On March 30, 2023 on the website of the Court of Justice of the European Union (CJEU) 2 judgments of the Seventh Chamber of the CJEU were published. Both the judgments regard the question whether in the underlying cases the activities by a municipality are to be considered to constitute an economic activity performed by a taxable person for VAT purposes or not?
Both cases concern Polish municipalities. In case C‑612/21 (Gmina O. versus Dyrektor Krajowej Informacji Skarbowej) ECLI:EU:C:2023:279 the municipality organises the installation of renewable energy on its territory for its residents who own immovable property and who have expressed the wish to be equipped with renewable energy systems. The reimbursement of the municipality consists out of a subsidy from the competent provincial authority of 75% of the subsidisable costs.
Whereas in case C-616/21 (Dyrektor Krajowej Informacji Skarbowej versus Gmina L.), ECLI:EU:C:2023:280 the municipality arranged for asbestos removal for the benefit of its residents who own immovable property and who have expressed the wish for that. The reimbursement of the municipality consists out of a subsidy from the competent provincial authority of 40% to 100% of the costs.
Case C‑612/21
The dispute in the main proceedings and the questions referred for a preliminary ruling
The Municipality of O., which has a VAT registration number in Poland, entered into a partnership agreement with an urban community and two other municipalities, also located in Poland, with a view to carrying out a project for the installation of RES in those four local authorities (‘the Project’).
The Project is part of the regional operational programme of the provincial authority concerned for the period 2014-2020 and is intended to enable the transition to a low-carbon economy. The urban community, as Project leader, entered into, on behalf of the four local authorities concerned, an agreement on the financing of the Project with that provincial authority. Under the terms of that agreement, the Project leader receives the subsidies of the provincial authority concerned, which cover only part of the subsidisable costs, after which it transfers to its partners the share due to them. The Municipality of O. was granted funding of 75% of the total subsidisable costs.
Each contracting authority pays the undertaking selected at the end of the invitation to tender separately, and that undertaking therefore issues invoices specific to the contract relating to each of those authorities.
As regards the part of the cost which remains to be borne by the contracting authority, each contracting authority is free to decide on the arrangements for its financing. The Municipality of O. has decided to obtain from the owners of the immovable properties which will benefit from RES, at their request, a contribution amounting to 25% of the subsidisable costs, without however exceeding the maximum contractually agreed value. Furthermore, the standard contract entered into by the Municipality of O. with the owners concerned stipulates that all the RES installed will remain the property of the municipality for the duration of the Project, that is to say, for a period of five years from the date of receipt of the last payment received by the municipality for the reimbursement of its share of the subsidies paid by the provincial authority concerned. At the end of that period, ownership of the RES is transferred to the owner of the immovable property concerned.
It was in that context that the Municipality of O. requested an advance tax ruling from the Director of the National Treasury Information Bureau, in order to ascertain whether the contribution paid by the owners concerned and the subsidy received by it from the provincial authority concerned should be exempt from VAT.
In his tax ruling of 7 August 2019, the Director of the National Treasury Information Bureau took the view that the Municipality of O. should be classified as a ‘taxable person’ for the purposes of VAT in the context of the transactions at issue in the main proceedings.
The Municipality of O. challenged that advance tax ruling before the Wojewódzki Sąd Administracyjny w Warszawie (Regional Administrative Court, Warsaw, Poland). By judgment of 10 July 2020, that court dismissed the action, holding that that municipality carried out, in the context of the transactions at issue in the main proceedings, an economic activity and that that activity was not carried out by the Municipality of O. as a public authority.
The Municipality of O. brought an appeal on a point of law against that judgment before the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland), the referring court.
In the first place, that court is uncertain as to the consequences to be drawn from the fact that the Municipality of O. is a party to the contract entered into with the undertaking which won the tender and pays the sums due to it, from which it receives an invoice issued in its name, as regards the possible exercise of an economic activity by that municipality. In the second place, it asks, on the assumption that the latter does in fact carry on such an activity, whether the transactions at issue in the main proceedings are carried out under a public law scheme. In the third place, assuming that this concerns an economic activity which is not carried out under such a scheme, the referring court raises the question of the determination of the taxable amount of those transactions.
It is in those circumstances that the Naczelny Sąd Administracyjny (Supreme Administrative Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
‘(1) Must the provisions of [Directive 2006/112], in particular Articles 2(1), 9(1) and 13(1) thereof, be interpreted as meaning that a municipality (a public authority) acts as a taxable person for VAT purposes in carrying out a project whose objective is to increase the proportion of renewable energy sources by means of entering into a civil-law contract with property owners, under which the municipality undertakes to install [RES] on their property and – after a certain period of time has elapsed – to transfer the ownership of those systems to the property owners?
