Flashback on ECJ Cases – C-384/95 (Landboden-Agrardienste) – A national compensation scheme not to harvest at least 20% does not constitute a supply of services

On December 18, 1997, the ECJ issued its decison in the case C-384/95 (Landboden-Agrardienste).

Context: VAT – Supply of services – National compensation for the extensification ofpotato production

Article in the EU VAT Directive

Articles 6(1), 11(A)(1)(a) and 12(3)(a) of and Annex H tothe Sixth Council Directive 77/388/EEC of 17 May 1977 ((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

On 1 January 1991 Landboden-Agrardienste became the successor in title toLandwirtschaftliche Produktionsgenossenschaft (P) Bronkow.
In 1990 the latter undertaking had received compensation from the KreisverwaltungCalau, Amt für Ernährung, Landwirtschaft und Forsten (Food, Agriculture andForestry Office of the Calau local authority) pursuant to the order of 13 July 1990promoting the extensification of agricultural production. The compensation,totalling DM 348 660, was granted in return for a 20% reduction in its annualpotato production. In its tax declaration for 1990 it treated that compensation asnot subject to turnover tax.
Following an investigation, however, the Finanzamt considered that thecompensation should have been included as taxable turnover; on 1 June 1992 itthus determined that additional tax was due and sent Landboden-Agrardienste anamended notice of assessment.
The application made by Landboden-Agrardienste for amendment of thatassessment was refused, so it brought proceedings before the Finanzgericht desLandes Brandenburg in which it contended that compensation for theextensification of potato production could not be regarded as paid under anexchange transaction. It pointed out in particular that it was impossible to identifya specific recipient of the service provided in return for the compensationpayments.

Questions

(1) Must a taxable farmer, who in 1990 extensified his potato production inBrandenburg (Federal Republic of Germany) to such an extent that at least 20% of his potato crop was not harvested by him, be regarded as having supplied to a specific recipient a service within the meaning of Article 6(1)of the Sixth Council Directive of 17 May 1977 (77/388/EEC) on theharmonization of the laws of the Member States relating to turnover taxes?

(2) Does a subsidy paid for the extensification of potato production on the basisof the decree of 13 July 1990 promoting the extensification of agriculturalproduction constitute a cash payment taxable pursuant toArticle 11(A)(1)(a) of the Sixth Directive?

(3) If the answer to question 1 is in the affirmative:

Is the service supplied to be taxed at the reduced rate provided for by thefourth sentence of Article 12(3)(a) of the Sixth Directive, in conjunctionwith Annex H thereto?

AG Opinion

A national subsidy paid to a farmer for the extensification of potato production does not constitute consideration for a supply of goods or services within the meaning of Article 11A(1)(a) of the Sixth Council Directive (77/388/EEC).

Decision

On a proper construction of Articles 6(1) and 11(A)(1)(a) of the Sixth CouncilDirective 77/388/EEC of 17 May 1977 on the harmonization of the laws of theMember States relating to turnover taxes Common system of value added tax:uniform basis of assessment, an undertaking given by a farmer under a national compensation scheme not to harvest at least 20% of his potato crop does not constitute a supply of services for the purposes of that directive. Consequently,compensation received for that purpose is not subject to turnover tax.

Summary

Source