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

Provisional text

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 7 September 2023 (1)

Case C‑433/22

Autoridade Tributária e Aduaneira

v

HPA – Construções SA

(Request for a preliminary ruling from the Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal))

(Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/EC – Time limited option of a reduced tax rate for labour-intensive services – Reduced tax rate for the renovation of private dwellings – Concept of ‘private dwelling’ – Limits of a selective reduced tax rate – Principle of democracy and the legislature’s decision-making discretion – Principle of fiscal neutrality)

I.      Introduction

1.        These proceedings show once again how susceptible reduced rates of value added tax (VAT) are to litigation. Portugal applies a reduced rate of VAT to labour-intensive services relating to buildings. Such services must, however, involve the renovation, restoration, repair or maintenance of immovable properties used for residential purposes. In the year at issue, 2007, reduced tax rates were available for only a limited period of time (until 31 December 2010), in accordance with EU law, but have already prompted two references to be made to the Court of Justice for a preliminary ruling.

2.        On 5 May 2022, in Case C‑218/21, the Court had to decide whether that same provision of Portuguese law also applied to the repairing of a lift in a building not used exclusively for residential purposes. Although the Court found that was the case, it emphasised in the grounds of that decision that a ‘pro-rata allocation’ should be made in the case of renovation and repair services relating to shared facilities in mixed-use buildings. (2)

3.        The question here, on the other hand, is whether, for a property to be ‘used for residential purposes’, it is sufficient for the land register to state that it may be used only for residential purposes or whether it must actually be in use for that purpose at the time of the renovation. The latter scenario would prevent investors not entitled to deduct input tax from renovating old houses in advance at the reduced rate of tax and deferring their sale, as dwellings or speculative propositions, until later (in particular, until after the time limit applicable to the reduced rate of tax has expired). In essence, this case is about the power of the Member States to apply a reduced rate of tax selectively without, in so doing, impinging upon the principle of neutrality.

II.    Legal framework

A.      European Union law

4.        Article 96 of Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’) (3) provides:

‘Member States shall apply a standard rate of VAT, which shall be fixed by each Member State as a percentage of the taxable amount and which shall be the same for the supply of goods and for the supply of services.’

5.        Article 98(1) and (2) of the VAT Directive reads:

‘1.      Member States may apply either one or two reduced rates.

2.      The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III. …’

6.        At the time material to the main proceedings, Title VIII of the VAT Directive contained a Chapter 3 (‘Temporary provisions for particular labour-intensive services’). That chapter includes, inter alia, Articles 106 and 107 of that directive. Article 106 of the VAT Directive provided:

‘The Council [of the European Union] may, acting unanimously on a proposal from the [European] Commission, allow Member States to apply until 31 December 2010 at the latest the reduced rates provided for in Article 98 to services listed in Annex IV.

The reduced rates may be applied to services from no more than two of the categories set out in Annex IV.

In exceptional cases a Member State may be allowed to apply the reduced rates to services from three of those categories.’

7.        Article 107 of that directive provided:

‘The services referred to in Article 106 must meet the following conditions:

(a)      they must be labour-intensive;

(b)      they must be largely provided to final consumers;

(c)      they must be mainly local and not likely to cause distortion of competition.

There must also be a close link between the decrease in prices resulting from the rate reduction and the foreseeable increase in demand and employment. Application of a reduced rate must not prejudice the smooth functioning of the internal market.’

8.        Annex IV to the VAT Directive contained a list of the services referred to in Article 106 of that directive. Point 2 of that annex read: (4)

‘renovation and repairing of private dwellings, excluding materials which account for a significant part of the value of the service supplied’.

B.      Portuguese law

9.        Portugal transposed the VAT Directive in the form of the Código do Imposto sobre o Valor Acrescentado (Value added tax (VAT) Code).

10.      Article 18(1) of the VAT Code, in the version applicable to the facts of the main proceedings, provided:

‘The rates of tax shall be as follows:

(a)      for the imports, supplies of goods and supplies of services mentioned in List I annexed to this Code, the rate shall be 5%’.

11.      Paragraph 2.24 of List I annexed to the VAT Code read:

‘Works contracts for the improvement, refurbishment, renovation, restoration, repair or conservation of immovable properties and independent parts of immovable properties used for residential purposes, with the exception of cleaning services, grounds maintenance services and works on buildings which cover all or part of the constituent elements of swimming pools, saunas, tennis courts, golf courses or minigolf courses or similar facilities.

The reduced rate shall not apply to the materials incorporated unless their value exceeds 20% of the total value of the service supplied’.

12.      On the expression ‘immovable properties used for residential purposes or independent parts of such properties’ contained in paragraph 2.24 (now paragraph 2.27) of List I annexed to the VAT Code, the Tax and Customs Authority issued administrative guidelines, including Circular No 30025 of 7 August 2000, from which the following may be extracted for the purposes of the present case:

‘2.      Immovable properties

This paragraph covers only services provided in an immovable property, or a part thereof, which, without being authorised for use for other purposes, is used for residential purposes.

