ECJ Case C-716/18 (AJFP Caraş-Severin) – Questions – Main activity; SME VAT exemption

On 24 December 2018, the European Court of Justice received questions in case C716/18 (AJFP Caraş-Severin et DGRFP Timişoara), concerning the question how to define the definition of “main activity” in relation to the SME VAT exemption.

Unofficial translation

Facts (simplified):

In addition to his work as a professor, the appellant carries out various free professions (accountant, tax consultant, bankruptcy curator and lawyer). He also receives occasional income from royalties. In addition, the appellant owns a property in co-ownership with another person.

Since the year 2007, the appellant receives income from the letting of this property, leased to a commercial company of which the appellant is shareholder and director.

The tax authorities were of the opinion that the appellant had exceeded the SME (Small and Medium Enterprise) threshold of RON 220,000 (€ 65,000) which had been set for the application of the special exemption scheme for small undertakings, so that he should have been liable to register for VAT. The tax authorities took into account part of the income (tax consultant, accountant and bankruptcy trustee, royalties, and rent). Not included are the income from his activities as a professor and lawyer (subject to a specific taxation).

Furthermore, the tax authorities concluded that in 2012, 69% of the appellant’s total revenue was obtained from work as a bankruptcy trustee. That is why they state that the main activity is that of bankruptcy curator, and that the letting of the real estate could not be regarded as an activity “related to this activity”, and therefore is to be kept outside the calculation of the turnover in the said year.


The legal question in this case is whether the letting by the appellant of the property constitutes an ‘activity related to the main activity’ within the meaning of the VAT Directive and whether the revenue from that transaction should be taken into account in the calculation of the turnover on the basis of which it is determined whether a taxpayer has the obligation to register as a VAT taxpayer.

Determining the meaning of the EU law concepts will help to settle the dispute by making it possible to establish whether the tax authorities have correctly calculated the turnover or not. The referring court also wishes to know whether, for the purposes of classifying the act of leasing as an act ‘connected’ with a ‘main activity’, it is relevant that that leasing was carried out for the benefit of a third party, a legal person in the context of which the appellant qualification as a shareholder and director, and who carries out professional activities of the same nature as those from which the appellant receives income as a natural person.

Preliminary questions:

1. Do the provisions of Article 288 [first paragraph], point 4, of the VAT Directive require, in circumstances such as those in the present case, in which a natural person performs an economic activity through the exercise of several liberal professions, as well as through the leasing of real estate, and thus acquires fixed income, a particular professional activity as the main activity, so that the letting can be regarded as a related transaction, and if so, on the basis of which criteria could this main activity be determined, or should it be interpreted in such a way that the combination of professional activities by means of which the economic activities of this natural person, constitute his “main activity”?

2. In case the real estate that is rented to a third party by a natural person is not intended and is not used for the performance of the other economic activities of that natural person and it is therefore not possible to establish a link between that good and exercising the various professions of this person, the provisions of Article 288 of the VAT Directive, then letting the lease be regarded as a “transaction related to other transactions”, with the result that it is excluded from the calculation of the turnover which serves as a yardstick for the application of the special exemption regulation for small businesses?

3. In the case described in the second question for the classification of the letting as ‘an act connected with other transactions’, it is relevant that this lease was made for the benefit of a third party, a legal person under which the natural person has the status of shareholder and director who has its registered office in that premises and who performs business activities of the same nature as those of the natural person in question?

Source: MinBuza (Dutch)