Flashback on ECJ Cases – C-142/12 (Marinov) – Cessation of the taxable economic activity

On May 8, 2013, the ECJ issued its decision in the case C-142/12 (Marinov).

Context: Value added tax – Directive 2006/112/EC – Articles 18(c), 74 and 80 – Cessation of the taxable economic activity – Removal of the taxable person from the VAT register by the tax authorities – Retention of goods on which the VAT became deductible – Taxable amount – Open market value or purchase value – Determination at the time of the transaction – Direct effect of Article 74

Article in the EU VAT Directive

Articles 18(c), 74 and 80 of the EU VAT Directive 2006/112/EC

Article 18
Member States may treat each of the following transactions as a supply of goods for consideration:
(a) the application by a taxable person for the purposes of his business of goods produced, constructed, extracted, processed, purchased or imported in the course of such business, where the VAT on such goods, had they been acquired from another taxable person, would not be wholly deductible;
(b) the application of goods by a taxable person for the purposes of a non-taxable area of activity, where the VAT on such goods became wholly or partly deductible upon their acquisition or upon their application in accordance with point (a);
(c) with the exception of the cases referred to in Article 19, the retention of goods by a taxable person, or by his successors, when he ceases to carry out a taxable economic activity, where the VAT on such goods became wholly or partly deductible upon their acquisition or upon their application in accordance with point (a).

Facts

It emerges from the order for reference that Marinov was removed from the VAT register with effect from 4 November 2009 for non-compliance with the obligations laid down in the ZDDS and, more specifically, for non-payment of the VAT owed on the basis of the VAT declarations for the period from April to July 2009.
In 2010, Marinov was the subject of a tax audit relating to the period from 1 January 2007 to 4 November 2009. It was established in the course of that audit that Marinov had hired road vehicles under leasing contracts and had deducted VAT in respect of each lease to a total of BGN 28 426.64. At the time of its removal from the register, the company was in possession of the leased vehicles, as well as a number of other vehicles which it had acquired and in respect of which VAT had been deducted. The tax authorities stated in their amended assessment notice of 27 April 2011 that, at the time of the removal from the VAT register, Marinov had carried out taxable transactions within the meaning of Article 111 of the ZDDS with those assets.
In accordance with point (2) of Article 27(3) of the ZDDS, the tax authorities established the taxable amount for VAT in respect of the vehicles belonging to Marinov on the basis of their ‘open market value’, determined following an expert’s report, and claimed back VAT in the amount of BGN 32 124.57 on that value.
Following the Direktor’s rejection of Marinov’s challenge of the amended tax assessment notice, Marinov brought an action before the Administrativen sad – Varna (Administrative Court, Varna). Before that court, it contested the evaluation of its assets on the basis of their ‘open market value’. It claimed that the depreciation in value of those assets since their acquisition should have been taken into account, and requested that the court obtain an expert’s report in order to determine the value of those assets in accordance with the accounting standards applicable on the day of its removal from the register.
The Direktor contests the action, contending that, in accordance with the national legislation, the ‘open market value’ to be taken into account is the purchase price to which Article 74 of the VAT Directive refers, since it is the price determined by supply and demand on the market.
As it must determine the taxable amount and the amount of VAT owed, the referring court raises the question whether Article 27(3)(2) of the ZDDS, which requires that the open market value of the assets be taken into account, is compatible with Articles 18(c), 74 and 80 of the VAT Directive.
The referring court first considers whether removal from the VAT register pursuant to Article 106(1) of the ZDDS comes within the scope of Article 18(c) of the VAT Directive.
It then addresses the question whether, if that is the case, Article 27(3)(2) of the ZDDS, under which the taxable amount is to be the open market value of the assets, is compatible with, on the one hand, Article 74 of the VAT Directive and, on the other, with Article 80 of that directive, which specifies the circumstances in which the taxable amount is to be the open market value. If those provisions are compatible, the referring court asks whether Article 74 of the VAT Directive has direct effect.
Lastly, pointing out that the Bulgarian Law on Value Added Tax does not take into account the condition of the assets, the referring court wishes to ascertain, in the event that Article 74 of the VAT Directive has direct effect, to what extent depreciations in value which have occurred since the assets were acquired are to be taken into account in determining the taxable amount for the purposes of VAT of transactions falling within the scope of Article 18(c) of that directive.

Questions

Is Article 18(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax to be interpreted as meaning that it also covers cases in which the cessation of the taxable economic activity is attributable to the fact that the taxable person is no longer able to charge or deduct VAT because he has been removed from the VAT register?

Do Articles 74 and 80 of Directive 2006/112 preclude a national provision which states that, in the event of the cessation of the taxable economic activity, the taxable amount of the transaction is to be the open market value of the assets in existence at the time of removal from the register?

Does Article 74 of Directive 2006/112 have direct effect?

Are the length of the period from the purchase of the assets to the cessation of the taxable economic activity and the depreciations in value which have occurred since the assets were purchased significant for the purposes of determining the taxable amount in accordance with Article 74 of Directive 2006/112?

AG Opinion

None

Decision

1. Article 18(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax is to be interpreted as also covering the cessation of the taxable economic activity as a result of the removal of the taxable person from the value added tax register.

2. Article 74 of Directive 2006/112 is to be interpreted as precluding a provision of national law under which, in the event of the cessation of the taxable economic activity, the taxable amount of the transaction is to be the open market value of the assets in existence at the time of that cessation, unless that value corresponds in practice to the residual value of those goods at that date and account is thus taken of the change in the value of those goods between the date of their acquisition and the date of the cessation of the taxable economic activity.

3. Article 74 of Directive 2006/112 has direct effect.

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