VAT taxable person status and performance of economic activity by a City Council. Judgment of the ECJ of May 12th, 2016
This litigation is entered to assess the possibility that a City Council (public body) may have or not the status of taxable person for VAT purposes by carrying out an economic activity.
For this purpose, the VAT Directive defines the taxable person, in its article 9, paragraph 1, as “any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity”, while “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”.
However, public bodies, such as a City Council, do not have the status of taxable person for VAT for the transactions in which is acting as a public authority, unless the fact of not considering them as such leads to distortions of competition or when they perform the activities included in annex I of the Directive except when the volume of such is insignificant.
Considering this, through the litigation is questioned to the Court if it can be considered as VAT taxable person a City Council which provides a service of school transport, by hiring transport companies, and only receiving some contributions by the parents of students that represent a 3% of the total cost of the service, thus assuming the difference by charging to public funds.
For this purpose the Court begins by analyzing if the City Council is doing or not an economic activity in accordance with the definition of article 9, paragraph 1, and reaching to the conclusion that this is actually the case since this transportation constitutes a provision of services. However, it is then necessary to determine if it was made for valuable consideration, for which the Case-Law of the Court establishes that will be the case only “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 value actually given in return for the service supplied to the recipient”. In this case, since there are some contributions made by parents to the City Council, in principle, the conditions would be fulfilled to understand that it is a provision of services against a consideration.
But to reach this conclusion is necessary to analyze the conditions in which usually the transactions take place and the context in which are carried out. In this case it is necessary to highlight that through the contributions received it only recovers a fraction of the cost, so taking into account that a big difference existing between the operating expenses and the amounts received do suggest that these contributions are more assimilated to a royalty than to a remuneration, so that there is not a direct link between the service provided and the perceived amount and without existing, therefore, an economic activity for the purposes of VAT and, in conclusion, the City Council would not acquires the status of taxable person for VAT.
Attached is a copy of the judgment with case number C-520/14.