ECJ C-179/23 (Credidam) – Judgment – Payments for by law provided copyrights deducted by a management fee are taxable transactions

On July 4, 2024, the ECJ released its judgment in the case C-179/23 (Credidam).

Context: Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/EC – Taxable transactions – Supply of services for consideration – Management fee levied by a collective management organisation for copyright and related rights for the collection, distribution and payment of remuneration due to rightholders – Remuneration not forming part of a taxable transaction

Summary

Context of the Case: The judgment arises from a request for a preliminary ruling by Romania’s High Court regarding whether management fees charged by collective management organizations (CMOs) for copyright and related rights should be subject to Value Added Tax (VAT) under the EU VAT Directive.
Legal Framework: The court examined Articles 2(1)(c), 24(1), and 25(c) of the VAT Directive, which outline what constitutes a supply of services for consideration and the conditions under which such transactions are taxable.
Key Findings: The Court concluded that the activities of CMOs in collecting, distributing, and paying remuneration to rightholders, along with the management fees deducted for these services, constitute a supply of services for consideration, even if the remuneration collected does not itself qualify as a taxable transaction.
Implications of Management Fees: The ruling emphasized that management fees are considered compensation for services provided by CMOs, creating a direct link between the services rendered and the fees charged, thus making them subject to VAT.
Broader Impact: This decision clarifies the tax obligations of CMOs in the context of EU VAT law and establishes that the nature of the remuneration collected does not exempt the associated management fees from VAT, reinforcing the economic activity framework of the VAT Directive.

Article in the EU VAT Directive

Articles 24(1) and 25(c) of Directive 2006/112/EC.

Article 24 (Taxable transaction)
1. ‘Supply of services’ shall mean any transaction which does not constitute a supply of goods.

Article 25
A supply of services may consist, inter alia, in one of the following transactions:
(c) the performance of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law.

Facts – Summary

Credidam is a collective management organization that collects and distributes remuneration for performing artists. They requested the annulment of certain provisions on the grounds that they are inconsistent with the interpretation of the VAT Directive. The Court of Appeal, Bucharest upheld Credidam’s application, stating that the collection of remuneration for cable retransmission falls outside the scope of VAT. The Romanian Government and Ministry of Finance appealed this decision, arguing that collective management organizations are taxable persons for VAT purposes. Credidam argues that the fees are not withheld as consideration for a service provided, but are a payment provided for by law.

Facts – Detailed

Credidam is a collective management organisation that operates as an association of performing artists and whose function is to collect and distribute the remuneration due to performing artists from users of their artistic performances.
By an action of 20 July 2018, brought before the Curtea de Apel București (Court of Appeal, Bucharest, Romania), Credidam requested the annulment of the provisions at issue on the ground that they are inconsistent with the interpretation of provisions of the VAT Directive provided by the Court of Justice in its judgment in SAWP and with the interpretation provided by the Înalta Curte de Casație și Justiție (High Court of Cassation and Justice, Romania, ‘the Court of
Cassation’), in Decision No 48/2017, of Article 126(1)(a) and Article 129 of the Tax Code and Article 98(1)(g)1 and Article 1065 of Law No 8/1996.
The Ministry of Finance, the initiator of the contested legislative provisions, applied for leave to intervene in an ancillary capacity in support of the Romanian Government, which was granted by the Court of Appeal, Bucharest.
By civil judgment of 21 May 2019, the Court of Appeal, Bucharest, upheld Credidam’s application, holding that the collection by the collective management organisation of the remuneration due to performing artists for cable retransmission falls outside the scope of VAT, in accordance with the Court of Cassation’s decision to that effect and the criteria established in the case-law of the Court of Justice of the European Union. Indeed, there is no direct legal relationship within the context of which reciprocal services are provided between the collective management organisation and economic operators which provide cable retransmission, and it is not possible to characterise the fair compensation as direct consideration for any supply of services. Similarly, the management fee is ancillary to the payment of the remuneration due for the use of artists’ associated rights and if the remuneration is VAT exempt, the management fee must come under the same tax regime. The court also held that Decision No 48/2017 of the Court of Cassation, even though it interpreted provisions of the previous Tax Code, also takes effect in the interpretation of Article 268(1)(a) and Article 271 of the Tax Code, which contain the same rules of substantive law.
In the appeal against the judgment of the Court of Appeal, Bucharest, the Romanian Government and the Ministry of Finance argue that collective management organisations are taxable persons for VAT purposes and that the fees which they receive from rights holders are consideration for a taxable service provided for the latter’s benefit and, consequently, the contested provisions are not contrary to EU law.
In its defence, Credidam contends that the fees are not withheld as consideration for a service provided, but are a payment provided for by law, the money being used for the purposes of distributing the remuneration collected.

Questions

1. Does the collection, distribution and payment of remuneration by collective management organisations, in return for a fee, constitute a supply of services, within the meaning of Article 24(1) and Article 25(c) of Directive 2006/112/EC (the VAT directive), to copyright holders and holders of related rights?
2. If the first question is answered in the affirmative, does the work that collective management organisations do for rights holders constitute a supply of services within the meaning of the VAT directive even if the rights holders, on whose behalf collective management organisations collect remuneration, are not deemed to be providing a service to the users who are required to pay that remuneration?

AG Opinion

None

Decision

Article 2(1)(c), Article 24(1) and Article 25(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 a collective management organisation for copyright and related rights supplies services, within the meaning of those provisions, where, first, it collects, distributes and pays, by law, to rightholders the remuneration owed to them by certain users defined by law and, secondly, it deducts from that remuneration a management fee which is due to it by those rightholders and which is intended to cover the costs incurred by that activity, in the event that the remuneration thus collected on behalf of those rightholders does not constitute consideration for services supplied, within the meaning of that directive, by those rightholders for the benefit of those users.

Source