On Feb 22, 2018, the ECK issued its decision in the case C-182/17 (Nagyszénás Településszolgáltatási Nonprofit Kft.). The ECJ decided that if a company performs certain public tasks on the basis of an agreement concluded between that company and a municipality, this constitutes a service provided for consideration.
Context: Treatment as a non-taxable person — Definition of ‘body governed by public law’ — Commercial company 100% owned by a municipality and responsible for performing certain public tasks incumbent on that municipality — Those tasks and their remuneration determined in a contract between the company and the municipality)
Article in the EU VAT Directive
Article 2(1)(c), 9(1), 13(1) of Council Directive 2006/112/EC
Article 2(1)(c)
Article 2
1. The following transactions shall be subject to VAT:
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
Article 9
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.
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 nontaxable 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.
Facts
Nagyszénás Településszolgáltatási Nonprofit (hereinafter: NTN), a non-profit limited liability company owned 100% by the Hungarian municipality of Nagyszénás, has concluded an agreement with this municipality relating to ‘the performance of tasks and the use of goods’, on the basis of which it undertakes to pay in exchange for compensation to be paid by the municipality and on the condition that certain goods are made available belonging to the municipality, to perform certain public tasks as specified in an appendix to that agreement. These include, in particular, the management of homes and other buildings, the management of local public roads, the implementation of quarantine measures, the control of pests and mosquitoes, the maintenance of parks, public spaces and other green areas, the management of the plant and of the services for the destruction of animal residues and the maintenance of the local market.
NTN did not issue an invoice to the municipality of Nagyszénás for the performance of those tasks, nor did it charge VAT on the amount received in return for the performance of those tasks.
Following audits, the Hungarian tax authorities took two decisions establishing NTN’s VAT liability and imposed a tax fine on this company, with fees for late payment.
Questions
Does the concept of ‘bod[y] governed by public law’ in the first subparagraph of Article 13(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax include a commercial company which is 100% owned by a municipality?
If the answer to question 1 is in the affirmative, may it be considered that the commercial company acts as a public authority when performing tasks that are the responsibility of the municipality but that the latter delegates to that company?
If the answer to either of the previous questions is in the negative, may it be considered that the amount paid by the municipality to the commercial company for performing the tasks constitutes consideration?
AG Opinion
None
Decision
1. Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning, subject to verification of the relevant facts by the referring court, that an activity such as that at issue in the main proceedings, whereby a company performs certain public tasks under a contract concluded between that company and a municipality, constitutes a supply of services effected for consideration and subject to value added tax under that provision.
2. Article 13(1) of Directive 2006/112 must be interpreted as meaning that, subject to verification of the relevant matters of fact and national law by the referring court, an activity such as that at issue in the main proceedings, whereby a company performs certain public municipal tasks under a contract concluded between that company and a municipality, does not fall within the scope of the rule of treatment as a non-taxable person for value added tax purposes laid down by that provision, if that activity constitutes an economic activity within the meaning of Article 9(1) of that directive.
Summary
If a company performs certain public tasks on the basis of an agreement concluded between that company and a municipality, according to the CJEU this constitutes a service provided for consideration, which is subject to VAT on the basis of Article 2 (1) (c) of the VAT Directive. subject. This does not fall under the rule of treatment as a non-taxable person for VAT as laid down in Article 13 (1) of the VAT Directive if the tasks performed constitute an economic activity within the meaning of Article 9 (1) of the VAT Directive.
Source
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