ECJ Joint Cases C-573/18 and C-574/18 (C GmbH & Co. KG) – Questions – VAT liability on recharges and EU subsidies

On 22 October 2018, the ECJ received preliminary questions in joint cases C-573/18 and C-574/18 (C GmbH & Co. KG) regarding the VAT treatment of recharges and EU subsidies.

Unofficial translation

Facts (simplified):

• C GmbH & Co. KG (in case C-573/18) and C-eG (in Case C-573/18) are active as a wholesaler for fruit and vegetables and as suchs promotes and markets products on behalf of its members. It is also registered as ‘producer organization’ within the meaning of Regulation No 2200/96.
• Under this Regulation such producer organizations constitute an ‘operational fund’, which allows it to receive half of its funds from its members, and the other half from “financial support”, i.e. subsidies.
• C GmbH invested in separate companies and entered into several growers projects. These projects consisted of providing funds to members of the producer organization by entering into agreements with suppliers, whereby in most cases 75% of the purchases was recharged to the member, and 25% was paid from the general funds of the organization. In some cases this was 50-50%.
• C GmbH charge VAT to its members and it deducted the input VAT charged to it by the suppliers. The German tax authorities denied the input VAT deduction, claiming that C GmbH was not the recipient of the supplies, but the members.

Questions (simplified):

1. Does the contractual arrangement between the producer organization and its members qualify as a barter transaction?
2. Is the payment made by the producer organization to the member to be considered a subsidy for VAT?
3. How must the consideration be calculated where the producer organization makes payments to suppliers and only partly recharges the payments to the members?
4. Does it matter if the members are fully taxable persons and can deduct all input VAT charged to it?

Source: MinBuZa (Dutch)

Source: KPMG

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