Articles in the EU VAT Directive 2006/112/EC
Article 13(1) of the EU VAT Directive 2006/112/EC
Article 13 (Taxable persons)
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.
Facts
- The dispute concerns whether the applicant and appellant on a point of law (applicant), which is a legal entity governed by public law, carried out an economic activity as a trader in the years 2009 to 2012 (‘the disputed years’) and therefore has a right of deduction.
- The applicant, which is a municipality, is a state-recognised air spa town. The applicant’s spa administration has been run since 1 January 1997 (most recently under the name ‘B’) as a government-operated business under municipal law and qualifies as a commercial business for the purposes of corporation tax laws (hereinafter ‘the spa business’).
- The applicant imposes a spa tax pursuant to Paragraph 4 of the Gemeindeordnung für Baden-Württemberg (Municipal Code for Baden-Württemberg, ‘the GemO’) […], read in combination with the applicant’s by-laws […] (local laws of Gemeinde A […]):
‘Paragraph … Imposition of a spa tax
The municipality shall impose a spa tax to cover the costs of erecting andmaintaining the facilities provided for spa and leisure purposes and for the events organised for that purpose.
Paragraph … Persons subject to the spa tax
(1) Anyone staying in the municipality who is not resident in the municipality (non-local persons) and who is offered the opportunity to use facilities and participate in events [within the meaning] of Paragraph … shall be subject to the spa tax.
(2) Residents of the municipality, the focal point of whose life is in a different municipality, shall also be subject to the spa tax (annual spa tax), as shall non-local persons staying in the spa municipality for professional reasons to attend conferences or other events.
(3) Non-local persons working or undergoing training in the municipality shall not be subject to the spa tax. …
Paragraph … Basis for and rate of spa tax
(1) A spa tax in the amount of … shall be imposed per person, per day’s stay.
(3) The day of arrival and the day of departure shall be counted as one day’s stay.
(4) Residents of the municipality subject to the spa tax shall pay an annual spa tax, irrespective of the duration, frequency and time of year of their stay.
This tax shall be imposed in the amount of … .
Paragraph … Compulsory notification
(1) Anyone who provides paid accommodation, operates a camping site or lets out their apartment as a holiday home to non-local persons shall notify the arrival/departure of persons staying with them within 3 days. …
(2) Travel agencies shall also notify the arrival/departure of tourists whose payment to the trader includes the spa tax. …
Paragraph … Collection and payment of spa tax
(1) The persons subject to the notification requirement under Paragraph … (…) and … shall, unless a spa tax notice is issued in accordance with
Paragraph … (…), collect the spa tax from the persons liable for the spa tax and pay it to the municipality. They shall be liable towards the municipality for full and correct collection of the spa tax. …’. - The applicant used this revenue to finance the erection, maintenance and renovation of spa facilities (e.g. spa park, spa building, footpaths) in the disputed years. These facilities are freely accessible to everyone; there is no need to present a spa card in order to gain admittance.
- The applicant reported the spa tax as remuneration for an activity subject to turnover tax (the spa business) on its turnover tax returns for the disputed years and claimed a deduction for all tourism-related inputs.
- The Finanzamt (‘the Tax Office’), the defendant and respondent in the appeal on a point of law, carried out a tax audit. The auditor […] applied […] extensive reductions to the input tax claimed. The input tax which did not relate to the spa business was not recognised. Furthermore, input tax relating to the spa building was only allowed where the spa building was leased for a fee. The auditor did not allow input tax for footpaths, hiking trails and other facilities outside the spa park to be deducted.
- The Tax Office agreed with those findings and issued VAT amendment notices on 20 March 2015. Following unsuccessful appeal proceedings […], the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg) dismissed the action by judgment of 18 October 2018, 1 K 1458/18, Municipal Finances Journal 2019, 36. It held that, in acting to impose a spa tax, the applicant was not engaged in a business activity, aside from when it (occasionally) hired out the spa building for catering and other events; that it had not in that respect provided spa guests with services as a trader, as treating the applicant as a nontaxable person does not give rise to any significant distortions of competition; that the services as a whole could not be provided by private suppliers, as they are not in a position to satisfy the same need of the spa guests; and that, as the ‘operation of the spa facilities’ in return for the spa tax does not constitute a business activity, the transactions declared for the spa tax imposed are not otherwise subject to VAT and, consequently, the deductions already allowed by the Tax Office should be reversed, although it is prohibited from issuing a revised tax assessment which is less favourable to the applicant.
- In the alternative, the Finance Court held that, even if the ‘operation of the spa facilities’ by the applicant in return for the spa tax does constitute a business activity, the (further) deduction sought would fall foul of the lack of any connection between the costs incurred in the erection, maintenance and operation of the facilities and its (supposed) economic activity (‘the spa business’).
- By its appeal on a point of law, the applicant alleges infringement of substantive and procedural law and requests, in addition to its original request, that further deductions be taken into account.
Questions
1. In circumstances such as those in the main proceedings, does a municipality which, on the basis of municipal bylaws, imposes a ‘spa tax’ (of a certain amount per day’s stay) on visitors staying in the municipality (spa guests) for the provision of spa facilities (for example a spa park, a spa building, footpaths) carry out, by providing the spa facilities to the spa guests in return for a spa tax, an economic activity for the purposes of Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax if the spa facilities are in any event freely accessible to everyone (and therefore also, for example, to residents not subject to the spa tax or to other persons not subject to the spa tax)?
2. If the answer to Question 1 is in the affirmative: In the circumstances in the main proceedings described above, is the municipal territory alone the relevant geographic market for the purpose of examining whether treating the municipality as a non-taxable person would lead to ‘significant distortions of competition’ within the meaning of 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?
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