On March 30, 2023, the ECJ issued the judgment in the case C-616/21 Gmina L. (Municipality of L.)
An appeal on a point of law against an advance tax ruling in which a municipality was deemed to be a taxable person for VAT purposes in connection with the implementation of a programme for the removal of asbestos from properties located within that municipality.
Context: Request for a preliminary ruling – Tax legislation – Value added tax – Directive 2006/112/EC – Articles 2, 9 and 13 – Services for consideration – Meaning of ‘taxable person’ – Economic activity – Typological approach – A body governed by public law which arranges for asbestos removal in its territory at no cost to residents, which receives a subsidy from a fund for this purpose – No significant distortions of competition
Articles in the EU VAT Directive
Articles 2(1), 9(1) and 13(1) of Directive 2006/112/EC
Article 2 (Subject matter and 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;
(b) the intra-Community acquisition of goods for consideration within the territory of a Member State by:
(i) a taxable person acting as such, or a non-taxable legal person, where the vendor is a taxable person acting as such who is not eligible for the exemption for small enterprises provided for in Articles 282 to 292 and who is not covered by Articles 33 or 36;
(ii) in the case of new means of transport, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1), or any other non-taxable person;
(iii) in the case of products subject to excise duty, where the excise duty on the intra-Community acquisition is chargeable, pursuant to Directive 92/12/EEC, within the territory of the Member State, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1);
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
(d) the importation of goods.
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.
Article 13
1. States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.
However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as nontaxable persons would lead to significant distortions of competition.
In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a
small scale as to be negligible.
Facts
- Gmina L. (Municipality of L., Poland; ‘the Municipality’) is a local government unit that performs its own tasks listed in Article 7 of the Law on Municipal Local Government as well as multiple tasks delegated in the area of public administration. It is registered as a taxable person for the purposes of VAT.
- The implementation of the programme for the removal of asbestos-containing products is a statutory task of the Municipality as well as being part of the government’s ‘National Programme for the Removal of Asbestos for 2009-2032’ and is carried out under the Ordinance of the Mayor of the City of L. of 23 September 2019.
- Pursuant to that ordinance, the Municipality removes (collects) asbestos-containing products from residential and farm buildings as well as asbestos-containing waste within the area of the Municipality. Properties where economic activity is conducted are not eligible for the programme. The Municipality intends to finance the entire cost of asbestos removal from the buildings eligible for the programme.
- The implementation of the programme within the Municipality will be based on applications from residents who are interested in removing asbestos from their properties. Subsequently, in accordance with the Law on Public Procurement, the Municipality will select a contractor to remove the asbestos. Thereafter, the Municipality will enter into a contract with the selected contractor for the provision of services at the properties of those residents who have earlier submitted the relevant applications to the Municipal Office.
- After performing the services, the contractor selected in this manner will issue an invoice to the Municipality with VAT charged on the agreed remuneration. The entire remuneration, including VAT, will be paid by the Municipality from its own funds. Then the Municipality will apply for the reimbursement of all or part of the expenses incurred for that purpose in the form of a subsidy from the Fund for Environmental Protection and Water Management in L. The subsidy may range from 40% to 100% of the expenses incurred depending on whether the requirements set by the fund are met. The residents will not bear any costs on this account, nor will the Municipality enter into any contracts with them for the provision of services for the removal of asbestos from their properties.
- On 7 January 2020, the Municipality applied to the tax authorities for an advance tax ruling concerning the following issues:
- When implementing the programme, will the Municipality be acting as the authority referred to in Article 15(6) of the Law on VAT?
- Will the receipt of a subsidy from the Fund for Environmental Protection and Water Management in L. result in a tax liability on the part of the Municipality under Article 19a(5)(2) of the Law on VAT, read in conjunction with Article 6 thereof?
- Does the Municipality have the right to deduct input VAT on the basis of the invoices issued by the contractor selected under public procurement law and documenting the removal of asbestos-containing products from the buildings owned by natural persons and residents’ associations eligible for the programme for the removal of asbestos in L.?
- In this context, the Municipality considered that it was acting as a body governed by public law. As a local government unit, it performs its own tasks arising from Article 7(1)(1) of the Law on Municipal Local Government and the aforementioned government programmes. It finances the removal of asbestos for the benefit of residents – members of the local community, for whom this service is free of charge with no fees, contributions or payments being collected on that account. The Municipality also pointed out that, in the presented situation, there is no danger of distortion of competition as referred to in Article 13 of the VAT Directive, since the Municipality does not implement the programme using its own resources and staff. Instead, it must select a contractor pursuant to the provisions of public procurement law, which in fact strengthens competition.
