The delivery of a property as payment for a tax debt does not constitute a supply of goods subject to VAT. Judgment of the ECJ of May 11, 2017. Posnania.


In the main proceedings, the Court is asked whether the supply of a building to the Public Administration by an entity engaged in real estate transactions, as compensation for its tax debts for non-payment of taxes, constitutes a supply of goods subject to VAT, pursuant to articles 2 (1) (a) and 14 (1) of the VAT Directive.

First, the Court understands that there is no doubt about the consideration of the transaction as a supply of goods, in view of the transfer of the property’s right of an immovable property, as well as the condition of taxable person of the company, thus its answer is focused on whether the transaction can be understood to be onerous and therefore subject to VAT, or not.

To that extend, the ECJ points out that, according to the Court’s own case-law, a supply of goods is only carried out for a consideration “only if there is a legal relationship between the supplier and the purchaser entailing reciprocal performance, the price received by the supplier constituting the value actually given in return for the goods supplied”.

According to this criterion, the Court considers that in the present case, although there is a legal relationship between both parties, the obligation to pay of the taxable person, as debtor, is not for a benefit received, but is unilateral in nature, since the tax payment frees it from the debt. The levying of a tax does not give rise to any provision by the Public Administration or, in turn, to any consideration for the payment, so it is not a legal relationship by which reciprocal benefits are exchanged.

In view of the foregoing, the transaction of supplying a property as payment for the extinction of a tax debt is not a transaction for onerous purposes and, therefore, is not subject to VAT.

Notwithstanding the foregoing, the Court also points out that since the company is engaged in real estate transactions it may have deducted the VAT incurred in the acquisition of the property, thus must be taken into account the provision related to self-consumption laid down in the article 16 of the EU Directive , which equates to a supply of goods for consideration “the application, by a taxable person, of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, where the VAT on those goods or the component parts thereof was wholly or partly deductible”. In that sense, it shall be the national court the one who must determine whether the circumstances exist to tax the transaction in accordance with the article 16 of the Directive.

A copy of the judgment with case number C-36/16 is attached.

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ECJ 36_16

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