ECJ C-87/23 (Latvijas Informācijas un komunikācijas tehnoloģijas asociācija) – AG Opinion – Subsidies paid by a fund to specific service providers for a particular service are included in the taxable amount

On March 7, 2024, the ECJ issued the AG Opinion in the case C-87/23 (Latvijas Informācijas un komunikācijas tehnoloģijas asociācija).

Context: Request for a preliminary ruling – Tax legislation – Value added tax (VAT) – Directive 2006/112/EC – Articles 2, 9, 28 and 73 – Supply of services for consideration – Meaning of ‘taxable person’ – Economic activity – Typological approach – Non-profit association organising and implementing training projects financed by the European Regional Development Fund (ERDF) – Supply of training services through subcontractors – Inclusion of the funding in the taxable amount)

Article in the EU VAT Directive

Articles 2(1)(c), 9(1), 24(1), 28, 73 and 168(a) of the EU VAT Directive 2006/112/EC.

Article 2(1)(c) of the VAT Directive provides that the supply of services for consideration within the territory of a Member State by a taxable person acting as such is to be subject to VAT.

Pursuant to Article 9(1) of the VAT Directive, ‘taxable person’ means any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Under Article 24(1) of the VAT Directive, ‘supply of services’ means any transaction which does not constitute a supply of goods.

Article 28 of the VAT Directive provides that, where a taxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself.

Article 73 of the VAT Directive provides that, in respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount is to include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

For its part, in accordance with Article 168(a) of the VAT Directive, in so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person is to be entitled, in the Member State in which he carries out these transactions, to deduct, from the VAT which he is liable to pay, VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person.

Facts

In 2016, the applicant association, Latvijas Informācijas un komunikācijas tehnoloģijas asociācija (‘the Association’), was awarded contracts to implement two projects financed by EU funds, namely, Project No 1.2.2.1/16/A/003 ‘IKT profesionāļu apmācības inovāciju veicināšanai un nozares attīstībai’ (Training of ICT professionals for the promotion of innovation and development of industry; ‘the ICT Project’) and Project No 1.2.2.3/16/1/002 ‘Mazo un mikro komersantu apmācības inovāciju un digitālo tehnoloģiju attīstībai Latvijā’ (Training of micro and small enterprises for the development of innovation and digital technologies in Latvia; ‘the MSE Project’). In connection with the implementation of the ICT Project, the Association concluded Contract No 1.2.2.1/16/A/003 with the Centrālā finanšu un līgumu aģentūra (Central Finance and Contracting Agency, ‘the CFLA’) on 13 June 2016, while, for the purposes of implementing the MSE Project, the Association concluded Contract No 1.2.2.3/16/1/002 with the CFLA on 5 December 2016.
The implementing provisions for the ICT Project are laid down in Ministru kabineta 2015.gada 27.oktobra noteikumi Nr. 617 «Darbības programmas “Izaugsme un nodarbinātība” 1.2.2.specifiskā atbalsta mērķa “Veicināt inovāciju ieviešanu komersantos” 1.2.2.1.pasākuma “Atbalsts nodarbināto apmācībām” pirmās projektu iesniegumu atlases kārtas īstenošanas noteikumi» (pamata redakcijā) (Decree of the Council of Ministers No 617 of 27 October 2015 laying down ‘Implementing provisions for the first stage of the project selection process of the operational programme “Growth and Employment”, specific aid objective 1.2.2. “Promoting the integration of innovation in undertakings”, measure 1.2.2.1. “Support for employee training”’ (original wording); ‘Decree No 617’). It provides that a project may be proposed by an association which complies with the additional conditions laid down in that decree (paragraph 10). Funding is granted under the project for the training of employees of undertakings in the areas specified in the annex to that decree (paragraph 18). In addition, the training provider is any legal or natural person who complies with the conditions laid down in that decree (paragraph 20). The recipient of funding to implement the project purchases the necessary goods and services in accordance with the legislation on tendering procedures (paragraph 29). Aid is granted under that project in the form of a subsidy (paragraph 42).
The provisions for implementation of the MSE Project are laid down in Ministru kabineta 2016.gada 14.jūnija noteikumi Nr. 365 «Darbības programmas “Izaugsme un nodarbinātība” 1.2.2. specifiskā atbalsta mērķa “Veicināt inovāciju ieviešanu komersantos” 1.2.2.3.pasākuma “Atbalsts IKT un netehnoloģiskām apmācībām, kā arī apmācībām, lai sekmētu investoru piesaisti” īstenošanas noteikumi» (pamata redakcijā) (Decree of the Council of Ministers No 365 of 14 June 2016 laying down ‘Implementing provisions for the operational programme “Growth and Employment”, specific aid objective 1.2.2. “Promoting the integration of innovation in undertakings”, measure 1.2.2.3. “Support for ICT and non-technological training and training for attracting investors”’ (original wording); ‘Decree No 365’). In accordance with that decree, the entity which proposes the project may be any association or authority of the direct administration which complies with the additional conditions laid down in that decree (paragraph 13). Support is provided under that project for the necessary training to ensure that innovation in matters relating to products, processes, marketing and organisation is integrated in the undertaking (paragraph 3). The funding recipient uses external suppliers of (training) services to carry out the eligible actions set out in that decree (paragraph 27). Under that measure, aid is granted to final beneficiaries in the form of a subsidy. The subsidy is granted indirectly by way of the provision of training (paragraph 56). The funding recipient delivers the aid to the final beneficiaries (paragraph 57).
As part of the ICT Project, the Association concluded a number of contracts with companies to supply it with training services. The contracts stipulate that the Association will make payment to the undertaking supplying the training services once the training recipients have paid in full for the training course received, the necessary project documents have been submitted and a record of acceptance and delivery has been signed.
In connection with the project, the Association also concluded contracts with the recipients of the training services. In accordance with those contracts, the recipient of the training service or the final beneficiary of the aid undertakes to pay the Association the costs of the training course and value added tax (‘VAT’) in accordance with the invoices issued by the Association. In certain cases, the final beneficiary also undertakes, under the contract, to pay the Association an ‘administration fee’ of 5% or 10% of the amount of aid granted, plus VAT. For its part, the Association undertakes to transfer the amount of the aid to the final beneficiary in accordance with the decision on the grant of State aid and the
intensity of the aid within 10 days of receipt of the amount of the aid from the CFLA.In accordance with the contracts included in the case file and the explanations provided by the Association, under the ICT Project, the Association invoiced the training recipients for the training courses, including VAT, and declared those courses as taxable transactions in its VAT returns. The training recipients paid the Association. Once the training finished, the supplier of training services invoiced the Association for the total cost of the training service supplied, inclusive of VAT, which the Association paid and declared as input tax. After the project ended, the Association transferred the funding received from the CFLA to the recipients of the training services based on the intensity of the aid and also issued tax invoices to those recipients for administration of the ICT Project in the amount of 5% or 10% of the amount of the aid.
In connection with the MSE Project, the Association also concluded a contract with an undertaking for the provision of training services to micro and small enterprises. The contract provides that the Association is to pay the selected undertaking for the training services supplied in accordance with invoices issued by that undertaking, on which VAT is also to be included. Under that project, a three-party contract was also concluded between the Association, the supplier of the training service and the undertaking in receipt of the training service. Under that contract, the training recipient undertakes to fund the training jointly, while the training provider undertakes to transfer the amount of the joint payment to the Association. The invoice flows and payment for the MSE Project are shown schematically in the following diagram.
During an audit, the State tax administration (‘the Administration’) adopted a total of eight decisions in 2019 and 2021, pursuant to which it issued the Association, for the period from January to October 2018, with a notice of additional assessment in the amount of EUR 87 299.37 in respect of VAT, plus default interest of EUR 7 707.52 and a fine of EUR 611.96; it also refused to reimburse the overpaid VAT for the months of July, September, October, November and December 2018 and the months of February, March, May and December 2019 in the total amount of EUR 101 363.24. The Administration stated in its decisions that, in accordance with Decrees No 365 and No 617, the ICT and MSE projects could be carried out by an association or an administrative authority but not by an undertaking. In its view, since the Association was created to achieve the objectives set out in its statutes, which have a not-for-profit purpose, and since, also, it was not envisaged that any profit would be made from the implementation of the projects, those projects were not carried out as part of the Association’s economic activity. According to the Administration, in practice, the Association dealt with project management and administered the flow of aid payments from EU funds. The Association itself did not supply training services; those services were supplied by undertakings contractually linked to the Association. Accordingly, in its view, the Association is not entitled to deduct the input tax.
The Association submitted that its status as an association does not affect its right to deduct input tax. It states that it is registered as a taxable person liable for VAT and, while implementing the ICT and MSE projects, it supplied training services as an intermediary. It maintains that training is a transaction subject to VAT. Accordingly, it was required to issue tax invoices and, consequently, it is entitled to deduct the input tax.
The forms of order sought by the applicant were upheld by judgments of the Administratīvā rajona tiesa (District Administrative Court, Latvia). The Administration appealed against those judgments. All the cases were joined in a single set of proceedings before the Administratīvā apgabaltiesa (Regional Administrative Court).

