Flashback on ECJ Cases C-233/05 (V.O.F. Dressuurstal Jespers) – Work in a movable state – Concept of ‘manufactured goods’ – Horse subject to training and training

On June 1st, 2006, the ECJ issued its order in the case C-233/05 (V.O.F. Dressuurstal Jespers).

Context: Sixth VAT Directive – Contract work – Concept of ‘manufactured goods’ – Horse undergoing dressage and training – Chargeability to tax

Article in the EU VAT Directive

Article 5(5)(a), 10(2) of the Sixthe VAT Directive (Articles 14(3), 63, 64, 65, 66 of the EU VAT Directive 2006/112/EC)

Article 5(5)(a)

Member States may regard as a supply, within the meaning of paragraph 1:

a) the delivery of custom work, that is to say the handing over by the contractor of the work to his client of movable property which he has manufactured or assembled using materials and objects which the client has entrusted to him for this purpose, whether or not the contractor has provided part of the materials used”.

Article 10(2) of the Sixth Directive, under Title VII entitled ‘Chargeable event and chargeability of the tax’, states:

The chargeable event for the tax occurs and the tax becomes payable when the goods are delivered or the services are provided. Deliveries of goods, other than those referred to in Article 5 (4) (b), and services which give rise to detailed statements or successive payments are deemed to have been made at the time of the expiry of the periods during which these detailed statements or payments relate.

However, in the event of payments on account before the delivery of goods or the provision of services is carried out, the tax becomes payable at the time of collection up to the amount collected.

By way of derogation from the above provisions, Member States may provide that the tax becomes chargeable for certain transactions or certain categories of taxable persons:

– either at the latest when the invoice or document in lieu thereof is issued,

– either at the latest when the price is collected,

– or, in the event of non-delivery or late delivery of the invoice or the document in lieu thereof, within a specified period from the date of the triggering event.

[…]

Facts

Jespers is a company established in the Netherlands. Its activities consist, in particular, in operating a training and dressage stable for horses that compete in equestrian sports competitions, more specifically in the discipline of dressage. Jespers also trains and breaks horses owned by third parties for a fee, in addition to his own horses.
During the training and dressage period, the horses stay with the Jespers company, which also takes care of the care and feeding of them when they are lodged with it.
Every month, Jespers sends the owners of the horses an invoice for accommodation, care and training. It makes a monthly declaration for the collection of turnover tax.
On 23 April 1999, Jespers made a declaration of the turnover tax for which it was liable for the period between 1 ^and 31 March 1999. That declaration indicated an amount of NLG 1 274 corresponding to the application of the general rate of VAT. Jespers then lodged a complaint with the inspector, considering that the reduced rate was in fact applicable to the services concerned. The inspector rejected this complaint, considering that the general rate of VAT had been rightly applied to the services in question. Jespers lodged an appeal against that decision before the Gerechtshof te ‘s-Hertogenbosch within the prescribed time limits.
Jespers considers that his services systematically result in the supply of a manufactured good, namely a different horse than before, so that those services should be taxed at the reduced rate. It considers that, insofar as the training and dressage are aimed at the supply of movable property, the various services it provides in this context, such as care and food, are included in this supply.
On the other hand, the inspector considers that the concept of ‘manufacture’ cannot be accepted and that the reduced rate is not applicable to the dressage and training of horses of this type. Insofar as we are not in the presence of the delivery of movable property, the other services could not therefore be part of it.

Questions

(1)(a) If an untrained horse is bred and trained with a view to making it suitable for use, for example as a saddle horse, does a new good arise and, therefore, is it is a question of producing within the meaning of Article 5(7)(a) of the Sixth Directive?

b) If a horse, which is already fit to be used within the meaning of the first question, under a), above, is trained and trained in such a way that it is able to participate in (dressage) competitions at a higher level, is it a question of producing within the meaning of the first question, under a), above in the case of this training/dressage?

2) Is it important to answer these questions that there is an objectively measurable change in the horse, such as being or becoming fit to compete in a higher dressage class?

3) Does the situation differ if the horse in question also effectively achieves the objective pursued (the delivery by the producer) or if the horse does not achieve the objective sought by the training, for example due to problems of health or abilities?

4) What are the consequences of the answers to the second and third questions given that, in the present case, we are dealing with a collection which is a function of time, the tax due being paid periodically against declaration?

AG Opinion

None

Decision

Article 5(5)(a) 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, as amended by Council Directive 94/76/EC of 22 December 1994 introducing transitional measures applicable, in the context of the enlargement of the European Union on 1 January 1995, in respect of value added tax, must be interpreted as meaning that there is no processing for hire or reward where a horse is trained with a view to making it fit for use as a saddle horse or dressage horse and for taking part in competitions and that such a horse cannot in those circumstances be regarded as a manufactured good.

The liability to pay value added tax on sums periodically received as remuneration for the supply of services constituted by the training and dressage of horses is determined in accordance with the conditions laid down in Article 10(2) of the Sixth Directive.

Summary

There is no work in movable condition when a horse is trained and trained to make it suitable for use as a riding or dressage horse and to participate in competitions. In those circumstances, such a horse cannot be regarded as a manufactured good.

The liability for VAT on amounts periodically received as compensation for services consisting of the training and education of the horses is determined in accordance with Article 63 of the VAT Directive.

Source