(2) If the answer to the first question is in the affirmative, must European co-financing received by a municipality (a public authority) for the implementation of projects involving renewable energy sources be included in the taxable amount within the meaning of Article 73 of that directive?’
Judgment of the Court
The Court (Seventh Chamber) ruled as follows:
Article 2(1), Article 9(1) and Article 13(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 fact that a municipality supplies and installs, through an undertaking, renewable energy systems for its residents who own their property and who have expressed their wish to be equipped with renewable energy systems, where such an activity is not intended to obtain income on a continuing basis and gives rise, on the part of those residents, solely to a payment covering at most one quarter of the costs incurred, the balance being financed by public funds, does not constitute a supply of goods and services subject to value added tax.
The text of the CJEU’s judgment in Case C‑612/21 can be found here.
Case C‑616/21
The dispute in the main proceedings and the question referred for a preliminary ruling
In the context of the programme for asbestos removal in Poland, drawn up in accordance with a resolution of the Council of Ministers of the Republic of Poland of 14 July 2009 on the establishment of a multiannual programme entitled ‘National Programme for the Removal of Asbestos for 2009-2032’, the Municipal Council of the Municipality of L. entrusted to the mayor of that municipality responsibility for implementing actions to that effect, by Resolution 227/VI/2019 of 26 April 2019, entitled ‘Updating the Asbestos Removal Programme of the City of L. for 2018-2032’.
According to the annex to that resolution, those actions consist of removing products and waste containing asbestos from residential and commercial buildings, with the exception of immovable property on which an economic activity is carried out. It is also provided in that annex that the inhabitants concerned are not to bear any costs in connection with the asbestos removal activity, since the Municipality of L. is responsible for financing, with the help of the Wojewódzki Fundusz Ochrony Środowiska i Gospodarki Wodnej (Provincial Fund for Environmental Protection and Water Management; ‘the Environmental Protection Fund’).
By ordinance 62/9/2019 of 23 September 2019 laying down detailed rules for the implementation of that resolution and on the establishment of a committee responsible for examining requests for disposal of products and waste containing asbestos, the mayor of the Municipality of L. set out the practical aspects of the asbestos removal activities. First, that municipality envisaged issuing a call for tenders in order to have that work carried out, with the successful tenderer having to issue invoices including VAT. Second, on the basis of those invoices paid by it, the municipality then intended to obtain subsidies from that fund, of an amount covering between 40% and 100% of the expenditure incurred on the basis of compliance with the conditions laid down by that fund.
In that context, on 7 January 2020, the Municipality of L., which has a VAT registration number, requested an advance tax ruling from the Director of the National Treasury Information Bureau, in order to determine whether it would be subject to VAT in the context of those transactions, the Municipality of L. taking the view that it should not be subject to VAT, since such transactions would be, in its view, carried out in its capacity as a public authority.
In his advance tax ruling of 13 March 2020, the Director of the National Treasury Information Bureau took the view that the Municipality of L. acted as a taxable person for VAT purposes and that, consequently, it should be allowed to deduct the input VAT paid.
That municipality challenged that advance tax ruling before the Wojewódzki Sąd Administracyjny w Lublinie (Regional Administrative Court, Lublin, Poland) and obtained its annulment. By judgment of 21 July 2020, that court held, in essence, that that municipality would act as a public authority in the context of a task established by specific provisions and for the performance of which it had been designated, and not as a taxable person for VAT purposes.
The Director of the National Treasury Information Bureau brought an appeal on a point of law against that judgment before the referring court.
It is in those circumstances that the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:
‘Must the provisions of [Directive 2006/112], in particular Article 2(1), Article 9(1) and Article 13(1) of that directive, be interpreted as meaning that a municipality (a public authority) is to be regarded as a taxable person for VAT purposes in respect of the implementation of a programme for the removal of asbestos from properties located within that municipality which are owned by residents who do not incur any expense in that regard? Or is the implementation of such a programme included in the activities of the municipality as a public authority which are undertaken in order to fulfil its tasks of protecting the health and life of its residents and protecting the environment, in which connection the municipality is not regarded as a taxable person for VAT purposes?’
Judgment of the Court
The Court (Seventh Chamber) ruled as follows:
Article 2(1), Article 9(1) and Article 13(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 where a municipality has arranged by means of an undertaking to carry out transactions involving asbestos removal and collection of asbestos products and waste, for the benefit of its residents who own immovable property and who have expressed interest in that regard, where such an activity is not intended to obtain income on a continuing basis and does not give rise, on the part of those residents, to any payment, since those transactions are financed by public funds, does not constitute a supply of services subject to value added tax.
The text of the CJEU’s judgment in Case C‑612/21 can be found here.
Copyright – internationaltaxplaza.info
Follow International Tax Plaza on Twitter (@IntTaxPlaza)
