Flashback on ECJ Cases – C-37/08 (RCI Europe) – Supply of services connected with immovable property – Services consisting in facilitating the exchange by owners of rights to occupy holiday homes

On September 3, 2009, the ECJ issued its decision in the case C-37/08 (RCI Europe)

Sixth VAT Directive – Fiscal connection – Supply of services connected with immovable property – Services consisting in facilitating the exchange by owners of rights to occupy holiday homes

Article in the EU VAT Directive

Article 9(2)(a) of Sixth Council Directive 77/388/EEC/Article 45 in the EU VAT Directive 2006/112/EU

Article 45 (Place of supply of services B2C)
The place of supply of services to a non-taxable person shall be the place where the supplier has established his business. However, if those services are provided from a fixed establishment of the supplier located in a place other than the place where he has established his business, the place of supply of those services shall be the place where that fixed establishment is located. In the absence of such place of establishment or fixed establishment, the place of supply of services shall be the place where the supplier has his permanent address or usually resides.

Facts

RCI Europe was established in the United Kingdom on 29 November 1973. Its business consists in facilitating and organising the exchange of timeshare usage rights held by its members in holiday accommodation outside that Member State.
RCI Europe operates a week-for-week timeshare usage rights exchange scheme known as ‘RCI Weeks’, which has the specific features described below.
Holiday resort developers are invited to become ‘affiliates’. Individuals who own timeshare usage rights in affiliated resorts can apply to become members of the RCI Weeks scheme.
Membership of the RCI Weeks scheme entitles a member to deposit holiday usage rights in respect of his timeshare property into a pool of timeshare accommodation (‘the Weeks Pool’) and to have made available to him the holiday usage rights deposited by other members into the Weeks Pool. During that process, members are in contact only with RCI Europe. The depositing of holiday usage rights into the Weeks Pool does not entail the transfer to RCI Europe of rights in the property to which the usage rights deposited relate. On the contrary, the original timeshare owner retains his holiday usage right throughout the process.
RCI Weeks members pay an enrolment fee, which covers a period from one to five years, and annual subscription fees. In addition, an exchange fee is payable on the date of the request for an exchange. RCI Europe treats this fee as a returnable deposit. If RCI Europe is unable to identify an exchange acceptable to the member within the Weeks Pool, it will hold the exchange fee as a credit to the member’s account against future exchange fees or, if requested by the member, refund it.
RCI Europe can supplement the Weeks Pool by buying in accommodation from a third party or by a developer making extra weeks available. A member can request an exchange in respect of this supplemental accommodation on payment of an exchange fee.

The procedure before the national tax authorities

RCI Europe has its registered office in the United Kingdom. A large proportion of its members are nationals of that Member State. On the other hand, a large proportion of the properties which are subject to the RCI Weeks exchange scheme is in Spain. The United Kingdom and Spanish tax authorities have both claimed payment of VAT on RCI Europe’s transactions, which ultimately amounts to double taxation in two different Member States.
It is apparent from the reference for a preliminary ruling that, until 31 December 2003, RCI Europe paid VAT in the United Kingdom on all enrolment fees received from new members and on all annual subscription fees received from existing members. In addition, until 31 December 2005, RCI Europe was also paying VAT in the United Kingdom on all exchange fee income received from members who had acquired a timeshare usage right in a property located in the European Union. It did not pay VAT in the United Kingdom on all exchange fees received from members who had acquired such a timeshare usage right in a property located outside the European Union.
The Spanish tax authorities take the view that the services supplied by RCI Europe are directly connected with immovable property and are, accordingly, subject to VAT in the State in which the timeshare property is located. The assessment certificates issued by the Spanish tax authorities against RCI Europe and the decisions of the financial administrative courts dismissing RCI Europe’s complaint are currently the subject of an appeal in cassation before the Tribunal Supremo (Spain).
As from 1 January 2004, RCI Europe ceased to account for VAT in the United Kingdom on its enrolment and annual subscription income from members whose holiday usage rights relate to timeshare properties in Spain. It also ceased to account for VAT in the United Kingdom on exchange fee income that it received from members who exchanged their holiday usage rights for equivalent rights in respect of a Spanish property.
On 23 March 2005, the Commissioners decided to raise an assessment to recover the amount of VAT that they considered RCI Europe should have accounted for in 2004 on enrolment and annual subscription income received from members with holiday usage rights in properties in Spain and exchange fees received for holiday usage rights in respect of Spanish properties. The assessment was raised on 5 April 2005 for the sum of GBP 1339709.

Questions

In the context of the services supplied by the Appellant for:

– the enrolment fee;

– the subscription fee; and

– the exchange fee

paid by members of the Appellant’s Weeks Scheme, what are the factors to be considered when determining whether the services are “connected with” immovable property within the meaning of Article 9(2)(a) of the Sixth VAT Directive (now Article 45 of the Recast VAT Directive)?

If any or all of the services supplied by the Appellant are “connected with” immovable property within the meaning of Article 9(2)(a) of the Sixth VAT Directive (now Article 45 of the Recast VAT Directive), is the immovable property with which each or all of the services are connected the immovable property deposited into the pool, or the immovable property requested in exchange for the deposited immovable property, or both of these properties?

If any of the services are “connected with” both immovable properties, how are the services to be classified under the Sixth VAT Directive (now the Recast VAT Directive)?

In light of the divergent solutions found by different Member States how does the Sixth VAT Directive (now the Recast VAT Directive) characterise the “exchange fee” income of a taxable person received for the following supplies:

– facilitating the exchange of holiday usage rights held by one member of a scheme run by the taxable person for the holiday usage rights held by another member of that scheme; and / or

– supplying usage rights in accommodation purchased by the taxable person from taxable third parties to supplement the pool of accommodation available to members of that scheme.

AG Opinion

(1) The services which the applicant supplies in return for payment of the enrolment fee and subscription fees are not directly connected with immovable property within the meaning of Article 9(2)(a) of the Sixth Directive (or Article 45 of Directive 2006/112/EC) and therefore fall within the scope of the general rule in Article 9(1) of the Sixth Directive (or Article 43 of Directive 2006/112). Consequently, the place of supply is the place where the applicant has established its place of business or has a fixed establishment from which it supplies the services.

(2) As regards the services which the applicant supplies in return for payment of the exchange fees, it is for the national court to examine whether the applicant uses the supplies and services of other taxable persons. If so, the special rule in Article 26(1) of the Sixth Directive (or the second paragraph of Article 307 of Directive 2006/112) applies. The place of supply must then be the place where the applicant has established its place of business or has a fixed establishment from which it supplies the services.

However, should that condition not be fulfilled, Article 9(2)(a) of the Sixth Directive (or Article 45 of Directive 2006/112) must be applied, with the consequence that the place of supply must be the place where the immovable property is situated.

Decision

Article 9(2)(a) of 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 the place where services are supplied by an association whose business consists in organising the exchange between its members of their timeshare usage rights in holiday accommodation, in return for which that association receives from its members enrolment, annual subscription and exchange fees, is the place where the property in respect of which the member concerned holds timeshare usage rights is situated.

Summary

The place of services provided by an association whose activity consists in organizing the exchange of rights of part-time use of holiday homes between its members, in return for which this association receives registration fees, annual membership fees and an exchange fee from its members, the is the place where the property is located in respect of which the member concerned holds the right of part-time use.

Source