On February 28, 2018, the ECJ issued its decision in the case C-672/16 (Imofloresmira – Investimentos Imobiliários).
Context: Reference for a preliminary ruling — Value added tax — TVA Directive — Exemption of the leasing and letting of immovable property — Right of option available to taxpayers — Implementation by the Member States — Deduction of input tax — Use for the purposes of the taxable person’s taxed transactions — Adjustment of the initial deduction — Not permissible
Article in the EU VAT Directive
Articles 167, 168, 184, 185 and 187 of Council Directive 2006/112/EC
Article 167 (Right to deduct VAT)
A right of deduction shall arise at the time the deductible tax becomes chargeable.
Article 168 (Right to deduct VAT)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18 (a)and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.
Article 184 (Adjustments to the Right to deduct VAT)
The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.
Article 185 (Adjustments to the Right to deduct VAT)
1. Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.
2. By way of derogation from paragraph 1, no adjustment shall be made in the case of transactions remaining totally or partially unpaid or in the case of destruction, loss or theft of property duly proved or confirmed, or in the case of goods reserved for the purpose of making gifts of small value or of giving samples, as referred to in Article 16.
However, in the case of transactions remaining totally or partially unpaid or in the case of theft, Member States may require adjustment to be made.
Article 187 (Adjustments to the Right to deduct VAT)
1. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured.
Member States may, however, base the adjustment on a period of five full years starting from the time at which the goods are first used.
In the case of immovable property acquired as capital goods, the adjustment period may be extended up to 20 years.
2. The annual adjustment shall be made only in respect of one-fifth of the VAT charged on the capital goods, or, if the adjustment period has been extended, in respect of the corresponding fraction thereof.
Facts
- Imofloresmira is engaged in the purchase, sale, letting and management of residential, commercial and mixed properties which are owned by Imofloresmira or by third parties.
- After audits were carried out in 2015 and 2016, the tax and customs authority found that certain lots in two properties owned by Imofloresmira, and for which it had opted for taxation, were vacant for more than two years and that, even though the lots were unoccupied, Imofloresmira had not made any adjustment to the tax deducted pursuant to Article 26(1) of the CIVA and Article 10(1)(b) of the arrangement for waiving the exemption.
- On that basis, the tax and customs authority stated that the company should make the adjustment of the tax deducted, annually or definitively as the case may be, for the unoccupied lots of the properties which it owns and informed Imofloresmira that, since that adjustment had not been made, corrections to the tax owed had to be applied for a total sum of EUR 1 375 954.71 for the years 2011, 2012 and 2013. It is also apparent from the file submitted to the Court that the corrections for 2013 had an impact on the tax deducted in 2014.
- Disagreeing with the decision of the tax and customs authority to make those corrections, Imofloresmira brought an action before the Tribunal Arbitral Tributário (Centro de Arbitragem Administrativa — CAAD) (Tax Arbitration Tribunal (Centre for Administrative Arbitration), Portugal) for annulment of the additional VAT assessment. The referring court states that Imofloresmira ensured a continuous commercial promotion of available spaces for rent within those properties.
- In that respect, the referring court states, in particular, that, between 2011 and 2013, it concluded agreements with estate agencies for that purpose and, on the advice of those agencies, undertook various marketing operations and marketing assistance, including in particular the creation of a brochure, a mailing list and a website, the creation and distribution of press releases to a wide audience and the display of advertising panels on the properties concerned. It goes on to state that Imofloresmira also amended its offer, first, by making available spaces to rent at more competitive prices and, secondly, by making it possible to negotiate cooling-off periods while tenants are moving in.
- According to the referring court, the cost of the trade promotion services for the properties owned by Imofloresmira are reflected in the balance sheets for the years 2011-2013.
- Imofloresmira submits to the referring court that the corrections referred to in paragraph 21 above are unlawful on the ground that the interpretation of the national legislation applicable to the main proceedings, as adopted by the tax and customs authority, infringes EU law, in particular the VAT Directive, and Article 26(1) of the CIVA and Article 10(1) of the arrangement for waiving the exemption.
- Since it has doubts as to the compatibility with EU law of the national legislation applicable to the main proceedings, in particular Article 26(1) of the CIVA and Article 10(1) of the arrangement for waiving the exemption, as interpreted by the tax and customs authority, the referring court considers that an interpretation of Articles 137, 167, 168, 184, 185 and 187 of the VAT Directive is necessary.
Questions
(1) When a property, despite being unoccupied for the period of two or more years, is being marketed, that is it is available on the market to be let or for the provision of ‘office centre’ services, and it is established that the owner intends to let the property subject to VAT and has made the necessary efforts to give effect to that intention, is the characterisation as a ‘failure actually to use the property for the purposes of the business’ and/or ‘failure actually to use the property in taxed transactions’ — for the purposes of Article 26(1) of the VAT Code and Article 10(1)(b) of the Regime for the Waiver of the VAT exemption in Transactions relating to Immovable Property, introduced by Decree-Law No 21 of 29 January 2007, in their earlier versions — and therefore adopting the view that the deduction initially made must be adjusted, since it is above the amount to which the taxable person was entitled, compatible with Articles 167, 168, 184, 185 and 187 of Council Directive 2006/112/EC 1 of 28 November 2006?
(2) If the answer is in the affirmative, may that adjustment, having regard to the correct interpretation of Articles 137, 167, 168, 184, 185 and 187 of … Directive 2006/112/EC …, be imposed only once for the entirety of the period yet to expire — as laid down in the Portuguese legislation, in Article 10(1)(b) and (c) of the Regime for the Waiver of the VAT exemption in Transactions relating to Immovable Property, introduced by Decree-Law No 21 of 29 January 2007, in its earlier version — where the property has been unoccupied for more than two years, but still marketed to be let (with the possibility of waiver) and/or for the provision of services (taxable), with the aim of assigning the property in subsequent years to taxed activities which confer the right to deduct?
(3) Is Article 2(2)(c) of the Regime for the Waiver of the VAT exemption in Transactions relating to Immovable Property introduced by Decree-Law No 21 of 29 January 2007, in conjunction with Article 10(1)(b) of that regime, compatible with Articles 137, 167, 168 and 184 of … Directive 2006/112/EC …, in making it impossible for a taxable person for VAT to waive the VAT exemption when entering into new leases after a single adjustment to VAT has been made and in undermining the subsequent deduction regime during the adjustment period?
AG Opinion
None
Decision
Articles 167, 168, 184, 185 and 187 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted to the effect that they preclude national legislation which provides for the adjustment of the value added tax initially deducted on the ground that a property, for which the right to opt for taxation was exercised, is regarded as no longer being used by the taxable person for the purposes of its own taxed transactions, where that property has remained unoccupied for more than two years, even though it is established that the taxable person has sought to rent it during that period.
Summary
The Portuguese company Imofloresmira deals with the purchase, sale, rental and management of real estate. Tax audits found that parts of two buildings owned by Imofloresmira had remained unused for more than two years. Imofloresmira has constantly advertised to be able to rent out the available space within these buildings and lower the rents. The Portuguese tax authorities have argued that Imofloresmira should have revised the deducted VAT. The Portuguese court has submitted preliminary questions to the CJEU.
According to the CJEU, the Portuguese scheme is not allowed, whereby the VAT originally deducted must be revised if a property has remained unused for more than two years, even if it has been demonstrated that the taxable person attempted to rent it out during that period.
Source
References to developments in the EU Member States
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