Ruling of the European Court of Justice of October 29, 2015. Saudacor. Concept of economic activity in the scope of VAT on transactions carried out by public bodies
As it is known the VAT does levy the transactions carried out by taxable persons within the framework of an economic activity, which are defined by article 9, paragraph 1 of the Directive 2006/112/EC, in general, as a “any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity”.
However, article 13 of Directive 2006/112/EC excepts from this consideration, States, provinces, regions and other bodies governed by public Law in respect of the activities or transactions in which they engage as public authorities, unless to be deemed as taxable persons would lead to significant distortions of competition.
The dispute refers to a stock company, Saudacor, which incorporated by the Regional Government of the Azores and is participated, therefore, exclusively by public capital, for the provision of services of general economic interest in the field of health, taking as its mission: the planning and management of the regional health system and associated information systems, infrastructure and facilities, among other services.
The entity did not pay the VAT on services rendered while the inspection understood that, in view of their legal status, could not invoke that they are not subject to VAT because it is a body of public Law, since the economic activity carried out in the framework of the contracts program does affect areas of activity that are part of the private sector and, therefore, to not be subject to VAT might give rise to distortions of competition.
In accordance with the allegations raised by the entity, the national court questions whether such an entity can invoke the rule of not subject to VAT, so it is necessary to clarify the concept of body subject to public Law stated in article 13 of the VAT directive, as well as if the compensation received by the company from the Region as funding, within the framework of the contract, is a consideration for an economic activity for VAT purposes.
Begins the Court by resolving on the issue of whether the entity carries out an economic activity or not, and this makes reference to the Case-Law of the European Court which states that, as a general rule, all activities of an economic nature are subject to VAT and more specifically supplies of services carried out for consideration, including those carried out by bodies governed by public Law. Therefore, to qualify if a compensation is a consideration, it is only required that there is a direct relationship between the allowance and compensation actually received by the taxable person, and this relationship is accredited when “if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration for the service supplied to the recipient”.
Thus, in the present case, the fact that compensation are established in advance and are subject to possible variations, in view of the permanent and continuous nature of the services provided, would not affect the relationship between the provision and the consideration to be received and nor would affect it the fact of the entity to perform an activity that is exclusively up to the State, as far as the Directive sets as not determining for carrying out an economic activity, the purposes and results thereof. Therefore, firstly, considers the European Court of Justice that the entity carries out an economic activity for VAT purposes.
Subsequently valued the Court the question raised about whether the entity can benefit from the not-subject clause because it is a body governed by public Law, and does so by defining the concept of “other bodies governed by public Law” referred to in article 13 of the Directive, for which two requirements have to be met: the exercise of an activity by a public body and to act as public authority.
With regard to the first requirement, the Court mentions that it is not enough to carry out actions that are part of the prerogatives of public authority but it must also be integrated in the Organization of the public administration. However, clarifies the Court that to perform these acts related to the functions of the public authority are an indication to determine that an organism can be considered as of public Law. It concludes in this regard the Court that, in view of the facts and functions developed by the entity, does not seem that it can be considered as excluded from the Organization of the public administration (capital belonging 100% to the Region of the Azores, which is also its only client and gives the guidelines appropriate to their mission).
On the other hand, regarding the second requirement related to be acting as a public authority, it concludes the Court that with the development of the activities carried out, which are within the prerogatives of public authority, means that this activity is subject to a public Law regime. However, clarifies the Court that this requirement would not be met if these prerogatives of public authority which are at the disposal of the entity did not constitute an instrument to carry out activities, since they are used for other activities. This in addition to the clause provided for in article 13 that excludes from the non-subject to VAT provision where this status can produce distortions of competition, which must be checked by the national Court.
Attached is a copy of the ruling C-174/14.