECONOMIC and FINANCIAL AFFAIRS), held in Brussels on 13 July 2010.

13      Case 429/85, EU:C:1988:83, paragraph 9. See also judgment of 16 October 2003, Flughafen Hannover-Langenhagen (C‑363/01, EU:C:2003:548, paragraph 51).

14      C‑292/89, EU:C:1991:80, paragraphs 17 and 18.

15      Judgment of 8 June 2000, Epson Europe (C‑375/98, EU:C:2000:302, paragraph 26).

16      Judgment of 10 January 2006, Skov and Bilka, (C‑402/03, EU:C:2006:6, paragraphs 41 and 42).

17      Judgment of 19 April 2007, Farrell (C‑356/05, EU:C:2007:229, paragraph 31).

18      Judgment of 14 March 2013, Agrargenossenschaft Neuzelle (C‑545/11, EU:C:2013:169, paragraph 52).

19      Judgments of 15 June 2006, Commission v Finland (C‑249/05, not published, EU:C:2006:411, paragraphs 51 and 52); of 22 October 2009, Swiss Re Germany Holding (C‑242/08, EU:C:2009:647, paragraph 62); and of 17 December 2020, WEG Tevesstraße (C‑449/19, EU:C:2020:1038, paragraph 44).

20      See Opinion of Advocate General Trstenjak in Commission v Luxembourg (C‑319/06, EU:C:2007:516, point 45).

21      Article 3(10) of Directive 96/71.

22      Judgment of 17 October 1996, Denkavit and Others (C‑283/94, C‑291/94 and C‑292/94, EU:C:1996:387, paragraph 29).

23      Judgment of 1 October 2009, C‑247/08, EU:C:2009:600, paragraph 39.

24      The order for reference, paragraph 26.

25      The statement would nonetheless fail to be relevant because it fails to satisfy the Antonissen standard mentioned in point 30 of this Opinion. No reference to this statement is made in Article 17(1) of the Sixth VAT Directive. It would also give rise to an interpretation other than that resulting from the actual wording of Article 167 of the VAT Directive. See Commission v Italy, referred to in point 29 of this Opinion.

26      See, in Frye in Rau/Dürrwächter, UStG, § 20 Anm. 47-47.1 and 49 (169th update – October 2016). See also the discussion of the same issue in H. Stadie in Rau/Dürrwächter, UStG, § 15 Anm. 80-81 (170th update – January 2017). As discussed in points 72 to 76 of this Opinion, I do not share the view expressed by Frye and Stadie that Article 167 of the VAT was not mandatory prior to the enactment of Article 226(7a).

27      The result is no different according to the German language version of the VAT Directive (or, for that matter, the Bulgarian, Danish, French or Swedish language versions).

28      C‑107/13, EU:C:2014:151

29      C‑660/16 and C‑661/16, EU:C:2018:372.

30      Idem, paragraphs 37 and 48. Article 65 of the VAT Directive, as an exception to Article 63, must be interpreted strictly, and cannot apply where it is uncertain, at the time the payment on account is made, whether the supply will take place. Idem, paragraphs 39 to 41. See, to that same effect, FIRIN, paragraphs 37 to 39 and 42.

31      Council Decision of 30 January 2007 authorising Estonia, Slovenia, Sweden and the United Kingdom to apply a special measure derogating from Article 167 of Directive 2006/112/EC on the common system of value added tax (OJ 2007 L 57, p. 12). In addition to the decision mentioned by the German Government, several other authorising decisions were adopted by the Council concerning cash accounting schemes, including Council Decisions 2009/938/EU, 2009/939/EU and 2009/1022/EU, more or less to similar effect.

32      See, to that effect, judgment of 26 October 1995, Italittica (C‑144/94, EU:C:1995:355, paragraphs 14 to 21 and point 1 of the operative part of that judgment). According to the French Government’s submissions at the hearing in that case, the Council had adopted the third subparagraph of Article 10(2) so that certain Member States, such as Italy and France, could retain their legislation which provided that the tax on services was chargeable on payment. Idem, paragraph 15.

33      See, for example, H. Stadie in Rau/Dürrwächter, UStG, § 15 Anm. 80-81 (170th update – January 2017).

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