On November 10, 2011, the ECJ issued its decision in the case C-444/10 (Schriever).
Context: VAT – Sixth Directive – Article 5(8) – Concept of a ‘transfer of a totality of assets or part thereof’ – Transfer of the stock and fittings concomitant with the conclusion of a contract of lease of the business premises
Article in the EU VAT Directive
Article 5(8) of the Sixth VAT Directive (Article 19 of the EU VAT Directive 2006/112/EC).
Article 19 (Taxable transaction – Transfer of Going Concern)
In the event of a transfer, whether for consideration or not or as a contribution to a company, of a totality of assets or part thereof, Member States may consider that no supply of goods has taken place and that the person to whom the goods are transferred is to be treated as the successor to the transferor.
Member States may, in cases where the recipient is not wholly liable to tax, take the measures necessary to prevent distortion of competition. They may also adopt any measures needed to prevent tax evasion or avoidance through the use of this Article.
Facts
- Until 30 June 1996, Ms Schriever ran a retail business, selling sports equipment from premises belonging to her. With effect from that date, she transferred the stock and fittings of the shop to Sport S. GmbH (‘Sport S.’) for a total of DEM 455 000, with no mention of VAT on the related invoice.
- At the same time, Ms Schriever leased the premises where the business was carried on to Sport S. from 1 August 1996 for an indefinite period. However, under the terms of the lease contract, the lease could be terminated by either party at the latest on the third working day of any calendar quarter, to take effect at the end of the following calendar quarter.
- Sport S. ran the sports shop until 31 May 1998.
- Ms Schriever treated the transfer of the stock and fittings as a non-taxable transfer of a business in its entirety, in accordance with Paragraph 1(1a) UStG. Consequently, she did not declare the proceeds of that sale on her 1996 VAT return.
- The Finanzamt, however, took the view that the conditions for a transfer of a business in its entirety were not satisfied because the business premises, which constituted an essential component element of the business, were not among the items sold to Sport S. In the adjusted 1996 VAT assessment notice, the Finanzamt treated the transaction as taxable and determined the VAT due accordingly.
- The Finanzgericht, upholding the action brought by Ms Schriever contesting the decision of the Finzanzamt, found that, having regard to all the circumstances of the case, the transaction at issue was indeed a transfer of a business in its entirety for the purposes of Paragraph 1(1a) UStG, since Sport S. effectively continued Ms Schriever’s business activities, and the mere theoretical possibility that the lease contract could be terminated at any time had no bearing in that regard.
- The Finanzamt brought an appeal on a point of law against that judgment before the Bundezfinanzhof, submitting that, since it is not possible to operate a retail business without shop premises, a lease contract which operates on the basis of a statutory termination period cannot ensure the continuation of the business.
- In the order for reference, the Bundezfinanzhof recalls that, according to its settled case-law, a transfer can be categorised as a transfer of a business notwithstanding the fact that some essential individual component elements of the business are not transferred together with the business, provided, however, that the transferee is able to make long-term use of those elements, in order to carry on the business on a lasting basis. The Bundezfinanzhof observes that it has found a 10-year lease to be sufficient for a long-term transfer of use of such important component elements, while the Finanzgericht Baden-Württemburg has held, in a judgment which has become final, that a lease of premises owned by a transferor for a five-year period was insufficient to support a finding that the business activity was being continued.
- According to the Bundezfinanzhof, however, the circumstances of the case before it are special, in that the lease for an indefinite period could be terminated by either party at short notice.
Questions
(1) Is there a “transfer” of a totality of assets within the meaning of the Sixth Directive in the case where a trader transfers the stock and fittings of his retail outlet to a purchaser and merely leases the premises which he owns to the purchaser?
(2) Is it relevant in that regard whether the premises were leased on the basis of a long-term contract of lease for use or whether the lease contract is concluded for an indefinite period and may be terminated by either party at short notice?
AG Opinion
None
Decision
Article 5(8) 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 there is a transfer of a totality of assets, or a part thereof, for the purposes of that provision, where the stock and fittings of a retail outlet are transferred concomitantly with the conclusion of a contract of lease, to the transferee, of the premises of that outlet for an indefinite period but terminable at short notice by either party, provided that the assets transferred are sufficient for the transferee to be able to carry on an independent economic activity on a lasting basis.
Summary
Article 5(8 ) of the Sixth Directive must be interpreted as meaning that a transfer of all or part of a generality of goods within the meaning of that provision is the transfer of ownership of the stock of goods and shop equipment of a retail establishment at the same time as the rental for indefinite period of the retail space to the transferee, but whereby the lease can be terminated at short notice by both parties, provided that the transferred goods are sufficient for this transferee to continue an autonomous economic activity on a sustainable basis.
Source:
Similar ECJ cases
How did countries implement the case? Your feedback appreciated! Let us know
Newsletters
