General Court – T-540/26 (Fumanko) – Questions – VAT on publicly funded humanitarian aid: zero rate and taxable amount

• The Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Wrocław, Poland) has submitted a request for a preliminary ruling in proceedings between K.A. and the Dyrektor Izby Administracji Skarbowej we Wrocławiu concerning the VAT treatment of accommodation, food and basic-needs support provided to persons fleeing the war in Ukraine.
• The applicant supplied those services under agreements with Polish provincial authorities and received flat-rate payments calculated by reference to the number of persons accommodated and the duration of their stay. The applicant applied a 0% VAT rate, but the Polish tax authorities considered that the services were supplied for consideration and were subject to VAT at 8%, together with default interest.
• The referring court asks whether Poland was entitled to introduce the 0% rate before Article 101a of the VAT Directive entered into force and whether the relief may be limited according to the identity of the public authority contracting for the services.
• It also seeks clarification on whether the flat-rate public funding constitutes consideration for a taxable service, whether the applicant acted as a taxable person, and whether the payments form part of the taxable amount.
• Further questions concern the compatibility of the retrospective VAT assessment and default interest with the principles of legal certainty, legitimate expectations, proportionality, good administration and the rule of law.

Articles of the EU VAT Directive 2006/112/EC discussed

• Article 2(1)(c) provides that supplies of services for consideration within the territory of a Member State by a taxable person acting as such are subject to VAT. It is relevant to the fourth question, which asks whether the flat-rate payments made by a provincial authority constitute payment for services supplied for consideration.
• Article 9(1) defines a taxable person as any person who independently carries out an economic activity, whatever the purpose or result of that activity. It is central to the fifth question, concerning whether an undertaking carrying out humanitarian tasks financed by a Member State acts as a taxable person for VAT purposes.
• Article 16 treats certain applications or disposals of business goods free of charge as supplies for consideration where the related VAT was wholly or partly deductible. It is referenced in the first question because the Polish 0% measure covered certain goods supplied free of charge for purposes connected with aid to victims of the war in Ukraine.
• Article 26 treats certain private or non-business uses of business assets and certain services supplied free of charge as supplies for consideration. It is referenced in the first question because the Polish 0% measure also covered specified services supplied free of charge for humanitarian purposes.
• Article 73 provides that the taxable amount includes everything constituting consideration obtained or to be obtained by the supplier from the customer or a third party, including subsidies directly linked to the price. The sixth question asks whether the funds paid by the provincial authority must be included in the applicant’s taxable amount.
• Article 98 governs the application of reduced VAT rates and, following its amendment, permits Member States, within specified limits, to apply a rate below 5% or an exemption with deductibility to supplies covered by Annex III. The first and second questions concern whether Poland exceeded its discretion under this provision and whether the 0% treatment can apply to publicly funded accommodation, food and basic-needs support.
• Article 101a allows a Member State that has received Commission authorisation for VAT relief on goods imported for disaster victims to grant an exemption with deductibility, under the same conditions, to certain intra-Community acquisitions and domestic supplies of those goods and related services, including rental services. It is relevant to the first question because the Polish measure preceded the provision’s entry into force on 6 April 2022, and to the second and third questions concerning the substantive and personal scope of the relief.
• Article 273 permits Member States to impose obligations necessary to ensure the correct collection of VAT and prevent evasion, subject to equal treatment and other limitations. The seventh question asks whether the retrospective demand for VAT and default interest amounts to an administrative penalty of a punitive nature falling within the Member State’s powers under this provision.
• Article 395 permits the Council, acting unanimously on a Commission proposal, to authorise a Member State to introduce special derogating measures to simplify VAT collection or prevent certain forms of tax evasion or avoidance. The first question asks whether Poland introduced the 0% rate without the necessary confirmed derogation under this provision.
• Article 396 permits the Council, acting unanimously on a Commission proposal, to authorise a Member State to conclude an agreement with a third country or an international body that may contain derogations from the VAT Directive. It is cited in the first question as an alternative potential derogation basis that had not been confirmed when the Polish measure was introduced.