An immovable property, or a part thereof, shall be regarded as being used for residential purposes if it is in actual use as a private dwelling when the works start and continues to be in actual use as such once the works are completed.’

III. Facts and preliminary ruling procedure

13.      HPA – Construções SA (‘HPA’) is a commercial enterprise in the form of a public limited company whose purpose is the ‘supply of construction and trade services, the conclusion of contracts for works and the purchase of immovable properties, and trade in building materials’.

14.      In 2007, HPA performed a number of contracts for works relating to the renovation of buildings in Lisbon (Portugal). According to the relevant land registry certificates, the properties in question had previously (in 2004 and 2005) and subsequently (2008) been acquired by several commercial companies (including the commercial company Paço – Investimentos Imobiliários, SA, the commercial company Brown House – Empreendimentos Imobiliários, SA, and the commercial company Sociedade Imobiliária do Palácio Alagoas, Lda.) and are largely intended for residential use.

15.      In accordance with paragraph 2.24 of List I annexed to the VAT Code, HPA applied a VAT rate of 5% to the renovation services provided, charged this to the aforementioned commercial companies and paid the VAT [to the tax authority]. On 19 January 2011, the Serviços de Inspeção Tributária da Direção de Finanças de Lisboa (Tax Inspection Services of the Directorate of Finances, Lisbon, Portugal) initiated an external inspection of HPA in relation to the tax year 2007. On 10 May 2011, the Serviço de Finanças de Sintra-1 (Sintra-1 Tax Office, Portugal) issued VAT adjustment notices for the year 2007.

16.      The adjustment is based on the application of the standard 21% tax rate instead of the reduced 5% tax rate. It stated that HPA had not been able to prove that the works contracts in question related to immovable properties actually used for residential purposes, and HPA bore the burden of proving that they did, in accordance with Article 74 of the Lei Geral Tributária (General Law on Tax).

17.      HPA brought an action against the adjustment notices before the Tribunal Administrativo e Fiscal de Sintra (Administrative and Tax Court, Sintra, Portugal). By judgment of 26 June 2020, it upheld the action and annulled the adjustment notices, on the ground that properties intended or used for residential purposes within the meaning of paragraph 2.24 [of List I annexed to the VAT Code] include all properties authorised to be used for residential purposes, not only those that are actually occupied. The Tax and Customs Authority brought an appeal against that judgment before the referring court.

18.      The Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal) stayed the proceedings before it and referred the following question to the Court of Justice for a preliminary ruling under Article 267 TFEU:

‘Does paragraph 2 of Annex IV to the VAT Directive preclude a provision of national law under which the reduced rate of VAT may be applied only to works contracts for the repair and renovation of buildings in private dwellings which are inhabited at the time when those works are carried out?’

19.      In the proceedings before the Court, only Portugal and the European Commission submitted written observations. In accordance with Article 76(2) of its Rules of Procedure, the Court decided not to hold a hearing.

IV.    Legal assessment

A.      The question referred and the course of the examination

20.      The national court asks whether the then Article 106 of the VAT Directive, in conjunction with point 2 of Annex IV thereto, allowed Portugal to apply the reduced rate of VAT only to services involving the renovation and repair of private dwellings being used as dwellings at the time when those works are carried out. Put the other way round, the question is whether a Member State may exclude that reduced rate of tax where, at the time when the renovation and repair services are provided, the building is not yet or is no longer used for residential purposes, but has, for example, been refurbished with a view to being resold at a subsequent date, and may not be put to residential use until later, by the purchaser, for example.

21.      This calls for an interpretation of the EU-law concept of the renovation and repairing of ‘private dwellings’, referred to in point 2 of Annex IV to the VAT Directive (see, in this regard, Section B below). If that concept includes all buildings which may at some stage be used as dwellings, the selective application of the reduced rate of tax to the refurbishment of dwellings actually in use as dwellings at the time of refurbishment might be impermissible (see, in this regard, Section C below). In order to assess whether this is the case, it will be necessary to take a closer look at the requirements which EU law imposes on Member States in connection with the introduction of a selective rate of tax (see, in this regard, Section D below).

B.      Interpretation of the concept of ‘private dwelling’

22.      Point 2 of Annex IV to the VAT Directive, in conjunction with Article 106 thereof, authorised the Member States to apply a reduced rate of VAT to services in connection with the ‘renovation and repairing of private dwellings, excluding materials which account for a significant part of the value of the service supplied’.

