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Flashback on ECJ Cases – Joined cases C-180/10 & C-181/11 – Ex-farmer should not be regarded as a VAT entrepreneur if he wishes to sell this land

On September 15, 2011, the ECJ issued its decision in the joined cases C-180/10 (Słaby and Others) & C-181/11 (Kuć and Jeziorska-Kuć)

Context: Taxation – Value added tax – Directive 2006/112/EC – Meaning of taxable person – Sale of building land – Articles 9, 12 and 16 – No deduction of input VAT


Article in the EU VAT Directive

Article 9(1), 12(1), 295(1)(3)  in the EU VAT Directive

Article 9 (Taxable person)

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.

Article 12 (Taxable person)

1. Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:

(a) the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;

(b) the supply of building land.

Article 295
1. For the purposes of this Chapter, the following definitions shall apply:
(3) “flat-rate farmer” means any farmer covered by the flat-rate scheme provided for in this Chapter;


Facts

Case C-180/10

  • In 1996 Mr Słaby purchased, as a natural person not carrying out an economic activity, land designated, in accordance with the urban management plan in force at the time, for agricultural purposes. He used that land for the purposes of an agricultural activity between 1996 and 1998, ceasing that activity in 1999.
  • In 1997, the urban management plan in question was changed, and the land in question was henceforth earmarked for a holiday home development. Following that change, Mr Słaby divided the land into 64 plots which, from 2000, he gradually began to sell to natural persons.
  • On 17 September 2007, Mr Słaby requested that the Minister Finansów give an individual interpretation as to whether, in the light of Article 15(1) of the Law on VAT, the division of land into plots, followed by the sale of those plots to various purchasers, must be regarded as transactions which are subject to VAT.
  • In the individual interpretation of 13 December 2007, the Minister Finansów stated that those transactions constituted an economic activity, given that under the Law on VAT a farmer is a taxable person carrying out an economic activity, and that the scale and scope of the planned transactions and the division of the land into plots indicated Mr Słaby’s intention to make repeated sales.
  • Mr Słaby brought an action against that interpretation. The Wojewódzki Sąd Administracyjny w Warszawie rejected the interpretation of the Minister Finansów and held that it was not apparent from the factual circumstances of the case that Mr Słaby carried out or intended to carry out an economic activity in the area of property transactions, but that he carried out an agricultural activity, which was not subject at the time to VAT. According to that court, there is nothing to prove that the land was purchased with the intention of reselling it, given that it was purchased for the purposes of an agricultural activity and that it was used as such. The division and the sale of the plots was the consequence of a change to the urban management plan which was not attributable to Mr Słaby. Therefore, according to that court, the applicant in the main proceedings did not act as a trader when purchasing the land in question.
  • The Minister Finansów brought an appeal in cassation against that judgment before the referring court. The Minister claims that since the land in question was purchased for the purposes of agricultural production, it was not used exclusively for the private use of Mr Słaby, but formed part of his agricultural undertaking and was therefore used to carry out an economic activity.

Case C-181/10

  • Mr and Mrs Kuć have been the owners since 1996 of an agricultural undertaking purchased as agricultural land not permitted for development. Until the end of 2006, they used that land for agricultural purposes, namely to keep horses, and subsequently to grow fodder for their animals.
  • After receiving an interpretation from the tax authorities in 2004, Mr and Mrs Kuć registered as taxable persons for VAT even though, in their view, their undertaking is part of their personal property.
  • Following a change to the urban management plan, according to which the land in question was henceforth earmarked for residential and service development, they began to sell, on an occasional and non‑organised basis, certain parts of their undertaking. Those supplies were subject to VAT.
  • According to Mr and Mrs Kuć, those supplies should not have been subject to VAT, since they concern their personal property. They requested a written interpretation on this point from the Head of the Tax Office in Wołomin. In his individual interpretation of 13 June 2008, the head of that tax office took the view that the sale of that land constituted a supply of goods for consideration and was subject to VAT. That interpretation was upheld by the Dyrektor Izby Skarbowej w Warszawie.
  • Mr and Mrs Kuć brought an action against that interpretation before the Wojewódzki Sąd Administracyjny w Warszawie. According to the latter, the supplies of the building land in question must be subject to VAT on the ground, first, that that land was part of the agricultural undertaking of Mr and Mrs Kuć and, second, that Mr and Mrs Kuć effected those supplies as traders. According to the Wojewódzki Sąd Administracyjny w Warszawie, those two circumstances, independently of one another, form a basis for making those transactions subject to VAT.
  • The Naczelny Sąd Administracyjny, before which Mr and Mrs Kuć appealed in cassation, observes first that they benefited, as farmers, from the flat‑rate scheme for imposition of VAT. Consequently, that court raises the question whether the sale of the land in question can be regarded as a disposal of goods which are part of their personal property, when the purchase of that land did not give rise to deduction of VAT. That court points out, moreover, that the land in question was used not only to supply agricultural products, but also for the private purposes of the farmer and the members of his family.

