On January 19, 2017, the ECJ issued its decision in the case C-344/15 (National Roads Authority).
Context: Reference for a preliminary ruling — Common system of value added tax — Directive 2006/112/EC — Article 13(1), second subparagraph — Activity of managing road infrastructure and making it available on payment of a toll — Activities engaged in by a body governed by public law acting as a public authority — Presence of private operators — Significant distortions of competition — Existence of actual or potential competition)
Article in the EU VAT Directive
Article 13(1) of the EU VAT Directive 2006/112/EC.
1. States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.
However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.
In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a small scale as to be negligible.
- According to the documents before the Court, most toll roads in Ireland have been constructed and are operated by private operators under public-private partnerships agreements concluded with the NRA.
- The referring tribunal observes that there are currently eight toll roads in Ireland operated by private operators, on whose tolls VAT is charged. For each of those toll roads the NRA has adopted a toll scheme and made bye-laws fixing the maximum amount to be charged for the use of those roads. The NRA operates two toll roads itself, the Westlink motorway and the Dublin tunnel.
- With respect more particularly to the Westlink motorway, the order for reference states that that motorway was previously operated by a private operator under a contract between the operator and the NRA. When additional investment was needed to modernise it in order to ensure traffic flows, but the private operator did not wish to undertake that investment without additional commitments from the NRA, the NRA negotiated a termination of the contract in question, took over operation of the road, and installed an electronic toll system.
- From July 2010 the revenue authorities treated the NRA as a taxable person for VAT in respect of its activity of making available the two toll roads it operates, on the ground that its treatment as a non-taxable person would lead to significant distortions of competition within the meaning of the second subparagraph of Article 13(1) of the VAT Directive.
- The NRA paid the VAT it had thus been assessed to, and for that purpose treated the amount received as tolls as inclusive of VAT. However, since it contested the correctness of its treatment as a taxable person and considered that, by virtue of the first subparagraph of Article 13(1) of the VAT Directive, it should be exempted from VAT, the NRA brought proceedings before the Appeal Commissioners (Ireland).
- Before that tribunal, the revenue authorities argue that, in the light of the judgment of 16 September 2008, Isle of Wight Council and Others (C‑288/07, EU:C:2008:505), the second subparagraph of Article 13(1) of the VAT Directive must be interpreted as meaning that a distortion of competition is presumed to exist even where the activities concerned do not compete with each other. The revenue authorities submit that, once two activities are of the same nature, there is in effect an irrebuttable presumption that treating one of them as taxable and the other as non-taxable would breach the principle of fiscal neutrality and lead to significant distortions of competition.
- The referring tribunal observes that, as it is common ground that the NRA is a body governed by public law acting as a public authority as regards the activity of making road infrastructure available on payment of a toll, prima facie it is not to be regarded as a taxable person. The NRA should not therefore be required to apply VAT to that activity.
- The tribunal further states, first, that, in so far as the various toll roads in Ireland are sufficiently far apart from each other, they serve different needs from the point of view of consumers and are not therefore in competition with each other. It follows that the level of the toll charged by an operator, whether the NRA or a private operator, has no influence on the average consumer’s choice to use one toll road rather than another.
- Secondly, there is no realistic possibility of a private operator entering the market with a view to providing services of access to toll roads by constructing a toll road which would compete with the Westlink motorway or the Dublin tunnel.
- A private operator could only enter that market if the NRA were to adopt a toll scheme in connection with a public road in order to make it a toll road, make bye-laws for that road, and then enter into an agreement with the private operator authorising him to collect the tolls.
- In addition, the evidence shows that in practice a private operator wishing to construct a private toll road would encounter almost insuperable difficulties. First, while such construction would require very extensive tracts of land, a private operator who, unlike the NRA, does not have the power of compulsory purchase would be unable to force landowners to sell him private land for the purpose of constructing such a road. Secondly, in view of the investment such construction could entail, there is no evidence that a private operator would be prepared to make such an investment in order to compete with an already existing toll road.
- The referring tribunal states, finally, that the revenue authorities have also failed to show that there is a realistic possibility of a private operator entering that market.
- However, because of the revenue authorities’ submissions mentioned in paragraph 21 above, the referring tribunal is uncertain whether the activity of collecting tolls engaged in by the NRA and that engaged in by private operators must be regarded as activities of the same nature, and hence in competition with each other, so that treating the NRA as a non-taxable person should be regarded as leading to significant distortions of competition within the meaning of the second subparagraph of Article 13(1) of the VAT Directive.
(1) If a body governed by public law carries on an activity such as providing access to a road on payment of a toll and if in the Member State there are private bodies who collect tolls on different toll roads pursuant to an agreement with the public body concerned under national statutory provisions, is [the second subparagraph of Article 13(1) of the VAT Directive] to be interpreted as meaning that the public body concerned must be deemed to be in competition with the private operators concerned such that to treat the public body as a non-taxable person is deemed to lead to a significant distortion of competition notwithstanding the facts that (a) there is not and cannot be any actual competition between the public body and the private operators concerned and (b) there is no evidence that there is any realistic possibility that any private operator could enter the market to build and operate a toll road which would compete with the toll road operated by the public body?
(2) If there is no presumption, what exercise should be conducted to determine whether there is a significant distortion of competition within the meaning of [the second subparagraph of Article 13(1) of the VAT Directive]?
The second subparagraph of Article 13(1) of Council Directive 2006/112/EEC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that where, under the national law of a Member State, road tolls may be and actually are collected both by bodies governed by public law and by private bodies, the bodies governed by public law must be treated as taxable persons for VAT purposes, on account of significant distortions of competition, even if there is no real possibility of direct competition between roads on which tolls are collected by a body governed by public law and those on which they are collected by a private body.
The second subparagraph of Article 13(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that, in a situation such that in the main proceedings, a body governed by public law which carries on an activity consisting in providing access to a road on payment of a toll may not be regarded as competing with private operators who collect tolls on other toll roads pursuant to an agreement with the public law body concerned under national statutory provisions.
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