On January 10, 2019, the ECJ its decision in the case C-410/17 (A Oy).
Context: Reference for a preliminary ruling — Value added tax (VAT) — Directive 2006/112/EC — Article 2(1)(a) and (c) — Article 14(1) — Article 24(1) — Transactions for consideration — Transactions for consideration constituted partly by services or goods — Demolition contract — Purchase contract for dismantling
Summary
- The Court addressed whether demolition contracts involve a single transaction or separate transactions for VAT purposes, specifically regarding the resale of scrap metal.
- It ruled that if a demolition company factors in the value of scrap metal when pricing demolition services, both the service and the supply of goods (scrap metal) are subject to VAT.
- The Court emphasized that the consideration for both services and goods must have a direct link and be capable of being expressed in monetary terms.
- In the context of purchase contracts for dismantling, the Court confirmed that such agreements also involve separate transactions for the supply of goods and services, contingent on the demolition company attributing value to the services.
- The case highlights the need for clear valuation and acknowledgment of reciprocal transactions in contracts to determine VAT obligations accurately.
Articles in the EU VAT Directive 2006/112/EC
Article 2(1)(a) and (c) of Directive 2006/112 provides:
‘The following transactions shall be subject to VAT:
- (a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
- (c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such’.
Article 14(1) of that directive is worded as follows:
“Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.’
Article 24(1) of the directive provides:
‘“Supply of services” shall mean any transaction which does not constitute a supply of goods.’
Article 73 of that directive states:
‘In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.’
Article 199(1)(a) and (d) of Directive 2006/112 provides:
‘Member States may provide that the person liable for payment of VAT is the taxable person to whom any of the following supplies are made:
- (a) the supply of construction work, including repair, cleaning, maintenance, alteration and demolition services in relation to immovable property, as well as the handing over of construction works regarded as a supply of goods pursuant to Article 14(3);
- (d) the supply of used material, used material which cannot be re-used in the same state, scrap, industrial and non-industrial waste, recyclable waste, part processed waste and certain goods and services, as listed in Annex VI’.
Points 1 and 4 of Annex VI to the VAT Directive, entitled ‘List of Supplies of Goods and Services as referred to in Point (d) of Article 199(1)’ is worded as follows:
- (1) Supply of ferrous and non-ferrous waste, scrap, and used materials including that of semi-finished products resulting from the processing, manufacturing or melting down of ferrous and non-ferrous metals and their alloys;
- (4) supply of, and certain processing services relating to, ferrous and non-ferrous waste as well as parings, scrap, waste and used and recyclable material consisting of cullet, glass, paper, paperboard and board, rags, bone, leather, imitation leather, parchment, raw hides and skins, tendons and sinews, twine, cordage, rope, cables, rubber and plastic’.
Facts
- Company A specializes in environmental services for the industrial and construction sectors in Finland and Sweden, offering services such as demolition, recycling, and waste processing. A operates under standard contractual terms for demolition services, which include responsibilities for proper waste disposal and processing.
- The company undertakes demolition contracts where it demolishes buildings for clients and handles the disposal of resulting materials, including scrap metal. A estimates the resale value of scrap metal to provide competitive pricing for its demolition services, although this estimated value is not explicitly discussed with clients.
- Additionally, A engages in purchasing old machines and equipment from clients under a separate dismantling contract, where it is responsible for dismantling and disposing of waste. The costs associated with these processes are estimated by A but not disclosed to the sellers during negotiations.
- A sought clarification from the tax authority regarding VAT obligations on its demolition services and the purchase of scrap metal. The tax authority determined that A is both providing demolition services and purchasing scrap metal, thus liable for VAT on both transactions.
- A challenged this decision in court. The Helsingin hallinto-oikeus (Administrative Court) ruled that A’s contracts constituted barter agreements, making it liable for VAT on both the services provided and the scrap metal purchased. A then appealed this ruling to the Korkein hallinto-oikeus (Supreme Administrative Court), arguing that the contracts should not be classified as barter agreements, as there is no direct link between the services and goods exchanged. The court is now considering whether A’s contracts indeed involve reciprocal transactions.
Questions
(1) Is Article 2(1)(c), in conjunction with Article 24(1) of [Directive 2006/112], to be interpreted as meaning that demolition services carried out by a company whose business includes the performance of demolition works, is one single transaction where, under the terms of the contract between it and the client, the demolition company is required to dispose of the demolition waste and where the demolition company may, if the demolition waste contains metal scrap, sell it to companies which buy recyclable scrap metal?
