ECJ VAT C-519/21 (DGRFP Cluj) – Judgment – Right to deduct VAT even if status of taxable person can not be established

On February 15, 2023, the ECJ issued its decision in the case C-519/21 (DGRFP Cluj).

Context: Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Construction of a building complex by an association without legal personality — Contract of association — Sale of the apartments of that building complex by certain partners – Determination of the taxable person liable for the tax – Principle of fiscal neutrality – Right to deduct VAT

Article in the EU VAT Directive

Articles 9, 12, 14, 62, 63, 65, 73, 78, 167, 168(a), 178(a) and 179

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 12
1. Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:
(a) the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;
(b) the supply of building land.
2. For the purposes of paragraph 1(a), ‘building’ shall mean any structure fixed to or in the ground.
Member States may lay down the detailed rules for applying the criterion referred to in paragraph 1(a) to conversions of buildings and may determine what is meant by ‘the land on which a building stands’.
Member States may apply criteria other than that of first occupation, such as the period elapsing between the date of completion of the building and the date of first supply, or the period elapsing between the date of first occupation and the date of subsequent supply, provided that those periods do not exceed five years and two years respectively.
3. For the purposes of paragraph 1(b), ‘building land’ shall mean any unimproved or improved land defined as such by the Member States.

Article 14 (Taxable transaction – Supply of goods)
1. ‘Supply of goods’ shall mean the transfer of the right to dispose of tangible property as owner.
2. In addition to the transaction referred to in paragraph 1, each of the following shall be regarded as a supply of goods:
(a) the transfer, by order made by or in the name of a public authority or in pursuance of the law, of the ownership of property against payment of compensation;
(b) the actual handing over of goods pursuant to a contract for the hire of goods for a certain period, or for the sale of goods on deferred terms, which provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment;
(c) the transfer of goods pursuant to a contract under which commission is payable on purchase or sale.

Article 62 (Chargeable event)
For the purposes of this Directive:
(1) ‘chargeable event’ shall mean the occurrence by virtue of which the legal conditions necessary for VAT to become chargeable are fulfilled;
(2) VAT shall become ‘chargeable’ when the tax authority becomes entitled under the law, at a given moment, to claim the tax from the person liable to pay, even though the time of payment may be deferred.

Article 63 (Chargeable event)
The chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.

Article 65 (Chargeable event)

Where a payment is to be made on account before the goods or services are supplied, VAT shall become chargeable on receipt of the payment and on the amount received.

Article 73 (Taxable amount)
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 78
The taxable amount shall include the following factors:
(a) taxes, duties, levies and charges, excluding the VAT itself;
(b) incidental expenses, such as commission, packing, transport and insurance costs, charged by the supplier to the customer.
For the purposes of point (b) of the first paragraph, Member States may regard expenses covered by a separate agreement as incidental expenses.

Article 167 (Origin and scope of right of deduction)
A right of deduction shall arise at the time the deductible tax becomes chargeable.

Article 168a
1. In the case of immovable property forming part of the business assets of a taxable person and used both for purposes of the taxable person’s business and for his private use or that of his staff, or, more generally, for purposes other than those of his business, VAT on expenditure related to this property shall be deductible in accordance with the principles set out in Articles 167, 168, 169 and 173 only up to the proportion of the property’s use for purposes of the taxable person’s business.
By way of derogation from Article 26, changes in the proportion of use of immovable property referred to in the first subparagraph shall be taken into account in accordance with the principles provided for in Articles 184 to 192 as applied in the respective Member State.
2. Member States may also apply paragraph 1 in relation to VAT on expenditure related to other goods forming part of the business assets as they specify.

Article 178
In order to exercise the right of deduction, a taxable person must meet the following conditions:
(a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI;

Article 179
The taxable person shall make the deduction by subtracting from the total amount of VAT due for a given tax period the total amount of VAT in respect of which, during the same period, the right of deduction has arisen and is exercised in accordance with Article 178.
However, Member States may require that taxable persons who carry out occasional transactions, as defined in Article 12, exercise their right of deduction only at the time of supply.

Facts

The applicant and her sister (PP) each own half of a plot of land. On 14-11-2006, the applicant and PP entered into a cooperation agreement with the partners BP and MB for the construction of a real estate complex consisting of apartments intended for sale. That agreement provides that the applicant and PP provide the land, while BP and MB supply the building materials and bear the construction costs. The other decisions were taken by mutual agreement of the four parties. Each amount received would be divided in a proportion of 40% for the applicant and PP, and 60% for BP and MB. After repayment of the profits, the applicant and PP would each receive 16.67%, while BP and MB would each receive 33%. The agreement has not been registered with the tax authorities before the start of the activity. In the purchase agreements drawn up concerning the apartments, only the applicant and PP are mentioned as owners. No reference is made to the cooperation agreement, to BP and MB or to VAT. According to the inspection bodies, the sale of the apartments was a taxable transaction, carried out by a taxable person in the form of a partnership with a commercial purpose, without legal personality. A tax assessment was imposed on both the applicant and PP. The applicant was also fined for overdue VAT payments. Both have appealed. The applicant contested, inter alia, its status as a taxable person, the method of calculating the VAT due, the right to deduct and the proportionality of the additional tax obligations. The applicant also indemnified BP and MB to order them to pay two-thirds of the amount of the assessment. Most of the applicant’s complaints, including those relating to its status as a taxable person, have been definitively accepted.

