On Sept 29, 2015, the ECJ issued its decision in the case C-276/14 on the question on whether a municipal entity can be considered as a taxable person. The case also interpretes the word ”independently” as mentioned in art 9(1) of the EU VAT Directive 2006/112/EC.
Context: Reference for a preliminary ruling — Value added tax — Directive 2006/112/EC — Article 9(1) — Article 13(1) — Taxable persons — Interpretation of the word ‘independently’ — Municipal body — Economic activities carried out by an organisational entity of a municipality other than as a public authority — Whether such an entity may be regarded as a ‘taxable person’ within the meaning of the provisions of Directive 2006/112 — Articles 4(2) and 5(3) TEU
Article in the EU VAT Directive
Articles 9(1) and 13(1) in the EU VAT Directive 2006/112/EC (Taxable persons)
Article 9
1. “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.
Article 13
1. States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.
However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as nontaxable persons would lead to significant distortions of competition.
In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a small scale as to be negligible.
Facts
- The Municipality of Wrocław carries out the tasks entrusted to it in accordance with the Law of 8 March 1990 on municipalities (Dz. U. z 2001 r. nr 142, poz. 1591 ze zm.) via 284 budgetary entities and local and regional budgetary establishments, including, inter alia, schools, cultural centres, district inspectorates and police services.
- Wishing to obtain a statement by the Minister of his position on the question as to whether it is the municipality or the budgetary entity which must be regarded as a taxable person for the purposes of VAT where such an entity carries out activities coming within the scope of VAT, the Municipality of Wrocław requested that the Minister give an individual written interpretation of the Law on VAT. According to that municipality, the fact that only the municipality satisfies the criteria laid down in Article 15(1) and (2) of the Law on VAT as regards independent engagement in economic activities must lead the tax administration to take the view that only the municipality may be subject to VAT for the economic activities carried out by such an entity.
- In his individual written interpretations, the Minister considered however that, since budgetary entities which are separate from the organisational structure of the Municipality of Wrocław engaged independently in economic activities, as determined by objective criteria, and in doing so carried out activities subject to VAT, they had to be regarded as being themselves taxable persons for the purposes of VAT.
- The Municipality of Wrocław then brought before the Regional Administrative Court of Wrocław (Wojewódzki Sąd Administracyjny we Wrocławiu) actions for the annulment of those individual written interpretations, which were dismissed. That municipality then brought an appeal on a point of law against those judgments before the Supreme Administrative Court (Naczelny Sąd Administracyjny).
Questions
In the light of Article 4(2), in conjunction with Article 5(3), of the Treaty on European Union, may an organisational entity of a municipality (a local government body in Poland) be regarded as a taxable person for purposes of VAT when it engages in activities other than as a public authority within the meaning of Article 13 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, 1 notwithstanding the fact that it does not satisfy the criterion of autonomy (independence) set out in Article 9(1) of that directive?
AG Opinion
Article 9(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that an organisational entity of a municipality may be treated as a taxable person for the purposes of value added tax only if it carries out its economic activities independently within the meaning of that article. It is for the national court to assess, in the light of the criteria identified by the Court, whether the municipal budgetary entities at issue in the main proceedings carry out their activities independently.
Decision
Article 9(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that bodies governed by public law, such as the municipal budgetary entities at issue in the main proceedings, cannot be regarded as taxable persons for the purposes of value added tax in so far as they do not satisfy the criterion of independence set out in that provision.
Summary
A right to deduct input VAT from transactions carried out by a non-existent trader.
In the case C-277/14 concerning a Polish taxable person, the ECJ decided that the taxable person has a right to deduct a VAT which was paid for goods (diesel fuel in the present case), and this despite the fact that according to the national law the Tax Office has regarded the supplier as a non-existent trader and it is not possible to establish the identity of the actual supplier of the goods.
The supplier was in this case a Polish company, which has been registered at company register, however in the light of criteria governed by the Polish law was regarded as the non-existent trader in the time of delivery of the fuel. The finding that the company was a non-existent trader was based on the overall evidence, including the fact that the company was not registered for VAT purposes, did not submit tax returns, did not pay any taxes and was not allowed to sell liquid fuels. Moreover, the building designated in the company register as being its corporate seat was in a dilapidated state, making any economic activity impossible.
According to the ECJ the right to deduct the VAT won´t arise, if on the basis of objective factors and without requiring the recipient of the invoice to carry out checks which are not his responsibility, it will be proved that this taxable person knew, or should have known that the transaction was a part of a VAT fraud – this is a matter for the referring court to determine.
In the present case, the invoices related to the dispute transactions included inter alia quantity and nature of the goods supplied, amount of the due value added tax as well as the name of the supplier, his tax identification number and address of the company seat. Please note that in the judgment of the ECJ is also stated, that in the present case also other material conditions for VAT deduction were met (as for example that the taxable person used purchased goods, as inputs, for his own taxed output transactions).
Source
Newsletters
- BTW jurisprudentie
- ecer.minbuza.nl
- International Tax Plaza
- Tilburgh University – Thesis: VAT liability of government bodies (in Dutch)
- Deloitte
