ECJ C-433/22 (HPA – Construções) – AG Opinion – Reduced VAT for renovating and repairing private dwellings which are used as private dwellings

On Spetember 7, 2023. the ECJ issued the AG Opinion in the case C-433/22 (HPA – Construções).

Context: Request for a preliminary ruling – Value added tax – Directive 2006/112/EC – Temporary possibility of a reduced rate for labour-intensive services – Reduced rate for the renovation of private dwellings – Concept of ‘private dwelling’ – Limits of a selective reduced tax rate – Principle of democracy and discretion of the legislature – Principle of fiscal neutrality

Article in the EU VAT Directive

Articles 96, 98(1), 98(2) of the EU VAT Directive 2006/112/EC

Article 96

Member States apply a standard VAT rate which each Member State fixes as a percentage of the tax base and which is the same for the supply of goods and services.

Article 98(1) and (2)

1. Member States may apply one or two reduced rates.

2. The reduced rates shall apply only to supplies of goods and services of the categories set out in Annex III. …”

Annex IV to the VAT Directive contains the list of services referred to in Article 106 of that directive. No. 2 of this annex:

Renovation and repair of private dwellings, excluding materials constituting a significant part of the value of the service.

Facts

HPA – Construções, SA (hereinafter: HPA) is a trading company in the form of a public limited company, the purpose of which is “the provision of construction and commercial services, the conclusion of works and real estate purchase contracts and the trade in building materials”.
In 2007, HPA carried out several works contracts for the renovation of buildings in Lisbon. According to the certificates of the Land Registry, the land was previously (2004, 2005) and later (2008) owned by several commercial companies (among them the commercial company Paço – Investimentos Imobiliários, SA, the commercial company Brown House – Empreendimentos Imobiliários, SA, and the commercial company Sociedade Imobiliária do Palácio Alagoas, Lda.) were acquired and that the properties are largely intended for residential purposes.
Pursuant to point 2.24 of List I of the Annex to the CIVA, HPA applied VAT at a rate of 5% to the renovation services, invoiced them to the said commercial companies and paid the VAT. On January 19, 2011, the Serviços de Inspeção Tributária da Direção de Finanças de Lisboa (Tax Audit Offices of the Lisbon Treasury Department, Portugal) initiated an external audit against HPA for the 2007 tax year. On May 10, 2011, the Serviço de Finanças de Sintra-1 (Sintra-1 Tax Office, Portugal) issued VAT assessment notices for the year 2007.
The retroactive assessment is based on the application of the standard tax rate of 21% instead of the reduced tax rate of 5%. HPA has not been able to prove that the work contracts in question relate to real estate that is actually used for residential purposes, for which it bears the burden of proof under Article 74 of the General Tax Code.
HPA brought an action against the post-clearance recovery decision before the Tribunal Administrativo e Fiscal de Sintra (Administrative and Financial Court, Sintra, Portugal). With a judgment of June 26, 2020, the said court upheld the action and annulled the subsequent recovery notices, because real estate intended or used for residential purposes within the meaning of No. 2.24 is to be regarded as all real estate for which there is a permit for residential use, and not only those that are actually inhabited. The Tax and Customs Administration appealed against this to the referring court.

Questions

Does Annex IV No. 2 of the VAT Directive preclude national legislation according to which the reduced rate of VAT can only be applied to work contracts for the purpose of renovating and repairing private dwellings which are occupied at the time these measures are carried out?

AG Opinion

Annex IV No. 2 of the VAT Directive is to be interpreted in such a way that the reduced VAT rate can only be applied to services for the purpose of renovating and repairing private dwellings which are used as private dwellings at the time these measures are carried out. It is also used as a private residence if the recipient of the service has left the property to a third party as a residence. For the application of the reduced tax rate, however, it is not necessary for the apartment to be occupied when the service is rendered.

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