Flashback on ECJ Cases C-215/94 (Mohr) – An indemnity for the abandonment of milk production is not subject to VAT

On February 29, 1996, the ECJ issues his decision in the case C-215/94 (Mohr).

Context: VAT – Definition of supply of services – Definitive discontinuation of milk production – Compensation received under Regulation (EEC) No 1336/86

Article in the EU VAT Directive

Articles 6(1) and 11(A)(1)(a) of the Sixth Council Directive (Articles 24(1), 25, 73 of the EU VAT Directive 2006/112/EC)

Article 24 (Taxable transaction – Supply of services)
1. “Supply of services” shall mean any transaction which does not constitute a supply of goods.

Article 25 (Taxable transaction – Supply of services)
A supply of services may consist, inter alia, in one of the following transactions:
(a) the assignment of intangible property, whether or not the subject of a document establishing title;
(b) the obligation to refrain from an act, or to tolerate an act or situation;
(c) the performance of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law.

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

Mr Mohr was the owner of an agricultural holding on which he kept dairy cattle.
In March 1987 he applied to the Bundesamt für Ernährung und Forstwirtschaft (Federal Office for Food and Forestry) for a grant under Council Regulation (EEC) N o 1336/86 of 6 May 1986 fixing compensation for the definitive discontinuation of milk production (OJ 1986 L 119, p. 21). In his application he undertook definitively to discontinue milk production and not to make any claim for a milk reference quantity under the common organization of the market.
On 23 September 1987 the Bundesamt upheld his application and granted him a single payment of DM 385 980. Subsequently, Mr Mohr sold his cattle and converted the business into a horse-riding centre, thus ceasing all milk production during that same year.
In his turnover tax declaration for 1987 Mr Mohr did not mention the amount received by way of compensation for discontinuation of milk production.
The Finanzamt decided to treat such compensation as consideration for a taxable supply, namely the discontinuation of milk production, and to make it subject to turnover tax.
Mr Mohr unsuccessfully challenged the Finanzamts decision before the Finanzgericht. He then brought the matter before the Bundesfinanzhof.

Questions

1 . Does a farmer who is a taxable person and definitively discontinues milk production thereby make a supply of services within the meaning of Article 6(1) of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes (the Sixth Directive)? and
2. Is the compensation received for such discontinuation under Council Regulation (EEC) N o 1336/86 of 6 May 1986 a monetary payment which is taxable under Article 11(A)(1)(a) of the Sixth Directive?’

AG Opinion

A farmer who undertakes to discontinue milk production definitively in accordance with Article 1(1) of Council Regulation (EEC) No 1336/86 of 6 May 1986 fixing compensation for the definitive discontinuation of milk production does not make a taxable supply of services effected for consideration within the meaning of Article 2(1) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes —Commo n system of value added tax: uniform basis of assessment. The compensation received for such discontinuation is not taxable under the Directive.

Decision

Articles 6(1) and 11(A)(1)(a) of the Sixth Council Directive (77/388/EEC) of 17 May 1977, on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, are to be interpreted as meaning that an undertaking to discontinue milk production given by a farmer under Regulation No 1336/fixing compensation for the definitive discontinuation of milk production does not constitute a supply of services. Consequently, any compensation received for that purpose is not subject to turnover tax.

Summary

A dairy farmer received compensation from the EU in return for discontinuing milk production. The German tax authority unsuccessfully treated this payment as consideration for a taxable supply. Mohr was obliged to discontinue production in return for the payment. The ECJ agreed with Mohr that the agreement was not a supply: by paying grants, the EU or a member state did not acquire or consume any goods or services for its use. The grant helped the common interest of promoting the agricultural policy. Therefore, the payment did not provide any direct benefit that enabled the EU to consume a service.

Source