On April 26, 2012, the ECJ issued its decision in the joint cases C-621/10 & C-129/11 (Balkan and Sea Properties and Provadinvest)
Context: VAT — Directive 2006/112/EC — Articles 73 and 80(1) — Sale of immovable property between connected companies — Value of the transaction — National legislation providing that for transactions between connected persons the taxable amount for VAT purposes is the open market value of the transaction
Article in the EU VAT Directive
Article 73, 80(1) in the EU VAT Directive
Article 73
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 80
1. In order to prevent tax evasion or avoidance, Member States may in any of the following cases take measures to ensure that, in respect of the supply of goods or services involving family or other close personal ties, management, ownership, membership, financial or legal ties as defined by the Member State, the taxable amount is to be the open market value:
(a) where the consideration is lower than the open market value and the recipient of the supply does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177;
(b) where the consideration is lower than the open market value and the supplier does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177 and the supply is subject to an exemption under Articles 132, 135, 136, 371, 375, 376, 377, 378(2), 379(2) or Articles 380 to 390c;
(c) where the consideration is higher than the open market value and the supplier does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177.
For the purposes of the first subparagraph, legal ties may include the relationship between an employer and employee or the employee’s family, or any other closely connected persons.
Facts
Case C‑621/10
- Balkan and Sea Properties is a share company whose activity is the investment of funds collected by issuing immovable property securities.
- In March 2009 Balkan and Sea Properties bought, by notarial acts, immovable property from the company Ravda tur EOOD, for a total amount of BGN 21 318 852. That company is owned by Holding Varna AD, which owns 27.98% of the share capital of Balkan and Sea Properties.
- VAT was deducted on the conclusion of the definitive contract and the issue of the final invoices.
- Since the national legislation provides that, in the event of a sale between connected persons, the taxable amount is the open market value of the property, two export reports were commissioned, one by Balkan and Sea Properties and one by the tax authorities. The authorities concluded that the open market value of the property was lower than the actual sale price, and estimated it at BGN 21 216 300. The tax authorities thereupon considered that the VAT calculated on a price higher than the open market value of the property was unlawfully invoiced tax which could not be deducted and that, consequently, for the tax period corresponding to July 2009, Balkan and Sea Properties was not entitled to deduct the input VAT on the difference between the open market value and the actual sale price of the property in question.
- The amended tax notice was challenged in administrative proceedings before the Director. The Director confirmed the refusal of deduction of VAT.
- Balkan and Sea Properties brought proceedings in the Administrativen sad Varna (Administrative Court, Varna).
- That company submits in particular that the provisions of the ZDDS are not compatible with Article 80(1) of the VAT Directive, and seeks for that provision of European Union law to be applied directly.
Case C-129/11
- Provadinvest is a limited company whose principal activity is the leasing of agricultural land and steel structures used for polyethylene greenhouses.
- In June 2009 that company sold, by notarial acts, two plots of land to be used for greenhouses to one of its partners and one plot to its representative. Those plots were sold with the polyethylene structures erected on them, and with all the improvements and permanent crops on them, at a price of BGN 25 000 each.
- Provadinvest issued invoices not indicating VAT for those sales.
- The tax authorities took the view that the sales of the immovable property included both a supply of land that was exempt from VAT and a taxable supply of installations, improvements and permanent crops.
- Under national legislation, as the sales in question were sales between connected persons, the taxable amount for VAT purposes was the open market value determined by an expert. The expert assessed the total open market value solely of the polyethylene structures on the three plots of land at BGN 392 700, a greater sum than that actually paid as consideration.
- The tax authorities issued an amended tax notice for the tax period corresponding to June 2009. That notice was challenged in administrative proceedings before the Director, who confirmed the amount of VAT charged to Provadinvest.
- Provadinvest brought proceedings in the Administrativen sad Varna.
- That court considers that the sale of the agricultural land in question represents an exempt supply under Article 45(1) of the ZDDS and that the sale of the installations erected on the land represents a taxable supply, as they fall within the exceptions mentioned in Article 45(5)(2) of that law.
Questions
- Is Article 80(1)(c) of Council Directive 2006/112/EC 1 of 28 November 2006 on the common system of value added tax to be interpreted as meaning that where there are supplies between connected persons, in so far as the consideration is higher than the open market value, the taxable amount is the open market value of the transaction only if the supplier does not qualify for the full right to deduct the VAT chargeable on the purchase or production of the goods which are supplied?
- Is Article 80(1)(c) of Directive 2006/112 to be interpreted as meaning that, if the supplier has exercised the full right to deduct VAT on goods and services which are the subject of subsequent supplies between connected persons at a price which is higher than the open market value, and that right to deduct input VAT has not been corrected under Articles 173 to 177 of that Directive, a Member State is not permitted to adopt measures whereby the taxable amount is exclusively the open market value?
