On February 9, 2023, the ECJ issued its decision in the case C-713/21 (Finanzamt X).
Context: Preliminary ruling – Common system of value added tax – Directive 2006/112/EC – Article 2(1)(c) – Concept of ‘remunerated services’ – Single service consisting of the accommodation and training of horses and their participation in tournaments – Remuneration by assigning half of the claim to the prize money won with the horses in tournaments
Articles in the EU VAT Directive
Article 1(2), 2(1)(c), 9(1) and 73 of the EU VAT Directive 2006/112/EC
Article 1 (Subject matter and scope)
2. The principle of the common system of VAT entails the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, however many transactions take place in the production and distribution process before the stage at which the tax is charged. On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components. The common system of VAT shall be applied up to and including the retail trade stage.
Article 2 (Subject matter and scope)
1. The following transactions shall be subject to VAT:
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
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 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
- The applicant is a horse rider and operated a ‘competition horse training stable’. At the applicant’s business, the horses made available to him were professionally stabled, cared for and trained and were entered in competitions at home and abroad.
- The applicant concluded ‘supply contracts’ with the horse owners based in Germany, under which they ‘made available’ their horses to the applicant. Each owner waived any right to issue instructions regarding the training and use of the horses. It was further agreed that the owner had to bear the maintenance, competition, transport, farrier and veterinarian costs in respect of the horses, while the applicant had to bear the costs of participating in each competition that were attributable to him as the rider (travel, flight and hotel costs, expenses).
- Since only the owner of the horses was entitled to prize money at horse competitions, it was further agreed that the applicant was to receive 50% of all cash and non-cash prizes that he won for the owner with the owner’s horses. In that respect, the respective owners had already, under the supply contract, assigned to the applicant half of each of their future claims against the respective competition organisers for the payment of prizes and the transfer of ownership of non-cash prizes. The applicant was entitled to set the owner’s payment claims off against counterclaims.
- The applicant entered both his own and other owners’ horses in domestic and foreign competitions. He set the winnings earned at the competitions using other owners’ horses off against the costs of accommodation, veterinarians, medicines, farriers, competitions and other costs in accordance with the agreements with the horse owners.
- In an external audit, the auditor proceeded on the assumption that the proceeds acquired in domestic and foreign competitions using other owners’ horses were subject to the standard tax rate.
- The action before the Finanzgericht (Finance Court; ‘the FG’) was unsuccessful as regards the main point at issue. Referring to the Court’s judgment of 10 November 2016 in Baštová, C-432/15 (EU:C:2016:855), concerning Article 2(1)(c) of the EU VAT Directive, and to the case-law of the Bundesfinanzhof (Federal Finance Court; ‘the BFH’) concerning the Umsatzsteuergesetz (Law on turnover tax; ‘the UStG’), the FG ruled in the judgment published in Entscheidungen der Finanzgerichte (decisions of the finance courts – EFG) 2021, p. 500, that prize money won by participating in domestic and foreign competitions with other owners’ horses constitutes consideration for supplies which are subject to the standard tax rate.
- The FG stated that, on the basis of the contracts concluded with the horse owners, the applicant made a single supply which consisted in the stabling and training of horses and the participation of horses in competitions. For that bundle of supplies, he received from the respective horse owners reimbursement of the maintenance, competition, transport, farrier and veterinarian costs, on the one hand, and a share in the competition proceeds, on the other hand. Therefore, his supply was also made in return for the transfer of part of the prize money – to which the horse owners were entitled. This concerns the supply relationship between the applicant and the respective horse owners, which is independent of the supply relationship between the horse owner and the competition organiser. The applicant did not acquire any direct claims of his own against the competition organisers. Rather, he was able to keep half of the competition winnings solely on the basis of a separate mutual supply relationship between himself and the horse owner.
- In the appeal on a point of law brought by the applicant against that judgment, the only question still at issue is that as to whether the applicant provided services to the horse owners that were remunerated by the transfer of half of the prize money as consideration.
Question
I. The following question is referred to the Court of Justice of the European Union (‘the Court’) for a preliminary ruling:
In relation to the meaning of Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as interpreted in the judgment of the Court of Justice of the European Union of 10 November 2016, Baštová, C-432/15 (EU:C:2016:855): does the owner of a competition horse training stable provide the horse owner with a single supply, consisting in the stabling and training of horses and the participation of horses in competitions, for consideration even where the horse owner remunerates that supply by assigning half of the claim to prize money to which he or she is entitled in the event of successful participation in a competition?
ECJ Considerations
- In its judgment in Baštová (EU:C:2016:855, paragraph 40), the Court answered the national court by stating ‘that the supply of a horse by its owner, who is a taxable person for VAT purposes, to the organiser of a horse race for the purpose of the horse’s participation in that race does not constitute a supply of services for consideration within the meaning of that provision where it does not give rise to a payment awarded for participation or any other direct remuneration and where only the owners of horses which are placed in the race receive a prize, even if that prize is determined in advance. On the other hand, such a supply of a horse for the purposes of its participation in the race constitutes a supply of services for consideration where it gives rise to the payment, by the organiser, of remuneration irrespective of whether or not the horse in question is placed in the race.
- The Court thus referred to three situations, in which activities are remunerated either ‘by the payment … of entrance and declaration fees’ (first case, paragraph 35 of the Court’s judgment) or by prize money (second case, paragraph 36 et seq. of the Court’s judgment), or ‘by virtue of a payment awarded … for participation’ (third case, paragraph 39 of the Court’s judgment). The Court based its decision in that regard on three considerations.
- According to paragraph 35 of the Court’s judgment, the service provided by the horse race organiser, consisting in enabling the owner of a horse to have his or her horse participate in the horse race, cannot be regarded as effective consideration for the participation of a horse in a horse race by way of the ‘supply of a horse’ by the owner to the race organiser. The Court justifies that by stating that the enabling of participation in the horse race is remunerated by the payment of entrance and declaration fees, by which the Court is also commenting on the first case. Furthermore, the possible increase in value of the horse as a result of its being placed, for example, is difficult to quantify and uncertain.
- With regard to the second case, the Court states in paragraph 36 et seq. of its judgment that, ‘secondly’, it cannot be assumed that the supply of a horse gives rise to effective consideration where only the owners of horses which are placed in the race receive a prize. This is because the prize money is not awarded for the supply of the horse, but for the achievement of a certain result at the end of the race, namely the placing of the horse, and is thus subject to a degree of uncertainty. In addition, the classification of that supply as a taxable transaction subject to the result achieved by the horse at the end of the race is contrary to case-law of the Court according to which the term ‘supply of services’ is objective in nature and applies without regard to the purpose or results of the transactions.
- The Court comments on the third case in paragraph 39 of its judgment, according to which, ‘thirdly’, the situation is different only where a payment is awarded for participation in the race irrespective of whether or not the horse is placed.
Questions
Does the owner of a competition horse training stable provide the horse owner with a single supply, consisting in the stabling and training of horses and the participation of horses in competitions, for consideration even where the horse owner remunerates that supply by assigning half of the claim to prize money to which he or she is entitled in the event of successful participation in a competition?
AG Opinion
None
Decision (unofficial translation from French version)
Article 2(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:
a single supply provided by the owner of a competition horse training stable, consisting in the stabling and training of horses and the participation of horses in competitions constitutes a supply of services for consideration, within the meaning of that provision, where the horse owner remunerates that supply by assigning half of the claim to prize money to which he or she is entitled in the event of successful participation in a competition.
Source
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