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Flashback on ECJ Cases – C-436/10 (BLM) – Private use of immovable property is not exempted

On March 29, 2021, the ECJ issued its decision in the case C-436/10 (BLM).

Context: (Sixth VAT Directive — Article 6(2), first paragraph, point (a), and Article 13(B)(b) — Right of deduction — Business assets which belong to a taxable person which is a legal person and which are placed at the disposal of its staff for their private use


Article in the EU VAT Directive

Articles 6(2), first paragraph, point (a), and Article 13(B)(b) of the Sixtch Directive. (Article 26 and 135(1)(l) of the EU VAT Directive 2006/112/EC)

Article 26

Article 26
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 135
1. Member States shall exempt the following transactions:

(l) the leasing or letting of immovable property


Facts

  • BLM is a company established in April 2003 by Messrs Bertrand and Bernard Losfeld, the objects of which include financial, technical, commercial or general administrative consultancy and the assistance and provision of services, directly or indirectly, in the administrative and financial fields, in sales, production and general management. In respect of those activities, BLM is liable for VAT.
  • In December 2003, BLM received a contribution from Mr Bertrand Losfeld and his wife in the form of a usufructury right in rem of 20 years over a building which they had previously had constructed and for the construction of which they had opted to be liable for VAT. Mr and Mrs Losfeld have lived in that building with their children since July 2002. BLM has an office and an archive room there.
  • That contribution gave rise to the payment of VAT, which was deducted by BLM in its return for the fourth quarter of 2003 in the amount of EUR 42 420.61.
  • BLM, of which Mr Bertrand Losfeld is the managing director, does not require Mr Losfeld to pay rent for the private use of part of the building at issue. However, he is liable for personal income tax on the benefit in kind, calculated on a flat-rate basis of 75% private occupation of the building.
  • After carrying out an on-the-spot inspection, the Tournai Tax authorities (‘the tax authorities’) challenged the deductibility of part of the VAT — in the amount of EUR 31 683.96 — paid by BLM at the time of the contribution. The tax authorities held that the use made of the building was not work-related. As it is, the private use of a building is a transaction exempt from VAT. Consequently, the taxable person cannot deduct the input tax charged on the construction of the part of the building placed at the disposal of BLM’s managing director.
  • The tax authorities found that the VAT relating to the construction costs of the business premises — the office and the archive room — was 100% deductible; that the VAT relating to the work carried out in the ‘dual-use’ premises was 25.31% deductible; and that the remainder of the building was to be regarded as solely for private use. Accordingly, by decision of 1 March 2005, the tax authorities declared BLM liable to pay EUR 31 683.96 for the wrongful deduction of the VAT, together with a fine and default interest.
  • BLM contested that decision before the Tribunal de première instance de Mons (Court of First Instance, Mons). In their pleadings before that court, the tax authorities submitted, by way of an alternative form of order sought, a counterclaim seeking to set the tax base for private use of the building, for each year which had elapsed, at 1/15th of the price of that property. By judgment of 8 August 2006, the Tribunal de première instance de Mons held, inter alia, that the annual tax base for BLM’s making the immovable property available free of charge should be fixed at 1/20th of the price paid by BLM for purchase of the usufruct over the building, in respect of the part occupied privately.
  • Dissatisfied with that judgment, the tax authorities brought an appeal before the Cour d’appel, Mons. In support of the appeal, they argue that the making available of a building such as that at issue must be regarded as a letting for consideration, exempt from VAT. As that is a transaction which is not taxable, the taxable person cannot deduct the VAT charged on the construction of the part of the building placed at his disposal. In that regard, the tax authorities submit that Seeling applies only to a taxable person who is a natural person since a natural person cannot, at one and the same time, be the owner and the tenant of the same building.
  • Before the referring court, BLM contends that the approach adopted by the Court of Justice in Seeling can be transposed to a situation such as that at issue.

Questions

Must point (a) of the first paragraph of Article 6(2) and Article 13(B)(b) of the Sixth Directive … be interpreted as precluding national legislation which treats as an exempt supply of services, on the basis that it constitutes a leasing or letting of immovable property for the purposes of Article 13B(b), the private use by a director and his family of part of a building constructed or owned under a right in rem in that property by a taxable legal person, where the input tax on that business asset is deductible?


AG Opinion

None


Decision

1. Point (a) of the first paragraph of Articles 6(2) and Article 13(B)(b) of the 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, as amended by Council Directive 95/7/EC of 10 April 1995, must be interpreted as precluding national legislation which — despite the fact that the characteristics of the leasing or the letting of immovable property for the purposes of Article 13(B)(b) are not present — treats as a supply of services exempt from VAT under that provision the private use, by the staff of a taxable person which is a legal person, of part of a building constructed or owned by virtue of a right in rem in immovable property, held by that taxable person, where the input tax on that business asset is deductible;

2. It is for the referring court to determine whether, in a situation such as that at issue in the case before it, a finding can be made that there is a letting of immoveable property for the purposes of Article 13(B)(b) of the Sixth Directive.


Summary

The CJEU has ruled that it is contrary to EU law for Belgium to treat the use for private purposes by staff of a taxable legal person of part of a building belonging to that taxable person as an exempt service provision under art. 13, B Sixth VAT Directive, if that good gave rise to the right to deduct input tax.

At the end of 2003, the Belgian BLM nv acquired a right of usufruct in rem for twenty years on an immovable property. BLM nv has an office and an archive room in the building and pays VAT on the transaction. The VAT paid is deducted. The Belgian tax authorities are of the opinion that part of the VAT is not deductible, because the owner-manager of BLM nv lives in part of the building with his family and that therefore the provision of services is exempt. The tax authorities hereby state that private use of immovable property is an act that is exempt from VAT. The Belgian court has referred a question for a preliminary ruling in this case.

The Court of Justice of the EU (CJEU) has ruled that it is contrary to EU law for Belgium to treat the use for private purposes by staff of a taxable legal person of part of a building belonging to that taxable person as an exempt service provision pursuant to art. 13, B Sixth VAT Directive, if that good gave rise to the right to deduct input tax. The CJEU refers in this regard to its judgment in the Seeling case of 8 May 2003, no. C-269/00.


Source:


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