© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
L1. Option to tax: land and buildings
EU LAW POWER FOR MEMBER STATE
Option to tax permitted for land transactions
"(1) Member States may allow taxable persons a right of option for taxation in respect of the following transactions:
(a) the financial transactions referred to in points (b) to (g) of Article 135(1);
(b) the supply of a building or of parts thereof, and of the land on which the building stands, other than the supply referred to in point (a) of Article 12(1);
(c) the supply of land which has not been built on other than the supply of building land referred to in point (b) of Article 12(1);
(d) the leasing or letting of immovable property." (PVD Article 137)
Article 12
"(1) Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:
(a) the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;
(b) the supply of building land." (PVD Article 12(1))
- Member state to lay down detailed rules
"(2) Member States shall lay down the detailed rules governing exercise of the option under paragraph 1." (PVD Article 137)
Power to restrict scope of right to exercise option
"(2) ... Member States may restrict the scope of that right of option." (PVD Article 137)
- Member states have discretion to exclude certain transactions/categories of taxable person
"[29] It follows that the Member States have a wide discretion under Article 13(C) of the Sixth Directive. It is for them to assess whether they should or should not introduce the right of option, depending on what they consider to be expedient in the situation existing in their country at a given time (see Case C‑381/97 Belgocodex [1998] ECR I‑8153, paragraphs 16 and 17; Case C‑12/98 Amengual Far [2000] ECR I‑527, paragraph 13; and Case C‑326/99 ‘Goed Wonen’ [2001] ECR I‑6831, paragraph 45).
[30] Thus, in exercising their discretion with regard to the right of option, the Member States may also exclude certain transactions or certain categories of taxable persons from the scope of application of that right." (Turn- und Sportunion C-246/04)
- But must comply with fiscal neutrality
"[31]Nevertheless, as the Commission correctly points out, when the Member States use their ability to restrict the scope of the right of option and to determine the arrangements for its exercise, they are to observe the general objectives and principles of the Sixth Directive, in particular the principle of fiscal neutrality and the requirement for correct, straightforward and uniform application of the exemptions provided for (see, to that effect, Case C-283/95 Fischer [1998] ECR I-3369, paragraph 27, and ‘Goed Wonen’, paragraph 56)." (Turn- und Sportunion C-246/04)
- Identity of supplier, as a rule, irrelevant when assessing comparability of supplies
"[34] It is clear from that case-law that the identity of the providers of services and the legal form by means of which they exercise their activities are, as a rule, irrelevant in assessing whether supplies of services are comparable (see Joined Cases C‑453/02 and C‑462/02 Linneweber and Akritidis [2005] ECR I‑1131, paragraphs 24 and 25)." (Turn- und Sportunion C-246/04)
- Option to tax must be economic operator's own choice
"[51] In consequence, although the transactions at issue in the main proceedings, or some of them, concern immovable property within the meaning of Article 135(1)(j) and (k) of Directive 2006/112, since Romania has not applied, in its legislation, the facility provided for in Article 137(1)(b) and (c) of that directive to allow its taxable persons the right of option for taxation of those transactions or, in the absence of an express request by Mr Marcu, in accordance with Article 137 of that directive, to have VAT applied to those transactions, the conditions for application of Article 199(1)(c) of that directive are not met and, in consequence, the reverse charge mechanism, as provided for in that directive, cannot apply." (Marcu C-392/16)
"Nevertheless, as the Court has already held, Article 13(C) of the Sixth Directive does not confer upon the Member States the right to place conditions on or to restrict in any manner whatsoever the exemptions provided for by part B of that article. It merely reserves the right to the Member States to allow, to a greater or lesser degree, persons entitled to those exemptions to opt for taxation themselves, if they consider that it is in their interest to do so (see Becker, paragraph 39)." (Turn- und Sportunion C-246/04)
Effect
- Cannot turn outside the scope transaction to taxable
"[23] Such an approach is incompatible with the Directive. The right of option provided for in Article 13(C), whilst making it possible to transform an exempted transaction into a taxable transaction and entitling the taxpayer to deduct input tax, does not enable a supply which does not fall within the scope of the tax as defined in the Directive to be transformed into a taxable supply." (Armbrecht C-291/92)