Flashback on ECJ cases C-258/95 (Julius Fillibeck Söhne GmbH & Co. KG) – Transport for employees free of charge from their homes to the workplace is not a supply of services

On Oct 16, 1997, the ECJ issued its decision in the case C-258/95 (Julius Fillibeck Söhne GmbH & Co. KG). The case related to the supply of transport by an employer to his employees free of charge between from their homes to their place of work. The subject here is whether there is a taxable transaction in case of free supplies, it however does not deal with the question whether VAT on these costs is deductible.

Summary

Facts:

Julius Fillibeck Söhne GmbH & Co. KG provided free transport for employees from their homes to various construction sites between 1980 and 1985.
The German tax authority, Finanzamt Neustadt, argued that this transport should be subject to VAT under German law.
The transport was provided under a collective agreement when the distance between employees’ homes and work sites exceeded a specified limit.

Questions to the Court:

(1) Does the free transport constitute a service “effected for consideration” under Article 2(1) of the Sixth Directive?
(2) Does Article 6(2) cover the free transport provided by the employer when it serves employees’ private purposes?
(3) Does the second question’s answer change if the employer commissions an employee to provide transport using their own vehicle?

Decision:

The Court ruled that the free transport provided by the employer does not constitute a supply of services for consideration (Article 2(1)).
The transport is generally for the employees’ private use (Article 6(2)), but can serve business purposes under specific circumstances.

Justification of Decision:

For Article 2(1), there was no direct link between the service provided (transport) and any consideration received, as employees did not pay for the transport.
For Article 6(2), while the transport is primarily for private purposes, if the employer’s business needs necessitate the transport (e.g., lack of public transport), it may not be classified as private use.

Implication:

The judgment clarifies the conditions under which employee transport can be subject to VAT, emphasizing the distinction between private and business purposes.

Article in the EU VAT Directive

Articles 2(1). 6(2) of the Sixth Council Directive 77/388/EC

Article 2(1) of the Sixth Directive provides:’The following shall be subject to value added tax:
1. The supply of goods or services effected for consideration within theterritory of the country by a taxable person acting as such.
Article 6(2) of the Sixth Directive provides:’The following transactions shall be treated as supplies of services for consideration:
(a) the use of goods forming part of the assets of a business for the private useof the taxable person or of his staff or more generally for purposes otherthan those of his business where the value added tax on such goods is wholly or partly deductible;

(b) supplies of services carried out free of charge by the taxable person for his own private use or that of his staff or more generally for purposes otherthan those of his business.

(…)

Facts

The questions were raised in proceedings between Julius Fillibeck Söhne GmbH& Co. KG (hereinafter ‘Julius Fillibeck Söhne) and the Finanzamt [Tax Office]Neustadt, concerning the imposition of value added tax (hereinafter ‘VAT) on the free transport provided by Julius Fillibeck Söhne for its employees from their homes to their place of work.
From 1980 to 1985, Julius Fillibeck Söhne, which runs a building undertaking, conveyed some of its employees in company vehicles free of charge from their homes to the various building sites where they were required to work. During thesame period it also required one of its employees to convey other employees from their homes to their various places of work in his own private vehicle.
Julius Fillibeck Söhne provided that transport pursuant to theBundesrahmentarifvertrag für das Baugewerbe (Federal Collective Framework Agreement for the Building Industry) where the employees’ homes and their placesof work were more than a minimum distance apart.
The Finanzamt Neustadt considered that that transport was subject to tax under the German VAT legislation.
Julius Fillibeck Söhne challenged the view that the transport was subject to VAT. Since its objection and the action it brought were unsuccessful, it appealed to theBundesfinanzhof on a point of law; that court considered that the dispute raisedquestions concerning the interpretation of Articles 2(1) and 6(2) of the Sixth Directive.

Questions

(1) Does the transport provided by an employer constitute a service “effected for consideration” within the meaning of Article 2(1) of Directive 77/388/EEC
— that is to say, effected for a proportion (to be estimated) of the work performed by the employees — where, pursuant to a collective agreement, the
employer conveys employees (without specially agreed and calculated consideration) from their homes to the workplace where they are more than a specified distance apart, and the work performed — which has no actual connection with such transport services — is already to be carried out in return for
the agreed money wages as in the case of the other employees?
(2) Does Article 6(2) of Directive 77/388/EEC cover the use of goods forming part of the assets of the business or a service carried out free of charge even where — as in the case of free transport for employees from their homes to the workplace and back in a company vehicle — it does not serve purposes other than those of the business as far as the employer is concerned, but does serve the employees’ private purposes and the employees are not charged turnover tax in this respect (on account of their use free of charge of the transport service)?
(3) In the event that Question 2 is answered in the affirmative: Does Article 6(2) of Directive 77/388/EEC also cover a case where the employer does not convey the employees in its own vehicles, but commissions a third party (in this case, one of its own employees) to effect the transport?

AG Opinion

(1) Article 2(1) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States on turnover taxes — Common system of value added tax: uniform basis of assessment, is to be interpreted as meaning that an employer who provides transport for employees free of charge from their homes to the workplace, in the absence of any real connection either with the work performed or the wages received, does not effect a supply of services ‘for consideration’ within the meaning of that provision.
(2) Article 6(2) of the Directive is to be interpreted as meaning that it applies where employees are conveyed free of charge by the employer from their
homes to the workplace and back, in so far as the transport provided serves, in principle, the employee’s private purposes and thus serves purposes other than
those of the business. That provision does not, however, apply where, as in this case, because of the specific nature of the business, the supply of those
transport services is not effected for purposes other than those of the business and therefore serves the purposes of the business.
(3) The first sentence of the answer to Question 2 also applies when the employer does not convey the employees in its own vehicles, but commissions a third
party (in this case, one of its own employees) to do so.

Decision

Article 2(1) of the Sixth Council Directive 77/388/EEC of 17 May 1977 onthe harmonization of the laws of the Member States relating to turnovertaxes Common system of value added tax: uniform basis of assessmentis to be interpreted as meaning that an employer who provides transport for employees free of charge from their homes to the workplace where theyare more than a specified distance apart, in the absence of any real connection either with the work performed or the wages received, does not effect a supply of services for consideration within the meaning of thatprovision.
Article 6(2) of the Sixth Directive 77/388/EEC is to be interpreted asmeaning that transport provided for employees free of charge by the employer between their homes and the workplace in a company vehicleserves, in principle, the employees’ private purposes and thus serves purposes other than those of the business. However, that provision does not apply when, having regard to certain circumstances, such as the difficulty of finding other suitable means of transport and changes in the place of work, the requirements of the business make it necessary for the employer to provide transport for employees, in which case the supply of those transport services is not effected for purposes other than those of the business.
The answer to the second question also applies when the employer does notconvey the employees in its own vehicles, but commissions one of its employees to provide the transport using his own private vehicle.

Source