23.      In the absence of any reference to the law of the Member States or of a relevant definition in the VAT Directive, the words used in point 2 of Annex IV to that directive must be interpreted uniformly, irrespective of how they may be characterised in the Member States, and in accordance with their usual meaning in everyday language, while taking into account the context in which they occur and the purposes of the rules of which they are part. (5)

24.      In that regard, the Court has said, it is apparent from the wording of point 2 of Annex IV, first, that two distinct activities are covered by that provision, namely renovation and repairing, and, second, that those activities must relate to private dwellings. (6) According to the question referred for a preliminary ruling, it is only the latter element that requires clarification here.

25.      The Court has already held that the concept of ‘dwelling’ generally refers to immovable or even movable property, or a part thereof, intended for residential use and which therefore serves as a residence for one or more persons. Furthermore, the adjective ‘private’ makes it possible to draw a distinction with non-private dwellings, such as staff accommodation (7) or hotels. (8) Consequently, holiday accommodation on short-term let to alternating holidaymakers does not constitute a ‘private dwelling’ either.

26.      Accordingly, as the Court has expressly held, the renovation and repairing services referred to in point 2 of Annex IV to the VAT Directive must relate to property used for private residential purposes, whereas services relating to property used for other purposes, such as commercial purposes, are not covered by that provision. (9) What matters, therefore, is how the dwelling is actually being used at the time of the renovation. Vacant properties which a commercial company is refurbishing with a view to selling are at the time of that refurbishment being used not for private residential purposes but for commercial purposes (in this case, property dealing), as Portugal also rightly submits.

27.      The wording and the relevant case-law of the Court therefore indicate that private dwellings include only dwellings actually being used as such at the time of renovation. This does not presuppose, however, that the dwelling must also actually be occupied during the renovation works; the requirement is only that it should be used as a dwelling, or, in other words, serve as a residence, at that time. (10)

28.      It is important to note, however, that – as the Commission appears to overlook in its example of a summer residence – a private dwelling is used as such even when the owner is living at another location during the period of renovation. Living at another location does not necessarily change a person’s place of residence. Neither is a private dwelling’s status as such changed by the fact of its being vacant for a certain period (as when, for example, a rented dwelling is renovated in the interval between the former tenant moving out and the new tenant moving in).

29.      The view expressed in the circular by the Portuguese tax authority does not indicate otherwise. According to this, a property is to be regarded as being used for residential purposes where it is in actual use as a private dwelling when the works start and continues to be in actual use as such once those works are completed. Essentially, this simply means that the property must have been used as a private dwelling when the renovation works began and must continue to be so used when those works finish. If I understand it correctly, the Portuguese legal situation is based on a distinction between that situation and the non-eligible renovation of properties which are not being used for private residential purposes at the time of renovation but, for example, are to be rented out as commercial holiday lets, are intended as (vacant) capital investment opportunities, or – as appears to be the case here – are to be disposed of as part of a commercial property deal following the completion of the refurbishment.

30.      The need for the property to be used as a private dwelling during the provision of the renovation services is confirmed if we include Article 107 of the VAT Directive in our interpretation. Article 107 of that directive provides that the services referred to in Article 106 must largely be provided direct to final consumers. A commercial company which has vacant properties refurbished in order to resell the subsequently refurbished dwellings is certainly not the final consumer which the legislature had in mind. In this regard, it is already difficult to describe a commercial company as a final consumer. The party warranting classification as the final consumer in this context would probably be the owner or tenant using the dwelling for his or her own (private) purposes – or, more precisely, as his or her place of residence. Since such services have to be provided direct to final consumers only to a large extent, they may also include renovation services provided to lessors, since, in these cases, the tenant uses the dwelling directly for private residential purposes.

31.      What is more, further support for the aforementioned restrictive interpretation can be found in the purpose served by a reduced rate of tax. If the nature of VAT as a general tax on consumption (11) is taken seriously, then the rate of tax can only ever affect the burden borne – or, in the case of a reduction, the benefit enjoyed – by the final consumer, who is not entitled to deduct input tax. (12) This is certainly the case if the tax rate reduction is linked not to subjective characteristics on the part of the supplier but – as here – to certain supplies which the legislature considers to be worthy of preferential treatment in the interests of the recipients of those supplies.

32.      To an undertaking entitled to deduct input tax, on the other hand, it makes no difference whether its inputs are taxed at the standard rate or the reduced rate, since input tax deduction relieves it of VAT at both rates. Reduced rates of tax are therefore intended in principle to benefit the final consumer (private owner), who is not entitled to deduct input tax, by cutting the costs incurred by him or her in connection with the aforementioned services. The same is true of a tenant who is the recipient of a tax-free supply (the leasing of residential accommodation – Article 135(1) of the VAT Directive) into which the supply taxed at a reduced rate (renovation service) is incorporated. In the absence of an input tax deduction, the supplier (the lessor) can in those circumstances pass on the lower costs (that is to say, the reduced rather than the standard rate) to the tenant.

