On May 11, 2017 the Court of Justice of the European Union (CJEU) judged in Case C-36/16, Minister Finansów versus Posnania Investment SA (ECLI:EU:C:2017:361).
The request for a preliminary ruling relates to the interpretation of Articles 2(1)(a) and 14(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’).
The request has been made in proceedings between the Minister Finansów (Minister for Finance, Poland; ‘the Minister’) and Posnania Investment SA (‘Posnania’), concerning the liability to value added tax (VAT) of a transaction in which that company transferred ownership of immovable property to a local authority in settlement of a tax debt.
The dispute in the main proceedings and the question referred for a preliminary ruling
· Posnania is a company governed by Polish law and is economically active in the field of property transactions. As such, it is subject to VAT. In order to discharge arrears for non-payment of a tax for which it was liable, the company applied to the municipality of Czerwonak (Poland; ‘the municipality’) with a view to concluding, pursuant to Article 66 of the Tax Code, a contract for the transfer of the ownership of unbuilt-on land held by it to the municipality.
· That contract, concluded on 5 February 2013, resulted in the partial discharge of Posnania’s tax debt concurrently with the transfer of ownership of that immovable property to the municipality.
· Posnania lodged an application for an individual tax ruling in order to determine whether, in such a situation, the transaction concluded with the municipality was subject to VAT and whether, as a result, it had to issue a corresponding invoice.
· In its application, Posnania submitted that the transaction at issue ought not to be subject to VAT on the basis of the case-law of the referring court, the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland), according to which the transfer of ownership of an asset to the State Treasury in settlement of tax arrears in respect of taxes constituting State budget revenues is a transaction that is not subject to VAT.
· By his individual tax ruling of 10 May 2013, the Minister expressed the view that, upon the transfer of ownership of the immovable property from Posnania to the municipality, the latter acquired all the rights of an owner and, therefore, that transfer of ownership in settlement of tax arrears constituted a supply of goods for consideration, within the meaning of the Polish legislation, and was, in principle, subject to VAT.
· Posnania brought an action before the Wojewódzki Sąd Administracyjny w Warszawie (Regional Administrative Court, Warsaw, Poland) seeking annulment of that individual tax ruling.
· By judgment of 13 February 2014, that court upheld the action and annulled the tax ruling. It ruled that VAT may be due in the event of the transfer of ownership of tangible property by order of the public authorities or by force of law, on condition that such a transfer is effected in return for consideration. Given that, under Polish law, that was not the position in the present case, that court decided that the transfer of ownership of tangible property to the State Treasury in settlement of arrears of taxes constituting State budget revenues was a transaction that was not subject to VAT.
· The Minister brought an appeal on a point of law against that judgment before the referring court.
· In its request for a preliminary ruling, the referring court states that, while Posnania’s status as a taxable person is not in dispute, the question nonetheless arises as to whether it is possible to consider the transfer of the right to dispose of tangible property as owner, made in settlement of a tax debt, to be a ‘supply of goods for consideration’ within the meaning of the VAT Directive.
· In this regard, the referring court cites its own case-law, according to which the transfer of ownership of tangible property to the State Treasury in settlement of arrears of taxes constituting State budget revenues is a transaction that is not subject to VAT inasmuch as a tax is not a pecuniary performance which may be obtained in exchange for another performance, its principal feature being that it is unilateral.
· In those circumstances, the Naczelny Sąd Administracyjny (Supreme Administrative Court) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:
‘Does the transfer of ownership of land (tangible property) by a person taxable for VAT purposes to:
(a) the State Treasury — in settlement of tax arrears in respect of taxes constituting State budget revenues, or
(b) a municipality, district or regional authority — in settlement of tax arrears in respect of taxes constituting their budget revenues, resulting in the discharge of tax liabilities,
constitute a transaction that is subject to tax (supply of goods for consideration) within the meaning of Article 2(1)(a) and Article 14(1) of the [VAT] Directive?’
Judgment
The CJEU ruled as follows:
Articles 2(1)(a) and 14(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the transfer of ownership of immovable property by a person subject to value added tax, for the benefit of the State Treasury or a local authority of a Member State, occurring, as in the main proceedings, in payment of tax arrears, does not constitute a supply of goods for consideration that is subject to value added tax.
From the considerations of the Court
· By its question, the referring court asks, essentially, whether Articles 2(1)(a) and 14(1) of the VAT Directive must be interpreted as meaning that the transfer of ownership of immovable property by a person subject to VAT, for the benefit of the State Treasury or a local authority of a Member State, occurring, as in the main proceedings, in payment of tax arrears, constitutes a supply of goods for consideration that is subject to VAT.
· It must be remembered, first of all, that the VAT Directive establishes a common system of VAT based on, inter alia, a uniform definition of taxable transactions (judgment of 20 June 2013, Newey, C‑653/11, EU:C:2013:409, paragraph 39).
