On May 11, 2017, the ECJ issed its decision in the case C-36/16 (Posnania Investment).
Context: Reference for a preliminary ruling — Taxation — Common system of value added tax — Directive 2006/112/EC — Article 2(1)(a) — Article 14(1) — Taxable transactions — Meaning of ‘supply of goods for consideration’ — Transfer to the State or to a local authority of immovable property in order to settle a tax debt — Not included
Article in the EU VAT Directive
Articles 2(1)(a), 14(1) of the EU VAT Directive 2006/112/EC.
Article 2 (Subject matter and scope)
1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
Article 14 (Taxable transaction)
1. “Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.
Facts
- Posnania is a company governed by Polish law and is economically active in the field of property transactions. As such, it is subject to VAT. In order to discharge arrears for non-payment of a tax for which it was liable, the company applied to the municipality of Czerwonak (Poland; ‘the municipality’) with a view to concluding, pursuant to Article 66 of the Tax Code, a contract for the transfer of the ownership of unbuilt-on land held by it to the municipality.
- That contract, concluded on 5 February 2013, resulted in the partial discharge of Posnania’s tax debt concurrently with the transfer of ownership of that immovable property to the municipality.
- Posnania lodged an application for an individual tax ruling in order to determine whether, in such a situation, the transaction concluded with the municipality was subject to VAT and whether, as a result, it had to issue a corresponding invoice.
- In its application, Posnania submitted that the transaction at issue ought not to be subject to VAT on the basis of the case-law of the referring court, the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland), according to which the transfer of ownership of an asset to the State Treasury in settlement of tax arrears in respect of taxes constituting State budget revenues is a transaction that is not subject to VAT.
- By his individual tax ruling of 10 May 2013, the Minister expressed the view that, upon the transfer of ownership of the immovable property from Posnania to the municipality, the latter acquired all the rights of an owner and, therefore, that transfer of ownership in settlement of tax arrears constituted a supply of goods for consideration, within the meaning of the Polish legislation, and was, in principle, subject to VAT.
- Posnania brought an action before the Wojewódzki Sąd Administracyjny w Warszawie (Regional Administrative Court, Warsaw, Poland) seeking annulment of that individual tax ruling.
- By judgment of 13 February 2014, that court upheld the action and annulled the tax ruling. It ruled that VAT may be due in the event of the transfer of ownership of tangible property by order of the public authorities or by force of law, on condition that such a transfer is effected in return for consideration. Given that, under Polish law, that was not the position in the present case, that court decided that the transfer of ownership of tangible property to the State Treasury in settlement of arrears of taxes constituting State budget revenues was a transaction that was not subject to VAT.
- The Minister brought an appeal on a point of law against that judgment before the referring court.
- In its request for a preliminary ruling, the referring court states that, while Posnania’s status as a taxable person is not in dispute, the question nonetheless arises as to whether it is possible to consider the transfer of the right to dispose of tangible property as owner, made in settlement of a tax debt, to be a ‘supply of goods for consideration’ within the meaning of the VAT Directive.
- In this regard, the referring court cites its own case-law, according to which the transfer of ownership of tangible property to the State Treasury in settlement of arrears of taxes constituting State budget revenues is a transaction that is not subject to VAT inasmuch as a tax is not a pecuniary performance which may be obtained in exchange for another performance, its principal feature being that it is unilateral.
Questions
Does the transfer of ownership of land (tangible property) by a person taxable for VAT purposes to: (a) the State Treasury — in settlement of tax arrears in respect of taxes constituting State budget revenues; or (b) a municipality, district or regional authority — in settlement of tax arrears in respect of taxes constituting their budget revenues, resulting in the discharge of tax liabilities, constitute a transaction that is subject to tax (supply of goods for consideration) within the meaning of Article 2(1)(a) and Article 14(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax?
AG Opinion
The transfer of ownership of a plot of land by the taxable person for the purposes of VAT to the tax creditor, resulting in the discharge of the tax debt by operation of law, does not constitute a transaction that is subject to VAT within the meaning of Article 2(1)(a) of the VAT Directive. In that respect, the taxable person is not acting as such. However, a deduction of input tax made in relation to the transferred property must be corrected in accordance with Article 16 of the VAT Directive.
The prerequisite is that the possibility of settling taxes by means of benefits in kind in lieu of payment is available only to the tax debtor and is only executed by the public-law contract provided for. In that respect, the parties must not have any influence on the ‘purchase price’. On the contrary, the latter must be determined according to objective valuation standards, which is a matter for the referring court to verify.
Decision
Articles 2(1)(a) and 14(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 the transfer of ownership of immovable property by a person subject to value added tax, for the benefit of the State Treasury or a local authority of a Member State, occurring, as in the main proceedings, in payment of tax arrears, does not constitute a supply of goods for consideration that is subject to value added tax.
Summary
The Polish Posnania Investment SA is active in the real estate sector. In order to settle an overdue tax debt, it transfers the ownership of an undeveloped plot of land to the municipality. It is unclear whether VAT has to be paid in this respect. Posnania is of the opinion that no VAT has to be paid. The Polish Tax Office thinks so. The Polish court is asking a question for a preliminary ruling in this case.
The EU Court of Justice has ruled that the transfer of ownership of immovable property by a VAT entrepreneur to a government institution in order to pay an overdue tax debt is not a taxable supply of goods for consideration. In such a situation, according to the EU Court of Justice, there is no question of a performance by the government and therefore no consideration of the taxpayer either.
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