33.      After all, the reduction of the tax rate applicable to the ‘renovation and repairing of private dwellings’ is intended to afford tax relief to a user of a dwelling who is either renovating or repairing his or her private dwelling or financing the renovation or repair of his or her private dwelling from rental income. In this way, Member States are able, by applying a reduced rate of tax, to cut the costs of accommodation, as a necessity for living, in so far as these relate to renovation and repair works. The decisive factor in this context, however, is not whether the land register states that the property can be used only for residential purposes, but whether it is being, or is going to be, so used at the time when the recipient of the services in question incurs the corresponding costs. The purpose served by the reduced rate of tax as so described therefore encompasses, inter alia, renovations carried out with a view to the dwelling’s subsequently being used by the recipient of those services (whether directly, or indirectly through letting). The renovation of a property with a view to its subsequent sale, on the other hand, does not fall within the scope of the purpose served by the reduced tax rate, since sale does not constitute use for residential purposes.

34.      It is also important to bear in mind the particular feature that the services covered by point 2 of Annex IV to the VAT Directive, as referred to in Article 106(1) thereof, were subject to a reduced rate of tax only for a limited period of time (until 31 December 2010). This too calls for an interpretation based on the current use of the property at the time when the renovation and repair services are provided. Otherwise, that time limit could quite easily be pre-emptively circumvented (by refurbishing in advance buildings the residential use of which is no more than a future possibility).

35.      All of which indicates that point 2 of Annex IV to the VAT Directive must be interpreted as meaning that the reduced rate of VAT may be applied only to services provided for the purpose of renovating and repairing private dwellings actually in use as private dwellings at the time when those works are carried out. It does not therefore preclude a national provision, such as paragraph 2.24 of List I in the annex to the VAT Code, which requires that the aforementioned services must relate to immovable properties used for residential purposes. Neither does it preclude the view of the tax authority that a property is to be regarded as being used for residential purposes where it is in actual use as a private dwelling when the [renovation and repair] works start and continues to be in actual use as such once those works are completed. However, it is not necessary for this purpose that the dwelling should also be occupied during those works.

C.      In the alternative: selective reduced rate of tax

36.      If the Court takes the view, conversely, that point 2 of Annex IV to the VAT Directive is to be interpreted broadly as meaning that it is sufficient for the refurbished property to be intended for residential use at some point in the future, with a designation to that effect in the land register being enough to demonstrate this, the question arises as to whether Portugal has lawfully introduced a selective reduced rate in this instance. For, in that event, Portugal would have confined the reduced rate of tax, which, under EU law, would be available to all properties capable of being used as private dwellings, to properties actually in use as private dwellings at the time when the renovation and repair services are provided.

37.      As regards the application of the reduced rate of VAT provided for in Article 98(1) and (2) of the VAT Directive, the Court has held that the wording of that provision does not necessarily support an interpretation to the effect that that reduced rate is to be applied to all aspects of a category of supply set out in Annex III to that directive. The Member States thus have, subject to the requirement to observe fiscal neutrality inherent in the common system of VAT, the possibility of limiting the application of a reduced rate of VAT to concrete and specific aspects of a category of supply set out in Annex III to the VAT Directive. (13) The same is particularly true of the services listed at that time in Annex IV to the VAT Directive, which qualify for a reduced rate of tax only after this has been authorised by the Council and only for a limited period of time.

38.      The possibility of applying the reduced rate of VAT selectively in this way is said to be justified, inter alia, by the fact that the restriction of the reduced rate of tax to concrete and specific aspects of the category of supply in question is consistent with the principle that exemptions or derogations must be interpreted restrictively. (14)

39.      This is only true as to the result. On the one hand, the Court has repeatedly held that the rule of strict interpretation does not mean that the terms governing the application of the reduced rate should be construed in such a way as to deprive it of its effects. (15) In fact, given that the interpretation of those terms must conform to the objectives pursued by that arrangement and respect the requirements of fiscal neutrality, the ‘rule of strict interpretation’ has effectively become an empty and superfluous formula. (16)

40.      On the other hand, a (strict or broad) interpretation of a provision always has to do with the fulfilment or otherwise of a criterion for the applicability of that provision which must be interpreted uniformly (strictly or broadly) in EU law. The selective application of a reduced rate of tax, however, has nothing to do with the interpretation of whether or not a criterion for the applicability of a provision of EU law is fulfilled. Rather, the power selectively to limit the reduced rate of tax results primarily from the option available to the Member State to introduce a reduced tax rate.

41.      The EU legislature has thus conferred on the Member States the power to apply a reduced rate of tax to supplies of goods and services included in the categories set out in Annex III to the VAT Directive. It is therefore for the Member States to determine more precisely which of those supplies of goods and services the reduced rate is to apply to. (17) However, if the Member State is not obliged to introduce a reduced rate of tax, (18) and can therefore, by extension, refrain from applying the reduced rate of tax altogether, then it can a fortiori refrain from applying it in part too, which is to say that it can refrain from introducing it even on only a partial (selective) basis (argumentum a maiore ad minus).

