On , the ECJ issued its decision in the case C-4/89 (Comune di Carpaneto Piacentino and others).
Context: Tax provisions – Harmonization of legislation – Turnover tax – Common system of value-added tax – Taxable persons – Bodies governed by public law – Exclusion of activities pursued as public authorities – Concept – Liability to tax where there are distortions of competition and economic activities which are important and not carried on on a negligible scale – Scope – Transposition of corresponding criteria into national law – Member States’ obligations
Article in the EU VAT Directive
Article 4(5) of the Sixth VAT Directive (Article 13 of the EU VAT Directive 2006/112/EC).
Article 13
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.
2. Member States may regard activities, exempt under Articles 132, 135, 136 and 371, Articles 374 to 377, Article 378(2), Article 379(2) or Articles 380 to 390b, engaged in by bodies governed by public law as activities in which those bodies engage as public authorities.
Facts
- By order of 22 December 1988, which was received at the Court on 5 January 1989, the commissione tributaria di primo grado di Piacenza (First Instance Tax
Board, Piacenza) referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty several questions on the interpretation of Article 4(5) of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (hereinafter referred to as ‘the Sixth Directive’; Official Journal 1977, L 145, p. 1). - Those questions arose in proceedings between the local authority of Carpaneto Piacentino and 11 other local authorities which intervened in support of it and the Ufficio provinciale imposta sul valore aggiunto di Piacenza (Provincial Value-Added Tax Office, Piacenza) concerning the classification for the purposes of liability to value-added tax (hereinafter referred to as ‘VAT’) of the following transactions engaged in by the local authorities: concessions in respect of graves and cemetery vaults, sale of various fittings for vaults, sale of building land for subsidized housing and grants of building rights over land in connection with subsidized housing, contribution towards the payment of expenses incurred in installing water pipes, fees received for the concession to operate a public weighbridge, sales of salvaged plumbing material, sale of surplus road-making materials, sale of wood obtained from the lopping of trees lining the streets.
Questions
In order to bring the Italian system of value-added tax into line with the Community provisions was the Italian legislature under an obligation by virtue of Article 1 of the Sixth Directive :
( a ) to lay down the general principle set out in the first subparagraph of Article 4(5 ) of the Sixth Directive by stipulating specific criteria for defining the activities engaged in by local authorities in their capacity ‘as public authorities’ by reference to the concept of ‘administrative functions’ , as defined with regard to the various branches of municipal activities by Presidential Decree No 616 of 24 July 1977 adopted pursuant to Delegating Law No 382/1985, implementing Article 118 of the Constitution;
( b ) to exclude, therefore, from the range of commercial activities any activities which are deemed by law to involve the exercise of administrative functions pursuant to Presidential Decree No 616 of 24 July 1977 and the other legislative provisions referred to therein;
( c ) not to subject to value-added tax, in compliance with the second subparagraph of Article 4(5 ), activities engaged in optionally by local authorities ( management of certain public services ) where they do not lead to significant distortions of competition, in so far as the same services are also provided by private individuals, as is the case, for instance, with regard to the management of pharmacies in most local authority areas and, consequently, to specify the necessary quantitative limits;
( d ) to fix, pursuant to the third subparagraph of Article 4(5 ) of the Sixth Directive, a threshold below which there is no liability to tax in respect of the public activities listed in Annex D to the Sixth Directive ( excluding the management of water supply which, being compulsory, involves the exercise of an administrative function )?
AG Opinion
( 1 ) The first subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that activities pursued ‘as public authorities’ within the meaning of that provision are those engaged in by bodies governed by public law under the special legal regime applicable to them and do not include activities pursued by them under the same legal conditions as those that apply to private traders . It is for each Member State to choose the appropriate legislative technique for transposing into national law the rule of treatment as a non-taxable person laid down in that provision . The Member States are not required to exclude certain activities from VAT solely on the ground that they are classified in national law as ‘administrative functions’ or something similar .
( 2 ) The second subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that the Member States are required to ensure that bodies subject to public law are not treated as taxable persons in respect of activities in which they engage as public authorities even where those activities may also be engaged in, in competition with them, by private individuals, in cases in which their treatment as non-taxable persons is not capable of leading to significant distortions of competition, but they are not obliged to transpose that criterion literally into their national law or to lay down precise quantitative limits for such treatment .
( 3 ) The third subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that it does not require the Member States to transpose into their tax legislation the criterion of the non-negligible scale of activities as a condition for treating the activities listed in Annex D as taxable . Nor are they required to fix a ceiling for treatment as non-taxable persons in respect of the activities at issue .
Decision
( 1 ) The first subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that activities pursued “as public authorities” within the meaning of that provision are those engaged in by bodies governed by public law under the special legal regime applicable to them and do not include activities pursued by them under the same legal conditions as those that apply to private traders . It is for the national court to classify the activities in question in the light of that criterion .
( 2 ) The second subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that the Member States are required to ensure that bodies subject to public law are treated as taxable persons in respect of activities in which they engage as public authorities where those activities may also be engaged in, in competition with them, by private individuals, in cases in which their treatment as non-taxable persons could lead to significant distortions of competition, but they are not obliged to transpose that criterion literally into their national law or to lay down precise quantitative limits for such treatment .
( 3 ) The third subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that it does not require the Member States to transpose into their tax legislation the criterion of the non-negligible scale of activities as a condition for treating the activities listed in Annex D as taxable .
Summary
- The first subparagraph of Article 4(5) of the Sixth Directive on VAT states that activities pursued “as public authorities” refer to those carried out by bodies governed by public law under their special legal regime, and not those pursued under the same legal conditions as private traders.
- The classification of activities must be determined by the national court based on this criterion.
- The second subparagraph requires Member States to treat bodies subject to public law as taxable persons in activities where they compete with private individuals, to prevent significant distortions of competition.
- However, there is no obligation to apply precise quantitative limits or literal transposition into national law.
- The third subparagraph does not require Member States to include the non-negligible scale of activities as a condition for treating listed activities as taxable in their tax legislation.
Source
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