Flashback on ECJ Cases – C-572/07 (RLRE Tellmer Property) – Rental of an immovable property and the service of cleaning the common parts are separate services

On June 11, 2009, the ECJ issued its decision in the case C-572/07 (RLRE Tellmer Property).

Context: Preliminary references – VAT – Exemption for lettings of immovable property – Cleaning of common parts related to the letting – Ancillary supplies

Article in the EU VAT Directive

Article 13B(b) of the Sixth VAT Directive (Article 135(1)(l) and 135(2) of the EU VAT Directive 2006/112/EC).

Article 135
1. Member States shall exempt the following transactions:

(l) the leasing or letting of immovable property.

2. The following shall be excluded from the exemption provided for in point (l) of paragraph 1:
(a) the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;
(b) the letting of premises and sites for the parking of vehicles;
(c) the letting of permanently installed equipment and machinery;
(d) the hire of safes.
Member States may apply further exclusions to the scope of the exemption referred to in point (l) of paragraph 1.

Facts

RLRE Tellmer Property is the owner of rented apartment blocks. In addition to rent, it charges its tenants separately for cleaning of the common parts carried out by caretakers.
Having taken the view that RLRE Tellmer Property had made an excessive deduction of VAT in relation to cleaning costs, the tax authorities decided to increase the VAT owed by that company in respect of receipts from cleaning activities.
RLRE Tellmer Property argues that letting and services related to the letting of apartments, such as the cleaning of the common parts, constitute indivisible transactions subject to a single regime of VAT.
The referring court is in doubt as to the interpretation which must be given both to the national law and the Community law applicable in this case. It envisages three possible replies to the questions which arise in the main proceedings.
- First, since tenants have the possibility of concluding an independent contract for the cleaning of common parts with a third party, that service does not form part of the letting and its exemption has no purpose.
- Second, in so far as exemption of the costs of cleaning those areas has the effect of diminishing charges due for accommodation, reasons of a social nature may justify exemption of those charges.
- Third, the referring court does not exclude the possibility that that question might have to be left to the assessment of the Member States.

Questions

The referring court wishes to know whether the provisions of Article 6 (Supply of services) and Article 13 (Exemptions within the territory of the country) of the 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 ¹ can be interpreted as meaning that the letting of an apartment (and possibly of non-residential premises) on the one hand and the related cleaning of the common parts on the other hand can be regarded as independent, mutually-divisible taxable transactions.

If, as the referring court suspects, the answer to the first question is in the negative, it further asks the Court of Justice whether the provisions of Article 13 of that directive, and in particular the introduction and part B(b) thereof: (1) require; (2) preclude; or (3) leave to the determination of the Member State the application of VAT to payment for cleaning of the common parts of a rented apartment block.

AG Opinion

(1) Articles 6 and 13 of the Sixth Directive require the letting of a dwelling (and possibly of non-residential premises) on the one hand and the related cleaning of the common parts on the other hand to be regarded, in principle, as independent, mutually separable transactions.

However, it is for the national court to verify the extent to which provisions of the relevant letting agreement, house rules applicable to the premises let or established legal practice in the Member State concerned permit, exceptionally, an alternative assessment.

(2) If a national court concludes that the letting of a dwelling on the one hand and the related cleaning of the common parts on the other hand, exceptionally, cannot be regarded as independent, mutually separable transactions, the cleaning of the common parts must be regarded as an element of the ‘letting of immovable property’ for the purposes of Article 13B(b) of the Sixth Directive, with the result that the application of VAT to the remuneration for that activity is precluded.

Decision

For the purposes of applying Article 13B(b) 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, the letting of immovable property and the cleaning service of the common parts of the latter must, in circumstances such as those at issue in the main proceedings, be regarded as independent, mutually divisible operations, so that the said service does not fall within that provision.

Summary

Rental-related cleaning of common areas – Additional services

The rental of an immovable property and the service of cleaning the common parts thereof must be regarded as independent, mutually separable transactions, so that this service is not exempt.

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