VATupdate
Taxable person

Share this post on

FacebookXEmailLinkedInWhatsApp
European UnionWebinars / Events

Briefing document & Podcast: EU VAT Directive 2006/112/EC Explained: The concept of ”Taxable persons” (Art. 9-13)

1 day ago
111 views
22 min read

SUMMARY

This briefing document provides a detailed overview of the concept of a ‘taxable person’ under EU VAT Law, drawing from the EU VAT Directive 2006/112/EC (hereafter “the Directive”). Understanding who qualifies as a taxable person is fundamental to determining VAT obligations and rights within the European Union.

I. Fundamental Definition of a Taxable Person

The core definition of a ‘taxable person’ is laid out in Article 9(1) of the EU VAT Directive. It states that a taxable person is “any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.”

This definition hinges on two critical elements:

  • Independence: The activity must be carried out independently, not under an employment contract or similar legal ties.
  • Economic Activity: The activity must be economic in nature, broadly interpreted to include a wide range of income-generating pursuits.

II. The Concept of ‘Economic Activity’

‘Economic activity’ under the Directive is a broad concept, encompassing more than just traditional business operations. As per Article 9(1):

  • It explicitly includes “Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions.”
  • Crucially, “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.” This ensures a wide array of income-generating pursuits fall within the scope of VAT, regardless of their specific nature or the results achieved.

III. The ‘Independently’ Condition and Employed Persons

The condition that economic activity must be conducted ‘independently’ is crucial for distinguishing between employees and self-employed individuals for VAT purposes. Article 10 clarifies that this condition “shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer’s liability.” This distinction is vital because employees lack the necessary independence to be considered taxable persons for the activities performed under their employment contract.

IV. Occasional Transactions Leading to Taxable Person Status

While VAT generally applies to regular economic activities, there are specific instances where occasional transactions can trigger taxable person status, thus broadening the scope of VAT liability.

  • New Means of Transport: Article 9(2) states that “any person who, on an occasional basis, supplies a new means of transport, which is dispatched or transported to the customer by the vendor or the customer, or on behalf of the vendor or the customer, to a destination outside the territory of a Member State but within the territory of the Community, shall be regarded as a taxable person.” This covers transactions involving vehicles or vessels meeting specific age/mileage criteria.
  • Real Estate Transactions: Article 12(1) allows Member States to regard as taxable persons individuals who, on an occasional basis, carry out specific transactions related to economic activities, notably:
    • (a) “the supply, before first occupation, of a building or parts of a building and of the land on which the building stands.”
    • (b) “the supply of building land.”
    • Definition of ‘Building’: For the purpose of Article 12(1)(a), Article 12(2) defines ‘building’ as “any structure fixed to or in the ground.” Member States can establish detailed rules for applying this criterion to building conversions and determine what constitutes ‘the land on which a building stands’.
    • Definition of ‘Building Land’: For the purpose of Article 12(1)(b), Article 12(3) defines ‘building land’ as “any unimproved or improved land defined as such by the Member States.”

V. Public Authorities as Taxable Persons

The treatment of public authorities under EU VAT law involves specific considerations to balance public service and fair competition. Article 13(1) outlines the general rule and crucial exceptions:

  • General Rule (Non-Taxable): “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.”
  • Exceptions (Taxable): Public authorities are considered taxable persons in the following scenarios:
    • Distortions of Competition: “where their treatment as non-taxable persons would lead to significant distortions of competition” with private businesses. The rationale here is to prevent public bodies from gaining an unfair competitive advantage due to their non-taxable status.
    • Specific Activities: “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.” These are activities generally performed by private businesses, and their inclusion ensures a level playing field.
  • Member State Discretion: Article 13(2) allows Member States to classify certain otherwise exempt activities engaged in by public bodies as “public authority activities,” thereby keeping them outside the scope of VAT.

VI. Single Taxable Person (VAT Group)

Article 11 provides Member States with the option to treat multiple legally independent entities as a ‘single taxable person’ for VAT purposes, commonly referred to as a VAT group.

