VATupdate

Flashback on ECJ Cases – C-72/13 (Gmina Wrocław) – Transfer by a municipality of elements of its heritage

On March 20, 2014, the ECJ issued its Order in the case C-72/13 (Gmina Wrocław).

Context: VAT – Directive 2006/112 / EC – Transfer by a municipality of elements of its heritage


Article in the EU VAT Directive

Artciles 9(1), 13(1) 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 13 (Taxable person)
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

  • It is apparent from the order for reference that gmina Wrocław is considering the transfer or contribution in kind to a commercial company of movable and immovable property of which it is the owner. On September 6, 2010, it lodged a request with the Minister for an interpretation of the law on VAT applicable to these transactions.
  • By decision of 6 December 2010, the Minister found that gmina Wrocław had to pay VAT, both in the event of the sale of goods and when they were contributed to a company. On 2 June 2011, the appeal lodged by this municipality against this decision was rejected by the Wojewódzki Sąd Administracyjny we Wrocławiu (Wrocław Voivodeship Administrative Court) on the grounds that the exception provided for in Article 15 (6) of the law on VAT did not apply to the activities of the said municipality, since they came under private law.
  • Seized of the appeal brought by the gmina Wrocław, the Naczelny Sąd Administracyjny (Supreme Administrative Court) questions the interpretation of Directive 2006/112. More specifically, that court wishes to know whether the sale of goods such as those at issue in the main proceedings or their contribution to a company constitutes an economic activity within the meaning of Article 9 (1) of that directive and, where applicable, whether the exception to VAT liability, provided for in the first subparagraph of Article 13 (1) of the same directive, applies to the said municipality.
  • According to the Naczelny Sąd Administracyjny, the transactions at issue in the dispute before it constitute supplies within the meaning of Article 14 (1) of Directive 2006/112 and they are, in principle, capable of being classified as ‘economical activities. However, he considers that it follows from Article 13 (1) of that directive that a municipality, when it acts as a public authority, should not be considered as liable, provided that this exemption does not not lead to distortions of competition. That court notes in this regard that, if the management of municipal property is part of the public missions of gmina Wrocław, a transfer comparable to that envisaged by the latter could be carried out in an identical manner by private operators,

Questions

Do the provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax  preclude the imposition of VAT on the activities of a municipality consisting in the sale or the contribution to commercial companies of property, including immovable property, acquired by operation of law or without consideration, in particular by inheritance or gift?


AG Opinion

None


Decision

Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that it does not preclude the subject from being subject to the tax on added value of transactions such as those envisaged by gmina Wrocław (municipality of Wrocław), provided that the referring court finds that these transactions constitute an economic activity within the meaning of Article 9 (1) of that directive and such operations are not carried out by that municipality as a public authority within the meaning of the first subparagraph of Article 13 (1) of the same directive. However, if these operations were to be considered as carried out by the said municipality acting as a public authority,


Summary

VAT may be charged in respect of transactions such as those envisaged by the gmina Wrocław (municipality of Wrocław), in so far as the referring court finds that those transactions constitute an economic activity within the meaning of Article 9(1) of that directive and that those acts were not carried out by that municipality as a public authority within the meaning of the first subparagraph of Article 13(1) of that directive. However, if those transactions are to be regarded as those carried out by the municipality as a public authority, the provisions of Directive 2006/112 do not preclude their being subject to the tax in so far as the referring court finds that the exemption of those transactions to a significant distortion of competition within the meaning of the second subparagraph of Article 13(1),


Source:


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