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Flashback on ECJ Cases – C-500/13 (Gmina Międzyzdroje) – National regulation laying down a 10-year revision period

On June 5, 2014, the ECJ issued its decision in the case C-500/13 (Gmina Międzyzdroje).

Context: Reference for a preliminary ruling — VAT — Directive 2006/112/EC — Deduction of input tax — Capital goods — Immovable property — Adjustment of deductions — National legislation providing for an adjustment period of 10 years


Article in the EU VAT Directive

Articles 167, 168, 169 of the EU VAT Directive 2006/112/EC.

Article 167
A right of deduction shall arise at the time the deductible tax becomes chargeable.

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);
02006L0112 — EN — 01.07.2021 — 025.002 — 72
(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.

Article 169
In addition to the deduction referred to in Article 168, the taxable person shall be entitled to deduct the VAT referred to therein in so far as the goods and services are used for the purposes of the following:
(a) transactions relating to the activities referred to in the second subparagraph of Article 9(1), carried out outside the Member State in which that tax is due or paid, in respect of which VAT would be deductible if they had been carried out within that Member State;
(b) transactions which are exempt pursuant to Articles 136a, 138, 142 or 144, Articles 146 to 149, Articles 151, 152, 153 or 156, Article 157(1)(b), Articles 158 to 161 or Article 164;
(c) transactions which are exempt pursuant to points (a) to (f) of Article 135(1), where the customer is established outside the Community or where those transactions relate directly to goods to be exported out of the Community.


Facts

  • The decision to refer the case shows that, during the period between 2007 and 2010, Gmina Międzyzdroje invested in extending a sports hall in its ownership, by adding to the sports hall an ancillary building located near a primary school also within its ownership. Within the context of those extension works, goods were delivered and services provided to the municipality, on which the municipality paid VAT.
  • During the course of the works, Gmina Międzyzdroje began to consider changing the entire system for managing municipal properties connected with physical education and sport, including the sports hall in question. That change involved, in particular, leasing the sports hall to a commercial company which would be responsible for its management together with that of all the sports facilities owned by the municipality. The intention was for the company to charge rent to Gmina Międzyzdroje and, in return, to be entitled to use the sports hall and derive income from it in the way of payments from individuals and entities wishing to use the sport facilities.
  • In response to a request by Gmina Międzyzdroje for an interpretation of the Law on the tax on goods and services, in the version applicable to the proposal to lease the sports hall at issue in the main proceedings, the Minister Finansów stated in a decision of 21 September 2011 that, under Articles 91(2), (3) and (7a) of that law, the adjustment to the right to deduct the VAT paid by the municipality in the context of the works to extend the sports hall had to be made over a period of ten years and to relate to one tenth every year of the total input tax, except that no one-tenth adjustment could be made in respect of use of the hall in 2010 for activities not conferring entitlement to deduction.
  • On 12 April 2012, an application brought by Gmina Międzyzdroje for that decision to be reviewed was dismissed by the Wojewódzki Sąd Administracyjny we Szczecinie (Regional Administrative Court, Szczecin). The court held, in particular, that the municipality was not entitled to make a one-off adjustment covering the whole amount of the deductions in one single tax year, since the national legislature had established rules for adjustment to take place over a period of ten years, in compliance with Article 187 of Directive 2006/112.
  • An appeal was brought by Gmina Międzyzdroje before the Naczelny Sąd Administracyjny (Supreme Administrative Court). That court questioned the interpretation to be given to Articles 187 and 189 of Directive 2006/112. In particular, the court is uncertain whether the national legislation at issue in the main proceedings, which provides for a system of adjustment over a 10-year period, is compatible with the principle of the neutrality of VAT enshrined in that directive, since, according to the Court’s case-law, that principle requires a taxable person to be able to obtain a refund of any excess VAT within a reasonable time.
  • According to the referring court, the question also arises of whether, in a situation such as that at issue in the main proceedings, where there is a change in the purpose of capital goods from an initial use in activities not conferring entitlement to deduct tax to a subsequent use in activities which do confer such entitlement, Article 189 of Directive 2006/12 precludes national measures which provides for an extension of the adjustment period up to 10 years. The referring court adds that the answer to this question may well be negative, since the purpose of such measures appears to be to ensure that the adjustments do not give rise to any unjustified advantage. On the other hand, the referring court considers it necessary to examine whether the right to effect a one-off adjustment, such as that invoked by Gmina Międzyzdroje, may be considered to constitute an unjustified advantage.

Questions

Must Articles 167, 187 and 189 of [Directive 2006/112] and the principle of tax neutrality be interpreted as permitting provisions of national law such as [those at issue in the main proceedings], which provide that, in the event of a change in the purpose of capital goods from use in activities not conferring entitlement to deduct input [VAT] to use in activities which do confer such entitlement, the adjustment of deductions may not be effected on a one-off basis but must be spread over the subsequent five years, and, in the case of immovable property, over ten years, following the year in which the capital goods were surrendered for use?


AG Opinion

None


Decision (Order)

Articles 167, 187 and 189 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, together with the principle of neutrality of value added tax, must be interpreted as not precluding provisions of national law, such as those at issue in the main proceedings, which, in a case where there is a change in the purpose of immovable property acquired as capital goods from an initial use in activities not conferring entitlement to deduct value added tax to a subsequent use in activities which do confer such entitlement, provide for an adjustment period of 10 years starting from the time at which the goods are first used and, therefore, do not permit a one-off adjustment during a single tax year.


Summary

Articles 167, 187 and 189 of the VAT Directive do not preclude national provisions whereby, in cases where an investment property is intended first for use for which there is no right to deduct VAT, and then for use for which such right exists, a A revision period of ten years has been established, starting from the commissioning of that good, and a revision in one go, in one tax year, is therefore excluded.


Source:


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