- Does Article 80(1) of Directive 2006/112 constitute an exhaustive list of cases representing the circumstances in which the Member States may take measures whereby the taxable amount in respect of supplies is to be the open market value of the transaction?
- Is a provision of national law such as Article 27(3)(1) of the Zakon za danak varhu dobavenata stoynost (Law on VAT) permissible in cases other than those listed in Article 80(1)(a), (b) and (c) of Directive 2006/112?
- In a case such as the present does Article 80(1)(c) of Directive 2006/112 have direct effect, and may the domestic court apply it directly?
Case C-129/11
- Is Article 80(1)(a) and (b) of [the VAT Directive] to be interpreted as meaning that, where there are supplies between connected persons, in so far as the consideration is lower than the open market value, the taxable amount is the open market value of the transaction only if the supplier or the acquirer does not qualify for the full right to deduct the tax credit on the purchase or production of the goods which are supplied?
- Is Article 80(1)(a) and (b) of [the VAT Directive] to be interpreted as meaning that, if the supplier has exercised the full right to deduct the tax credit on goods and services which are the subject of subsequent supplies between connected persons at a value which is lower than the open market value, and that right to deduct the tax credit has not been corrected under Articles 173 to 177 of the directive and the supply is not subject to a tax exemption within the meaning of Articles 132, 135, 136, 371, 375, 376, 377, 378(2), 379(2) and 380 to 390 of the directive, a Member State is not permitted to adopt measures whereby the taxable amount is exclusively the open market value?
- Is Article 80(1)(a) and (b) of [the VAT Directive] to be interpreted as meaning that, if the acquirer has exercised the full right to deduct the tax credit on goods and services which are the subject of subsequent supplies between connected persons at a lower value than the open market value, and that right to deduct the tax credit has not been corrected under Articles 173 to 177 of the directive, a Member State is not permitted to adopt measures whereby the taxable amount is exclusively the open market value?
- Does Article 80(1) of [the VAT Directive] constitute an exhaustive list of cases representing the circumstances in which a Member State is permitted to take measures whereby the taxable amount in respect of supplies is to be the open market value of the transaction?
- Is a provision of national law such as Article 27(3)(1) of the ZDDS permissible in cases other than those listed in Article 80(1)(a), (b) and (c) of [the VAT Directive]?
- In a case such as the present, does Article 80(1)(a) and (b) of [the VAT Directive] have direct effect, and may the national court apply it directly?’
AG Opinion
Article 80(1)(a), (b) and (c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax comprise an exhaustive list of the circumstances in which a Member State may levy VAT on a transaction on the basis of its open market value rather than of the consideration actually paid.
Those provisions do not authorise a Member State to take such an approach where the supplier or customer, as the case may be, has a full right of deduction.
A national provision which requires VAT to be levied on the basis of open market value in all cases where the parties are connected is incompatible with Article 80(1) of Directive 2006/112, at least to the extent that it covers cases where the relevant party to the transaction has a full right of deduction.
It is for the national court, to the full extent of its discretion under national law, to interpret and apply such a national provision in conformity with Article 80(1) of Directive 2006/112. Where such an interpretation is not possible, that court must disapply the provision to the extent that it is incompatible with that paragraph.
Article 73 of Directive 2006/112 has direct effect and can be relied upon by taxable persons, and applied directly by national courts, in order to ensure that, except in cases for which the directive provides for a derogation, the taxable amount is the actual consideration obtained.
If a Member State has not validly exercised the option available under Article 80(1) of Directive 2006/112, it may not rely on the provisions of that paragraph against a taxable person in order to tax a transaction on the basis of its open market value.
Decision
1. Article 80(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 conditions of application it sets out are exhaustive and, consequently, that national legislation cannot on the basis of that provision provide that the taxable amount is to be the open market value of the transaction in cases other than those listed in that provision, in particular where the taxable person has a full right of deduction of value added tax, which is for the national court to ascertain.
2. In circumstances such as those of the main proceedings, Article 80(1) of Directive 2006/112 confers on the companies concerned the right to rely on it directly to oppose the application of provisions of national legislation that are incompatible with that provision. If it is not possible to interpret the national legislation in conformity with Article 80(1) of the directive, the national court should disapply any provision of that legislation that is contrary to it.
Summary
The conditions of application laid down in Article 80(1) of the VAT Directive are exhaustively regulated and national legislation cannot therefore determine under this provision that the taxable amount is the normal value of the transaction in cases not listed in this provision, in particular where the taxable person is entitled to a full deduction of VAT.
In such circumstances, the companies concerned may rely directly on Article 80 of the VAT Directive before the national courts to oppose the application of national legal provisions that are incompatible with that provision.
If the national legislation cannot be interpreted in accordance with Article 80(1) of the VAT Directive, the national court must disapply any conflicting provision of this legislation.
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