42.      The Member State can therefore, in the words of the Court, limit the application of such a reduced rate of tax to concrete and specific aspects of that category. (19) Actual use as a private dwelling at the time when the renovation services are provided is one such concrete and specific aspect, since it is sufficiently identifiable and separable. (20)

43.      If, therefore, the concept of private dwelling fell to be construed in an exclusively formal sense (as referring to all immovable properties which, according to the land register, serve residential purposes), then there would in principle be nothing from the point of view of EU law to stop Portugal interpreting that term restrictively (for material purposes) and applying the reduced rate of tax selectively only to renovation works on private dwellings actually used as private dwellings.

44.      Contrary to the view taken by the Commission, the fact that that material interpretation is likely to arise only in connection with the administrative provisions (guidelines) adopted in that regard does not detract from the foregoing conclusion. The third paragraph of Article 288 TFEU leaves to the national authorities the choice of form and methods for transposing a directive. Since some Member States operate a system of so-called ‘substantivising’ administrative provisions which have external, legally binding effect and – like a law – are officially published, the selective transposition of an optional reduced rate of tax through a combination of law and such administrative provisions would not be problematic. (21)

45.      In so far as the administrative provision in question – as Portugal submits in its written observations – simply reproduces the wishes of the Portuguese legislature, it is even less problematic. Furthermore, contrary to the view which the Commission appears to take in its observations, what we are dealing with here is not the application of an administrative provision by a court, but the interpretation of the law. The referring court, in any event, proceeds on the assumption in its question that the restriction in question results from national legislation.

D.      Requirements governing a selective reduced rate of tax

46.      The introduction of a selective reduced rate of tax is, however, subject to certain limits. Where a Member State decides to apply the reduced rate of VAT selectively to particular supplies of goods and services included in Annex III (and also Annex IV) to the directive, it must comply with the principle of fiscal neutrality. (22) That principle precludes similar goods or services which are in competition with each other being treated differently for VAT purposes. (23)

47.      In order to assess whether goods or services are similar, account must primarily be taken of the point of view of an average consumer. Goods or services are similar where they have similar characteristics and meet the same needs from the point of view of consumers, the test being whether their use is comparable, and where the differences between them do not have a significant influence on the decision of the average consumer to use one or the other of those goods or services, (24) and those supplies can therefore, from the point of view of the average consumer, be exchanged one for the other. (25)

48.      The decision as to whether goods or services are similar from the point of view of a consumer entails by definition a degree of discretion. The Court says that, when the EU legislature adopts a tax measure, it is called upon to make political, economic and social choices, and to rank divergent interests or to undertake complex assessments. Consequently, it should, in that context, be accorded a broad discretion, so that judicial review of compliance with the conditions must be limited to review as to manifest error. (26) In particular, in its judicial review of the exercise of such powers, the Court cannot substitute its own assessment for that of the EU legislature. (27)

49.      The question this now raises is whether the Court is also able to review that discretion only to a comparably limited extent where it is exercised by the legislature of a Member State.

50.      In the light in particular of the Court’s most recent case-law, that question must be answered in the affirmative. The Court thus increasingly points out the fact that the European Union is composed of States which respect and share the values referred to in Article 2 TEU. (28) The values referred to in Article 2 TEU, on which the European Union is founded, include in particular the principle of democracy.

51.      According to that principle, it is the democratically elected legislature that is primarily responsible for discharging the discretion to make legislative decisions. Consequently, where EU law grants such discretion to a Member State, it is the elected parliament of that Member State that is responsible for exercising it. The powers of other bodies to review that parliamentary decision-making discretion are therefore, by definition, limited. They cannot substitute their own view as to the similarity of goods or services for that of the body democratically authorised to form it. This applies to national courts just as much as to the courts of the European Union.

52.      On that basis, the Court may find the principle of neutrality to have been infringed by the legislature (whether of the European Union or of a Member State) only if it has clearly exceeded its decision-making discretion. This is the case, however, only if, from the point of view of the average consumer, the goods or services taxed at different rates are all but identical and could therefore readily be substituted for each other. It is only then that there is a distortion of competition between the providers of those goods or services which is no longer compatible with the principle of neutrality.

53.      For that reason, the Court has thus far generally been reluctant to find an infringement of the principle of neutrality, in so far as the EU legislature allows the reduced rate of tax to be applied only to books (but not to e-books (29)), only to the supply of horses destined for slaughter (but not to racehorses (30)) and only to the letting of camping sites (but not to the letting of boat moorings (31)). The same is true of the fact that the Member States apply a reduced rate of tax, or an exemption from tax, only to fresh pastry goods and cakes (but not to those which exceed a certain best-before date (32)), only to mobile fairground entertainers (but not to stationary amusement parks (33)), not to all medicinal products (but only to certain ones, depending, inter alia, on how they are used (34)), only to taxis (but not to all forms of passenger transport by car (35)), and only to printed books (but not to books on other physical media (36)).

