On October 12, 2016, the ECJ issued its decision in the case C-340/15 (Nigl and Others).
Context: Reference for a preliminary ruling — Taxation — Value added tax — Sixth Directive 77/388/EEC — Article 4(1) and (4) — Directive 2006/112/EC — Articles 9 and 11 — Concept of ‘taxable person’ — Civil-law partnerships selling their products under a common trade mark and through a limited company — Concept of ‘independent undertaking’ — Refusal of the status of taxable person — Retroactivity — Sixth Directive 77/388 — Article 25 — Directive 2006/112 — Articles 272 and 296 — Flat-rate scheme for farmers — Exclusion from the flat-rate scheme — Retroactivity
Article in the EU VAT Directive
Article 4(1) and the first subparagraph of Article 4(4), 25 of the Sixth Directive (Now Articles 9(1), 10, 11, 296(1), 296(2) of the EU VAT Directive 2006/112/EC)
Article 9 (Taxable person)
1. “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.
Article 10 (Taxable person)
The condition in Article 9(1) that the economic activity be conducted “independently” shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer’s liability.
Article 11 (Taxable person – VAT group)
After consulting the advisory committee on value added tax (hereafter, the “VAT Committee”), each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.
A Member State exercising the option provided for in the first paragraph, may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.
Article 296 (Common Flat-Rate Scheme for Farmers)
1. Where the application to farmers of the normal VAT arrangements, or the special scheme provided for in Chapter 1, is likely to give rise to difficulties, Member States may apply to farmers, in accordance with this Chapter, a flat-rate scheme designed to offset the VAT charged on purchases of goods and services made by the flat-rate farmers.
2. Each Member State may exclude from the flat-rate scheme certain categories of farmers, as well as farmers for whom application of the normal VAT arrangements, or of the simplified procedures provided for in Article 281, is not likely to give rise to administrative difficulties.
Facts
- Since 1998, the appellants in the main proceedings have been engaged in wine production through three civil-law partnerships, each of them operating vineyards on different sites and each being subject to VAT. The first of those civil-law partnerships was formed by Mr Martin Nigl and Ms Christine Nigl, the second by Ms Gisela Nigl (senior) and Mr Josef Nigl, and the third by Mr Martin Nigl and Ms Gisela Nigl (junior). No written contract was drawn up during the creation of the three civil-law partnerships.
- In order to meet increased demand for high-quality wines, a market sector developed by Mr Martin Nigl, the appellants in the main proceedings created, in 2001, Wein-Gut Nigl GmbH (‘the trading company’). In the main, that company either purchases wines from the holdings of the civil-law partnerships in order to sell them to retailers or markets those wines to end consumers, in the name and on behalf of each civil-law partnership concerned. In addition, it produces wine from purchases made from contractually-linked vineyards and operates a hotel and restaurant.
- The civil-law partnerships were the subject of declarations made to the public authorities, including the Tax Office, which classified those partnerships of independent taxable persons as undertakings, for turnover-tax purposes, and as joint ventures, for income-tax purposes.
- The income and expenditure of the three civil-law partnerships is accounted for separately, via bank accounts owned by each of them separately, the profits are distributed within each civil-law partnership between its members and there are no assets or bank account shared by those partnerships. Each civil-law partnership separately operates vineyards belonging to it or leased by it, employs workers and owns its own equipment, such as tractors or machines. The equipment used for carrying out the work — in the amount of 15% to 20% — is purchased centrally by the trading company and then distributed among the civil-law partnerships, according to the quantities of wine produced. The operating costs relating to the buildings and gas and electricity costs are invoiced at the end of the year by the trading company.
- Wine-making takes place separately at each holding, whereas bottling is carried out at a shared facility. The wines produced by the civil-law partnerships are marketed under a common trade mark, ‘Weingut Nigl’, by the trading company, and are sold at jointly-fixed prices, the prices for purchase by that company being determined by applying an allowance to its own sale prices. Neither the advertisements, the website nor the price-lists make reference to the different holdings or producing civil-law partnerships. Finally, the trading company performs all administrative tasks on behalf of the three civil-law partnerships.
