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Flashback on ECJ Cases – C-208/15 (Stock ’94) – Supply of goods and a grant of a loan constitutes a single transaction

On December 8, 2016, the ECJ issued its decision in the case C-208/15 (Stock ’94).

Context: Reference for a preliminary ruling — Value added tax — Directive 2006/112/EC — Integrated cooperation — Grant of financing and supplies of current assets necessary for agricultural production — Single, complex supply — Distinct and independent supplies — Ancillary supply and principal supply


Article in the EU VAT Directive

Articles 73, 135(1)(b) of the EU VAT Directive 2006/112/EC.

Article 73 (Taxable amount)
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Article 135 (Exemption)
1. Member States shall exempt the following transactions:
(b) the granting and the negotiation of credit and the management of credit by the person granting it;


Facts

  • Stock ‘94 is a commercial company established in Hungary. It acts as an ‘integrator’ within an institution specific to the Hungarian agricultural system, known as ‘integrated cooperation’. That institution is governed by the principle pursuant to which the integrator concludes a contract with a farmer, namely, the ‘integrated producer’, by which the integrator grants a loan to that farmer, who uses it to buy, from the integrator, the resources necessary for its production, such as seeds, referred to as ‘current assets’. The integrated producer subsequently sells its production either to the integrator or on the market, through the intermediary of the integrator.
  • In the present case, Stock ‘94 concluded with various agricultural producers integration contracts whereby, first, it undertook to support, particularly from a technological perspective, farmers’ production and to finance the purchase of the current assets necessary for that purpose. Second, those farmers undertook to cultivate the products concerned on certain farmland and to use the loans granted by the integrator solely to purchase the current assets from it.
  • Stock ‘94 billed the sale of the current assets to the farmers, applying a VAT rate of 25% to the deliveries. However, that company exempted from VAT the interest, billed on a quarterly basis, on the loans granted to the farmers to purchase the current assets. In June 2011 the interest on the financing contracts for the current assets amounted to 149 846 000 Hungarian forints (HUF) (approximately EUR 483 500).
  • During a tax inspection of the VAT returns for that period, carried out a posteriori by the first-tier Hungarian tax authority, it identified, in relation to the interest on the loans, a VAT shortfall of HUF 37 462 000 (approximately EUR 121 000). It therefore ordered Stock ‘94 to pay that sum, together with default interest, and also imposed a tax penalty on it.
  • The Directorate-General upheld the decision of the first-tier authority on the substance, finding that the loans for the purchase of current assets were an intrinsic part of the integrated cooperation service provided by Stock ‘94. Consequently, it found that the same VAT rate was to be applied to supplies of current assets and to loans. However, it reduced the amount of the sum to be paid to HUF 17 588 000 (approximately EUR 56 500).
  • The court of first instance upheld the position of the Directorate-General. In that regard, it found that the loans that were granted could be used only to purchase the current assets from Stock ‘94, with the result that the credit and the supply of the current assets used by the farmers constituted two intrinsic elements of the complex integrated cooperation service provided by that company. That court held, moreover, that such supplies had the same objective and that the interest on the credit used to purchase the current assets constituted expenses merely incidental to the delivery of those assets, that supply being the principal supply in the complex operation at issue. The consideration billed in respect of the ancillary supply therefore had to use the same tax regime as the supply of the current assets.
  • Hearing an appeal in cassation brought by Stock ‘94 against the judgment at first instance, the Kúria (Supreme Court, Hungary) asks whether it must consider, in terms of VAT, the supply of the current assets and the grant of a loan to be two transactions distinct and independent from one another. In the event that those two supplies should be regarded as a single transaction, the referring court asks under what conditions integrated cooperation constitutes an exception to the principle of the general application of VAT.

Questions

  • (1)      Must Article 1(2), Article 2(1)(a) and (c), Article 14(1), Article 24(1), Article 73, Article 78(b), and Article 135(1)(b) of the VAT Directive be interpreted as meaning that a supply of goods and a grant of a loan made in accordance with a contract concluded between an integrator and an integrated producer constitute distinct and independent transactions for the purposes of VAT liability, or as meaning that a single transaction is carried out, the tax base of which includes, in addition to the consideration for the goods supplied, the interest on the loan granted?
  • (2)      If the latter interpretation is in accordance with the VAT Directive, may the VAT Directive be interpreted, as regards the single transaction which covers the supply of goods subject to VAT and the supply of services exempt from VAT, as meaning that the transaction constitutes an exception to the principle of the general application of VAT? If so, what criteria must be met?
  • (3)      Does the fact that the integrator may, in accordance with the contract, supply further services to the integrated producer, at the latter’s request, and/or may purchase all of the agricultural goods produced, influence the answer to the foregoing questions and if so, to what extent?

AG Opinion

None


Decision

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that:

– an integrated agricultural cooperation providing that an economic operator delivers goods to a farmer and grants him a loan intended for purchasing those goods constitutes a single transaction for the purposes of that directive, in which the supply of the goods is the principal supply. The taxable amount of that single transaction is made up of both the price of those goods and the interest paid on the loans granted to the farmers;

– the fact that an integrator may provide the farmers with additional services or buy their agricultural production has no bearing on the categorisation of the transaction at issue as a single transaction, for the purposes of Directive 2006/112.


Summary

Provision of financing and delivery of current assets necessary for the production of agricultural products – A single complex performance

An agricultural cooperation based on integration whereby an economic operator supplies goods to a farmer and grants him a loan to purchase those goods is a single transaction for VAT purposes, in which the supply of the goods is the main supply. The taxable amount for that single transaction includes both the price of those goods and the interest paid by the farmers on the loans granted to them.

The fact that an integrator may provide other services to farmers or purchase the agricultural products produced by them does not affect the classification of the act in question as a single act.


Source:


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