On February 21, 2006, the ECJ issued its decision in the case C-255/02 (Halifax and Others).
Context: Sixth VAT Directive – Article 2(1), Article 4(1) and (2), Article 5(1) and Article 6(1) – Economic activity – Supplies of goods – Supplies of services – Abusive practice – Transactions designed solely to obtain a tax advantage.
Article in the EU VAT Directive
Article 2(1), 4(1) and (2), 5(1) and 6(1) of the Sixth VAT Directive (Article 2, 9, 14(1), 24 of the EU VAT Directive 2006/112/EC).
Article 2 (Scope)
1. 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;
Article 9 (Taxable person)
1. ‘Taxable person’ shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as ‘economic activity’. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.
2. In addition to the persons referred to in paragraph 1, any person who, on an occasional basis, supplies a new means of transport, which is dispatched or transported to the customer by the vendor or the customer, or on behalf of the vendor or the customer, to a destination outside the territory of a Member State but within the territory of the Community, shall be regarded as a taxable person
Article 14 (Supply of goods)
1. ‘Supply of goods’ shall mean the transfer of the right to dispose of tangible property as owner.
Article 24 (Supply of services)
1. ‘Supply of services’ shall mean any transaction which does not constitute a supply of goods.
2. ‘Telecommunications services’ shall mean services relating to the transmission, emission or reception of signals, words, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception, with the inclusion of the provision of access to global information networks.
Facts
- Halifax is a banking company. The vast majority of its services are exempt from VAT. At the material time, it was able to recover less than 5% of its input VAT.
- According to the observations submitted by Halifax, Leeds Development is a property development company and County is a property development and investment company.
- It appears from the order for reference that Leeds Development and County, and another member of the Halifax Plc Group involved in the transactions at issue, Halifax Property Investments Ltd (hereinafter ‘Property’), are each wholly owned subsidiaries of Halifax. Leeds Development and County are each registered separately for VAT, and Property is unregistered.
- For the purposes of its business, Halifax needed to construct call centres on four different sites at Cromac Wood and at Dundonald in Northern Ireland, at Livingston in Scotland and at West Bank, Leeds, in the North-East of England, on which it held a lease with about 125 years to run or the freehold or a fee simple interest.
- …. (See on Curia)
Questions
(1) (a) In the relevant circumstances, do transactions
- (i) effected by each participator with the intention solely of obtaining a tax advantage and
- (ii) which have no independent business purpose
qualify for VAT purposes as supplies made by or to the participators in the course of their economic activities?
(b) In the relevant circumstances, what factors should be considered in determining the identity of the recipients of the supplies made by the arm’s-length builders?
(2) Does the doctrine of abuse of rights as developed by the Court operate to disallow the appellants their claims for recovery of or relief for input tax arising from the implementation of the relevant transactions?
AG Opinion
– In cases C-255/02 and C-223/03:
(1) The terms ‘economic activity’ and ‘supply’ made by a ‘taxable person acting as such’ for the purposes of Article 2 and Article 4 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 should be interpreted as meaning that each of the transactions at issue must be considered objectively and per se. In that regard, the fact that a supply is made with the sole intention of obtaining a tax advantage is immaterial.
(2) The Sixth Directive should be interpreted as not conferring on a taxable person the right to deduct or recover input VAT, in accordance with the Community law principle of interpretation prohibiting the abuse of Community law provisions, if two objective elements are found to be present in terms to be assessed by the national courts. First, that the aims and results pursued by the legal provisions formally giving rise to the right would be frustrated if the right claimed were actually conferred. Second, that the right invoked derives from activities for which there is no other explanation than the creation of the right claimed.
– In case C-419/02:
(1) The terms ‘economic activity’ and ‘supply’ made by a ‘taxable person acting as such’ for the purposes of Article 2 and Article 4 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 should be interpreted as meaning that each of the transactions at issue must be considered objectively and per se. In that regard, the fact that a supply is made with the sole intention of obtaining a tax advantage is immaterial.
(2) Article 10(2) of the Sixth Directive should be interpreted as meaning that where a payment is made on account for unspecified goods generically indicated in a list from which the buyer may choose in the future one or more items, or none at all, in circumstances in which the buyer is in any case able to terminate the agreement unilaterally at any time and recover the balance of the payment made that has not yet been used for the purchase of goods indicated on the list and not specified by the buyer, such a payment should not be considered to have been made, within the meaning of the second subparagraph of Article 10(2), ‘on account before the goods are delivered or the services are performed’ and therefore must not render VAT ‘chargeable on receipt of the payment and on the amount received
Decision
1. Transactions of the kind at issue in the main proceedings constitute supplies of goods or services and an economic activity within the meaning of Article 2(1), Article 4(1) and (2), Article 5(1) and Article 6(1) 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, as amended by Council Directive 95/7/EC of 10 April 1995, provided that they satisfy the objective criteria on which those concepts are based, even if they are carried out with the sole aim of obtaining a tax advantage, without any other economic objective.
2. The Sixth Directive must be interpreted as precluding any right of a taxable person to deduct input VAT where the transactions from which that right derives constitute an abusive practice.
For it to be found that an abusive practice exists, it is necessary, first, that the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and of national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions. Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage.
3. Where an abusive practice has been found to exist, the transactions involved must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice.
Summary
Transactions such as those at issue in the main proceedings are supplies of goods or services and an economic activity within the meaning of Articles 2(1), 4(1) and 2, 5(1) and 6(1) , of the Sixth Directive if they satisfy the objective criteria on which those concepts are based, even if they were carried out for the sole purpose of obtaining a tax advantage, without any other economic purpose.
The Sixth Directive precludes a taxable person’s right to deduct input tax if the transactions on which that right is based constitute an abuse.
In order to establish that there has been abuse, it is necessary:
1. First, that the transactions in question, notwithstanding the formal application of the conditions laid down in the relevant provisions of the Sixth Directive and the national legislation transposing it, result in that a tax advantage is granted contrary to the purpose of those provisions.
2. Second, it must be apparent from a set of objective factors that the essential purpose of the transactions in question is to obtain a tax advantage.
When an abuse has been identified, the transactions carried out under it must be redefined in such a way as to restore the situation as it would have been without the transactions constituting this abuse.
Source
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