54.      The legislature’s decision-making discretion has not clearly been exceeded in this case, however. The services taxed at different rates are not all but identical and there is therefore no distortion of competition.

55.      After all, the seller of an (unused) renovated dwelling does not compete with the owner of a (used) dwelling who has that dwelling renovated and is then charged only a reduced rate of tax. Even if the latter were an undertaking (a letting agency, for example), that undertaking does not compete on a market with a seller. A renovation firm renovating an (unused) dwelling likewise does not compete with a renovation firm renovating a used dwelling, since whoever is the recipient of the renovation service is not at liberty to choose the rate of tax applicable. As far as the recipient of that service is concerned, the renovation is always taxed either at the reduced rate (because the dwelling is already in use) or at the full rate (because the dwelling is not yet in use). Consequently, the tax rate does not influence whichever renovation firm the recipient of the service chooses. The principle of neutrality is not therefore affected.

56.      Furthermore, neither is the potential final consumer the subject of any (unjustified) unequal treatment within the meaning of Article 20 of the Charter of Fundamental Rights of the European Union. (37) On the one hand, the purchaser of a renovated dwelling cannot be compared to the owner of a dwelling who has that dwelling renovated, since one receives a supply and the other a service. Furthermore, in so far as the purchase of a renovated dwelling is taxable in Portugal, the seller will receive tax relief in any event in the form of the deduction of input tax (irrespective of the rate of tax applicable to the renovation services). In so far as the purchase is tax-free, it is true that the seller will not qualify for input tax deduction and will include the standard rate of tax in the sale price. On the other hand, however, since the purchase is tax-free, the purchaser will at least be relieved of the VAT on the seller’s self-created added value (that is to say, on the seller’s profit at least). The same applies to properties used for other commercial purposes (as hotels or holiday accommodation).

57.      In the foregoing context too, it is understandable that the Portuguese legislature should have restricted the reduced rate of tax to properties which are actually being used as dwellings at the time of renovation. This becomes all the more apparent if the intention behind restricting the reduced rate of tax was, for socio-political reasons, to relieve the burden in particular on the private owner of a dwelling actually used as a dwelling. This does not constitute an infringement of the principle of fiscal neutrality.

V.      Conclusion

58.      I therefore propose that the Court’s answer to the question referred for a preliminary ruling by the Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal) should be as follows:

Point 2 of Annex IV to Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the reduced rate of value added tax may be applied only to services provided for the purpose of renovating and repairing private dwellings being used as private dwellings at the time when those works are carried out. A property is used as a private dwelling even if the recipient of the aforementioned services has transferred that property to a third party as a dwelling. However, in order for the reduced tax rate to apply, it is not necessary for the dwelling to be occupied while those services are being provided.

1      Original language: German.

2      Judgment of 5 May 2022, DSR – Montagem e Manutenção de Ascensores e Escadas Rolantes (C‑218/21, EU:C:2022:355, paragraph 42). The Portuguese Government expressly relies on that text in its written observations. However, since the VAT Directive does not provide for a pro-rata rate of tax for a single supply and, furthermore, a single supply cannot be split (since, if it could, it would not be a single supply), that statement can meaningfully have referred only to the case where two separable services (one for the commercial part of the property and the other for that part of it used as a dwelling) are present.

3      Council Directive of 28 November 2006 (OJ 2006 L 347, p. 1), in the version applicable to the year at issue (2007); as last amended for these purposes by Council Directive 2007/75/EC of 20 December 2007 (OJ 2007 L 346, p. 13).

4      Chapter 3 of Title VIII of the VAT Directive and Annex IV thereto were repealed by Council Directive 2009/47/EC of 5 May 2009 amending Directive 2006/112 as regards reduced rates of value added tax (OJ 2009 L 116, p. 18). Instead, Directive 2009/47 inserted a point 10a into Annex III to the VAT Directive, which contains a list of the supplies of goods and services to which reduced rates of VAT may be applied in accordance with Article 98 of that directive. The content of point 10a is the same as that of point 2 of the former Annex IV to the VAT Directive, except that point 10a is now no longer subject to a time limit.

5      Judgments of 5 May 2022, DSR – Montagem e Manutenção de Ascensores e Escadas Rolantes (C‑218/21, EU:C:2022:355, paragraph 29), and of 1 October 2020, Staatssecretaris van Financiën (Reduced rate of VAT for aphrodisiacs) (C‑331/19, EU:C:2020:786, paragraph 24). See also, in this regard, judgment of 29 July 2019, Spiegel Online (C‑516/17, EU:C:2019:625, paragraph 65).

