Flashback on ECJ VAT Cases – C-412/03 (Hotel Scandic Gåsabäck) – Provision of meals in company canteen at a lower price than cost

On January 20, 2005, the ECJ issued its decision in the case C-412/03 (Hotel Scandic Gåsabäck).

Context: Sixth VAT Directive – Articles 2, 5(6) and 6(2) – Provision of meals in a company canteen for a price lower than the cost price – Taxable amount

Article in the EU VAT Directive

Articles 2, 5(6) and 6(2)(b) of Sixth Council Directive 77/388/EEC (Article 2, 16 and 26 of the EU VAT Directive 2006/112/EC).

Article 16 (Supply of Goods – Deemed Taxable transaction – Supply of goods for free)
The application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible. However, the application of goods for business use as samples or as gifts of small value shall not be treated as a supply of goods for consideration.

Article 26 (Supply of Services – Deemed Taxable transaction – Supply of services for free)
1. Each of the following transactions shall be treated as a supply of services for consideration:
(a) the use of goods forming part of the assets of a business for the private use of a taxable person or of his staff or, more generally, for purposes other than those of his business, where the VAT on such goods was wholly or partly deductible;

(b) the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.
2. Member States may derogate from paragraph 1, provided that such derogation does not lead to distortion of competition.

Facts

Scandic carries on its business in the hotel and restaurant sectors in Sweden. It offers its staff of approximately 25 persons lunch at a fixed price in a canteen specially set up by the company.
For that meal, the members of staff pay a price which exceeds the cost incurred by Scandic. However, it is possible that, in future, the price will be lower than the cost. Wishing to ascertain the tax implications of providing meals to its staff, Scandic asked the Skatterättsnämnden (a special commission responsible for issuing preliminary decisions in tax matters) whether the provision of meals to its staff was a supply of food (taxed at 12%) or a provision of services (taxed at 25%) and whether the fact that the company provides the meal at a price which is lower than the cost incurred in supplying the goods or providing the services means that the provision is taxable under the rules of the Swedish law on applications for private purposes or whether the taxable amount is the price paid by the employee.
In a preliminary decision of 10 June 2002, the Skatterättsnämnden found that the provision by Scandic of meals to its staff must be regarded as a provision of services and that it is subject to VAT by virtue of the provisions of the first subparagraph of Paragraph 5 in Chapter 2 and Paragraph 3(2)(b) in Chapter 7 of the Swedish law, where the price of the meal is lower than the cost incurred by Scandic.
Scandic brought an appeal against that decision before the Regeringsrätten (Supreme Administrative Court). It argues that the provision of a meal to its members of staff must be regarded as a supply of goods and not as a provision of services and that the rules on applications for private use cannot be applied because the staff pay a consideration for the provision of that meal.
The Regeringsrätten found that, under the Swedish law, the provisions on the taxation of the supply of goods or services for private use apply both where the goods or services are made available free of charge and where they are made available for a consideration which is lower than the purchase price or cost price of the goods or, as the case may be, the cost of providing the service. In the main proceedings, the question arose as to whether Articles 2, 5(6) and 6(2)(b) of the Sixth Directive preclude those national provisions.

Questions

Reference has been made to the Court of Justice of the European Communities by order of the Regeringsrätten (Supreme Administrative Court) of 29 September 2003, received at the Court Registry on 3 October 2003, for a preliminary ruling in the case of Hotel Scandic Gåsabäck AB against Riksskatteverket on the following questions:

1.In the event that the Regeringsrätten finds, when the case is decided, that the company’s supplies are supplies of goods, are Article 2 and Article 5(6) of the Sixth Value Added Tax Directive¹ to be interpreted as precluding provisions in the legislation of a Member State under which withdrawal of goods means that a taxable person transfers goods to a third party for a consideration less than the purchase value of the goods or of similar goods or, if no such value is available, the cost price.

2.In the event that the Regeringsrätten finds, when the case is decided, that the company’s supplies are food dispensing services, are Article 2 and Article 6(2)(b) of the Sixth Value Added Tax Directive to be interpreted as precluding provisions in the legislation of a Member State under which withdrawal of goods means that a taxable person performs, arranges performance or in some other way provides a service for himself or his staff for private purposes or for other non-commercial purposes, where the service is provided for a consideration less than the cost of performing the service.

AG Opinion

Articles 2, 5(6) and 6(2)(b) 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, are to be interpreted as precluding national legislation under which transactions that are not free of charge and in which a price is paid, even though it may be lower than the purchase value of the goods supplied or of similar goods, or of the cost of performing the service, are regarded as applications of goods for own consumption

Decision

Articles 2, 5(6) and 6(2)(b) 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 precluding a national rule whereby transactions in respect of which an actual consideration is paid are regarded as an application of goods or services for private use, even where that consideration is less than the cost price of the goods or services supplied.

Summary

Provision of meals in company canteen at a lower price than cost

Acts for which an actual consideration is paid may not be regarded as the withdrawal of a good or the provision of a service for private purposes, even if the consideration is less than the cost price of the good or service supplied.

Source