· According to Article 2(1)(a) of the VAT Directive, the supply of goods for consideration within the territory of a Member State by a taxable person acting as such is 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. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis is in particular to be regarded as an ‘economic activity’.
· Article 14(1) of the VAT Directive defines ‘supply of goods’ as the transfer of the right to dispose of tangible property as owner.
· As regards the transaction at issue in the main proceedings, it is common ground, firstly, that the contract concluded between Posnania and the municipality resulted in the transfer of ownership of immovable property and, secondly, that Posnania has the status of a taxable person.
· Thirdly, the condition of the place of supply of the goods is undoubtedly met, the transaction having taken place within the territory of a Member State, namely in Poland.
· Concerning, fourthly, the question whether the transaction transferring ownership of immovable property to a public entity — in this instance, the transfer of land to a municipality — in payment of tax arrears can be considered to have been made for consideration, it should be noted that a supply of goods is made ‘for consideration’, within the meaning of Article 2(1)(a) of the VAT Directive, only if there is a legal relationship between the supplier and the purchaser entailing reciprocal performance, the price received by the supplier constituting the value actually given in return for the goods supplied (judgments of 27 April 1999, Kuwait Petroleum, C‑48/97, EU:C:1999:203, paragraph 26, and of 21 November 2013, Dixons Retail, C‑494/12, EU:C:2013:758, paragraph 32).
· In the present case, there does, admittedly, exist, between the supplier of the immovable property and the beneficiary of that property, a legal relationship, such as that which links a creditor and its debtor.
· However, the obligation of the taxpayer, as a debtor owing a tax debt, to make payment to the tax authorities, as creditor of that debt, is unilateral in nature inasmuch as the payment of the tax by that taxpayer results only in the statutory discharge of its tax debt, even if this is done, as in the present case, by means of the provision of immovable property.
· A tax is a compulsory charge imposed by the sovereign power of the public authorities on the resources of persons coming under their fiscal jurisdiction. That charge is intended to be used, through public budgets, for services in the public interest. Such a charge, whether it relates to a sum of money or, as in the present case, to tangible property, does not result in any performance on the part of the public authority or, therefore, in any corresponding performance on the part of the taxable person.
· Consequently, there is no legal relationship entailing reciprocal performance, within the meaning of the Court’s case-law cited in paragraph 31 of this judgment.
· As such, a transaction providing property in lieu of payment, the purpose of which is to discharge a tax debt, cannot be considered to be a transaction effected for consideration within the meaning of Article 2(1)(a) of the VAT Directive, and cannot be subject to VAT.
· It should, nonetheless, be added that, although the national court has sole jurisdiction to determine the facts in the case before it and to interpret the national legislation, in preliminary ruling proceedings the Court, which is called on to provide answers of use to the national court, may provide guidance based on the documents in the file in the main proceedings and on the observations submitted to it, in order to enable the national court to give judgment (judgment of 24 February 2015, Grünewald, C‑559/13, EU:C:2015:109, paragraph 32).
· With regard to a transaction such as that at issue in the main proceedings, it cannot be ruled out that a taxable person such as Posnania has already made a deduction of input tax in relation to the immovable property at issue in the main proceedings, by virtue of its status as a person subject to VAT.
· In this regard, as the Advocate General has observed in point 44 of her Opinion, if there is a risk of an untaxed final consumption, that risk is, nevertheless, covered by the provisions of Article 16 of the VAT Directive.
· It follows from the Court’s case-law that the purpose of that provision is to ensure equal treatment as between a taxable person who applies goods for his own private use or for that of his staff, on the one hand, and a final consumer who acquires goods of the same type, on the other (see, to that effect, judgment of 17 July 2014, BCR Leasing IFN, C‑438/13, EU:C:2014:2093, paragraph 23 and the case-law cited).
· In order to attain that objective, Article 16 of the VAT Directive treats as a supply of goods for consideration the application, by a taxable person, of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, where the VAT on those goods or the component parts thereof was wholly or partly deductible (judgment of 17 July 2014, BCR LeasingIFN, C‑438/13, EU:C:2014:2093, paragraph 24).
· Having regard to the foregoing considerations, the answer to the question referred is that Articles 2(1)(a) and 14(1) of the VAT Directive must be interpreted as meaning that the transfer of ownership of immovable property by a person subject to VAT, for the benefit of the State Treasury or a local authority of a Member State, occurring, as in the main proceedings, in payment of tax arrears, does not constitute a supply of goods for consideration that is subject to VAT.
For further information click here to be forwarded to the text of the judgment as published on the website of the CJEU, which will open in a new window.
Click here to be forwarded to the Opinion of Advocate General Kokott as delivered on February 16, 2017.
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