On November 10, 2016, the ECJ issues its decision in the case C-432/15 (Pavlína Baštová) related to Concept of ‘supply of services for consideration’ in case of a Supply of a horse by a taxable person to the organiser of horse races. This cases deals whether the prvision of a horse race to a race constitites a taxable transaction, if so, waht the rate is to be applied, discusses the right to deduct VAT.
Article in the EU VAT Directive
Artciles 2(1)(c) and 98 of the EU VAT Directive 2006/112/EC
Article 2 (Taxable transaction)
1. The following transactions shall be subject to VAT:
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
Article 98 (VAT rate)
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. The reduced rates shall not apply to electronically supplied services.
3. When applying the reduced rates provided for in paragraph 1 to categories of goods, Member States may use the Combined Nomenclature to establish the precise coverage of the category concerned.
- The applicant Pavlína Baštová has a simple agricultural business and also runs a racing stable (breeding / training racehorses). Her stable has a capacity of 25 horses, most of which will be fully occupied by 2010. Most of the horses are hers, but there are also other owners that she trains and takes care of on a contract basis. The applicant also receives prize money for performance in the races.
- It regards the provision of horses for a race as a taxable transaction (service under onerous title) and charges 10% VAT. It considers the participation of horses in running, including preparation, as part of its economic activity. The success of the horses also increases the value of her services as a trainer (advertising) and has a favorable effect on the price of the horses she sells. She also has two old, no longer active racehorses that are used for agrotourism and training of young horses, plus brood mares with foals. For the fourth quarter of 2010, it requests a full VAT deduction on all taxable supplies of goods and services, and charges the reduced rate (10%) for all services in the context of ‘running a racing stable’ that it passes on to third parties.
- The defendant (tax authorities) does not accept its VAT deduction with regard to the participation in races by the applicant’s own horses; according to the defendant, this is not a taxable transaction with the right to deduct. Nor does the defendant agree with the reduced rate. In objection, the applicant is only partially right; she appeals to the Rb Pilsen, which grants her request (06-11-2013) and sends the case back to the defendant. The respondent then lodged an appeal in cassation.
- The referring TSJ court (Supreme Administrative Court) must answer the question whether the provision of a horse by its owner to the organizer of a race should be regarded as a ‘service for consideration’ within the meaning of the VAT RL.
- The CJEU has already issued guidelines for this, but the facts differ too much. Profit in racing is conditional: only the horse that delivers a certain performance and fulfills the competition conditions wins a prize. That conditionality prevents, according to the referring court, the provision of a service for consideration. The right to deduct should not depend entirely on the performance level of the horse. He also cites case law of the CJEU in which the Court indicates that services related to sporting activities or physical education should be considered as a whole as much as possible (C-55/14 Luc Varenne)
(1a) Is the supply of a horse by its owner (who is a taxable person) to the organiser of a race for the purpose of the horse’s running in a race a supply of services for consideration within the meaning of Article 2(1)(c) of [the VAT Directive] and thus a transaction subject to VAT?
(1b) If the answer is in the affirmative, must the prize money obtained in the race (which not every horse taking part in the race obtains, however), or the acquisition of the service consisting in the opportunity for the horse to run in the race which the organiser of the race provides to the owner of the horse, or some other consideration, be regarded as the consideration?
(1c) If the answer is in the negative, is that circumstance in itself a ground for reducing the deduction of input VAT on the taxable supplies acquired and used for the preparation of the breeder/trainer’s own horses for races, or must the running of a horse in a race be regarded as a component of the economic activity of a person who operates in the field of breeding and training his own and other owners’ racehorses, and the expense of breeding his own horses and running them in races be included in the overheads associated with that person’s economic activity? If the answer to that part of the question is in the affirmative, must prize money be included in the taxable amount and output VAT accounted for, or is this income which does not affect the taxable amount for VAT at all?
(2a) If for VAT purposes it is necessary to regard several part services as a single transaction, what are the criteria for determining their mutual relationship, that is, for determining whether they are supplies of equal status with each other or supplies in the relationship of a principal and an ancillary service? Does any hierarchy exist between those criteria as regards their ranking and weight?
(2b) Must Article 98 of [the VAT Directive] in conjunction with Annex III to that directive be interpreted as precluding the classification of a service under the reduced rate if it is composed of two part supplies which must be regarded for VAT purposes as a single supply and those supplies are of equal status with each other, and one of them may not in itself be classified in any of the categories set out in Annex III to [the VAT Directive]?
(2c) If the answer to Question 2b is in the affirmative, does the combination of the part service of the right to use sports facilities and the part service of a trainer of racehorses, in circumstances such as those of the present proceedings, preclude the classification of that service as a whole under the reduced rate of VAT mentioned in point 14 of Annex III to [the VAT Directive]?