Or, taking into account Article 2(1)(a), in conjunction with Article 14(1) of [Directive 2006/112], is such a contract for demolition works to be interpreted as comprising two transactions: first, a supply of services by the demolition company to the client of demolition works and, second, the purchase of the metal scrap from the client for resale by the demolition company?
In the present case, is it important when fixing the price for the demolition works that the demolition company took into account, as a factor moderating the price, that it is also possible to generate revenues by making use of demolition waste?
In the present case, is it important that the quantity and value of the recoverable demolition waste have not been agreed upon in the demolition contract, or that it has not been agreed that that information will be notified later to the client for which the demolition work is carried out, or the fact that the quantity and the value of the demolition waste are known only when the demolition company sells it?
(2) Is Article 2(1)(a), in conjunction with Article 14(1) of [Directive 2006/112], in a situation in which a company whose business is the supply of demolition services concludes a contract with the owner of an object to be demolished that the demolition company will buy the object to be demolished and undertakes, subject to a contractual penalty, to demolish and dispose of the object within a period specified in the contract, to be interpreted as meaning that in such a situation there is a single transaction which includes the sale of goods by the owner of the object to be demolished to the demolition company?
Or, having regard to Article 2(1)(c), in conjunction with Article 24(1) of [Directive 2006/112], is a contract of that kind to be interpreted as comprising two transactions, namely the sale of goods by the owner of the object to be demolished to the demolition company and the demolition works supplied by the demolition company to the seller of the goods?
In the present case, what importance is to be attached to the fact that the demolition company, when fixing the price in its purchase offer for the goods, takes into account, as a factor in reducing the price, the costs to be incurred in dismantling and disposing of the goods?
Is it important that the seller of the goods is aware that the costs incurred by the demolition company for dismantling and disposing of the goods are taken into account as a factor reducing the price of those goods, in view of the fact that there is no agreement between the parties with regard to those costs and that the estimated or actual amount of those costs must at no time be known to the seller of the goods?
AG Opinion
None
Decision
1. Article 2(1)(a) and (c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read together with Article 14(1) and Article 24(1) thereof, must be interpreted as meaning that, where, pursuant to a demolition contract, the service provider, namely a demolition company, is required to carry out demolition works and may, in so far as the demolition waste contains scrap metal, resell that scrap metal, that contract consists of a supply of services for consideration, that is to say the performance of demolition works, and also a supply of goods for consideration, that is the supply of the scrap metal, if the purchaser, that is to say the demolition company, attributes a value to that supply of goods, which it factors in when calculating the price quoted for the performance of the demolition works, that supply of goods being, however, subject to value added tax only if it is made by a taxable person acting as such.
2. Article 2(1)(a) and (c) of Directive 2006/112, read together with Article 14(1) and Article 24(1) thereof, must be interpreted as meaning that, where, pursuant to a purchase contract for dismantling, the purchaser, namely a demolition company, purchases goods to be dismantled and undertakes, subject to a contractual penalty, to demolish or dismantle and dispose of those goods and to dispose of the waste within a period fixed in the contract, that contract consists of a supply of goods for consideration, that is the supply of goods to be dismantled, which is subject to value added tax only if it is made by a taxable person acting as such, which is for the referring court to ascertain. In so far as the purchaser is required to demolish or dismantle and dispose of those goods and to dispose of the resulting waste, thereby specifically meeting the needs of the seller, which is for the referring court to ascertain, that contract also includes a supply of services for consideration, that is the performance of demolition works or dismantling and waste disposal, if that purchaser attributes a value to that supply of goods which it factors in to the price quoted as a factor reducing the purchase price of the goods to be dismantled, which is for the referring court to ascertain.
Source
Other ECJ Cases referred to in the decision
- Serebryannay vek (C-283/12): This case addresses the concept of reciprocal performance in transactions and how the consideration for a supply of services can consist of a supply of goods.
- Orfey (C-549/11): This case discusses how the value of consideration for a supply of services must be subjective and linked directly to the value attributed by the recipient of the services.
- First National Bank of Chicago (C-172/96): This case established that technical difficulties in determining the amount of consideration do not negate the existence of consideration.
- Newey (C-653/11): This case highlights the importance of ensuring that the application of VAT principles reflects economic and commercial reality, preventing potential abuse.
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