  • Conditions: This is permissible if the persons “are established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.”
  • Consultation Requirement: Before exercising this option, Member States “may consult the advisory committee on value added tax (hereafter, the ‘VAT Committee’).” The VAT Committee plays a significant advisory role in ensuring harmonisation and oversight.
  • Safeguards: Member States exercising this option “may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.”

This comprehensive understanding of ‘taxable persons’ is essential for compliance and effective operation within the EU VAT framework.

Articles in the EU VAT Directive 

TITLE III

TAXABLE PERSONS

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.
2. In addition to the persons referred to in paragraph 1, any person who, on an occasional basis, supplies a new means of transport, which is dispatched or transported to the customer by the vendor or the customer, or on behalf of the vendor or the customer, to a destination outside the territory of a Member State but within the territory of the Community, shall be regarded as a taxable person.

Article 10
The condition in Article 9(1) that the economic activity be conducted ‘independently’ shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer’s liability.

Article 11
After consulting the advisory committee on value added tax (hereafter, the ‘VAT Committee’), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.
A Member State exercising the option provided for in the first paragraph, may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.

Article 12
1. Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:
(a) the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;
(b) the supply of building land.
2. For the purposes of paragraph 1(a), ‘building’ shall mean any structure fixed to or in the ground.
Member States may lay down the detailed rules for applying the criterion referred to in paragraph 1(a) to conversions of buildings and may determine what is meant by ‘the land on which a building stands’.
Member States may apply criteria other than that of first occupation, such as the period elapsing between the date of completion of the building and the date of first supply, or the period elapsing between the date of first occupation and the date of subsequent supply, provided that those periods do not exceed five years and two years respectively.
3. For the purposes of paragraph 1(b), ‘building land’ shall mean any unimproved or improved land defined as such by the Member States.

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.

 

INDEPTH ANALYSIS

Overview: Articles 9 through 13 of Council Directive 2006/112/EC (the EU VAT Directive) define who is considered a “taxable person” for VAT purposes across the European Union. In essence, any entity engaging independently in an economic activity can be a taxable person, which determines who must charge, collect, and remit VAT. These provisions cover the general definition (Article 9), the exclusion of true employees (Article 10), the option of treating groups of companies as one person (Article 11), the special inclusion of certain occasional transactions like real estate sales (Article 12), and the status of public authorities (Article 13). Below is a breakdown of each article’s meaning and EU-wide application.

  • Article 9: Broad Definition of “Taxable Person”
    • Any person independently carrying out any economic activity can be a taxable person, regardless of purpose or profit.
  • Article 10: Employed Persons Excluded
    • Workers bound by employment (lack independence) are not taxable persons for their employment activities.
  • Article 11: VAT Grouping Option
    • EU countries may treat closely linked companies as a single taxable person (“VAT group”) for simplification.
  • Article 12: Occasional Transactions
    • Member States can opt to tax certain one-off sales (e.g. new buildings, building land) by persons as VAT-taxable events.
  • Article 13: Public Bodies
    • State entities are normally not taxable persons when acting in a public capacity, except to prevent serious market distortions.

