Flashback on ECJ Cases – C-285/10 (Campsa Estaciones de Servicio) – Extension of withdrawal rules to transactions between related parties at prices apparently lower than normal market prices

On June 9, 2011, the ECJ issued its decision in the case C-285/10 (Campsa Estaciones de Servicio)

Context: Sixth VAT Directive – Articles 11A(1) and 27 – Taxable amount – Extension of the rules on application for private use to transactions between connected parties where prices are patently lower than open market prices

Article in the EU VAT Directive

Article 5(6), 6(2), 11A(1)(a) in the EU VAT Directive (Article 16, 26 and 73 of the EU VAT Directive 2006/112/EC)

Article 16 (Supply of Goods – Deemed Taxable transaction – Supply of goods for free)
The application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible. However, the application of goods for business use as samples or as gifts of small value shall not be treated as a supply of goods for consideration.

Article 26 (Supply of Services – Deemed Taxable transaction – Supply of services for free)
1. Each of the following transactions shall be treated as a supply of services for consideration:
(a) the use of goods forming part of the assets of a business for the private use of a taxable person or of his staff or, more generally, for purposes other than those of his business, where the VAT on such goods was wholly or partly deductible;

(b) the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.
2. Member States may derogate from paragraph 1, provided that such derogation does not lead to distortion of competition.

Article 73 (Taxable amount)
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Facts

On 31 December 1993, Campsa sold Repsol Combustibles Petrolíferos SA a number of service stations located in Spain for a total of ESP 1 732 419 313. It is not disputed that that sale was a transaction between connected parties within the meaning of Article 79(5) of Law 37/1992.
On 7 July 1998, the Spanish Finance Inspectorate notified Campsa that it disputed Campsa’s VAT return for the year 1993, as it took the view that the rule for determining the taxable amount laid down in Article 79(5) of Law 37/1992 should have been applied to that sale, since it was characterised by a connection between the parties concerned and as those parties had agreed prices which were patently lower than market prices. The Finance Inspectorate thus assessed the correct taxable amount at ESP 4 076 112 060. A notice of assessment relating to the VAT for the year 1993, based on that estimated taxable amount, was issued on 11 December 1998.
The Tribunal Económico-Administrativo Central (Central Economic and Administrative Court) upheld that notice of assessment by a decision of 21 February 2001. Campsa brought an appeal against that decision before the Sala de lo Contencioso-Administrativo de la Audiencia Nacional (Contentious Administrative Chamber of the National High Court), which dismissed it by a judgment of 30 April 2004. Campsa lodged an appeal in cassation against that judgment before the referring court.
The Tribunal Supremo (Supreme Court) considers that, in order to resolve the dispute before it, it is required, inter alia, to establish whether the general rule for determining the taxable amount laid down in Article 11A(1)(a) of the Sixth Directive must be applied to transactions between connected parties, as that directive does not contain any specific rule for determining the applicable taxable amount in such cases.
The Tribunal Supremo takes the view that the interpretation of European Union law gives rise to reasonable doubts. It notes that the case-law of the Court appears to support the application of that general rule and that it was only following the assessment in question that the Kingdom of Spain obtained authorisation to derogate from it. It states, however, that since the entry into force of Directive 2006/69, Member States have the option, without requesting prior authorisation, of implementing specific derogating measures determining the taxable amount, such as that which was authorised by Decision 2006/387, and that that option remains open under Directive 2006/112. Moreover, the Abogado del Estado (State Legal Counsel) submits before the Tribunal Supremo that the application of Article 79(5) of Law 37/1992 was not contrary to European Union law, even before the adoption of Decision 2006/387, in particular because the Sixth Directive allowed for the choice of the open market value in cases of application of goods and services for the private use of a taxable person within the meaning of Articles 5(6) and 6(2) of the Sixth Directive, including for transactions between connected parties.

Questions

Did the Sixth Council Directive 77/388/EEC of 17 May 1977 permit Member States to enact legislation whereby, for transactions between connected parties where the price was patently lower than the open market value, the taxable amount was other than that determined by Article 11A.(1)(a) to be generally applicable – namely, the consideration – by extending the scope of the rules on application of goods and services for private use (as was done by Article 79(5) of the Law on VAT, before its amendment by Law 36/2006 of 29 November), when the specific procedure provided for in Article 27 of the Sixth Directive to obtain authorisation for derogation from the general rule was not followed, such derogation being obtained by Spain only after the Council Decision of 15 May 2006?

AG Opinion

None

Decision

Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, must be interpreted as precluding a Member State from applying to transactions, such as those in the main proceedings, effected between connected parties having agreed a price which is patently lower than the open market price, a rule for determining the taxable amount other than the general rule laid down in Article 11A(1)(a) of that directive, by extending the scope of the rules for determining the taxable amount on the application of goods and services for private use by a taxable person, within the meaning of Articles 5(6) and 6(2) of that directive, when the procedure provided for in Article 27 of that directive to obtain authorisation for such derogation from that general rule has not been followed by that Member State.

Summary

Extension of withdrawal rules to transactions between related parties at prices apparently lower than normal market prices.

The Sixth Directive must be interpreted as precluding a Member State from applying to transactions such as those at issue in the main proceedings, between related parties who have agreed a price manifestly lower than the normal market price, from applying a different rule for determining the taxable amount than the general rule of Article 11A(1)(a) of that directive by the rules governing the determination of the taxable amount in the event of the withdrawal or use of goods and services for the private purpose of the taxable person, within the meaning of Articles 5 , paragraphs 6 and 6(2) of this Directive, to apply by extension to these acts, although this Member State has not followed the procedure laid down in Article 27 of this Directive in order to obtain the authorization to carry out such, of this general rule to take a different measure.

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