Flashback on ECJ Cases – C-515/07 (Vereniging Noordelijke Land- en Tuinbouw Organisatie) – Activities by which an association promotes the general interests of its members are not activities ‘subject to VAT’

On February 12, 2009, the ECJ issued its decision in the case C-515/07 (Vereniging Noordelijke Land- en Tuinbouw Organisatie).

Context: Sixth VAT Directive – Goods and services forming part of the assets of a business for use in taxable transactions and in transactions other than taxable transactions – Right to an immediate and full deduction of the tax paid in respect of the acquisition of such goods and services

Article in the EU VAT Directive

Articles 6(2)(a) and 17(2) of the Sixth Directive (Artciles 26 and 168 of the EU VAT Directive 2006/112/EC).

Article 26
1. Each of the following transactions shall be treated as a supply of services for consideration:
(a) the use of goods forming part of the assets of a business for the private use of a taxable person or of his staff or, more generally, for purposes other than those of his business, where the VAT on such goods was wholly or partly deductible;
(b) the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.
2. Member States may derogate from paragraph 1, provided that such derogation does not lead to distortion of competition.

Article 168
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18(a) and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

Facts

VNLTO promotes the interests of the agricultural sector in the provinces of Groningen, Friesland, Drenthe and Flevoland. Its members, who are traders in that sector, pay a membership subscription to it, the greater part of which goes towards activities designed to promote their general interests.
In addition to promoting those interests, VNLTO provides a number of individual services to its members, for which it charges a fee. Those services are also offered to non‑members. The profits generated by those economic activities are allocated to safeguarding the general interests of members.
During 2000, VNLTO acquired goods and services which it used both for its activities subject to VAT and for other, unrelated activities. VNLTO applied for full deduction of the amounts of input VAT paid in respect of those goods and services, including those relating to its activities in promoting the general interests of its members.
For the 2000 tax year, VNLTO deducted the amounts of input VAT paid relating to taxable supplies. It also deducted part of the amounts of input VAT paid with regard to activities connected with the promotion of the general interests of its members. On 14 May 2001, VNLTO applied for reimbursement of an additional amount of VAT relating to those activities. In this way, VNLTO claimed the right to deduct an amount representing 79% of the total goods and services which it had acquired. By decision of 3 August 2001, the Tax Inspectorate refused the reimbursement applied for.
By decision of 26 March 2002, the Tax Inspectorate sent VNLTO an adjustment notice for the tax year in question. By that notice, the amounts of input VAT relating to activities in promoting the general interests of VNLTO’s members were reincorporated in proportion to the income which those activities generated for VNLTO. This resulted in a deduction representing 49% of the total goods and services acquired by VNLTO.
By letter of 26 April 2002, VNLTO lodged a complaint against that adjustment notice. By decision of 15 May 2002, the Tax Inspectorate confirmed that notice.
VNLTO subsequently appealed that decision to the Gerechtshof (Regional Court of Appeal) Leeuwarden (Netherlands). On 17 June 2005, that court dismissed the appeal, holding that activities relating to the promotion of general interests did not constitute a direct, durable and necessary extension of VNLTO’s economic activities. According to that court, VNLTO was not entitled to deduct the tax it had been charged in so far as the goods and services acquired had been used to promote the general interests of its members.
On 27 July 2005, VNLTO appealed on a point of law against the decision of the Gerechtshof Leeuwarden.
The case accordingly came before the Hoge Raad der Nederlanden (Supreme Court of the Netherlands), which stated that the dispute in the main proceedings concerns the deduction of amounts of VAT levied when expenditure is incurred in the acquisition of goods and services used both for economic activities subject to VAT and for other transactions unrelated to those activities.
The Hoge Raad der Nederlanden therefore wishes to determine whether VNLTO is entitled to treat as assets of its business goods other than capital goods and services, thereby enabling it immediately to deduct the total amount of VAT paid in respect of their acquisition even though they are used in part for activities unrelated to supplies taxable under Article 2 of the directive.

Questions

Are Articles 6(2) and 17(1), (2) and (6) of the Sixth VAT Directive ¹ to be interpreted as permitting a taxable person to allocate wholly to his business not only capital goods but all goods and services used both for business purposes and for purposes other than business purposes and to deduct immediately and in full the VAT due on the acquisition of those goods and services?

If the answer to Question 1 is affirmative, does the application of Article 6(2) of the Sixth Directive to services and goods other than capital goods mean that VAT is collected once during the tax period over which the deduction in respect of those services and goods is enjoyed, or must collection also occur in ensuing periods and, if so, how is the taxable amount to be determined in respect of goods and services which the taxable person does not write off?

AG Opinion

The first subparagraph of Article 6(2) of 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, as amended by Council Directive 95/7/EC of 10 April 1995, is to be interpreted as meaning that it is not applicable to the use of capital goods allocated to a business for the taxable person’s non-economic activities which are not subject to value added tax.

Decision

Articles 6(2)(a) and 17(2) of 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 not being applicable to the use of goods and services allocated to the business for the purpose of transactions other than the taxable transactions of the taxable person, as the value added tax due in respect of the acquisition of those goods and services, and relating to such transactions, is not deductible.

Summary

Articles 6(2)(a) and 17(2) of the Sixth Directive must be interpreted as meaning that they do not apply to the use of goods and services intended for the undertaking for transactions other than taxable transactions of the taxable person, and that the VAT due on the purchase of those goods and services is not deductible in so far as such transactions are concerned.

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