(2d) If the application of the reduced rate of tax is not excluded on the basis of the answer to Question 2c, what influence on the classification under the relevant rate of VAT does the fact have that the taxable person provides, in addition to the service of the use of sports facilities and the service of a trainer, also stabling, feeding and other care of a horse? Must all those part supplies be regarded for VAT purposes as a single whole sharing the same tax treatment?
insofar as the running of a horse in a race is a component of the economic activity of a person who operates in the field of breeding and training racehorses, the expenses related to that component give rise to deduction of input value added tax. The award of prizes to the horses producing the best performances gives rise to taxable transactions under Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax;
– subject to verification by the national court, the operation of racing stables cannot as a whole be subject to a reduced rate of value added tax by virtue of point 14 of Annex III to Directive 2006/112.
1. Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted to the effect that the supply of a horse by its owner, who is a taxable person for value added tax purposes, to the organiser of a horse race for the purpose of the horse’s participation in that race does not constitute a supply of services for consideration within the meaning of that provision where it does not give rise to a payment awarded for participation or any other direct remuneration and where only the owners of horses which are placed in the race receive a prize, even if that prize is determined in advance. On the other hand, such a supply of a horse for the purposes of its participation in the race constitutes a supply of services for consideration where it gives rise to the payment, by the organiser, of remuneration irrespective of whether or not the horse in question is placed in the race.
2. Directive 2006/112 must be interpreted to the effect that a taxable person, who breeds and trains his own race horses and those of other owners, has the right to deduct input value added tax on the transactions relating to the preparation for horse races of his own horses and the participation of his own horses in races, on the ground that the costs pertaining to those transactions are part of the general costs linked to his economic activity, provided that the costs incurred in each of those transactions have a direct and immediate link with that overall activity. That may be the case if the costs thus incurred pertain to race horses actually intended for sale or if the participation of those horses in races is, from an objective point of view, a means of promoting the economic activity, this being a matter for the referring court to determine.
In a situation where such a right to deduct exists, any prize won by the taxable person on account of the placing of one of his horses in a race is not to be included in the taxable amount for value added tax purposes.
3. Article 98 of the Directive 2006/112, read in conjunction with point 14 of Annex III thereto, must be interpreted to the effect that the reduced rate of value added tax may not be applied to a single composite supply of services, made up of several components relating, inter alia, to the training of horses, the use of sporting facilities and the stabling, feeding and other care provided to the horses where the use of the sporting facilities, within the meaning of point 14 of Annex III to that directive, and the training of the horses constitute two components of that composite supply having equal status or where the training of the horses constitutes the main component of that supply, this being a matter for the referring court to assess.
- The provision of a horse by its owner subject to VAT to the organizer of a horse race with a view to participation of that horse in that race does not constitute a service for consideration if such provision does not result in participation fees or other direct remuneration being paid and when only the owners of a horse with a good ranking receive prize money on arrival in the race, even if this has been determined in advance. Such provision of a horse does, however, constitute a service for consideration when the organizer pays a fee regardless of the ranking of the horse concerned upon arrival in the race.
- There is a right to deduct the input tax paid on the transactions concerning the preparation for and the participation in the horse races of horses of the taxable person, who breeds and trains his own racehorses and those of third parties, on the ground that the costs for these transactions form part of the overheads associated with its economic activity, provided that the costs for each of the operations concerned are directly and immediately related to all of this activity. That may be the case where the costs thus incurred relate to the racehorses actually intended for sale, or where the participation of those horses in races is, objectively, a means of promoting economic activity, which the referring court should check.
- Where such a right of deduction exists, the prize money that the taxable person may have obtained on arrival at a horse race due to the ranking of one of his horses should not be included in the taxable amount of VAT.
- A single composite service consisting of several elements, in particular related to the training of the horses, the use of sports facilities, the stabling of the horses in a racing stable, the feeding and other care of the horses, cannot be paid at a reduced rate. subject to VAT when the use of sports facilities and the training of the horses are two equivalent elements of that composite service or when the training of the horses is the main element of that service.
Similar ECJ cases
How did countries implement the case?
- Germany – Federal Ministry of Finance comments on the VAT treatment of prize money
- The Netherlands: Supreme Court confirms: Prize money does not lead to economic activity, horse breeder is not a VAT taxable person
- BTW jurisprudentie in Dutch
- International Tax Plaza
- EFS – Result-related fees in VAT (in Dutch)
- Thesis – The concept of economic activity after the Court of Justice of the European Communities Gemeente Borsele; new guidelines for the definition of economic activity? (in Dutch)
- Arno.uvt.nl (thesis) (in Dutch)
- EY Skattenatet
- PWC Blogs (in German)