Questions

(1) Must Article 9(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be interpreted as meaning that a not for-profit organisation whose activity is aimed at implementing State aid schemes financed by the European Regional Development Fund is to be treated as a taxable person who carries out an economic activity?
(2) Must Article 28 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be interpreted as meaning that an association which does not actually supply training services is nevertheless to be equated with a supplier of services where the services were acquired from another economic operator in order to ensure the implementation of a State aid project financed by the European Regional Development Fund?
(3) Pursuant to Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, if a supplier of services receives only partial consideration from the recipient of the service for the service supplied (30%) but the remaining cost of the service is covered by an aid payment from the European Regional Development Fund, is the taxable consideration the total amount received by the supplier of services from both the recipient of the service and a third party in the form of an aid payment?

AG Opinion

(1) The second subparagraph of Article 9(1) of the VAT Directive must be interpreted as requiring, in the context of an overall assessment, a comparison of the specific activity with that of a taxable person typical of the professional category in question (here, a provider of training services). The comparable manner of the provision of training services gives rise to no doubts in the case at hand about the performance of an independent economic activity.

(2) Article 2(1)(c) of the VAT Directive does not require the supplier to provide the service in person. He or she may also use an independent third party as a subcontractor who performs the service in or under his or her name. If there is a contract under which a service is purchased or sold in his or her own name but on behalf of a third party, Article 28 of the VAT Directive applies, which changes the subject matter of the supply by the commission agent and, in the case of sales commission, also the direction of that supply.

(3) The subsidies that a fund pays to particular service providers for a specific service are, under Article 73 of the VAT Directive, included in the taxable amount as a payment by a third party which the supplier receives for that service.

Decision

Summary

Source