Preliminary Ruling Questions

1. By introducing, on 5 March 2022, a 0% VAT rate (exemption with deductibility) in cases where a supply is carried out free of charge (corresponding to Articles 16 and 26 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax) in relation to goods or services used for purposes related to aid for victims of the effects of hostilities in the territory of Ukraine, did the Member State exceed its discretion regarding implementation conferred by Directive 2006/112, including, inter alia, Article 98 thereof, by applying a measure not provided for either in that article or in Annex III to that directive, at a time when there was as yet no legal basis under Article 101a of Directive 2006/112 and in the absence of any confirmed derogation provided for in Article 395 or, alternatively, Article 396 of that directive?
2. Must Articles 98 and 101a of Directive 2006/112, as amended by Council Directive (EU) 2022/542 of 5 April 2022 amending Directives 2006/112/EC and (EU) 2020/285 as regards rates of value added tax, read in conjunction with Commission Decisions (EU) 2022/1108 of 1 July 2022 and 2023/829 of 17 April 2023 on relief from import duties and VAT exemption on importation granted for goods to be distributed or made available free of charge to persons fleeing the war in Ukraine and to persons in need in Ukraine, and in conjunction with the principles of fiscal neutrality, equal treatment and proportionality, be interpreted as permitting legislation (national practice) of a Member State under which a 0% VAT rate (exemption with deductibility) is to be applied to supplies carried out for purposes relating to aid for persons fleeing the war in Ukraine, including the provision of accommodation, food and basic needs, where those supplies are carried out under agreements with public authorities and financed from public funds?
3. If the answer to the second question is in the affirmative, must the principles of fiscal neutrality and equal treatment be interpreted as precluding an interpretation of national law and practice according to which the 0% VAT rate (exemption with deductibility) is excluded because the agreement for the provision of aid services was concluded with a wojewoda (provincial governor) (the governmental authority at provincial level) and not a local authority or other entity expressly referred to in a provision of national law, where the services concerned are identical in terms of their purpose, nature, final beneficiary and economic effect?

4. Must Article 2(1)(c) of Directive 2006/112 be interpreted as meaning that funds paid to an undertaking by a wojewoda in the exceptional circumstances of a humanitarian crisis, at a flat rate established for the purpose of providing persons fleeing the war in Ukraine with accommodation, food and basic needs, constitute payment for a supply, for consideration, of services which a Member State is required to provide (humanitarian aid)?
5. In this connection, does an undertaking receiving funds from a Member State in connection with the carrying out of that State’s tasks act as a taxable person for VAT purposes within the meaning of Article 9(1) of Directive 2006/112?
6. Must Article 73 of Directive 2006/112 be interpreted as meaning that funds paid to an undertaking by a wojewoda in the exceptional circumstances of a humanitarian crisis, as in the circumstances of the present case, form part of the taxable amount of that undertaking?
7. Must a demand by the tax authorities of a Member State for payment of VAT, where the authorities of that State who are responsible for payment from public funds have not accepted VAT invoices containing that tax, be regarded as an administrative penalty of a punitive nature, in particular where that demand entails an obligation to pay default interest, and thus falls within the powers of the Member State under Article 273 of Directive 2006/112, read in conjunction with Article 325(1) and (2) TFEU and Article 4(3) of the Treaty on European Union?
8. Is it compatible with the principle of legal certainty and the principle of legitimate expectations derived therefrom, the principle of the rule of law (Article 2 TEU), the principle of the right to good administration (Article 41 of the Charter of Fundamental Rights of the European Union), and the principle of proportionality, to charge an undertaking amounts of money, by way of tax, for humanitarian aid that it has provided on behalf of a Member State to refugees from Ukraine?

Key Takeaways

• The case may clarify whether publicly funded accommodation, food and basic-needs assistance supplied to refugees can benefit from an exemption with deductibility, particularly where the services are contracted by a governmental authority rather than a local authority.
• The ruling could provide further guidance on when lump-sum public funding constitutes consideration for a taxable service or a subsidy directly linked to the price, and whether humanitarian activities amount to an economic activity carried out by a taxable person.
• The case also raises broader questions about whether a Member State may retrospectively assess VAT and default interest where another public authority would not accept invoices containing VAT and the supplier relied on the State’s humanitarian-aid arrangements.