Judgment of 13 June 2018 in case C-665/17 (Gmina Wroclaw).
Articles in the EU VAT Directive
Article 2(1)(a) and Article 14(2)(a) of Council Directive 2006/112/EC
Article 2 (Scope of VAT)
1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
Article 14 (Taxable transaction – Supply of goods)
1. “Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.
2. In addition to the transaction referred to in paragraph 1, each of the following shall be regarded as a supply of goods:
(a) the transfer, by order made by or in the name of a public authority or in pursuance of the law, of the ownership of property against payment of compensation;
Facts
In Poland, the hierarchy of local authorities is organised as follows: the first level is the gmina (municipality), the second level is the powiat (district) and the third level is the województwo (regional authority). A miasto na prawach powiatu (city county) is a municipality that carries out the tasks of a district. In such county cities, the mayor, who is the primary executive authority of the city, has all the powers granted by the law to the executive authority of the district, including those relating to the administration of immovable property.
The Municipality, which owns several immovable assets, is a county city that is registered as a taxable person for VAT purposes. While acting as the executive authority of the Municipality, its mayor is also the representative of the Public Treasury and is therefore responsible for the administration of any immovable property belonging to the Public Treasury that is located within the territory of the Municipality.
The municipality transferred the ownership of immovable property to the Public Treasury for the purposes of the construction of a national road. The Regional Governor set the compensation to which the Municipality was entitled and ordered the mayor of the Municipality to pay that sum.
The Polish Minister was of the opinion that there had been a supply of goods for consideration subject to VAT, as the ownership of the immovable property had been transferred from the Municipality to the Public Treasury in return for the payment of compensation. The Minister noted that in this transaction the taxable person for VAT purposes was the Municipality, since the mayor is not a body independently carrying out an economic activity and does not operate under his own responsibility.
The municipality disagreed with this decision.
Questions
Does the transfer, pursuant to the law, of the ownership of immovable property owned by a municipality to the State Treasury in return for payment of compensation, in the case where, under the rules of national law, that immovable property continues to be managed by the mayor of the municipality, who is simultaneously the representative of the State Treasury and the executive body of the municipality, constitute a taxable transaction within the meaning of Article 14(2)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax? 1
In answering that question, is it significant whether the compensation paid to the municipality consists of an actual payment or is a mere internal accounting transfer within the municipal budget?
AG Opinion
A transfer, pursuant to the law, of the ownership of immovable property owned by a municipality to the Public Treasury in return for effective payment of compensation, in the case where, under the rules of national law, that immovable property continues to be managed by the mayor of a municipality, who is simultaneously the representative of the Public Treasury and the executive body of the municipality, constitutes a taxable transaction within the meaning of Article 14(2)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.
Judgment
Article 2(1)(a) and Article 14(2)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a transfer of ownership of immovable property belonging to a taxable person for value added tax purposes to the Public Treasury of a Member State, carried out in accordance with the law and in return for a payment of compensation, constitutes a transaction subject to value added tax in a situation, such as that at issue in the main proceedings, where the same person simultaneously represents the expropriating authority and the municipality that is the subject of the expropriation and where the latter continues the practical management of the relevant property, even if the payment of compensation has been made only by means of an internal accounting transfer within the budget of the municipality.
Summary
A transfer of ownership of immovable property by a taxable person to the Public Treasury of a Member State, carried out in accordance with the law and in return for a payment of compensation, constitutes a transaction subject to VAT. Also in a situation where the same person simultaneously represents the expropriating authority and the municipality that is the subject of the expropriation and where the latter continues the practical management of the relevant property, even if the payment of compensation has been made only by means of an internal accounting transfer within the budget of the municipality.
Source
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