On December 16, 2010, the Ecj issued its decision in the case C-270/09 (MacDonald Resorts).
Context: VAT – Sixth Directive 77/388/EEC – Exemptions – Article 13(B)(b) – Letting of immovable property – Sale of contractual rights convertible into usage rights for timeshare holiday accommodation
Article in the EU VAT Directive
Articles 9(2)(a), 13B(b) of the Sixth VAT Directive (Articles 47, 135(1)(l), 135(2) of the EU VAT DIrective 2006/112/EC).
Article 47 (Supply of services connected with immovable property)
The place of supply of services connected with immovable property, including the services of experts and estate agents, the provision of accommodation in the hotel sector or in sectors with a similar function, such as holiday camps or sites developed for use as camping sites, the granting of rights to use immovable property and services for the preparation and coordination of construction work, such as the services of architects and of firms providing on-site supervision, shall be the place where the immovable property is located.
Article 135 (Exemption)
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
- MRL is a company which has its registered office in the United Kingdom. It is registered for VAT in that Member State and for IVA, the Spanish equivalent of VAT.
- MRL’s business, which is carried on in the United Kingdom and in Spain, consists in selling timeshare usage rights in properties in holiday resorts situated in those two Member States (‘timeshare usage rights’). It uses the same contractual documents in the United Kingdom and Spain.
- Since 3 October 2003, MRL has being marketing a new product consisting of an options programme called ‘Options by Macdonald Hotels and Resorts’ (‘the Options Scheme’). That scheme was set up in order to make better use of the unsold timeshare inventory, and to offer to MRL’s customers greater flexibility in how they could enjoy accommodation in MRL’s resorts, in particular as regards the choice of resort and period of occupation.
- To set up Options, MRL established a club called ‘Options by Macdonald Hotels and Resorts’ (‘the Club’). It is a non-profit-making unincorporated body governed by a written constitution (‘the Constitution’). According to the Constitution, its principal object is ‘to secure for the Members rights to reserve holiday accommodation and other ancillary benefits for specified periods in each year during the period of 30 years hereinafter mentioned in terms of the [Options Scheme] as defined by this Constitution’.
- According to the order for reference, the main characteristics of the Constitution and the contracts relating to it may be described as follows:
- – the Club was constituted for a term of 30 years, from 3 October 2003 until 2 October 2033;
- – MRL is the founder member, with the power and responsibility to conduct the business and affairs of the Club and administer the Options Scheme and take any steps that it considers necessary for that purpose;
- – as founder member, MRL appointed a trustee and transferred to it its right and title to its timeshare accommodation inventory. Under the Constitution MRL became entitled to the ‘Points Rights’ accruing to that accommodation. Those rights are available for sale by MRL to ordinary members;
- – MRL’s customers who apply to join the Options Scheme, and who comply with the conditions for membership, become ordinary members of the Club. They acquire ‘Points Rights’ either by purchasing them from MRL or by depositing timeshare usage rights relating to fixed weeks with the trustee;
- – MRL attributes a value to all timeshare weeks available for use by members. The values are expressed as a certain number of points determined according to the location, standard and type of accommodation and the time of year concerned. Members are credited each year with a number of points according to their Points Rights. They may redeem those points in the year concerned by occupying particular accommodation for a chosen period, up to the value of their points and the number of weeks available. The expression ‘Points Rights’ means the entitlement of members to be credited each year with points so that they can exercise their rights to occupy accommodation during the year concerned.