6      Judgment of 5 May 2022, DSR – Montagem e Manutenção de Ascensores e Escadas Rolantes (C‑218/21, EU:C:2022:355, paragraph 31).

7      In paragraph 34 of the French original, the Court refers in that context to ‘logements de fonction’.

8      Judgment of 5 May 2022, DSR – Montagem e Manutenção de Ascensores e Escadas Rolantes (C‑218/21, EU:C:2022:355, paragraph 34).

9      Judgment of 5 May 2022, DSR – Montagem e Manutenção de Ascensores e Escadas Rolantes (C‑218/21, EU:C:2022:355, paragraph 35).

10      See, inter alia, judgment of 5 May 2022, DSR – Montagem e Manutenção de Ascensores e Escadas Rolantes (C‑218/21, EU:C:2022:355, paragraphs 34 and 35).

11      See clearly, to this effect, judgment of 24 October 1996, Elida Gibbs (C‑317/94, EU:C:1996:400, paragraph 19). See also, judgments of 10 April 2019, PSM ‘K’  (C‑214/18, EU:C:2019:301, paragraph 40); of 18 May 2017, Latvijas Dzelzceļš (C‑154/16, EU:C:2017:392, paragraph 69); and of 7 November 2013, Tulică and Plavoşin (C‑249/12 and C‑250/12, EU:C:2013:722, paragraph 34).

12      See, to this effect, judgments of 1 October 2020, Staatssecretaris van Financiën (Reduced rate of VAT for aphrodisiacs) (C‑331/19, EU:C:2020:786, paragraph 34), and of 9 March 2017, Oxycure Belgium (C‑573/15, EU:C:2017:189, paragraph 22). See also, similarly, judgments of 22 April 2021, Dyrektor Izby Administrcji Skarbowej w Katowicach (C‑703/19, EU:C:2021:314, paragraph 37), and of 17 January 2013, Commission v Spain (C‑360/11, EU:C:2013:17, paragraph 86).

13      Judgments of 22 September 2022, The Escape Center (C‑330/21, EU:C:2022:719, paragraph 34), and of 5 September 2019, Regards Photographiques (C‑145/18, EU:C:2019:668, paragraph 42). See, to that effect, judgments of 9 March 2017, Oxycure Belgium (C‑573/15, EU:C:2017:189, paragraphs 25 and 28), and of 6 May 2010, Commission v France (C‑94/09, EU:C:2010:253, paragraph 25 et seq.).

14      Judgments of 5 September 2019, Regards Photographiques (C‑145/18, EU:C:2019:668, paragraph 43); of 9 November 2017, AZ (C‑499/16, EU:C:2017:846, paragraph 24); and of 6 May 2010, Commission v France (C‑94/09, EU:C:2010:253, paragraph 29).

15      Judgment of 5 September 2019, Regards Photographiques (C‑145/18, EU:C:2019:668, paragraph 32). See, similarly, judgments of 29 November 2018, Mensing (C‑264/17, EU:C:2018:968, paragraphs 22 and 23 on special arrangements), and of 21 March 2013, PFC Clinic (C‑91/12, EU:C:2013:198, paragraph 23 on exemption criteria).

16      This is particularly apparent in paragraph 22 et seq. of the Commission’s observations, where the Commission states that, although the rule of strict interpretation is applicable here, it does not require the strictest interpretation. It is questionable whether such a statement adds any value from a legal point of view.

17      Settled case-law of the Court: judgments of 27 June 2019, Belgisch Syndicaat van Chiropraxie and Others (C‑597/17, EU:C:2019:544, paragraph 44); of 9 November 2017, AZ (C‑499/16, EU:C:2017:846, paragraph 23); and of 11 September 2014, K (C‑219/13, EU:C:2014:2207, paragraph 23). Similarly, see also, in relation to Article 122, the judgment of 3 February 2022, Finanzamt A (C‑515/20, EU:C:2022:73, paragraph 37).

18      See to that effect, inter alia, judgment of 9 March 2017, Oxycure Belgium (C‑573/15, EU:C:2017:189, paragraph 25).

19      Judgments of 22 September 2022, The Escape Center (C‑330/21, EU:C:2022:719, paragraph 34); of 9 September 2021, Phantasialand (C‑406/20, EU:C:2021:720, paragraph 25); and of 6 May 2010, Commission v France (C‑94/09, EU:C:2010:253, paragraph 28).

20      See judgments of 5 September 2019, Regards Photographiques (C‑145/18, EU:C:2019:668, paragraph 49); of 27 February 2014, Pro Med Logistik und Pongratz (C‑454/12 and C‑455/12, EU:C:2014:111, paragraph 47); and of 6 May 2010, Commission v France (C‑94/09, EU:C:2010:253, paragraph 35).

