ECJ C-620/21 (Momtrade Ruse) – Judgment – VAT exemption for social services to natural persons in other member states

On May 11, 2023, the ECJ issued its judgment in the case C-620/21 (Momtrade Ruse).

Context: Reference for a preliminary ruling – VAT Directive – Article 132(1)(g) – Exemption for the supply of services closely linked to welfare and social security work – Body recognised as being devoted to social wellbeing – Member State concerned which recognises the body as being devoted to social wellbeing

Articles in the EU VAT Directive

Article 132(1)(g) of the EU VAT Directive 2006/112/EC

Article 132
1. Member States shall exempt the following transactions:

(g) the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people’s homes, by bodies governed by public law or by other bodies recognised by the Member State concerned as being devoted to social wellbeing;

Facts

Momtrade Ruse is a limited liability company that mainly provides extramural social services. Since 24-06-2014, it has been registered on a voluntary basis in accordance with the ZDDS (Value Added Tax Act). In the context of the tax audit that was concluded with the additional assessment of 04-10-2018, Momtrade Ruse submitted service contracts with several natural persons with German and/or Austrian nationality as clients. Under these agreements, the company provided employees to take care of the clients and provide household help. In accordance with Regulation 904/2010, the German tax authorities have initiated an exchange of information. It was then established that the services are not subject to German tax, but must be taxed in Bulgaria according to the ZDDS. On the basis of the documents provided by the audited company, the revenue authorities established that there was no contract for the provision of ‘social services’, as the individual needs of the customers were lacking. They assumed that since the service is in reality provided in another Member State, not only the ZSP, but also German or Austrian law is relevant. Momtrade Ruse may be exempted under Article 40(1) of the ZDDS only if it provides evidence which, under the law of the other Member State concerned, demonstrates that the services provided on its territory are of a social nature.

The referring court observes that the exemptions provided for in Article 132 of Directive 2006/112 must be interpreted strictly, since they depart from the general principle that VAT is charged on any service supplied by a taxable person for consideration. The referring court asks for an interpretation of Article 132(1)(g) of Directive 2006/112 in order to determine whether a commercial undertaking registered in a Member State as a social service provider is can rely on this provision to claim a tax exemption for social services provided by it to natural persons who are nationals of other Member States in those States, and whether it is relevant to answer this question that the recipients of the services are provided by commercial companies registered in the Member State where the services are provided. If the question is answered in the affirmative and the supplies exempt under Article 132(1) of Directive 2006/112 are autonomous concepts of EU law,

Questions

Can Article 132(1)(g) of the VAT Directive be interpreted as meaning that a commercial undertaking registered in a Member State (in this case Bulgaria) as a provider of social services may rely on that provision in order to make a tax exemption for social services that it has provided to natural persons who are nationals of other Member States in those Member States? Is it important for the answer to this question that the provider has been presented with the recipients of the services by trading companies that are registered in the Member States where the services are provided?
If the first question is answered in the affirmative, on the basis of what criteria and according to which law – Bulgarian and/or Austrian and German law – is it necessary, in the interpretation and application of the relied upon provision of EU law, to assess whether the controlled company is ‘as institution of a social nature’ is recognized and considered to be services ‘closely related to social work and social security’?
According to that interpretation, is the fact that a commercial undertaking is registered as a provider of social services as defined under national law sufficient for the undertaking to be classified as an institution recognized by the Member State concerned as an ‘institution of a social nature’?

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AG Opinion

(1) Article 132(1)(g) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’) may, despite the discretion accorded to Member States therein, be relied upon directly by an individual vis-à-vis the Member State of taxation. This is true irrespective of whether the place of supply is determined on the basis of the destination principle or the origin principle and irrespective of whether a placement agency arranged that service.

(2) Article 132(1)(g) of the VAT Directive is to be interpreted as meaning that the Member State concerned which takes the decision on recognition of other bodies is the State in which the services are actually carried out and whose social welfare systems generally pay for those services. In the case of cross-border supplies of services, this can also be a Member State on which the directive by means of the place of supply rules does not confer the corresponding power of taxation.

On the other hand, the Member State on which the directive on the place of supply confers the power of taxation must assess, solely on the basis of its own law (if it correctly transposes Article 132(1)(g) of the VAT Directive), whether the supply concerned is a supply of services closely linked to welfare and social security work and is adequately proven.

(3) The mere fact that a commercial company is registered as a provider of social services with a State agency does not suffice in itself in order to be able to infer that a correct discretionary decision was made in recognition of it as a body devoted to social wellbeing.

Decision

1) Article 132(1)(g) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Directive 2008/8 /EC of the Council, of 12 February 2008,

should be interpreted as:

on the one hand, the provision of social services provided to natural persons residing in a Member State other than that in which the service provider has established the seat of his economic activity, may be exempted under this provision and, on the other hand, it is irrelevant in that regard that that service provider used a company established in that other Member State to contact its customers.

2) Article 132(1)(g) of Directive 2006/112, as amended by Directive 2008/8,

should be interpreted as:

where a company provides social services to natural persons residing in a Member State other than that in which that company has established its seat of economic activity, the nature of those services and the characteristics of that company for the purposes of determining whether the said benefits fall within the concept of ‘provision of services […] closely linked to social assistance and social security […] carried out by […] [a body recognized] as having a social character by the Member State concerned’, within the meaning of that provision, must be examined in accordance with the law, transposing Directive 2006/112, as amended, of the Member State where the said company has established its economic activity.

3) Article 132(1)(g) of Directive 2006/112, as amended by Directive 2008/8,

should be interpreted as:

the fact that a company providing social services is registered with a public body of the taxing Member State as a provider of social services in accordance with the legislation of that Member State is not sufficient to consider that this company falls within the concept of “[a body recognized] as having a social character by the Member State concerned”, within the meaning of that provision, only when such registration is subject to prior verification by the competent national authorities of the social character of that company for the purposes of that provision.

Summary

Momtrade Ruse is a Bulgarian company that provides extramural social services. During a tax audit, it was discovered that services provided to German and/or Austrian nationals were not subject to tax in those countries, but must be taxed in Bulgaria. The revenue authorities assumed that since the service is provided in another Member State, not only the Bulgarian law but also the law of the other Member State is relevant. The company may be exempted under Article 40(1) of the Bulgarian Value Added Tax Act only if it provides evidence that the services provided on its territory are of a social nature.
The referring court asks for an interpretation of Article 132(1)(g) of Directive 2006/112 to determine whether a Bulgarian company registered as a social service provider can rely on this provision to claim a tax exemption for social services provided to nationals of other Member States.
The decision is that the company can use Article 132(1)(g) to exempt social services provided to natural persons residing in a Member State other than the one in which the service provider has established their economic activity. However, the nature of the services and the characteristics of the company must be examined to determine whether the benefits fall within the concept of ‘provision of services closely linked to social assistance and social security carried out by a body recognized as having a social character by the Member State concerned’. Being registered as a provider of social services under national law is not sufficient to consider that this company falls within the concept of ‘a body recognized as having a social character by the Member State concerned’.

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