- Until 2012, the Tax Office took the view that the holding was being operated by four taxable persons, namely the three civil-law partnerships and the trading company.
- Following a tax inspection in 2012, the Tax Office found that, in view of the closely interconnected economic and organisational nature of the civil-law partnerships, their members had formed, since 2005, a single association of persons. In its view, there was only one source of income, the proceeds of which had to be assigned to the various members of the three civil-law partnerships.
- With regard to VAT, the Tax Office took the view that there existed, with retroactive effect from 2005, two taxable undertakings, namely the single association of persons, made up of the members of the three civil-law partnerships, and the trading company. VAT assessments were issued to all the members of the three civil-law partnerships and to the trading company, and, by a decision of 18 July 2012, the VAT identification number of each of the civil-law partnerships was restricted.
- As a result, the Tax Office called into question the common flat-rate scheme for farmers enjoyed by the civil-law partnerships.
- Dealing with proceedings to determine whether the appellants in the main proceedings were operating, as independent undertakings, four or only two wine-producing holdings, the Bundesfinanzgericht (Federal Finance Court, Austria) notes that, under Austrian law, every structure which conducts itself outwardly as such in relation to third parties and which provides services independently, within the meaning of the Law on turnover tax, has the capacity to be an undertaking, even if it consists of an association of persons lacking legal capacity.
- In addition, that court notes that it has previously held that, as the Republic of Austria had failed to seek consultation from the Advisory Committee on VAT mentioned in Article 29 of the Sixth Directive, joint enterprises independent of each other for income tax purposes do not constitute a single undertaking for turnover tax purposes, whatever the relationships between them.
Questions
Do three associations of persons constitute three independent traders (taxable persons) where those associations consist of different members of one family, conduct themselves outwardly as such independently in relation to their suppliers and to public authorities, possess their own production facilities, with the exception of two business assets, but market under a common trade mark the greater part of their products through a limited company whose shares are held by the members of the associations of persons and other members of the family?
If the three associations of persons are not to be regarded as three independent traders (taxable persons), is any of the following to be regarded as an independent trader (taxable person):
the marketing company, or
b) an association of persons consisting of the members of the three associations of persons, which does not conduct itself as such on the market in relation either to suppliers or to customers, or
c) an association of persons consisting of the three associations of persons and the limited company, which does not conduct itself as such on the market in relation either to suppliers or to customers?
If the three associations of persons are not to be regarded as three independent traders (taxable persons), is the refusal of the status of a trader (taxable person)
retrospective,
only for the future,
not permissible at all
if the associations of persons were at first, after investigations by the tax authorities, recognised by the Tax Office as independent traders (taxable persons)?
If the three associations of persons are to be regarded as three independent traders (taxable persons), are they, as wine growers and therefore farmers, flat-rate farmers if each of those associations of persons which cooperate in practice is in itself covered by the flat-rate scheme for farmers, but the limited company, an association of persons formed of the members of the three associations of persons or an association of persons formed of the limited company and the members of the three associations of persons is, under national law, not covered by the flat-rate scheme on account of the size of the business or its legal form?
If the flat-rate scheme for farmers is in principle excluded for the three associations of persons, is that exclusion
retrospective,
only for the future, or
not effective at all?
AG Opinion
(1) The first subparagraph of Article 9(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as not forming a basis for refusing the status of taxable person to a person bound by organisational, economic or financial ties to another person where those links are legal ties as referred to in Article 10 of that directive. Article 11 of that directive must be interpreted as meaning that for it to be applied there must exist in national law an express legal basis adopted after prior consultation with the VAT Committee. It is for the national courts to determine whether such a basis exists in national law and whether it applies in a specific case.
(2) It is entirely for the tax authorities and courts of the Member States to establish which persons in a particular set of circumstances can be regarded as a single taxable person.
(3) Article 11 of Directive 2006/112 must be interpreted as meaning that in the application thereof the tax authorities may regard as a single taxable person persons who earlier carried out a taxable activity as separate taxable persons. Those persons can be regarded as a single taxable person retrospectively where they have abused rights arising from their status as separate taxable persons.