- – there is no joining fee payable on first becoming a member of Options Scheme, but on applying to join it a new ordinary member must acquire Points Rights. He may do so in one of two ways. He may purchase points rights from MRL (currently at GBP 2.50 per Points Right, subject to promotional discounts). The purchase is effected by way of a ‘Points Sales Contract’ between the new member and MRL. Or he may receive points rights in return for depositing with the trustee timeshare usage rights which he has acquired from MRL and payment of an ‘Enhancement Fee’;
- – the second of those methods can be effected in two different ways. First, a pre-existing MRL timeshare owner may bring his property to which those rights pertain within the Options Scheme by entering into an ‘Enhancement Contract’ with MRL, thereby receiving Points Rights relating to that timeshare interest. Second, a person who does not own timeshare usage rights may enter into a ‘Resale and Enhancement Contract’ with MRL by which he simultaneously acquires such rights and brings them within the Options Scheme. Members who have entered either of those contracts are referred to as ‘Enhanced Members’. Such a member retains the right, exercisable within the first two months of each year, to use the timeshare usage rights that he brought into the Options Scheme in the relevant year. If he does not do so he is credited with a number of points which he may use on other accommodation of equivalent value in the Options Scheme. If the Enhanced Member deposits his timeshare usage rights with the trustee they are made available for use by any other members who may redeem their points in order to use the accommodation for those weeks;
- – ordinary members agree to pay annual management charges appropriate to their holding of points rights and transaction fees for reserving accommodation when redeeming points. Payment is made to MRL in Scotland;
- – additional Points Rights may be purchased from MRL by ordinary members at any time;
- – MRL may permit members to exchange points for accommodation in hotels operated by it or for other benefits. Thus, MRL has offered members the possibility to request, up to 10 months in advance, the exchange of their points for accommodation for periods of 3, 4 or 7 nights in one of over 70 hotels, subject to availability. The number of points required for such a booking varies according to a specified classification into which the hotels concerned are ordered. Once the booking has been confirmed, MRL becomes responsible to the hotel for the accommodation cost;
- – members may save up points unused in one year to be used in the following year. Their whole points entitlement may be saved if the request is made not later than nine months before the end of the current year, and up to 50% may be saved if the request is made between nine and three months before the end of the year;
- – conversely, until three months before the end of the year, members may borrow points from their following year’s entitlement in order to make a booking that calls for points exceeding their Points Rights for the current year, if they pay the next year’s estimated management charges at the time of making the reservation;
- – MRL may arrange for members of the Club to have access to an external (that is run by a third party) timeshare exchange programme. MRL has established links with a programme known as Interval International, so that on joining the Options Scheme, members acquire, at no extra cost, two years’ membership of the Interval International programme. Thereafter, members may continue as members of the Interval International programme by separate arrangement and at their own expense. Membership of Interval International entitles members of the Options Scheme to exchange timeshare weeks in the Options Scheme, for which they have redeemed their points in a given year, for accommodation made available by other members of Interval International. MRL is entitled to terminate or to change any affiliation to an external timeshare programme which it has arranged;
- – MRL has the power at any time to remove from the Options Scheme any of the timeshare weeks which it has deposited with the trustee. However MRL is obliged to ensure that there is always sufficient accommodation available to satisfy the total of the Points Rights held by itself and by ordinary members. MRL also has the power to determine and vary the points grading of accommodation, and to re-denominate points and ‘Points Rights’ by increasing or decreasing their number in line with each other whilst maintaining their value.
The proceedings before the national authorities
- The dispute in the main proceedings concerns the proper classification, for the purposes of liability to VAT, of the supply of certain services made by MRL in the course of its timeshare usage rights business. The place of supply of those services is also at issue
- The dispute arises from a decision of the Commissioners in March 2004 that the sale of ‘Points Rights’ is to be treated as the taxable supply of benefits derived from membership of a club and that the place of that supply is the United Kingdom.
Questions
1. Where the applicant, in accordance with the provisions of the Constitution of the Club and the contracts associated therewith, makes supplies of contractual rights (“Points Rights”) which entitle the purchaser to points redeemable annually for the occupation and use of timeshare accommodation in MRL’s resorts, is that supply to be characterised as the leasing or letting of immovable property within the meaning of Article 13B(b) of the Sixth … Directive, or … as membership of a club, or … in some other manner?
2. Does it affect the answer to question 1 that:
(a) in some cases the contractual rights are acquired in return for the customer depositing with MRL pre-existing [timeshare usage] rights … held by the customer in … accommodation at a particular place for one or more fixed weeks?
