Flashback on ECJ Cases – C-291/07 (Kollektivavtalsstiftelsen TRR Trygghetsrådet) – Cross-Border Consultancy Services and Taxable Person

On November 6, 2008, the ECJ issued its decision in the case C-291/07 (Kollektivavtalsstiftelsen TRR Trygghetsrådet).

Context: VAT – Place of taxable transactions – Place of supply for tax purposes – Service supplier established in a Member State other than that in which the customer is established – Status of taxable person – Services supplied to a national foundation carrying out both economic and non-economic activities

Summary: If a person buys consultancy services from a taxable person in another EU country who engages in both economic and non-economic activities, the person should be considered a taxable person, even if the services are purchased only for non-economic activities.

Article in the EU VAT Directive

Article 9(2)(e) of the Sixth VAT directive

Article 9(2)(e) of the Sixth Directive (essentially reproduced in Article 56(1)(c) of Directive 2006/112) provides that ‘the place where the following services are supplied when performed for customers established outside the Community or for taxable persons established in the Community but not in the same country as the supplier, shall be the place where the customer has established his business or has a fixed establishment to which the service is supplied or, in the absence of such a place, the place where he has his permanent address or usually resides:

…

– services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, as well as data processing and the supplying of information,

Facts

The dispute in the main proceedings concerns TRR, a foundation for collective agreements which was set up in 1994 by the Svenska Arbetsgivareföreningen (now Svenskt Näringsliv), the Swedish employers’ confederation, and the Privattjänstemannakartellen (federation of salaried employees in the private business sector), a trade union.
According to its statutes, the objects of TRR are, on the one hand, the provision of severance pay and the promotion of any measures likely to facilitate the occupational redeployment of employees who, for certain reasons, have lost their jobs or who run that risk and, on the other, the provision of advice and assistance to companies which are in a situation of over-manning, or likely to find themselves in such a situation, and the promotion of human resources management training for companies. The rules governing the conduct of TRR’s activities are set out in more detail in an agreement between Svenskt Näringsliv and Privattjänstemannakartellen, called ‘the omställningsavtalet’ (‘the redeployment agreement’).
TRR’s activities are financed through contributions paid by the employers who are party to the omställningsavtalet, which correspond to a percentage of the remuneration paid to the employees covered by the omställningsavtalet. Employers who are bound by the omställningsavtalet under a ‘side agreement’ pay a fixed yearly contribution. In addition to the activities carried out under the omställningsavtalet, TRR supplies services to businesses wishing to operate through outsourcing, for which it is registered as a taxable person for VAT purposes and which account for approximately 5% of its income.
TRR intends to purchase consultancy services supplied, inter alia, by a service provider established in Denmark, which are to be used exclusively in the context of TRR’s activities under the omställningsavtalet. In order to obtain clarification of the tax consequences of that transaction, TRR sought a preliminary decision from the Skatterättsnämnden (Revenue Law Commission) in order to resolve the question whether its activities under the omställningsavtalet are of a commercial nature and whether it is to be regarded as a trader for the purposes of Chapter 5, Paragraph 7, of the ML.
By decision of 3 March 2006, the Skatterättsnämnden ruled that TRR’s activities under the omställningsavtalet do not constitute a supply of services in the course of a business activity, but that TRR is to be regarded as a trader for the purposes of Chapter 5, Paragraph 7, of the ML.
TRR has appealed against the decision of the Skatterättsnämnden, claiming that the Regeringsrätten should declare that TRR is not a trader for the purposes of Chapter 5, Paragraph 7, of the ML. The Skatteverket contends that the Regeringsrätten should confirm the contested decision.
In support of its action, TRR submits, inter alia, that registration as a taxable person for VAT purposes does not of itself mean that the registered party is always to be regarded as a trader for the purposes of Chapter 5, Paragraph 7, of the ML. When making purchases for activities which fall outside the scope of the Sixth Directive, it is not a trader for the purposes of that provision. TRR adds that the corresponding provision in the Sixth Directive – Article 9(2)(e) – does not refer to a trader but to a taxable person.
The Regeringsrätten considers it necessary, for the purposes of applying certain provisions of the Sixth Directive and of Directive 2006/112 in the dispute before it, for the terms ‘taxable person’ and ‘person liable for payment of the tax’ to be interpreted in the light of Community law. The Regeringsrätten notes that the Court has interpreted the term ‘taxable person’, as used in the Sixth Directive, in many judgments, but that it has not yet given a ruling as to how that term is to be understood for the purposes of applying Article 9(2)(e) of the Sixth Directive in a specific situation, such as the circumstances of the case before the referring court.

Questions

Are Articles 9(2)(e) and 21(1)(b) of the Sixth VAT Directive ¹ and Articles 56(1)(c) and 196 of the Council Directive on a common system of value added tax ² to be interpreted as meaning that a person who purchases consultancy services from a person liable to tax in another EC country and carries out both economic activity and also activity which falls outside the scope of the Directives is to be regarded as a taxable person/person liable to tax where those articles are applied, even though the purchase was made solely in respect of the latter activity?

AG Opinion

With a view to determining the place of supply of services, Articles 9(2)(e) and 21(1)(b) of the 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 and Articles 56(1)(c) and 196 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax are to be interpreted as meaning that a person who purchases consultancy services from a person liable to tax in another Member State, where the former carries out both an economic activity and an activity which falls outside the scope of those two directives, is to be regarded as a taxable person for the purposes of applying those provisions, even where the purchase is made solely in respect of the latter activity.

Decision

Article 9(2)(e) 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, as amended by Council Directive 1999/59/EC of 17 June 1999, and Article 56(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that where the customer for consultancy services supplied by a taxable person established in another Member State carries out both an economic activity and an activity which falls outside the scope of those directives, that customer is to be regarded as a taxable person even where the supply is used solely for the purposes of the latter activity.

Summary

The dispute concerns TRR, a foundation set up by Swedish employers’ confederation and a trade union. TRR provides severance pay, helps with occupational redeployment, and offers advice to companies. Its activities are financed through contributions from employers and it also provides services to businesses through outsourcing. TRR sought a preliminary decision on the tax consequences of purchasing consultancy services. The Revenue Law Commission ruled that TRR is to be regarded as a trader for tax purposes. TRR appealed, arguing that being registered for VAT does not automatically make it a trader. The referring court seeks interpretation of the term “taxable person” in the context of the Sixth Directive and Directive 2006/112.

Article 9(2)(e) of Sixth Council Directive 77/388/EEC and Article 56(1)(c) of Council Directive 2006/112/EC must be interpreted to mean that a customer receiving consultancy services from a taxable person established in another Member State is considered a taxable person, even if the services are used solely for an activity outside the scope of the directives.

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