On December 9, 2015 the Court of Justice of the European Union (CJEU) judged in Case C‑595/13 Staatssecretaris van Financiën versus Fiscale Eenheid X NV cs, (ECLI:EU:C:2015:801).

·        Is Article 13B(d)(6) of the Sixth Directive to be interpreted as meaning that a company which has been set up by more than one investor for the sole purpose of investing the assembled assets in immovable property may be regarded as a special investment fund within the meaning of that provision?

 

·        If the answer to Question 1 is in the affirmative: is Article 13B(d)(6) of the Sixth Directive to be interpreted as meaning that the term “management” also covers the actual management of the company’s immovable property, which the company has entrusted to a third party?

 

The dispute in the main proceedings and the questions referred for a preliminary ruling

·        X is a fiscal entity within the meaning of Article 7(4) of the Law on VAT, that is to say, a taxable person as referred to in the second subparagraph of Article 4(4) of the Sixth Directive.

 

·        A Beheer NV (‘A’) belongs to that fiscal entity.

 

·        In 1996, A entered into contracts for the provision of various services with three companies established in the Netherlands. Those companies do not belong to X. They were founded by a number of pension funds. After they were established, they issued holdings and certificates of holdings which were transferred to third parties. Their activities consist in the acquisition of shareholders or certificate holders and the purchase and sale of immovable property and its management. They have no employees. The shareholders require those companies to produce results in the form of payments of dividends.

 

·        It is apparent from those contracts that A carried out the following activities for those companies, for consideration:

(a)    all tasks falling to A as a result of its duties as the client’s director in accordance with the company’s statutes;

(b)    all executive tasks falling to the client as a result of statutory requirements, company statutes, regulations and administrative decisions;

(c)    management of the client’s assets, as described in Annex I to the contracts;

(d)    financial reporting, automated data processing and internal audit;

(e)    dealing with the client’s assets, including the acquisition and sale of immovable property; and

(f)     the acquisition of shareholders or certificate holders.

 

·        Annex I, referred to at point (c) above, provides as follows:

‘The provision of services with respect to management ... covers:

1. Property management:

1.       supervision of the immovable property and its use and, to that end, maintenance of contact with tenants;

2.       on behalf of the client, engagement of estate agents where properties are empty; assessment of tenants;

3.       inspection of any premises due to become available and the compilation of reports on their condition;

4.       rent collection ... and debt management; processing of rent allowances;

5.       budgeting for and arranging major maintenance works as well as the technical assessment and supervision of the execution thereof …;

6.       arranging ordinary maintenance work and supervision thereof;

7.       arranging ancillary supplies and services; monitoring the quality thereof and billing tenants for sums due in that respect;

8.       administrative processing of all of the above; and

9.       day-to-day legal matters; implementation of rent increases and extensions of tenancy agreements.

...’

 

·        All tasks falling to A under the contracts at issue in the main proceedings are carried out by A itself or by third parties on its behalf and under its responsibility. A was remunerated for those tasks by each of the companies concerned in the main proceedings, such remuneration being set at 8% of the theoretical annual rental income from the immovable property forming part of the assets of the company concerned.

 

·        X did not account for VAT on the remuneration received from those three property companies, taking the view that the services provided either by itself or by third parties under its responsibility were exempt as provided for in Article 11(1)(i)(3) of the Law on VAT. 

 

·        The Inspector of the national tax authority found, however, that only the activities referred to in points (e) and (f) of the management contracts at issue, namely the acquisition and sale of immovable property and the acquisition of shareholders or certificate holders, were covered by that exemption. He therefore issued X with a notice of additional assessment to VAT in respect of the period from 1 January to 31 December 1996 inclusive.

 

·        Having received an objection to that notice, the Inspector of the national tax authority reduced the amount assessed, but maintained that some of the services provided by A were not covered by the exemption. X took the view that the reduction was insufficient and brought an action against the decision of the Inspector of the national tax authority before the Rechtbank Breda (District Court, Breda). That court declared the action well founded, annulled the Inspector’s decision and granted a more substantial reduction.

 

·        The Inspector of the national tax authority then lodged an appeal against the judgment of the Rechtbank Breda (District Court, Breda) with the Gerechtshof te ‘s Hertogenbosch (Regional Court of Appeal, ‘s Hertogenbosch), which upheld the decision given at first instance.

 

·        The State Secretary for Finance brought an appeal in cassation against the judgment of the Gerechtshof te ‘s Hertogenbosch (Regional Court of Appeal, ‘s Hertogenbosch) before the Hoge Raad der Nederlanden (Supreme Court of the Netherlands). In his Opinion, the Advocate General of the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) moved that the appeal be declared unfounded.

 

·        The Hoge Raad der Nederlanden (Supreme Court of the Netherlands) questions whether investment companies such as the companies concerned, in which capital is pooled by more than one investor with a view to purchasing, owning, managing and selling immovable property in order to derive a profit therefrom which will be distributed to all unit-holders in the form of a dividend, those unit-holders benefiting also from an increase in the value of their holding, are to be regarded as ‘special investment funds’ within the meaning of Article 13B(d)(6) of the Sixth Directive. In particular, it asks whether the fact that funds are invested in immovable property precludes the application of that provision.

 

·        In the event that the companies concerned may be regarded as ‘special investment funds’ within the meaning of Article 13B(d)(6) of the Sixth Directive, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) asks whether the actual management of immovable property, covering everything connected with the letting of that property and its maintenance, which those companies have sub-contracted to a third party, namely A, constitutes a ‘management’ activity within the meaning of that provision.

 

·        In those circumstances the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

1. Is Article 13B(d)(6) of the Sixth Directive to be interpreted as meaning that a company which has been set up by more than one investor for the sole purpose of investing the assembled assets in immovable property may be regarded as a special investment fund within the meaning of that provision?
2. If the answer to Question 1 is in the affirmative: is Article 13B(d)(6) of the Sixth Directive to be interpreted as meaning that the term “management” also covers the actual management of the company’s immovable property, which the company has entrusted to a third party?

The CJEU ruled as follows:

 

1.   Article 13B(d)(6) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 91/680/EEC of 16 December 1991, must be interpreted as meaning that investment companies such as the companies at issue in the main proceedings, in which capital is pooled by several investors who bear the risk connected with the management of the assets assembled in those companies with a view to purchasing, owning, managing and selling immovable property in order to derive a profit therefrom which will be distributed to all unit-holders in the form of a dividend, those unit-holders benefiting also from an increase in the value of their holding, may be regarded as ‘special investment funds’ within the meaning of that provision, provided that the Member State concerned has made those companies subject to specific State supervision.

 

2.   Article 13B(d)(6) of Sixth Directive 77/388 must be interpreted as meaning that the term ‘management’ which appears in that provision does not cover the actual management of the immovable property of a special investment fund.

 

For further information click here to be forwarded to the text of the ruling as published on the website of the CJEU, which will open in a new window.

 

Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).

 

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