On March 17, 2016 on the website of the Court of Justice of the European Union the opinion of Advocate General Szpunar in Case C-11/15 Odvolací finanční ředitelství versus Český rozhlas was published (ECLI:EU:C:2016:181).

The system of value added tax (VAT) is based on a dual mechanism, that is to say the payment of output tax and the deduction of input tax. That mechanism allows that tax to be neutral from the point of view of economic operators, the financial burden being borne by consumers alone.

In order to guarantee that the tax authority actually receives what is owed to it, the deduction must relate only to goods and services acquired for the purposes of a taxable activity, so as to ensure that the input VAT is indeed deducted from the output VAT. If the taxable person performs both a taxed activity and an exempt activity, there are specific rules for determining what share of the input VAT is deductible. The situation becomes more complicated where the taxable person also performs an activity which falls outside the scope of the VAT system altogether, because it is not an economic activity carried on for consideration within the meaning of the provisions governing the VAT system. The present case provides an opportunity to define the scope of the Court’s case-law in this sphere.

The dispute in the main proceedings and the question referred to the Court

·        Český rozhlas is the Czech public broadcasting body created by law and financed, in particular, by the radio fee established under Law No 348/2005.

·        By supplementary tax returns covering the period from March to December 2006, Český rozhlas applied a further increase to its right to deduct VAT by excluding from the calculation of the coefficient used for deducting VAT supplies covered by the radio fees paid to it, which it had initially declared as supplies exempt from VAT and not conferring a right to deduction from VAT. In that regard, Český rozhlas argued that those fees did not constitute remuneration for the public broadcasting service provided.

·        The tax authorities did not accept the position thus taken by Český rozhlas and, by supplementary tax assessments, rejected the exclusion of those supplies from the calculation of the deductible proportion.

·        Following the rejection of its claim, Český rozhlas challenged the tax authorities’ decisions before the Mĕstský soud v Praze (Municipal Court, Prague), which annulled those decisions by judgment of 6 June 2014.

·        The applicant in the main proceedings lodged an appeal on a point of law against that judgment before the referring court. It was in that context that the Nejvyšší správní soud (Supreme Administrative Court) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Can public sector broadcasting, financed by compulsory statutory charges of the amount set by the law, on the basis of ownership of a radio receiver, possession thereof or entitlement to use it on other legal grounds, be regarded as the “provision of a service against payment” within the meaning of Article 2(1) of the Sixth … Directive …, which must be exempted from [VAT] in accordance with Article 13A(1)(q) of that directive, or is it a non-economic activity which is not subject to [VAT] at all under Article 2 of the Sixth Directive, and to which exemption from VAT in accordance with Article 13A(1)(q) of that directive does not therefore apply?’

·        The order for reference was received at the Court on 13 January 2015. Written observations were lodged by the parties to the main proceedings, the Czech, Greek and United Kingdom Governments and the European Commission. Český rozhlas, the Czech and United Kingdom Governments and the Commission were represented at the hearing which took place on 17 December 2015.

Conclusion

In the light of the foregoing, I propose that the Court reply as follows to the question referred for a preliminary ruling by the Nejvyšší správní soud (Supreme Administrative Court):

1.     Article 2(1) of the 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 must be interpreted as meaning that the activity of a public broadcasting body that is financed from a compulsory fee laid down by statute and payable by anyone in possession of a radio receiver does not constitute an activity carried on for consideration within the meaning of that provision and does not confer a right to deduct VAT due or paid on goods and services acquired by that body and used for the purposes of that activity.

2.     The determination of the methods and criteria for apportioning input VAT between that activity and the activity conferring a right to deduct is in the discretion of the Member States, who, when exercising that discretion, must have regard to the aims and broad logic of Sixth Directive 77/388, and, on that basis, provide for a method of calculation which objectively reflects the part of the input expenditure actually to be attributed, respectively, to those two types of activity.

For further information click here to be forwarded to the text of the opinion as published on the website of the CJEU, which will open in a new window.

Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).

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