(b) the customer may in any year decide not to redeem his or her points entitlement for that year in whole or in part for any rights of occupation and may instead elect to augment his or her entitlement in the following year, or, subject to the contractual conditions of the [Options Scheme] in any year, may augment that year’s entitlement by “borrowing” – from his or her entitlement to points in the following year;
(c) the properties comprising the pool of accommodation may change between the time when “Points Rights” are acquired and the time when points are redeemed for the right to occupy a property;
(d) the number of points to which the customer is entitled each year may be varied by the supplier in accordance with the contractual conditions of the [Options Scheme];
(e) [MRL] may from time to time arrange for persons holding Points Rights to have access to [another] timeshare programme;
(f) [MRL] may from time to time arrange for persons holding Points Rights to exchange their points for accommodation in hotels operated by [MRL] or for other benefits provided by [MRL]?
3. Where a taxable person makes supplies of the services described in questions 1 and 2 above,
(a) are these “services connected with immovable property” within the meaning of Article 9(2)(a) of the Sixth VAT Directive …?
(b) [If] the answer to question 3(a) is [affirmative]: in circumstances where members of the Club may exercise their contractual rights by occupying timeshare accommodation in more than one Member State, and it is not known at the time of supply which accommodation will be so occupied, how is the place of supply to be determined?
AG Opinion
1. A supply, such as that performed by MRL, in the form of the grant of contractual rights (Points Rights) which entitle the purchaser to Points redeemable annually for the occupation and use of timeshare accommodation in MRL’s resorts is to be regarded as forming part of a ‘service connected with immovable property’ within the meaning of Article 9(2)(a) 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 (now Article 45 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax).
2. With regard to enhancement fees, the place of supply is the place where the property in which the member concerned has a timeshare usage right is situated. With regard to purchase fees, the place of supply is determined by reference to the Member States in which the service provider has properties at the time when the Points Rights are acquired by the customer. VAT is chargeable on the basis of the respective share of available properties in the Member States concerned.
3. The service described above is to be characterised as a ‘letting of immovable property’ within the meaning of Article 13B(b) of the Sixth Directive (now Article 135(1)(l) of Directive 2006/112/EC). None the less, that provision does not prevent the Member States from excluding that service from the exemption from tax.
Decision
1. Supplies of services effected by an operator such as the applicant in the main proceedings under a scheme such as the ‘Options Scheme’ at issue in the main proceedings must be classified at the time when the customer participating in such a scheme converts the rights he initially acquired into a service offered by that operator. Where those rights are converted into hotel accommodation or into a right to temporarily use a property, those supplies are supplies of services connected with immovable property within the meaning of Article 9(2)(a) 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 2001/115/EC of 20 December 2001, which are performed at the place where the hotel or that property is situated.
2. Under a scheme such as the ‘Options Scheme’ at issue in the main proceedings, when the customer converts the rights he initially acquired into a right to temporarily use a property, the supply of services concerned constitutes the letting of immovable property within the meaning of Article 13B(b) of Sixth Directive 77/388, as amended by Directive 2001/115 (now Article 135(1)(l) of Council Directive 2006/112/EC of 28 December 2006 on the common system of value added tax). However, that provision does not prevent Member States from excluding that supply from exemption.
Summary
Sale of contractual rights that can be converted into rights of temporary use of holiday accommodation – Rental of real estate
Services provided under an ‘options programme’ must be qualified at the time when a customer participating in such a system exchanges the rights initially acquired for a service offered by that economic operator.
When these rights are exchanged for a stay in a hotel or a right to the temporary use of a residence, these services constitute a supply of services connected with immovable property, which are performed at the location of this hotel or residence.
When, in an ‘option programme’, the customer exchanges the rights initially acquired for a right to temporary use of a residence, this service constitutes a rental of immovable property. Nevertheless, this provision does not preclude Member States from excluding such services from the tax exemption.
Source:
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