On 9 October 2019 the European Court of Justice gave its judgment in joined cases C‑573/18 and C‑574/18 (C GmbH & Co. KG and C-eG). Both cases deal with the question if a subsidy that is linked to the price is subject to VAT.
Context: Reference for a preliminary ruling — Sixth Council Directive 77/388/EEC — Article 11A(1)(a) — Taxable amount — Subsidy directly linked to price — Regulation (EC) No 2200/96 — Article 11(1) and Article 15 — Producer organisation having set up an operational fund — Deliveries made by the producer organisation to its members in exchange for payments not covering the entirety of the purchase price — Additional financing paid by the operational fund
Summary
- Case Overview: The case involves a preliminary ruling concerning the interpretation of Articles 11A(1)(a) and related provisions of the Sixth Council Directive on VAT, in relation to producer organizations that receive subsidies for supplying goods to their members.
- Main Legal Question: The court was asked to determine whether the payments received from operational funds, which help finance the purchase of goods supplied to producers, should be considered as part of the taxable amount for VAT purposes.
- Court’s Findings: The court ruled that subsidies paid by an operational fund to a producer organization for supplying goods to its members are considered “subsidies directly linked to the price” under Article 11A(1)(a) of the Sixth Directive, thus forming part of the taxable amount.
- Tax Neutrality Principle: The judgment emphasized the importance of tax neutrality, stating that if a producer receives lower taxation due to subsidies, it could create unequal treatment compared to direct purchases without the involvement of a producer organization.
- Conclusion: The court concluded that the payments from the operational fund must be included in the consideration for the supply, reinforcing that they are indeed subsidies directly linked to the price of the supplied goods. The second and third questions were deemed unnecessary to address based on this finding.
Articles in EU VAT Directive
Articles 11A(1)(a) and of Articles 20 and 27 of the Sixth Council Directive 77/388/EEC
Article 11A(1) of the Sixth Directive stipulates:
The basis of assessment shall be:
(a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;
Under Article 20(1) of that directive:
‘The initial deduction shall be adjusted according to the procedures laid down by the Member States, in particular:
(a) where that deduction was higher or lower than that to which the taxable person was entitled;
Article 27 of that directive states:
1. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance. Measures intended to simplify the procedure for charging the tax, except to a negligible extent, may not affect the amount of tax due at the final consumption stage.
5. Those Member States which apply on 1 January 1977 special measures of the type referred to in paragraph 1 above may retain them providing they notify the Commission of them before 1 January 1978 and providing that where such derogations are designed to simplify the procedure for charging tax they conform with the requirement laid down in paragraph 1 above.’
Facts
- Parties and Context: The case involves two producer organizations, C GmbH & Co. KG and C-eG, which operate in the wholesale market for fruits and vegetables in Germany and are subject to VAT under EU regulations.
- Operational Fund: Both organizations established an operational fund as mandated by Regulation (EC) No 2200/96, financed through contributions from their member producers and EU financial assistance, aimed at supporting investments and assisting members.
- Transaction Structure: The organizations purchase goods from suppliers and sell them to their producer members, who make payments that do not fully cover the purchase price, with the operational fund covering the remaining costs.
- VAT Treatment Dispute: Following a tax audit, German tax authorities determined that the financial assistance from the operational fund should be treated as part of the taxable amount for VAT, leading to a dispute regarding whether these payments constituted a subsidy directly linked to the price of goods supplied.
- Legal Clarification: The Bundesfinanzhof (Federal Finance Court) referred questions to the Court of Justice of the European Union to clarify how the financial aid from the operational fund should be treated under VAT law, particularly regarding its classification as a subsidy and its impact on the taxable amount.
Questions
(1) Under circumstances such as those of the main proceedings, in which a producer organisation within the meaning of Article 11(1) and Article 15 of Regulation [No 2200/96] supplies goods to the producers that are its members and receives for this from the producers a payment which does not cover the purchase price,
(a) is an exchange with a cash supplement deemed to exist because the producers, in return for the supply, have contractually undertaken vis-à-vis the producer organisation to deliver fruit and vegetables to the producer organisation for the duration of the earmarking period, with the consequence that the taxable amount of the supply is the purchase price for the capital goods paid by the producer organisation to the upstream suppliers?
(b) is the entirety of the amount which the operational fund actually pays to the producer organisation for the supply a “subsidy directly linked to the price of such supplies” within the meaning of Article 11A(1)(a) of the Sixth Directive …, with the consequence that the taxable amount also encompasses the financial assistance within the meaning of Article 15 of Regulation No 2200/96 which has been granted to the operational fund by the competent authorities on the basis of an operational programme?
(2) If, on the basis of the answer to question 1, only the payments made by the producers, but not the supply obligation and the financial assistance, are to be taken as the taxable amount: under the circumstances specified in question 1, does Article 11A(1)(a) of the [Sixth Directive] preclude a national special measure based on Article 27(1) of the [Sixth Directive] such as Paragraph 10(5)(1) of the UStG, according to which the taxable amount of the supplies to the producers is the purchase price for the capital goods paid by the producer organisation to the upstream suppliers because the producers are related parties?
(3) If question 2 is answered in the negative: is this also the case if the producers have a full right of deduction because the capital goods are subject to adjustments of deductions (Article 20 of the [Sixth Directive])?’
AG Opinion
None
Decision
Article 11A(1)(a) of the 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 must be interpreted as meaning that, in circumstances such as those in the main proceedings, in which a ‘producer organisation’, within the meaning of Article 11 of Council Regulation (EC) No 2200/96 of 28 October 1996 on the common organisation of the market in fruits and vegetables, purchases goods from input suppliers, supplies those goods to its partner members and obtains from them a payment not covering the purchase price, the amount that an operational fund, such as provided for in Article 15 of that regulation, pays to that producer organisation for the supply of those goods to producers is incorporated in the consideration for that supply and must be regarded as a subsidy directly linked to the price of that supply, paid for by a third party.
Source
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