On June 2, 2016, the ECJ issued its decision in the case C-263/15 (Lajvér).
Context: Reference for a preliminary ruling — Taxation — Value added tax — Directive 2006/112/EC — Article 9(1) — Definition of ‘taxable person for the purposes of value added tax’ and ‘economic activity’ — Article 24(1) — Definition of ‘supply of services’ — Agricultural engineering works — Construction and operation of a water disposal system by a non-profit company — Effect of the works being funded by means of State and EU aid
Article in the EU VAT Directive
Articles 9(1), 24 of the EU VAT Directive 2006/112/EC
Article 9 (Taxable person)
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 24 (Taxable transaction – Supply of services)
1. “Supply of services” shall mean any transaction which does not constitute a supply of goods.
2. “Telecommunications services” shall mean services relating to the transmission, emission or reception of signals, words, images and sounds or information of any nature by wire,
radio, optical or other electromagnetic systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception, with the inclusion of the provision of access to global information networks.
Facts
- The applicants in the main proceedings are ‘non-profit companies’ which, as such, engage in economic activities that are not intended to make a profit and may only engage in a commercial activity on an ancillary basis. They were established with the aim of constructing, and later operating, agricultural engineering works, namely, a water disposal system, a reservoir and a rainwater collection system, on land belonging to members of the companies.
- The works necessary for that project were financed through State and EU resources. In order to carry out the works, the applicants in the main proceedings have the administrative permits and the consent of the owners of the land concerned. It has also been agreed that the applicants in the main proceedings are to charge those owners an operating fee in relation to the agricultural engineering works for a period of eight years.
- The applicants in the main proceedings entrusted the preparation and execution of the works to Recontír BPM. That company issued invoices including VAT for the work carried out, which the applicants have sought to deduct.
- Nevertheless, the right to deduct VAT claimed by the applicants in the main proceedings was refused by the NAV on the grounds that the planned activity was not an ‘economic activity’ as defined in Paragraph 6 of the Law on VAT, either as regards the sections that form part of the road network, and can therefore be used by anyone, or the sections situated on private property. Accordingly, with regard to that activity, the applicants could not be classified as ‘taxable persons’. The NAV took the view that the applicant companies did not carry out any activity that could be regarded as a ‘supply of services’ for their partners or for third parties. It stated that the normal operation of agricultural engineering works, which consists in keeping the concrete road surface and surrounding areas clean and ensuring that the water is flowing, fell within the ambit of public highways and corresponded to an obligation imposed by a rule of law and not to a supply of services. The modest fees which the applicants in the main proceedings plan to charge for the operation of those agricultural engineering works do not correspond to the definition of ‘consideration’ within the meaning of the Law on VAT.
- The action brought by the applicants in the main proceedings against that refusal was dismissed at first instance on the same grounds as those given by the NAV.
- Consequently, the applicants in the main proceedings brought an appeal on a point of law before the Kúria (Supreme Court, Hungary), arguing that, as companies, they are ‘taxable persons’, liability to taxation being based on objective criteria. They claim that exercise of the right to deduct VAT depends on the classification of the activity engaged in and that to satisfy the definition of economic activity for the purposes of Paragraph 6(1) of the Law on VAT, it is sufficient to engage, on a permanent or regular basis, in an activity which results in consideration being received. There is no requirement for an activity to be profit-making in order for it to be regarded as an ‘economic activity’.
- The referring court notes that the definition of ‘economic activity’ is very broad and that whether a profit is made or whether the investments are funded by means of State aid is irrelevant in that regard. It takes the view that, for the purposes of classifying an activity as a ‘supply of services’, it is irrelevant that the applicants in the main proceedings are fulfilling a maintenance obligation imposed by law. By contrast, the referring court expresses uncertainty as to whether the fee paid pursuant to the contract of operation and use must be regarded as consideration and whether there is a direct link between that consideration and the maintenance of the agricultural engineering works carried out as a result of the investments.
Questions
(1) In the circumstances of the present case, are the applicants [in the main proceedings] acting as taxable persons in view of the fact that the interpretation of Article 9(1) of Directive 2006/112 does not exclude activities carried out by companies from the scope of the term ‘economic activity’, even when those companies can engage in commercial activities only on an ancillary basis?
(2) Is the fact that the applicants [in the main proceedings] receive a significant share of their funding from State aid and that, in the context of the management of their operation, they obtain income from charging modest fees, relevant for the purposes of considering whether the applicants are ‘taxable persons’?
(3) If the answer to Question 2 is in the negative, must it be considered that that ‘fee’ represents consideration for a service and that there is a direct link between the supply of the service and the payment of the consideration?
(4) Does the management of the investment constitute a supply of services by the applicants [in the main proceedings], within the meaning of Article 24 of Directive 2006/112, as interpreted, or may that management not be regarded as a supply of services on account of the fact that its performance is a legal obligation?’
AG Opinion
None
Decision
1. 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 the operation of agricultural engineering works, such as those at issue in the main proceedings, by a non-profit company which engages in such commercial activities only on an ancillary basis, constitutes an economic activity within the meaning of that provision, notwithstanding the fact that those works have in large part been financed by State aid and that their operation gives rise only to revenue from modest fees, provided that that fee can be regarded as having a ‘continuing basis’ on account of the period of time during which it is to be charged.
2. Article 24 of Directive 2006/112 must be interpreted as meaning that the operation of agricultural engineering works, such as those at issue in the main proceedings, constitutes a supply of services for consideration, on the ground that the services rendered are directly linked to the fee received or to be received, provided that that modest fee constitutes remuneration for the service supplied and notwithstanding the fact that performance of those services is a legal obligation. It is for the referring court to determine whether the amount of the fee received or to be received, qua consideration, means that there exists a direct link between the services supplied or to be supplied and that consideration, and consequently allows those services to be classified as being effected for consideration. In particular, the referring court will have to ascertain that the fee which the applicants in the main proceedings are planning to charge does not only partly remunerate the services supplied or to be supplied and that its amount has not been determined as a result of other possible factors that could, depending on the circumstances, call into question the direct link between the services supplied and the consideration.
Summary
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