ECJ C-516/21 (Finanzamt X) – Judgment – Exemption for Leasing of immovable property including equipment and machinery

On May 4, 2023, the ECJ issued its judgment in the case C-516/21 (Finanzamt X).

Context: Reference for a preliminary ruling – Taxation – Value added tax – Exemption for renting and leasing of immovable property – Renting of a specially equipped stable building for rearing turkeys – Equipment and machinery made available as ancillary service to the renting of a farm building – Uniform service – Scope of the exception to the tax exemption

Article in the EU VAT Directive

Article 135(1)(l) and 135(2)(c) of the VAT Directive 2006/112/EC

Article 135
1. Member States shall exempt the following transactions:

(l) the leasing or letting of immovable property.

2. The following shall be excluded from the exemption provided for in point (l) of paragraph 1:

Facts

In the years 2010 to 2014 (years at issue), the applicant leased turkey rearing sheds together with permanently installed equipment and machinery for feeding, heating, ventilation and lighting. He assumed that his supply, for which a single lump-sum payment was made, was exempt from value added tax (VAT) in its entirety.
By contrast, the tax office took the view that, based on the costs incurred by the applicant, 20% of the single lump-sum lease payment is attributable to the equipment and machinery and is therefore subject to VAT. It therefore issued notices of assessment to that effect.
The objection raised against those notices was unsuccessful. The Finanzgericht (Finance Court) upheld the action subsequently brought. The tax office has challenged the judgment of that court by way of the appeal on points of law which is before the referring court.

Questions

Does the tax liability for the leasing of permanently installed equipment and machinery pursuant to Article 135(2), first subparagraph, point (c) of Directive 2006/112/EC ¹ (‘the VAT Directive’) cover only the isolated (independent) leasing of such equipment and machinery or also the leasing (letting) of such equipment and machinery which is exempt by virtue of (and as a supply ancillary to) a letting of a building, effected between the same parties, pursuant to Article 135(1)(l) of the VAT Directive?

AG Opinion

Article 135 paragraph 1 letter l and paragraph 2 subparagraph. 1 letter c of the Council Directive 2006/112/EC of November 28, 2006 on the common system of value added tax

is to be interpreted as follows

the tax exemption of the leasing of a stable building for animal breeding also for the leasing of devices and machines within the meaning of Art. 135 para. 2 subpara. 1 letter c of the guideline, which represent equipment elements tailored to the function of the building as a breeding stable, applies if these devices and machines are provided as an ancillary service to the leasing of the building.

Decision

Article 135(2), first subparagraph, point (c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

must be interpreted as not applying to the letting of permanently installed equipment and machinery where that letting constitutes a supply ancillary to a principal supply of leasing a building, carried out under a leasing agreement concluded between the same parties and exempt under Article 135(1)(l) of that directive, and those supplies form a single economic supply.

Summary

Summary of ECJ C-516/21: The letting of permanently installed equipment and machinery if ancillary to the leasing a building (under the same leasing agreement) are exempt from VAT

Article 135(2)(c) of Council Directive 2006/112/EC does not apply to the leasing of permanent fixtures and machinery that are ancillary to a principal leasing of a building, which is exempt under Article 135(1)(l) of the same directive. This exemption applies when the lease agreement is provided and the services form an economically uniform service.

Source