Article 9 – General Definition of a Taxable Person

Broad Scope: Article 9(1) provides the fundamental definition of a taxable person under EU VAT law. It states that a “taxable person” means any person who independently carries out any economic activity, in any place, whatever the purpose or results of that activity. In simpler terms, anyone engaged in business on their own account can be a taxable person. This broad definition covers businesses, self-employed professionals, and traders of all kinds. Notably, the phrase “in any place” means the rule isn’t limited by geography – even a business established outside the EU can be considered an EU taxable person if it carries out taxable activities within the EU’s scope. [vatupdate.com], [taxation-c….europa.eu] [taxation-c….europa.eu]
“Economic Activity” defined: The Directive deliberately casts a wide net for what counts as economic activity. Article 9(1) specifies that “any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions” qualifies as an economic activity. It further highlights that the exploitation of tangible or intangible property for the purpose of obtaining income on a continuing basis is considered an economic activity. In practice, this means most income-generating activities (trade, services, production, leasing property, etc.) fall under the VAT system’s scope, regardless of whether the activity is intended to earn a profit or not. By defining economic activity so broadly, Article 9 ensures that the VAT base is comprehensive, covering all stages of production, distribution, and service provision in the economy. [vatupdate.com] [vatupdate.com], [vatupdate.com]
Special case – new means of transport (Article 9(2)): Article 9 also contains a specific provision to catch certain occasional transactions. Under Article 9(2), any person who on an occasional basis sells a “new means of transport” to a buyer in another EU Member State is deemed to be a taxable person for that single transaction. In other words, even a private individual (who is normally not in business) must be treated as a taxable person when selling a new vehicle, vessel, or aircraft across EU borders. This rule ensures that intra-EU sales of new vehicles cannot escape VAT: the sale will be taxed in the destination country, as if the seller were a business. The concept of “new means of transport” is defined in the Directive (based on age or mileage criteria for cars, boats, airplanes, etc.), but fundamentally this clause is about preventing avoidance of VAT on high-value goods by using private status. It means one-off sellers of new cars/boats/planes between EU countries are pulled into the VAT system for that sale. [vatupdate.com], [taxation-c….europa.eu] [taxation-c….europa.eu]

Article 10 – The “Independence” Criterion (Exclusion of Employees)

Article 10 acts as a clarification to Article 9(1)’s definition, focusing on the requirement that activities be carried out “independently.” It explicitly excludes employees and similar workers from being considered taxable persons in relation to their employment. In legal terms, persons who are bound to an employer by a contract of employment or similar legal ties are not “independent” and therefore not taxable persons for those activities. [vatupdate.com] [vatupdate.com], [vatupdate.com]
Implication: If you work for a company as an employee, you are not individually a taxable person for the duties you perform for your employer – instead, it’s the employer (the company) who is the taxable person responsible for the business activities. This distinction prevents the VAT system from treating ordinary wages or salaries as business transactions. It confines VAT obligations to those who are in business on their own account. Article 10’s rule is important to draw the line between self-employed (who must account for VAT on their sales) and true employees (who do not charge VAT on their wages). [vatupdate.com]
In summary, “independently” means entrepreneurial freedom: if you are under the direction and control of an employer (regarding work conditions, pay, and employer liability), you are not a taxable person for that work. This ensures VAT targets business enterprises rather than labor in an employment relationship. [vatupdate.com]

Article 11 – VAT Grouping (Single Taxable Person Option)

Article 11 provides an option for EU Member States to simplify VAT administration in certain cases: it allows a Member State to treat multiple persons as a single taxable person if they are closely related. Commonly known as “VAT grouping,” this provision says that with the tax authority’s approval, a group of legal entities established in the same country, which are legally independent but financially, economically, and organizationally linked, may be regarded as one single taxable person. In practice, if a country chooses to implement this, a group of associated companies (and even non-commercial entities like branches or charities, if allowed) can register collectively for one VAT number. All intra-group transactions then fall outside the scope of VAT (since you can’t charge tax to yourself), and the group as a whole files a single VAT return. [vatupdate.com], [taxation-c….europa.eu] [taxation-c….europa.eu]
Key conditions: The entities must have “close financial, economic and organizational links,” essentially meaning one group of companies under common control or integrated operations. Article 11 also notes that Member States should consult the EU VAT Committee before use (as a formality) and can enact safeguards to prevent tax evasion or abuse of the grouping scheme. For example, anti-avoidance rules can stop companies from forming artificial groups just to gain tax advantages. [taxation-c….europa.eu] [vatupdate.com], [vatupdate.com] [vatupdate.com]
Implications: Where applied, VAT grouping simplifies compliance – the group is treated like a single taxpayer. This can reduce administrative burden (e.g., only one consolidated VAT return for the entire group and no VAT on internal billings). However, it also means joint liability for VAT: all members of the group share responsibility for any VAT debts. Crucially, Article 11 is permissive: each EU country may choose whether or not to offer VAT grouping and under what conditions. Not all Member States use this option, but those that do follow the principle laid out in Article 11 to define their domestic group rules in line with the EU Directive’s criteria. [taxation-c….europa.eu]

