Flashback on ECJ Cases – C-267/08 (SPÖ Landesorganisation Kärnten) – External propaganda activities of a political party is not an economic activity

On June 6, 2009, the ECJ issued its decision in the case C-267/08 (SPÖ Landesorganisation Kärnten).

Context: VAT – Entitlement to deduct input tax – Concept of ‘economic activities’ – Regional groups of a political party – Advertising activities benefiting the party’s local groups – Expenditure relating to those activities exceeding income

Article in the EU VAT Directive

Articles 4(1) and (2) of the Sixth VAT Directive (Article 9(1) of the EU VAT Directive 2006/112/EC).

Article 9 (Taxable person)
1. ‘Taxable person’ shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as ‘economic activity’. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.

Facts

The main proceedings were brought by the Landesorganisation. That organisation, an entity having legal personality, carried out certain activities for district and local groups for which it was responsible in the field of public relations, advertising and information, activities deemed to be ‘external advertising’. In particular, it purchased advertising material before the elections, which it then supplied, against invoice, to various district and local organisations in accordance with their requirements, and organised the SPÖ ball that was held each year.
The parties in the main proceedings disagree as to whether the Landesorganisation, in performing external advertising activities for the groups for which it was responsible, should be regarded, under the Sixth VAT Directive, as a taxable person which is entitled to deduct input tax incurred in that context.
According to the findings of the referring court, the income received by the Landesorganisation between 1998 and 2004 came predominantly from invoicing services to the regional and local groups and the sale of entrance tickets to the annual SPÖ ball. However, only a small proportion of the expenses of the provincial organisation was invoiced to the groups for which it was responsible. Those groups contributed to the expenditure of the Landesorganisation according to their financial resources – without there being any predetermined rules to be complied with – resulting in the Landesorganisation itself being obliged to cover the major part of the costs incurred in relation to the advertising at issue. It was able to counterbalance the resulting losses with money from public funds, members’ contributions, subscriptions paid by the members and donations.
It was only from 2004 that the services which could not be attributed to a particular beneficiary were invoiced to the district groups in the form of a ‘publicity charge’. The amount of the charge was determined by the number of the relevant district’s party members and the number of members of parliament returned by that district.

Questions

1. Is Article 4(1) 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 Sixth Directive) to be interpreted in such a way that ‘external advertising’ by the legally independent provincial organisation of a political party, taking the form of publicity, information provision, the staging of party events, the supply of advertising material to district organisations and the organisation and holding of an annual ball (the SPÖ Ball), is to be regarded as an economic activity if revenue is obtained from (partially) passing the expense of the ‘external advertising’ on to the likewise legally independent party structures (district organisations etc.) and from entrance fees from the holding of the ball?
2. In the assessment of whether there is ‘economic activity’ within the meaning of Article 4(1) and (2) of the Sixth Directive, is it prejudicial that the activities mentioned in Question 1 are also ‘reflected’ back to the provincial organisation and hence are beneficial to it too? It is in the nature of things that as a result of those activities the party as such and its political objectives and views are always also being publicised, if not in the forefront, nevertheless as an inevitable side effect.
3. Can there still be ‘economic activity’ in the above sense where the expenditure on ‘external advertising’ persistently exceeds many times over the revenue obtained from that activity by passing on the expense and the revenue obtained from holding the ball?
4. Is there an ‘economic activity’ even where the passing on of the expense does not take place according to readily ascertainable economic criteria (e.g. allocation of charges according to cause or benefit) and it is essentially left to the subordinate organisations to determine whether and to what extent they wish to contribute to the expenditure of the provincial organisations?
5. Is there an ‘economic activity’ even where advertising services are invoiced to the subordinate organisations in the form of a charge the amount of which is determined firstly by the number of members in the relevant local organisation and secondly by the number of members it sends to representative assemblies?
6. In determining whether there is economic activity, should subsidies from public funds which do not form part of the taxable consideration (such as, for example, the financing of parties under the Carinthian Parteienförderungsgesetz (Law on the financing of parties) be taken into consideration as it were as economic advantages?
7. If the ‘external advertising’, viewed in isolation, constitutes an economic activity within the meaning of Article 4(1) and (2) of the Sixth Directive, does the fact that publicity and election advertising is a central feature of the activity of political parties and a condition sine qua non for the implementing of political objectives and programmes preclude such activity from being classified as an ‘economic activity’?
8. Are the activities performed by the appellant and described by it as ‘external advertising’ of such a nature as to be comparable with, or correspond in content to, activities carried out by commercial advertising agencies for the purposes of Annex D (number 10) of the Sixth Directive? If that question is answered affirmatively, can the extent of the activities be described as ‘not insignificant’ in the context of the revenue/expenditure structure prevailing at the material time for the purposes of the appeal?

AG Opinion

I therefore propose that the Court state in reply to the questions referred that Article 4(1) 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 is to be interpreted in such a way that ‘external advertising’ by the legally independent provincial organisation of a political party taking the form of publicity, information provision, the staging of party events, the supply of advertising material to district organisations and the organisation and holding of an annual ball is not to be regarded as an economic activity if revenue is obtained from (partially) passing the expense of the ‘external advertising’ on to the likewise legally independent party structures (district groups and so on) and from entrance fees from the holding of the ball. Such a provincial organisation is not in a position comparable to that of a commercial advertising agency.

Furthermore, subsidies from public funds paid to the political party under the national law on the financing of parties are not economic advantages making the relevant activity an ‘economic activity’ for the purposes of the Sixth VAT Directive.

Decision

Article 4(1) and (2) 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 must be interpreted as meaning that external advertising activities carried out by a section of a Member State’s political party are not to be regarded as an economic activity.

Personal comments/VATupdate

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