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ECJ C-299/20 (Icade Promotion Logement SAS) – Judgment – Margin Scheme on resale of buildings and land cannot be applied in case of significant alterations

On September 30, 2021, the ECJ issued its judgment in the case C-299/20 (Icade Promotion Logement SAS).

The case is a French referral asking whether Article 392 of the VAT Directive is to be interpreted as reserving the application of the ‘margin scheme’ to transactions for the supply of immovable property the purchase of which has been subject to VAT, without the taxable person who subsequently resells the property having the right to deduct that tax, or does it permit that scheme to be applied to transactions, the purchase of which has not been subject to VAT, either because that purchase falls outside the scope of VAT or because it falls within the scope of VAT but is exempt.

Context: Directive 2006/112 / EC – Article 392 – Margin tax regime – Scope – Supply of purchased buildings and land for resale – Taxable person not having been entitled to deduction on the occasion of the acquisition of buildings – Resale subject to VAT – Concept of “building land” ”


Article in the EU VAT Directive

Article 392 of Council Directive 2006/112/EC

Article 392 (Derogation)
Member States may provide that, in respect of the supply of buildings and building land purchased for the purpose of resale by a taxable person for whom the VAT on the purchase was not deductible, the taxable amount shall be the difference between the selling price and the purchase price.


Facts

Icade Promotion Logement (a parcel company, hereinafter: the applicant) has declared the assignment of building sites to private individuals in 2007 and 2008 under the VAT system on the profit margin. The petitioner has asked the tax authorities for a refund of the tax paid on it. The tax authorities refused this, after which the applicant submitted the dispute to the tax court. The applicant is appealing in cassation against the second judgment of the cour administrative d’appel, in which that court, without judging admissibility, declared the application for refund of the company unfounded.

Consideration:

Second, the question arises whether Article 392 of the VAT Directive should be interpreted as excluding the application of a profit margin tax on supplies of construction sites in the following two situations: the taxable person has converted uncultivated land into construction sites between acquisition and resale , whether the characteristics of the land have changed between the time of acquisition and that of resale by the taxpayer, for example by division into lots or the execution of works to enable connection to various facilities (roads, drinking water, electricity, gas, sewer , telecommunications). Those questions determine the resolution of the present case and, in the absence of any case-law of the Court clarifying the subject-matter and scope of the provisions,


Questions

Is Article 392 of [Council] Directive [2006/112/EC] of 28 November 2006 [on the common system of value added tax] to be interpreted as reserving the application of the margin taxation scheme to transactions for the supply of immovable property the purchase of which has been subject to VAT, without the taxable person who subsequently resells the property having the right to deduct that tax, or does it permit that scheme to be applied to transactions for the supply of immovable property the purchase of which has not been subject to VAT, either because that purchase falls outside the scope of VAT or because it falls within the scope of VAT but is exempt from it?

Is Article 392 of Directive [2006/112] to be interpreted as excluding the application of the margin taxation scheme to transactions for the supply of building land in the following two cases:

where that land, purchased as land that has not been built on, becomes building land in the time between it is purchased and resold by the taxable person;

where that land, in the time between it is purchased and resold by the taxable person, is developed, in the sense that it is divided into parcels or works are carried out in order to install services (roads, drinking water, electricity, gas, sewage, telecommunications)?


AG Opinion

1) Article 392 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that it allows the application of the tax system on the margin for the delivery of building land both when their acquisition has been subject to value added tax (VAT), without the taxable person who resells them having had the right to deduct this tax, and when their acquisition was not subject to VAT on the grounds that this transaction did not fall within its scope, whereas the price at which the taxable dealer acquired these goods incorporates an amount of VAT which has been paid upstream by the initial seller (not subject to tax). However,

2) Article 392 of Directive 2006/112 must be interpreted as meaning that the system of taxation on the margin cannot be applied to transactions for the delivery of building land when that land was acquired unbuilt by the taxable dealer.

The exemption regime for taxation on the margin provided for in this article 392 does not apply to the resale of land, which has been subject, between the time of its acquisition and that of its resale, to changes in its characteristics such as the carrying out of works allowing them to be served by various networks (roads, drinking water, electricity, gas, sanitation, telecommunications). However, the said article 392 applies in the case of figure where, between the moment of the initial acquisition of a building land and that of its resale, the transformations undergone by this land are limited to the division of this one. in lots.


Decision

Unofficial translation

1)      Article 392 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that it makes it possible to apply the system of taxation on margin for the delivery of building land both when their acquisition has been subject to value added tax (VAT), without the taxable person who resells them having had the right to deduct this tax, and when their acquisition has not been subject to VAT although the price at which the taxable dealer acquired these goods incorporates an amount of VAT which has been paid upstream by the initial seller. However, apart from this assumption, this provision does not apply to operations of delivery of building land whose initial acquisition was not subject to VAT,

2)       Article 392 of Directive 2006/112 must be interpreted as meaning that it excludes the application of the system of taxation on the margin to operations for the delivery of building land when such land acquired not built has become, between the time of their acquisition and that of their resale by the taxable person, of building land, but that it does not exclude the application of this regime to operations of delivery of building land when these land have been damaged. ‘object, between the time of their acquisition and that of their resale by the taxable person, of modifications of their characteristics such as a division into lots or the realization of development works allowing the installation of networks serving the aforementioned grounds, to like, in particular, gas or electricity networks.


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