(4) Article 296(1) and (2) of Directive 2006/112 must be interpreted as not precluding national legislation under which the flat-rate scheme referred to in that provision is disapplied only where a farmer ceases to meet the criteria for the application of that scheme based on the size of the holding, for example as a result of several economically linked farmers being regarded as a single taxable person.
(5) Article 296(1) and (2) of Directive 2006/112 must be interpreted as not precluding disapplication of the flat-rate scheme referred to in that provision to a farmer to whom that scheme was applied earlier. Such disapplication can be retrospective where application of the flat-rate system entailed abuse of the right.
Decision
1. Article 4(1) and the first subparagraph of Article 4(4) 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 2004/66/EC of 26 April 2004, on the one hand, and the first subparagraph of Article 9(1) and Article 10 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, on the other, must be interpreted as meaning that multiple civil-law partnerships, such as those at issue in the main proceedings, which conduct themselves outwardly as such and independently in relation to their suppliers, public authorities and, to a certain extent, their customers, and each of which carries out its own production by using for the most part its means of production, but which market a large proportion of their products under a common trade mark through a limited company the shares in which are held by members of those civil-law partnerships and by other members of the family in question, must be regarded as independent undertakings which are taxable persons for value-added-tax purposes.
2. Article 25 of Sixth Directive 77/388, as amended by Directive 2004/66, and Article 296 of Directive 2006/112 must be interpreted as not excluding the possibility of refusing the application of the common flat-rate scheme for farmers, laid down in those articles, to multiple civil-law partnerships, such as those at issue in the main proceedings, regarded as independent undertakings which are taxable persons for value-added-tax purposes and which cooperate with each other, on the ground that a limited company, an association of persons made up of that limited company and members of the civil-law partnerships in question could not be subject to that scheme, on account of the size of its operation or its legal form, even if those civil-law partnerships do not belong to a category of producers excluded from that flat-rate scheme, in so far as they are, owing to their links with that company or one of those associations, materially capable of assuming the administrative burden of the tasks arising from the application of the normal arrangements or the simplified scheme, this being a matter for the referring court to verify.
3. In the event that the common flat-rate regime for farmers has, in principle, to be excluded for civil-law partnerships such as those at issue in the main proceedings, such an exclusion would apply to the period prior to the date on which the appraisal on which it is based took place, provided that that appraisal occurs within the limitation period for action on the part of the tax authority and its effects do not apply retroactively to a date earlier than that on which the legal and factual elements on which it is based occurred.
Summary
Partnerships marketing products under a common brand name and through a limited liability company – Concept of independent undertakings – Exclusion of the flat-rate scheme for agricultural producers
The first subparagraph of Article 4(1) and (4) of the Sixth Directive and the first subparagraph of Article 9(1) and Article 10 of the VAT Directive must be interpreted as meaning that partnerships which act towards their suppliers, towards public authorities and up to act autonomously to a certain extent towards their customers as such, each of whom manufactures its own product using mainly its own assets, but largely market their products under a common brand name through a limited liability company whose shares are owned by the partners of those partnerships and of other members of the family concerned must be regarded as self-employed taxable enterprises for VAT purposes.
Article 25 of the Sixth Directive and Article 296 of the VAT Directive must be interpreted as not precluding the possibility of refusing to apply the common flat-rate scheme for agricultural producers laid down in those articles in the case of partnerships established regarded as independent, taxable enterprises for VAT purposes and collaborating with each other, on the ground that a capital company, an association of persons consisting of the partners of these partnerships or an association of persons consisting of this capital company and the partners of these partnerships, because of the size or their legal form does not qualify for this scheme, even if those partnerships do not belong to a category of producers excluded from that flat-rate scheme,provided that their links with that company or one of those associations make them materially capable of bearing the administrative burdens entailed in the tasks associated with the application of the normal or simplified VAT regime, which the referring court has to go.
If partnerships are in principle excluded from the common flat-rate scheme for agricultural producers, this exclusion applies to the period preceding the date on which the assessment is made on which it is based, provided that this assessment is made before the expiry of the limitation period for the action of the tax authorities and its effects are not retroactive to a date prior to that on which the factual and legal facts on which the assessment is based arose.
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