Flashback on ECJ Cases – C-331/14 (Trgovina Prizma) – Sale of land classified as private property are subject to VAT since that taxable person acted as such

On July 9, 2015, the ECJ issued its decision in the case C-331/14 (Trgovina Prizma).

Context: Reference for a preliminary ruling — Taxation — Value-added tax — Sixth Directive 77/388/EEC — Articles 2(1) and 4(1) — Tax liability — Immovable property transactions — Sale of lands assigned to the private assets of a natural person exercising the profession of sole trader — Taxable person acting as such

Article in the EU VAT Directive

Articles 2(1) and 4(1) of the Sixth VAT Directive (Article 2(1)(a) and 9(1) of the EU VAT Directive 2006/112/EC).

Article 2
1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;

Article 9
1. “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.

Facts

Mr Kezić has, since 1995, been registered as a sole trader exercising his profession as a natural person under the trade name ‘Trgovina Prizma’.
According to the order for reference, between 1998 and 2002, Mr Kezić purchased, not as a sole trader but in his private capacity, seven plots of land. Two plots of land were accordingly acquired from a natural person in 1998 and 2000, while the remaining five were acquired from a commercial company in 2001 and 2002. Mr Kezić was not required to pay VAT on those various acquisitions.
Between 2001 and 2003, Mr. Kezić obtained the administrative permits required for the construction of a shopping centre on the abovementioned seven plots. Then, in his capacity as a sole trader, he began the construction work in May 2003.
In June 2003, Mr Kezić assigned the five plots of land acquired last to the assets of his business, thereby taking into account their value estimated by a court-appointed land surveyor. However, he maintained the two other plots as part of his private assets (‘the land at issue’).
In 2004, Mr Kezić sold the shopping centre and the seven plots on which it was built to two commercial companies. Accordingly, on the one hand, when he sold, acting as a sole trader, the five plots of land on which part of the shopping centre was built and that part of the shopping centre, he charged the purchasers output VAT, and, on the other hand, when he sold, acting as a private individual, the land at issue and the other part of the shopping centre built on that land, he did not charge output VAT.
By decision of 26 October 2004, the competent tax authority, having concluded that the sale of the land at issue fell within the economic activity carried out by Mr Kezić acting as a sole trader, demanded from him payment of VAT relating to that sale.
On 18 July 2007, the Ministry of Finance rejected the action brought by Mr Kezić against that decision as unfounded.
The Upravno sodišče (Administrative Court) upheld that decision and, by judgment of 25 May 2011, the Vrhovno sodišče (Supreme Court) dismissed the appeal on a point of law brought by Mr Kezić. That decision was, however, set aside by the Ustavno sodišče (Constitutional Court) which, by decision of 21 November 2013, referred the case to the Vrhovno sodišče for a fresh decision.
The referring court considers that the dispute before it involves determining the conditions under which the Sixth Directive allows a taxable person to exclude from the VAT system property which he uses in the exercise of his economic activity.

Questions

Are Articles 2(1) and 4(1) of the Sixth Directive to be interpreted to the effect that, in circumstances such as those of this case — in which a person buys plots of land acting as a natural person, without being charged any input VAT, then, acting as a sole trader, builds on those plots a shopping centre, enters as assets of his business on the basis of national accounting rules only some of the plots on which he built the shopping centre and then sells the centre together with all the plots of land to the developer — such a person, merely because he has not entered certain plots of land as assets of his business, has excluded those plots from the VAT system, and is therefore not to be considered a taxable person obliged to calculate and pay output VAT when selling those plots of land?

AG Opinion

None

Decision

Articles 2(1) and 4(1) 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 must be interpreted as meaning that, in circumstances such as those of the case in the main proceedings — where a taxable person has acquired plots of land, some of which have been assigned to his private assets and others to his business and, where he has built, in his capacity as a taxable person, upon all of those plots of land, a shopping centre which was then sold together with the plots of land on which the building was erected — the sale of the plots of land which were assigned to that taxable person’s private assets must be subject to value added tax since that person, at the time of that transaction, acted as such.

Summary

If a taxpayer has bought plots of land, some of which he has earmarked for his private capital and others for his business, and has had a shopping center built on all those pieces of land as a taxpayer, which he subsequently sold together with the land on which the shopping center is located, he must the sale of the pieces of land classified as private property are subject to VAT, since that taxable person acted as such in that transaction.

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