On May 26, 2005, the ECJ issued its decision in the case C-43/04 (Stadt Sundern).
Context: Sixth Directive – Article 25 – Common flat-rate scheme for farmers – Grant of hunting licences within the framework of a municipal forestry undertaking – Concept of ‘agricultural service’
Article in the EU VAT Directive
Article 25 of the Sixth Directive, entitled ‘Common flat-rate scheme for farmers’, provides:
‘1. Where the application to farmers of the normal value added tax scheme, or the simplified scheme provided for in Article 24, would give rise to difficulties, Member States may apply to farmers a flat-rate scheme tending to offset the value added tax charged on purchases of goods and services made by the flat-rate farmers pursuant to this Article.
2. For the purposes of this Article, the following definitions shall apply:
– “farmer”: a taxable person who carries on his activity in one of the undertakings defined below,
– “agricultural, forestry or fisheries undertakings”: an undertaking considered to be such by each Member State within the framework of the production activities listed in Annex A,
– “flat-rate farmer”: a farmer subject to the flat-rate scheme provided for in paragraphs 3 et seq.,
– “agricultural products”: goods produced by an agricultural, forestry or fisheries undertaking in each Member State as a result of the activities listed in Annex A,
– “agricultural service”: any service as set out in Annex B supplied by a farmer using his labour force and/or by means of the equipment normally available on the agricultural, forestry or fisheries undertaking operated by him,
– …
5. The flat-rate percentages provided for in paragraph 3 shall be applied to the price, exclusive of tax … This compensation shall exclude all other forms of deduction.
…
9. Each Member State may exclude from the flat-rate scheme certain categories of farmers and farmers for whom the application of the normal value added tax scheme, or the simplified scheme provided for in Article 24(1), would not give rise to administrative difficulties.
Facts
- From 1994 to 1999, the Stadt Sundern obtained income from the sale of wood and the use of forest land as well as from the licensing of private hunting areas. As it initially treated those licensing operations as transactions within the meaning of the ‘flat-rate scheme’ under Paragraph 24 of the UStG, it declared no turnover tax in that connection.
- Following an on-site inspection, the Finanzamt found that the grant of hunting licences for the areas in question did not constitute agricultural and forestry transactions for the purposes of that provision, but was to be taxed at the normal rate in accordance with the general tax provisions. It therefore instructed the Stadt Sundern to pay the value added tax (‘VAT’) on the income derived from those licensing operations.
- The Stadt Sundern brought an action before the Finanzgericht (Finance Court) challenging the tax assessments in issue. That court upheld the action, finding that the grant of hunting licences did not involve either an agricultural or forestry operation or a professional or business activity within the meaning of Paragraph 2(3) of the UStG, and that it did not go beyond mere property management.
- The Finanzamt brought an appeal on a point of law before the Bundesfinanzhof (Federal Finance Court). It maintained that the licences had been granted, in accordance with Paragraph 2(3) of the UStG, in the course of the Stadt Sundern’s agricultural and forestry operations, but that there was no agricultural transaction for the purposes of Paragraph 24 of the UStG. It thus found that the grants of licences were subject to normal taxation.
Questions
1) May or must the Member States which have incorporated into their domestic law the common flat-rate scheme for farmers provided for in Article 25 of [the Sixth] Directive … ultimately exempt flat-rate farmers from payment of turnover tax?
2) If Question 1 is answered in the affirmative: is that the case only for supplies of agricultural products and for agricultural services or also for other transactions of a flat-rate farmer, or are the other transactions subject to the general scheme under [the Sixth] Directive?
What are the consequences for the grant of a hunting licence by a flat-rate farmer?
AG Opinion
None
Decision
1. Article 25 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 is to be interpreted as meaning that the common flat-rate scheme for farmers applies only to the supply of agricultural products and agricultural services, as defined in Article 25(2), and that other operations carried out by flat-rate farmers are subject to the general scheme under that directive.
2. The fifth indent of Article 25(2) of Directive 77/388, read together with Annex B thereto, is to be interpreted as meaning that the grant of hunting licences by a flat-rate farmer is not an agricultural service within the meaning of that directive.
Summary
The case concerns the interpretation of Article 25 of the Sixth Council Directive 77/388/EEC, which provides for a flat-rate scheme for farmers to offset the value added tax charged on purchases of goods and services. The dispute arose over whether the grant of hunting licenses within a municipal forestry undertaking qualifies as an “agricultural service” within the meaning of the directive. The court clarified that the concept of “agricultural service” includes any service supplied by a farmer using his labor force and/or equipment normally available on the agricultural, forestry, or fisheries undertaking operated by him. The court also noted that Member States have discretion to exclude certain categories of farmers from the flat-rate scheme.
Article 25 of the Sixth Directive must be interpreted as meaning that the common flat-rate scheme for agricultural producers applies only to the supply of agricultural products and agricultural services, as defined in paragraph 2 of that article, and that other transactions carried out by flat-rate farmers carried out fall under the general regime of this Directive.
Article 25(2), fifth indent, of Directive 77/388, read in conjunction with Annex B to that directive, must be interpreted as meaning that the leasing of hunting grounds by a flat-rate farmer does not constitute an agricultural service within the meaning of that directive.
Source
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