Article 12 – Taxable Status for Occasional Real Estate Transactions

While Article 9(1) generally requires an ongoing economic activity, Article 12 allows Member States to bring certain one-off or occasional transactions into the scope of VAT by deeming the person a taxable person for those dealings. In particular, Article 12(1) gives countries the option to treat a person as a taxable person even if they only occasionally carry out specific transactions listed in the Directive. The Directive highlights two types of transactions especially: [vatupdate.com]
  • **The sale of a building (or parts of a building) and the land it stands on, but only when the sale is made before first occupation of that building. In simpler terms, the initial supply of new real estate (e.g. a newly constructed house or building sold by a person who isn’t usually in the real estate business) can be taxed. [vatupdate.com]
  • The sale of building land, meaning plots of land intended for construction (as defined by Member State law). [vatupdate.com]
These are significant transactions that, absent Article 12, a private individual might undertake without being “in business” and thus outside VAT. Article 12 lets governments tax substantial occasional sales in the property sector by treating the seller as a taxable person for that event. This is often used to prevent distortion or unfairness – for example, without this rule a person could build a new house, sell it tax-free as a private seller, and potentially undercut professional developers who must charge VAT. To promote neutrality, countries can impose VAT on those one-time sales of new property or land by designating the seller a taxable person for that supply. [taxation-c….europa.eu]
Member State discretion: Importantly, Article 12 is optional – each Member State can decide whether to apply these rules, and they can detail the definitions and timing. The Directive itself provides guidance by defining key terms: it says a “building” means any structure attached to land, and “building land” is as defined by the Member State’s laws. It also allows states to set criteria like what “first occupation” means or certain time limits (e.g. a building sold within X years of completion). The overall effect at EU level is that Article 12 expands the taxable person concept to some large occasional transactions, especially in real estate, when a Member State finds it necessary for consistency. If a country invokes this, even a private seller may incur VAT obligations on, say, selling a new building, aligning with the Directive’s aim of taxing economic activities comprehensively. [vatupdate.com], [vatupdate.com] [vatupdate.com]

Article 13 – Public Authorities and VAT (Non-Taxable Persons with Exceptions)

Article 13 addresses the status of States and other public bodies under VAT. The general rule in Article 13(1) is that government entities (national, regional, local authorities and bodies governed by public law) are not regarded as taxable persons for activities they engage in as public authorities. In plainer terms, when a public body is carrying out its official functions – e.g. regulatory activities, public services like issuing licenses or collecting fees under its legal powers – those are not business activities and fall outside the VAT system. Even if they charge fees or payments for such activities, it’s not subject to VAT because the authority is acting in its sovereign capacity. This exemption for government activities prevents the absurd scenario of governments charging VAT on taxes or public fees, and acknowledges that the state isn’t a commercial actor in those roles. [vatupdate.com], [taxation-c….europa.eu] [vatupdate.com]
Exceptions – when public bodies are taxable: To ensure a level playing field, Article 13 creates two important exceptions where public entities must be treated the same as private businesses (i.e. as taxable persons):
  1. Distortion of competition: If a public authority engages in an activity as a public authority but in doing so would noticeably distort competition with private enterprises by not being taxed, then it will be considered a taxable person for that activity. For example, if a municipal office offers goods or services in the market and its status would give it a significant advantage over tax-paying firms, the VAT Directive mandates taxing that authority’s activity to remove the unfair advantage. The phrase used is “significant distortions of competition” – this sets a threshold that minor or negligible effects don’t trigger taxation, but major competitive impacts do. [vatupdate.com], [taxation-c….europa.eu] [taxation-c….europa.eu] [vatupdate.com]
  2. Annex I activities: Regardless of the distortion test, the Directive explicitly lists certain activities in Annex I that public bodies must be treated as taxable persons when they perform them, unless the scale is negligible. Annex I includes typically commercial or industrial activities that governments might carry on, such as: the supply of water, gas, electricity or energy; services by agricultural intervention agencies; running shops or canteens for staff; broadcasting by radio/TV bodies, etc.. If a public institution engages in these specific activities, EU law says it should charge and pay VAT like any business would, so long as the activity isn’t minimal in scope. This prevents public-sector entities from using their tax-exempt status to compete unfairly in areas where they operate in a business-like manner. [vatupdate.com], [taxation-c….europa.eu] [taxation-c….europa.eu]
In essence, Article 13 strikes a balance: it keeps core public authority tasks out of VAT (no tax on government exercising public powers), but pulls in those activities where not taxing the public body’s operations would undermine fair competition with the private sector. [taxation-c….europa.eu]
Article 13(2) – Member State flexibility: Additionally, Article 13(2) gives Member States a degree of flexibility: a country may decide to treat certain activities of a public body as “engaged as public authorities” even if those activities might normally be taxable due to being exempt services. In practice this means if a public authority is performing activities that are exempt from VAT under other provisions (for example, public postal services or education, listed under Articles 132 and 135 of the Directive), the Member State can legislatively declare those are done in the capacity of public powers and thus keep them completely outside VAT. This option is to ensure that even for certain exempt yet commercial-like services, governments can maintain non-taxable status where appropriate. It’s a nuanced provision that recognizes some exempt sectors might otherwise drag public bodies into taxable person status, and allows national law to keep them out if desired. [vatupdate.com], [taxation-c….europa.eu] [taxation-c….europa.eu]

