ECJ C-241/23 (P. sp. z o.o.) – Judgment – Taxable amount for contribution in kind of immovable property is issue value of shares

On May 8, 2024, the ECJ released the decision in the case C-241/23 (P. sp. z o.o.).

Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 73 – Supply of goods and services – Contribution in kind of immovable property – Taxable amount – Consideration – Shares – Nominal value – Issue value

Article in the EU VAT Directive

Article 73 of the EU VAT Directive 2006/112/EC.

Article 73 (Taxable amount)
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Facts

Summary

Legal case involving a company and its VAT liability. The company included amounts of tax on goods and services in its tax return, based on invoices received for non-cash contributions made in exchange for shares. The tax authorities disagreed with the company’s approach, arguing that the taxable amount should be based on the nominal value of the shares, not the higher issue value. The case went through various instances, with the court ultimately siding with the tax authorities. The company appealed, claiming that the interpretation of relevant VAT laws was incorrect.

Detail

1. P. […] (‘the company’ or ‘the applicant’) included in its return for the fourth quarter of 2014 and the first quarter of 2015 amounts of tax on goods and services and net amounts shown in invoices issued to it by: W. […] (W. […]) No […] of 6 October 2014, No […] of 28 November 2014 and No […] of 31 December 2014 and B. […], subsequently converted into B. […] (B.) No […] of 7 October 2014 and No […] of 28 November 2014, documenting the payment of non-cash contributions to the applicant in return for shares issued in connection with the increase in the share capital of the latter. In the agreements on the transfer of immovable property as a non-cash contribution (‘agreements on an in-kind contribution’), the parties had stipulated that the consideration would be the issue price of the shares. As a result, the company adopted the issue value of the shares (that is to say, the value of the non-cash contributions) as the amount of consideration, and not the nominal value thereof (which was many times less).
By decision of 28 March 2017, the Head of the First Tax Office of W. […] (the body deciding at first instance) fixed the amount of the VAT liability of the party concerned for the fourth quarter of 2014 at PLN 54 291 674, and the amount of the excess of the input tax over that due, to be carried over to the following accounting period, at PLN 0.00, and fixed the amount of the VAT liability for the first quarter of 2015 at PLN 34 352 011. In the view of that body, the taxable amount had to be the nominal value of the shares in the case of the transactions described, and not the issue value, which was many times greater.
After considering the appeal, the Director of the Tax Administration Chamber in W. (the appeal body), upheld, by decision of 30 June 2017, the decision of the body deciding at first instance.
- The appeal body established that, pursuant to Resolution No 1/2014 of 3 October 2014, P. […] (subsequently converted into the applicant) had increased the share capital by issuing new shares to be subscribed in return for non-cash contributions and additional cash contributions. To document the above supply of goods detailed in the agreement of 3 October 2014, W. […] issued to P. […] invoice No […] on 6 October 2014. The appeal body assumed that the consideration actually received by W. […] for the supply of the goods detailed in the agreement of 3 October 2014 was 4 767 series ‘E’ shares issued by P. […] with a nominal value of PLN 50.00 each. The value of that consideration, quantified in money at the time of the acquisition of the shares by W. […], was PLN 238 350 (4 767 x 50.00). The above amount is the gross amount, which means that the taxable amount of the taxable transaction documented by invoice No […] was PLN 201 664, and the amount of tax PLN 36 686. In the view of the appeal body, the amounts detailed in invoice No […] constituting the issue values of the shares did not at all correspond to the true state of affairs and could not form the basis for the party concerned exercising the right to deduct under Article 86(1) of the Law on VAT. In addition, as a result of the agreement concluded on 3 October 2014 with the applicant, B. subscribed 2 100 shares, with a nominal value of PLN 50.00 each, for an issue price of PLN 35 287.19 per share. To document the supply of the goods detailed in that agreement of 3 October 2014, B. issued to P. […] invoice No […]. of 7 October 2014. The [appeal] body assumed that the consideration actually received by B. for the supply of the goods detailed in the agreement of 3 October 2014 was 2 100 series ‘E’ shares issued by P. with a nominal value of PLN 50.00 each. The value of that consideration, valued in money at the time of the acquisition of the shares by B., was PLN 105 000 (2 100 x 50.00). The amount in question (namely PLN 105 000) was the gross amount, which means that the taxable amount of the taxable transaction detailed in invoice No […] was PLN 90 804.32, and the amount of tax was PLN 14 195.68. In the view of the appeal body, the amounts detailed in invoice No […] constituting the issue values of the shares could not, as they did not at all correspond to the true state of affairs, form the basis for the party concerned exercising the right to deduct under Article 86(1) of the Law on VAT.
- In addition, the appeal body also established that the applicant had, by Resolution No 1/2014 of 28 November 2014, increased the share capital by issuing new shares, which were subscribed in return for non-cash contributions (in-kind contributions). In that case too, as with Resolution No 1/2014 of 3 October 2014, the shares were subscribed by W. […] and B. in return for noncash contributions (and additional cash contributions). W. […] subscribed 1 164 shares, with a nominal value of PLN 50.00 each, for an issue price of PLN 35 287.19 per share. B. […] subscribed 133 shares, with a nominal value of PLN 50.00 each, for an issue price of PLN 35 287.19 per share. P. To document the supply of the goods detailed in the agreement of 28 November
