On December 1, 2021, the ECJ issues its decision in the case C-598/20 (AS Pilsētas zemes dienests).
Context: Reference for a preliminary ruling – Article 99 of the Rules of Procedure of the Court – Harmonization of tax laws – Common system of value added tax (VAT) – Directive 2006/112 / EC – Exemptions – Article 135 (1) (l), and paragraph 2 – Leasing and leasing of immovable property – Exclusion from the exemption from the compulsory lease of land to owners of built buildings – Principle of fiscal neutrality
Articles in the EU VAT Directive
Article 135(1)(l) and 135(2) of the EU VAT Directive 2006/112/EC.
Article 135 (Exemption)
1. Member States shall exempt the following transactions:
(l) the leasing or letting of immovable property.
2. The following shall be excluded from the exemption provided for in point (l) of paragraph 1:
(a) the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;
(b) the letting of premises and sites for the parking of vehicles;
(c) the letting of permanently installed equipment and machinery;
(d) the hire of safes.
Member States may apply further exclusions to the scope of the exemption referred to in point (l) of paragraph 1.’
Facts
- After the restoration of the independence of the Republic of Latvia, the national legislator undertook a land reform with a view to re-establishing social justice, undermined by the illegal expropriation and without payment of compensation, of property belonging to the Latvian people during the Soviet occupation. Ownership of land which had been nationalized was returned to its former owners or to their heirs. Buildings, including apartment buildings of state and local communities, had however been built on this land. The national legislator then privatized these buildings and provided that the property rights over the apartments, non-residential premises and artists’ studios in these buildings could be acquired not only by landowners, but also by other people. To do this, he introduced an exception to the principle of the unity of land and buildings enshrined in article 968 of the Civillikums (civil code), according to which a building erected on the ground and closely linked to it is deemed be part of the ground. For the purpose of regulating the legal relationships resulting from forced divided ownership that have arisen between landowners and building owners, the national legislator has instituted a “compulsory lease” under which the landowner is required to enter into a contract. land lease agreement with the owner of the building. The Augstākā tiesa (Supreme Court, Latvia) ruled that the legal relations between the parties to such a contract are only apparently of a contractual nature,
- PZD owns land on which collective housing buildings owned by other persons are located. The land was acquired by virtue of a legal act. There is a “compulsory lease” relationship, within the meaning of national regulations, between PZD and the owners of the collective housing buildings concerned. PZD has been registered as subject to VAT since January 6, 2002. One of its main activities is the rental and management of own or rented real estate.
- Until April 30, 2019, the amount of rent derived from the compulsory rental of land was regulated by the legislator by means of legal provisions. Since 1 st May 2019, the provisions state that the amount of that rent is determined by a written agreement between the parties. If the parties cannot agree on the amount of the rent, it will be determined by a court in accordance with Article 2123 of the Civil Code.
- PZD and the owners of the apartment building not having reached an agreement on the conclusion of the lease contract or on the amount of the rent, it brought an appeal to claim the rent from the said owners. compulsory land, including the amount of VAT corresponding to this income. The court seised granted PZD’s request to obtain the rent from the compulsory rental of its land, but rejected the request for payment of the corresponding amount of VAT.
- PZD then grabbed Latvijas Republikas Satversmes tiesa (Constitutional Court) an appeal concerning the compatibility with the Constitution of Article 1 st , paragraph 14 c) of the VAT Act.
- PZD considers that this provision is contrary to Article 91, first sentence, and Article 105, first to third sentence, of the Constitution, insofar as this law applies to the leases of land in the event of a lease. obligatory. She considers that having to pay VAT on the rents collected would lead to a considerable reduction in her income, which would infringe her right to property, recognized by article 105 of the Constitution.
- The referring court states that the Latvijas Republikas Saeima (Parliament, Latvia), which adopted the VAT law, considers that Article 135 (2) of the VAT Directive allows it to introduce exceptions to the exemption of the VAT provided for in Article 135 (1) (l) of that directive. Member States would therefore be entitled to determine that the rental of land is subject to VAT in the event that the owner, registered in the VAT taxpayer register and who has acquired the land for profit, is aware of the existence of a compulsory lease. In return, the owner of the building would pay the obligatory rent indicated on the invoice, which would also include the amount of VAT. As a result,
Questions
- Must the exemption from value added tax for the leasing of immovable property provided for in Article 135(1)(l) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be interpreted as meaning that that exemption applies to the leasing of land in the case of compulsory leasing?
- If the answer to the first question is in the affirmative ― that is to say that the leasing of land in the case of compulsory leasing is exempt from value added tax ― then, where all other instances of the leasing of land are subject to value added tax, is such an exemption not contrary to one of the principles of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, namely the principle of neutrality of value added tax?
AG Opinion
None
Decision/order (Unofficial translation)
Article 135(1)(l) and (2) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that he is not opposed to national legislation under which the rental of land under a compulsory lease regime is excluded from the exemption from value added tax.
Source
Other ECJ Cases related to this topic
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