On July 19, 2012, the ECJ issued its decision in the case C-263/11 (Rēdlihs).
Context: Sixth VAT Directive – Directive 2006/112/EC — Concept of ‘economic activity’ — Supplies of timber in order to alleviate the damage caused by a storm — Reverse charge procedure — Failure to register in the register of taxable persons — Fine — Principle of proportionality
Article in the EU VAT Directive
Article 9(1) in the EU VAT Directive
Article 9(1) (Taxable person)
“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
- During an inspection carried out by the VID, it was found that the applicant in the main proceedings had carried out 12 supplies of timber in April 2005 and 25 transactions of the same type over a period from May 2005 to December 2006. It was also found that the applicant in the main proceedings had not registered in the register of taxable persons for VAT purposes and had not declared any economic activity to the VID.
- By a decision of 21 June 2007, the VID, inter alia, penalised that failure to register by imposing on Mr Rēdlihs, pursuant to Article 35(3) of the Law on VAT, a fine of LVL 11 363.20, that is to say, 18% of the value of the supplies at issue, which corresponded to the VAT rate applicable at the time.
- Mr Rēdlihs brought proceedings seeking the annulment of that decision. He submitted that the supplies of timber which he had carried out could not be considered to be an economic activity as they were neither systematic nor carried out independently. Those supplies were, he argued, of an exceptional nature inasmuch as they were effected, not for profit, but to alleviate the damage caused by a storm, which constituted a case of force majeure. He also drew attention to the fact that a report of the forestry department showed that the forest concerned was young and that its trees should therefore not be cut down. Moreover, it would not have been possible to sell in one lot all of the trees felled following that storm.
- In the alternative, he submitted that he had acquired the forest at issue in order to meet his own personal needs and that the transfer of timber from that forest was for that reason not subject to VAT.
- The applicant in the main proceedings claimed, in addition, that the amount of the fine imposed on him was disproportionate in so far as, even if the supplies at issue did constitute an economic activity, it was the purchaser, and not the supplier, who was liable for the VAT pursuant to Article 13.2 of the Law on VAT.
- That action was dismissed by the Administratīvā rajona tiesa (District Administrative Court) and by the Administratīvā apgabaltiesa (Regional Administrative Court) successively. The courts before which that action had been brought observed that, under Article 1(6) of the Law on VAT, any systematic activity carried out independently for which remuneration was paid was considered to be an ‘economic activity’. They concluded that the supplies at issue had to be regarded as having been carried out in the course of an economic activity, in that they were carried out for profit in the name and on behalf of the applicant in the main proceedings, were repeated during the period from April 2005 to December 2006 and were not exceptional in nature. It was also held that the fact that the timber was sold to alleviate damage caused by a storm was irrelevant. In respect of the fine, those courts took the view that there was no statutory basis for reducing it.
Questions
1. Is a natural person who has acquired goods (a forest) for his own needs and who makes a supply of goods to alleviate the consequences generated by force majeure (for example, a storm) a taxable person for the purposes of VAT, within the meaning of Article 9(1) of Directive [2006/112] and Article 4(1) and (2) of the [Sixth Directive], who is required to pay VAT? In other words, does such a supply of goods constitute an economic activity within the meaning of those rules of European Union law?
2. Does a rule under which a fine can be imposed on a person who has not registered in the register of taxable persons for the purposes of [VAT], in an amount equivalent to the tax that would normally be due for the value of the goods supplied, even though that person would not have to pay the tax if he had registered in the register, comply with the principle of proportionality?
AG Opinion
None
Decision
1. Article 9(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2006/138/EC of 19 December 2006, must be interpreted as meaning that supplies of timber made by a natural person for the purpose of alleviating the consequences of a case of force majeure come within the scope of the exploitation of tangible property, which must be regarded as an ‘economic activity’ within the meaning of that provision, where those supplies are carried out for the purposes of obtaining income therefrom on a continuing basis. It is for the national court to carry out an assessment of all the circumstances of the case in order to determine whether the exploitation of tangible property, such as a forest, is carried out for the purposes of obtaining income therefrom on a continuing basis.
2. European Union law must be interpreted as meaning that it is possible that a rule of national law allowing a fine to be imposed, fixed at the level of the rate of VAT normally applicable for the value of the goods transferred in the supplies made, on an individual who has failed to fulfil his obligation to register in the register of taxable persons for VAT purposes and who was not liable for that tax, may be contrary to the principle of proportionality. It is for the national court to determine whether the amount of the penalty does not go further than is necessary to attain the objectives of ensuring the correct levying and collection of the tax and preventing fraud, having regard to the facts of the case and, inter alia, the sum actually imposed and the possible existence of fraud or circumvention of the applicable legislation attributable to the taxable person whose failure to register is being penalised.
Summary
Wood supplies by a natural person to compensate for the consequences of force majeure result in the exploitation of tangible property that must be qualified as an ‘economic activity’ within the meaning of Article 9(1) of the VAT Directive, if these supplies are aimed at generating sustainable revenue to obtain. It is for the national court to assess all the circumstances of the case in order to determine whether tangible property, such as a forest, is being exploited for the purpose of obtaining sustainable income from it.
European Union law must be interpreted as meaning that it cannot be ruled out that a rule of national law under which a fine at the standard rate of VAT on the goods supplied may be imposed on a private individual who fulfills his obligation to register in the register of VAT payers and which was not liable for VAT is contrary to the principle of proportionality. It is for the national court to determine whether the amount of the penalty, having regard to the circumstances of the case, including the amount actually imposed and any fraud or circumvention of the applicable law attributable to the taxpayer fined for the failure to register does not exceed what is necessary to achieve the objectives.
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