21      See, to possibly different effect, the judgment of 22 September 2022, The Escape Center (C‑330/21, EU:C:2022:719, paragraph 39), although the Court did not examine in any greater detail in that case whether the administrative guidelines issued by the tax authority were an administrative provision substantivising a measure of law, and the Member State did not rely on that provision in that case, either.

      The purport of the judgment of 5 May 2022, DSR – Montagem e Manutenção de Ascensores e Escadas Rolantes (C‑218/21, EU:C:2022:355, paragraphs 45 and 46), on the other hand, is unclear. This too concerned the Portuguese administrative provision material to this case but always refers to that provision as a mere administrative practice that is alterable at any time. Substantivising administrative provisions, however, are quite different from ‘mere administrative practices’, cannot be altered at will and do not, in principle, lack ‘the appropriate publicity’.

22      Judgments of 9 September 2021, Phantasialand (C‑406/20, EU:C:2021:720, paragraph 36); of 27 June 2019, Belgisch Syndicaat van Chiropraxie and Others (C‑597/17, EU:C:2019:544, paragraph 46); and of 9 March 2017, Oxycure Belgium (C‑573/15, EU:C:2017:189, paragraph 28).

23      Judgments of 19 December 2019, Segler-Vereinigung Cuxhaven (C‑715/18, EU:C:2019:1138, paragraph 36); of 27 June 2019, Belgisch Syndicaat van Chiropraxie and Others (C‑597/17, EU:C:2019:544, paragraph 47); of 9 March 2017, Oxycure Belgium (C‑573/15, EU:C:2017:189, paragraph 30); of 23 April 2009, TNT Post UK (C‑357/07, EU:C:2009:248, paragraph 37); and of 6 May 2010, Commission v France (C‑94/09, EU:C:2010:253, paragraph 40).

24      Judgments of 3 February 2022, Finanzamt A (C‑515/20, EU:C:2022:73, paragraph 44); of 9 September 2021, Phantasialand (C‑406/20, EU:C:2021:720, paragraph 38); of 27 June 2019, Belgisch Syndicaat van Chiropraxie and Others (C‑597/17, EU:C:2019:544, paragraph 48); of 9 November 2017, AZ (C‑499/16, EU:C:2017:846, paragraph 31); and of 27 February 2014, Pro Med Logistik and Pongratz (C‑454/12 and C‑455/12, EU:C:2014:111, paragraph 54).

25      See expressly, to the effect, judgment of 9 September 2021, Phantasialand (C‑406/20, EU:C:2021:720, paragraph 39). The judgment of 9 November 2017, AZ (C‑499/16, EU:C:2017:846, paragraph 3), refers to them as being interchangeable.

26      Judgment of 7 March 2017, RPO (C‑390/15, EU:C:2017:174, paragraph 54). See also, to that effect, judgment of 10 December 2002, British American Tobacco (Investments) and Imperial Tobacco (C‑491/01, EU:C:2002:741, paragraph 123), and of 17 October 2013, Billerud Karlsborg and Billerud Skärblacka (C‑203/12, EU:C:2013:664, paragraph 35).

27      See further, expressly to this effect, judgment of 17 October 2013, Billerud Karlsborg and Billerud Skärblacka (C‑203/12, EU:C:2013:664, paragraph 35).

28      Judgment of 24 June 2019, Commission v Poland (Independence of the Supreme Court) (C‑619/18, EU:C:2019:531, paragraphs 42 and 43). On the need to take into account the principle of democracy in the interpretation of directives, see also judgment of 9 March 2010, Commission v Germany (C‑518/07, EU:C:2010:125, paragraph 41).

29      Judgment of 7 March 2017, RPO (C‑390/15, EU:C:2017:174, paragraph 70 et seq.).

30      Judgment of 3 March 2011, Commission v Netherlands (C‑41/09, EU:C:2011:108, paragraph 66).

31      Judgment of 19 December 2019, Segler-Vereinigung Cuxhaven (C‑715/18, EU:C:2019:1138, paragraph 38).

32      Judgment of 9 November 2017, AZ (C‑499/16, EU:C:2017:846, paragraph 36).

33      Judgment of 9 September 2021, Phantasialand (C‑406/20, EU:C:2021:720, paragraph 48).

34      Judgment of 27 June 2019, Belgisch Syndicaat van Chiropraxie and Others (C‑597/17, EU:C:2019:544, paragraph 49).

35      Judgment of 27 February 2014, Pro Med Logistik and Pongratz (C‑454/12 and C‑455/12, EU:C:2014:111, paragraph 60).

36      Judgment of 11 September 2014, K (C‑219/13, EU:C:2014:2207, paragraph 34).

37      On the relevance of this to VAT law, see, inter alia, judgment of 7 March 2017, RPO (C‑390/15, EU:C:2017:174, paragraph 41 et seq.).

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