Implications for EU-Wide VAT Liability

Taken together, Articles 9–13 of the VAT Directive establish who is liable for VAT throughout the EU:
  • Broad Inclusion: Virtually anyone conducting economic activity independently is included – this captures the vast array of businesses and self-employed persons who must charge VAT on their sales and can deduct input VAT on purchases. The Directive’s broad definitions ensure the VAT system applies uniformly to all forms of commercial enterprise, supporting the neutrality and breadth of the tax base across Member States. [vatupdate.com]
  • Clear Exclusions: At the same time, the rules exclude those who should not carry VAT burdens. Employees are out of scope for their wage activities, and private individuals not engaged in business are generally outside VAT – except when making certain significant sales (like a new car or a new building) where the Directive deliberately pulls them in to prevent loopholes. Likewise, the state and its organs are not taxed for governing, preserving the principle that VAT is a tax on business and consumption, not on public authority. [vatupdate.com] [taxation-c….europa.eu]
  • Special Schemes: Article 11’s grouping facility and Article 12’s optional real-estate taxation illustrate the Directive’s flexibility. VAT grouping lets Member States simplify administration and reduce internal VAT costs for closely-knit corporate groups. Occasional transaction rules let Member States tax big one-off deals (especially in real estate) to uphold fairness and prevent revenue loss. These measures ensure that the application of VAT can be fine-tuned nationally while staying within a harmonized EU framework. [taxation-c….europa.eu] [vatupdate.com]
  • Public Sector Fairness: Article 13 ensures that when public bodies step into the commercial arena, they do so on equal tax footing with private enterprises, thus avoiding market distortions due to tax exemptions. This maintains competitive neutrality without taxing genuine governmental functions. [vatupdate.com], [taxation-c….europa.eu]
In summary, Articles 9–13 of Directive 2006/112/EC provide a coherent EU-wide definition of taxable persons, delineating who must comply with VAT. They guarantee that VAT is broadly applied to all independent economic activities (no matter who performs them or where), while protecting non-business actors and public authorities when appropriate. Understanding these provisions is crucial, as they determine which persons or organizations have VAT obligations in the EU’s common VAT system, thereby underpinning the uniform application of VAT across all Member States. Every business owner, tax authority, or practitioner in the EU VAT area relies on these fundamental definitions to know when VAT should be charged – and Articles 9–13 draw those lines clearly and consistently throughout the Union. [vatupdate.com], [taxation-c….europa.eu]
Sources: Council Directive 2006/112/EC, Articles 9–13; European Commission – Taxable persons under EU VAT rules; VATupdate Briefing on Taxable Person (Art. 9–13).

Other articles on ”Unwrapping the EU VAT Directive 2006/112/EC):

 

Latest Posts in "European Union"

Sponsors:

Pincvision

Advertisements:

  • vatcomsult
  • Fincargo