Questions

Case C-180/10

Is a natural person who carried out an agricultural activity on land and subsequently, on account of a change to urban management plans which occurred for reasons beyond his control, ceased that activity and reclassified his property as private property, divided it into smaller parts (land designated for a holiday home development) and began to dispose of it, on that basis a taxable person for VAT for the purposes of Article 9(1) of the VAT Directive and Article 4(1) and (2) of Sixth Directive 77/388/EEC who is liable for payment of VAT on the basis of a trading activity?

 Case C-181/10

  1. Is a flat-rate farmer within the meaning of Article 295(1)(3) of [the VAT Directive] who sells plots of land used for his agricultural activity which are designated in a municipality’s urban management plan for residential and service development and were purchased as agricultural land (VAT-free) covered by Article 16 of that directive, which regards the application of business assets for the taxable person’s private use or for purposes other than those of his business as a supply of goods for consideration only where the tax on those assets was wholly or partly deductible?
  2. [If so], must a flat-rate farmer within the meaning of Article 295(1)(3) of [the VAT Directive] who sells plots of land previously used for his agricultural activity which are designated in a municipality’s urban management plan for residential and service development and were purchased as agricultural land (VAT-free) be regarded as a taxable person who is required to account for VAT on that sale under the general rules?’

AG Opinion

(1)      In order to establish whether a person is subject to value added tax for the purposes of Article 9(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, it is for the national court to assess whether exploitation of the property in question by way of its successive sale as plots is carried out for the purpose of obtaining income therefrom on a continuing basis, taking into account all the circumstances of the case, in particular evidence of the intention to carry out those transactions repeatedly. In this regard, it is irrelevant that the property at issue was not purchased with the intention of selling it or that the property at issue was classified by its owner as private property in relation to an activity separate from the activity in respect of which the person is considered to be subject to value added tax.

(2)      A person is subject to value added tax on the respective sales of the plots connected with an agricultural property under the normal arrangements, notwithstanding his status as a farmer covered by the flat-rate scheme referred to in Chapter 2 of Title XII of Directive 2006/112.

(3)      Article 16 of Directive 2006/112 does not apply to a flat-rate farmer within the meaning of Article 295 of the Directive who successively sells plots of land designated for residential and service development which were created by dividing up an agricultural property.


Decision

The supply of land designated for development must be regarded as subject to value added tax under the national legislation of a Member State if that State has availed itself of the option provided for by Article 12(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, irrespective of whether the transaction is carried out on a continuing basis or whether the person who effected the supply carries out an activity of a producer, a trader or a person supplying services, to the extent that that transaction does not constitute the mere exercise of the right of ownership by its holder.

A natural person who carried out an agricultural activity on land that was reclassified, following a change to urban management plans which occurred for reasons beyond his control, as land designated for development must not be regarded as a taxable person for value added tax for the purposes of Articles 9(1) and 12(1) of Directive 2006/112, as amended by Directive 2006/138, when he begins to sell that land if those sales fall within the scope of the management of the private property of that person.

If, on the other hand, that person takes active steps, for the purpose of concluding those sales, to market property by mobilising resources similar to those deployed by a producer, a trader or a person supplying services within the meaning of the second subparagraph of Article 9(1) of Directive 2006/112, as amended by Directive 2006/138, that person must be regarded as carrying out an ‘economic activity’ within the meaning of that article and must, therefore, be regarded as a taxable person for value added tax.

The fact that that person is a ‘flat-rate farmer’ within the meaning of Article 295(1)(3) of Directive 2006/112, as amended by Directive 2006/138, is irrelevant in this respect.


Summary

The supply of a building site must be regarded as subject to VAT under the national legislation of a Member State where that State has made use of the option provided for in Article 12(1) of the VAT Directive, irrespective of whether the transaction is durable and whether the person who made the delivery carries on an activity as a manufacturer, dealer or service provider, insofar as this act does not constitute the mere exercise by the owner of his property right.

A natural person who has carried on an agricultural business on land which, after a change in the zoning plans, is given a new use as a building plot without his will, must not be regarded as a taxable person within the meaning of Articles 9(1) and 12(1). 1, of the VAT Directive 2006/112, if he wishes to sell this land, provided that these sales form part of the management of his private assets.

If, on the other hand, with a view to concluding those sales, that person actively takes steps for the sale of immovable property by deploying resources comparable to those used by a manufacturer, dealer or service provider within the meaning of Article 9, paragraph 1, second subparagraph, of the VAT Directive, he must be regarded as a person pursuing an ‘economic activity’ within the meaning of that article and, therefore, as a taxable person for VAT purposes.

The fact that that person is a ‘flat-rate farmer’ within the meaning of Article 295(1)(3) of the VAT Directive is immaterial in that regard.


Source:


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