  2014. W. […] issued to P. […] invoice No […] of 28 November 2014. The appeal body proceeded on the basis of the assumption that the consideration actually received by W. […] for the supply of the goods detailed in the agreement of 28 November 2014 and in invoice No […] was 1 164 series ‘F’ shares issued by P. […] with a nominal value of PLN 50.00 each. The value of that consideration, quantified in money at the time of the acquisition of the shares by W. […], was PLN 58 200 (1 164 x 50.00). The amount in question (namely PLN 58 200) is the gross amount, which means that the taxable amount of the taxable transaction detailed in invoice No […] was PLN 28 250.57, and the amount of tax was PLN 6 497.63.
  The appeal body found that, as they did not at all correspond to the true state of affairs, the amounts detailed in invoice No […] could not form the basis for the party concerned exercising the right to deduct under Article 86(1) of the Law on VAT.
  To document the supply of the goods detailed in the agreement of 28 November 2014. B. issued to P. […] invoice No. […] of 28 November 2014. The appeal body assumed that the consideration actually received by B. for the supply of the goods detailed in the agreement of 28 November 2014 and invoice No […] was 133 series ‘F’ shares issued by P. […] with a nominal value of PLN 50.00 each. The value of that consideration, quantified in money at the time of acquisition of the shares by B., was PLN 6 650 (133 x 50.00). The amount in question (namely PLN 6 650) is the gross amount, which means that the taxable amount for the taxable transaction detailed in invoice No […] was PLN 5 411.34, and the amount of tax was PLN 1 238.66.
  The appeal body found that, as they did not at all correspond to the true state of affairs, the amounts detailed in invoice No […] could not form the basis for the party concerned exercising the right to deduct under Article 86(1) of the Law on VAT.
- Pursuant to Resolution No 1/2014 of 29 December 2014, P. […] increased the share capital by issuing new shares which were to be subscribed in return for non-cash contributions (in-kind contributions). To document the supply of the goods detailed in the agreement of 29 December 2014. W. […] issued to P. […] invoice No […] of 31 December 2014. The appeal body assumed that the consideration actually received by W. […] for the supply of the goods detailed in the agreement of 29 December 2014 and invoice No […] was 7 745 series ‘G’ shares issued by P. […] with a nominal value of PLN 50.00 each. The value of that consideration, valued in money at the time of acquisition of the shares by W. […], was PLN 387 250 (7 745 x 50.00). The amount in question (namely PLN 387 250) is the gross amount, which means that the taxable amount for the taxable transactions detailed in invoice No […] was
  PLN 320 362.48, and the amount of tax was PLN 66 887.52.
  In the view of the Director of the Tax Administration Chamber, the amounts detailed in invoice No […], as they did not at all correspond to the true state of affairs, could not form the basis for the party concerned exercising the right to deduct under Article 86(1) of the Law on VAT.
- In the view of the appeal body, the items covered by the agreements concluded between W. […] and B. and the company met the statutory definition
  of goods and the supply thereof by the above entities constituted a supply of goods for consideration within the meaning of the Law on VAT. The consideration received by W. […] and B. (in return for a supply in the form of a non-cash contribution and additional cash contributions) were shares issued by P. […]. The remuneration received by W. […] and B. in return for the supply in the form of an in-kind contribution to P. […] had a specific value which could be expressed in a form equivalent to monetary units. In the view of the appeal body, the consideration received by W. […] and B. in return for the supply in the form of an in-kind contribution was equivalent to the (gross) nominal value of the shares.
After the applicant had brought an action before the court of first instance, that court dismissed the action. The court of first instance, referring in particular
to Article 29a(1) and Article 88(3a)(4)(b) of the Law on VAT, held that the consideration due to an entity making an in-kind contribution to a company in a form other than an undertaking or part of an undertaking is the nominal value of the shares received in return from the company accepting the in-kind contribution.
That position of the court was not shared by the applicant, which lodged an appeal on a point of law, alleging, inter alia, infringement of the following:
- Article 29a of the Law on VAT by the incorrect interpretation thereof, holding that the taxable amount of the transaction relating to the in-kind contribution documented by invoices should be determined on the basis of the nominal value of the shares, whereas, on a proper interpretation of that provision, the taxable amount of the in-kind contribution should be determined on the basis of the issue price of the shares, less the value of the cash contribution made to the company by B. and W;
- Article 88(3a)(4)(b) of the Law on VAT, by the incorrect interpretation thereof, holding that the amount of input tax detailed in the invoices documenting the inkind contribution constitutes in part an amount which does not correspond to the true state of affairs, whereas, on a correct interpretation of that provision, the amount detailed in that invoice was an amount corresponding fully to the true state of affairs, and thus there were no grounds for holding that the company did not have a right to reduce output tax by the input tax shown on the invoices in an amount exceeding PLN 125 505.

Questions

Is consideration obtained or to be obtained by the supplier in return for a supply of goods, as referred to in Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, as amended), to be understood as meaning the nominal value of the shares acquired or the issue value, if the parties have stipulated that the consideration is to be the issue value of the shares?

AG Opinion

None

Decision

Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by the Act concerning the conditions of accession of the Republic of Croatia to the European Union and the adjustments to the Treaty on European Union, the Treaty on the Functioning of the European Union and the Treaty establishing the European Atomic Energy Community,

must be interpreted as meaning that:

The taxable amount of a contribution of immovable property by a first company to the capital of a second company in exchange for shares of the latter must be determined on the basis of the issue value of those shares where those companies have agreed that the consideration for that contribution to the capital will consist of that issue value.

Summary

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