- In the advance tax ruling dated 13 March 2020, the tax authorities stated that the programme described by the Municipality should be classified as an activity subject to VAT, since it consists in the resale of asbestos removal services purchased from the selected contractor to the residents of the Municipality. According to the authorities, the Municipality will purchase those services from the contractor selected under public procurement law in its own name, but for the benefit of third parties. Thus, pursuant to Article 8(2a) of the Law on VAT, it will become a supplier of services even if it does not enter into contracts with residents. The recipients of those services will not include all the residents of the Municipality, but only those who submit the relevant applications for the removal of asbestos from their properties. In the view of the authorities that issued the advance tax ruling, it is irrelevant that all residents will indirectly benefit from the effects of the programme.
- The tax authorities stressed that the contractor will be selected by the Municipality (not by the residents), and the Municipality will enter into a contract with the contractor, will receive invoices and will pay the contractor’s remuneration from its own funds. The Municipality will therefore actively participate in the provision of services. There will be specific services provided by the Municipality to individual property owners who have submitted an application, and a subsidy from the Fund for Environmental Protection and Water Management in L. will be used to cover the costs of those specific services.
- In the light of the aforementioned statements, the tax authorities determined that the Municipality has the status of a taxable person for VAT purposes who engages in the performance of activities subject to VAT. The tax authorities considered that a tax liability emerges in that regard, which also includes the subsidy granted by the Fund for Environmental Protection and Water Management in L., and involves the right to deduct input VAT from the invoices issued by the contractor.
- By its judgment of 21 July 2020, the Wojewódzki Sąd Administracyjny w Lublinie (Provincial Administrative Court in Lublin, Poland) set aside the advance tax ruling of 13 March 2020, holding that a municipality which receives a subsidy for the removal of asbestos from the properties of individual residents and does not receive any remuneration for that service from the residents does not act as a taxable person for VAT purposes when carrying out that project. In removing asbestos from its territory, including from residents’ properties, the Municipality does not carry out an economic project that could be considered a private-law transaction. The Municipality does not approach an unspecified group of prospective customers with an offer to provide services consisting in the removal of asbestos (asbestos-containing products and waste) as an entrepreneur operating under free market conditions.
- Under the circumstances in question, the Municipality fulfils its public-law obligation to remove asbestos from its area, since it is a substance dangerous to human life and health as well as to the natural environment. All the Municipality’s activities are associated exclusively with the public authority’s performance of its public tasks under Article 7(1)(1) and (1)(5) of the Law on Municipal Local Government, which are directly aimed at protecting the health and lives of its residents as well as the natural environment in the area administered by the Municipality.
Questions
Must the provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, as amended), in particular Articles 2(1), 9(1) and 13(1) of that directive, be interpreted as meaning that a municipality (a public authority) is to be regarded as a taxable person for VAT purposes in respect of the implementation of a programme for the removal of asbestos from properties located within that municipality which are owned by residents who do not incur any expense in that regard? Or is the implementation of such a programme included in the activities of the municipality as a public authority which are undertaken in order to fulfil its tasks of protecting the health and life of its residents and protecting the environment, in which connection the municipality is not regarded as a taxable person for VAT purposes?
AG Opinion
(1) Article 2(1)(c) of the VAT Directive must be interpreted as meaning that, in order to determine between whom there is a supply of services in return for consideration, an overall assessment of the existing legal relationships must be carried out first and foremost. If this reveals a direct link between the payment by a third party and the supply of services, there is a supply ‘for consideration’.
(2) The second subparagraph of Article 9(1) of the VAT Directive must be interpreted as requiring that these specific activities be compared with those of a taxable person typical of the professional category in question.
(3) The second subparagraph of Article 13(1) of the VAT Directive must be interpreted as meaning that significant distortions of competition can be ruled out if the public service activities are of such a nature as to ensure that private economic operators are not prevented from supplying consumers, but are involved in it.
Decision
Article 2(1), Article 9(1) and Article 13(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value tax added,
should be interpreted as:
does not constitute a provision of services subject to value added tax the fact for a municipality to have a company carry out asbestos removal and collection of asbestos products and waste, for the benefit of its resident owners who have them expressed the wish, when such an activity is not aimed at obtaining revenue of a permanent nature and does not give rise, on the part of these residents, to any payment, these operations being financed by public funds.
Source
Reference to the ECJ Case in the EU Member States
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