On May 29, 1997, the ECJ issued its decision in the case C-63/96 (Skripalle).
Context: Tax provisions – Harmonization of laws – Turnover taxes – Common system of value added tax – Taxable amount – National derogating measures – Limits
Summary
- The European Court of Justice ruled in the case of Finanzamt Bergisch Gladbach v. Werner Skripalle regarding the interpretation of the Sixth VAT Directive, specifically addressing the taxable amount for VAT when a personal relationship exists between the supplier and recipient.
- The court clarified that member states can introduce derogating measures to prevent tax evasion or avoidance, but these measures must be strictly interpreted and cannot deviate from the VAT charging basis unless strictly necessary to achieve that aim.
- The court found that national rules requiring a minimum assessment based on the full cost of services supplied, even when the agreed rent reflects normal market rates, are not justified under the Sixth Directive if there is no risk of tax evasion.
- It was determined that the German rules, which considered family or associated relationships as a basis for higher taxation, were overly broad and did not meet the conditions set by the directive for derogation.
- The court concluded that the authorization for such derogating measures does not extend to cases where the agreed consideration is consistent with market rates, thereby ruling against the applicability of the minimum cost assessment in the specific case of Mr. Skripalle.
Article in the EU VAT Directive
Article 11(A)(1)(c) of the Sixth VAT Directive (Article 75 of the EU VAT Directive 2006/112/EC).
Article 75
In respect of the supply of services, as referred to in Article 26, where goods forming part of theassets of a business are used for private purposes or services are carried out free of charge, thetaxable amount shall be the full cost to the taxable person of providing the services.
Facts
- The case involves Mr. Skripalle, who owns a housing block and rents it to a limited company owned by his wife and son, raising questions about the taxable amount for VAT where personal relationships exist between the supplier and recipient.
- The Finanzamt assessed VAT based on a notional minimum amount, which exceeded the agreed rent despite it reflecting normal market rates, leading Mr. Skripalle to object and subsequently appeal to the Finanzgericht, which ruled in his favor.
- The Bundesfinanzhof later disagreed with the Finanzgericht, determining that the tenant company was associated with Mr. Skripalle, but expressed concerns about the fairness of using the minimum assessment basis, arguing that the agreed rent did not indicate tax evasion and aligned with market conditions.
Questions
1. Does Article 27 of Directive 77/388/EEC cover an authorization by the Council to introduce special measures for derogation from Directive 77/388/EEC in order to prevent tax avoidance which, in the case of supplies for consideration made between associated persons, apply the cost to the taxable person within the meaning of Article 11(A)(1)(c) of Directive 77/388/EEC as the minimum basis of assessment also where the agreed consideration represents the market rate but is less than the minimum basis of assessment and there is therefore no tax avoidance?
2. Can a Member State invoke special measures under Article 27 of Directive 77/388/EEC as taxation rules applying to a taxable person, if the Council’s decision authorizing the measures was not published in the Official Journal of the European Communities and the authorization procedure under Article 27(2) to (4) of Directive 77/388/EEC was not notified – after its completion – in official publications of the Member State?
AG Opinion
The first question referred by the national court should be answered as follows:
An authorization granted under Article 27 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment by the Council to a Member State permitting the introduction of special measures to prevent the avoidance of VAT does not cover national measures which, in the case of supplies for consideration made between associated persons, apply the cost to the taxable person within the meaning of Article 11(A)(1)(c) of Directive 77/388/EEC as the minimum basis of assessment even where the agreed consideration represents the market rate but is less than the minimum basis of assessment.
In the event of the Court not following my recommendation in respect of the answer to be given to the first question, the second question should, in my opinion, be answered as follows:
A Member State may invoke against a taxable person national measures implementing an implicit Council derogation adopted under Article 27(1) of Directive 77/388/EEC, which satisfies both the procedural and substantive requirements of validity under Article 27(1) to (4) of Directive 77/388/EEC, notwithstanding that, firstly, the Council’s decision authorizing the measures was not published in the Official Journal of the European Communities and, secondly, the authorization procedure under Article 27(2) to (4) of Directive 77/388/EEC was not made public – after its completion – in official publications of the Member State.
Decision
The costs incurred by the German, French and Netherlands Governments and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main action, a step in the proceedings pending before the national court, the decision on costs is a matter for that court.
Source
Similar ECJ cases
- Case 324/82 Commission v Belgium [1984] ECR 1861, in paragraph 24. This case is mentioned to illustrate that national derogating measures designed to prevent tax evasion or avoidance must be strictly interpreted and cannot deviate from the basis for charging VAT laid down in Article 11 of the Sixth Directive, except within limits strictly necessary to achieve that aim.
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