Consideration:

The referring court must rule on the notice of indemnification, re-examine the right to deduct VAT and clarify the relevance of the cooperation agreement. The referring court notes that the tax authorities took the cooperation agreement as the basis for reaching their conclusion. BP and MB were not regarded as parties to the tax legal relationship at the time of taxation and they were not issued any VAT assessments in respect of the supply of immovable property. According to the referring court, the exclusive taxation of the applicant and PP goes beyond what is necessary to ensure the correct collection of VAT and to prevent fraud, since it may also lead to the loss of the VAT collected in the event of the insolvency of one of the persons classified as taxable persons. In addition, according to the referring court, it is necessary to clarify whether the right to deduct can be refused on the ground that the applicant did not mention the partners BP and MB or the partnership agreement at the time of the sale of the apartments. as this may also lead to the loss of the VAT collected in the event of the insolvency of one of the persons classified as taxable persons. In addition, according to the referring court, it is necessary to clarify whether the right to deduct can be refused on the ground that the applicant did not mention the partners BP and MB or the partnership agreement at the time of the sale of the apartments. as this may also lead to the loss of the VAT collected in the event of the insolvency of one of the persons classified as taxable persons. In addition, according to the referring court, it is necessary to clarify whether the right to deduct can be refused on the ground that the applicant did not mention the partners BP and MB or the partnership agreement at the time of the sale of the apartments.

Minbuza.nl

Questions

1) Can the VAT Directive (2006/112) in general and Articles 9, 12, 14, 62, 63, 65, 73 and 78 thereof in particular, in a specific context such as that at issue in the main proceedings , shall be interpreted as meaning [that]: with regard to the occurrence of the chargeable event in taxable transactions relating to the supply of immovable property and the manner in which the relevant taxable amount is determined, natural persons who are united by agreement in a partnership without legal personality with the taxpayer who is obliged to pay the tax on the transactions performed at a later stage, which he should have collected,also have the status of taxpayer, since the cooperation agreement was not registered with the tax authorities before the start of the activity, but was submitted to them before the adoption of the tax administrative acts?

2) Can the VAT Directive (2006/112) in general and Article 167, Article 168(a), Article 178(a) and Article 179 thereof, as well as the principles of proportionality and neutrality, a specific context such as that at issue in the main proceedings, be interpreted as meaning that:

a) the possibility of granting a taxable person the right to deduct is recognized if he is not the person liable for payment of the tax and has not personally paid the input tax on goods and services used for taxable transactions, and the input tax is due/ paid by natural persons who have not been established as taxable persons, but who have joined by agreement in a partnership without legal personality with the taxpayer who is obliged to pay the tax on the transactions performed at a later stage,which he should have collected, as the cooperation agreement was not registered with the tax authorities before the start of the activity?

(b) the possibility of granting a taxable person the right to deduct is recognized in a specific context such as that at issue in the main proceedings if he is not the person liable for payment of the tax and has not personally paid input tax on transactions used for taxable purposes goods and services, and the input tax is due/paid by a natural person who has been established as a taxable person, who is party to an agreement on a partnership without legal personality and who, together with the taxable person, has his right to deduct also want or could exercise,and the latter are liable to pay the tax on the subsequent transactions which they should have collected, since the contract was not registered with the tax authorities before the activity commenced?

3) If the answer is in the negative and/or also in the light of the principle of legal certainty:

the taxable person who is under the obligation to pay the VAT and the associated charges can recover from natural persons who have not been established as taxable persons and who have joined by agreement in a partnership without legal personality with the taxable person who is liable to pay the tax on the subsequent transactions, which he should have collected, since the contract was not registered with the tax authorities before the activity started,in order to obtain the share of the profit-sharing accruing to those persons under the cooperation agreement in view of his obligation to pay the VAT and the associated charges?

AG Opinion

None

Decision (Unoffical translation)

1. Articles 9 and 11 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 parties to a contract relating to an association without legal personality, which was not registered with the competent tax authorities before the economic activity concerned commenced, cannot be regarded as ‘taxable persons’ along with the taxable person which is liable for tax on the taxable transaction.
2. Directive 2006/112, the principle of proportionality and the principle of fiscal neutrality must be interpreted as meaning that a taxable person, where it does not hold an invoice issued in its name, must be granted the right to deduct the input value added tax paid by another party to an association without legal personality with a view to carrying out that association’s economic activity, even if the taxable person is liable in respect of that activity, where there is no objective evidence that the goods and services at issue in the main proceedings were actually provided as inputs by taxable persons for the purposes of its own transactions subject to value added tax.

Summary

Source