On June 14, 2016 on the website of the Court of Justice of the European Union the opinion of Advocate General Wahl in Case C‑432/15 Odvolací finanční ředitelství versus Pavlína Baštová (ECLI:EU:C:2016:438) was published.
The proceedings raise a number of issues on the applicability of the rules on value added tax (‘VAT’) to economic activities which consist of, or are related to, sports activities such as horseracing, or which involve the use of sporting facilities.
The dispute in the main proceedings and the question referred to the Court
· Ms Pavlína Baštová is registered as a taxable person for VAT. She is in the business, inter alia, of breeding and training racehorses. The stables used for this purpose were occupied partly by her own horses and partly by horses belonging to others entrusted to her to be prepared for races. In addition to racehorses, she also had two horses which she used for agrotourism and training of young horses, as well as breeding mares and foals.
· Part of Ms Baštová’s income came from prizes won by her horses and the trainer’s shares of prizes won by horses belonging to others. Another part came from payments for preparing horses belonging to others for the races.
· In the tax declaration for the fourth quarter of 2010, Ms Baštová claimed the right to full deduction of VAT on the taxable supplies acquired relating to (a) preparation of horses for races and participation in races, including expenditure on entrance fees, declaration fees and fees for assistance during races, (b) procurement of consumables for horses, their feed and equipment for riding, (c) veterinary services and medicines for the horses, (d) consumption of electricity in the stables, (e) consumption of fuel oil for transport, (f) procurement of rotor rakes for the production of hay and forage and of tractor equipment, (g) consultancy services in connection with the running of the stables. The supplies acquired concerned her horses and horses belonging to others.
· In the same tax declaration Ms Baštová also declared output VAT at the reduced rate of 10% on the service ‘operation of racing stables’ which she supplied to the other horse owners.
· The Finanční úřad v Ostrově (Tax Office, Ostrov) did not accept the claim for full deduction, nor did it agree with the reduced rate of VAT on the service ‘operation of racing stables’. Ms Baštová brought an appeal against that decision before the Finanční ředitelství v Plzni (Tax Directorate, Plzeň) which upheld the appeal in part. However it refused the claim for deduction of input VAT for the amount corresponding to the participation of Ms Baštová’s own horses in races since it considered that the running of her own horses in races did not constitute taxable transactions. In addition, the Finanční ředitelství v Plzni also did not accept the application of the reduced rate of VAT on the service ‘operation of racing stables’.
· Ms Baštová challenged the decision at issue by an action before the Krajský soud v Plzni (Regional Court, Plzeň), which agreed with her and annulled the decision, remitting the case to the Odvolací finanční ředitelství (Appellate Tax Directorate). The Odvolací finanční ředitelství brought an appeal against that judgment on a point of law before the Nejvyšší správní soud (Supreme Administrative Court).
· Entertaining doubts as to the interpretation of the provisions of the VAT Directive, the referring court decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
(1a) Is the supply of a horse by its owner (who is a taxable person) to the organiser of a race for the purpose of the horse’s running in a race a supply of services for consideration within the meaning of Article 2(1)(c) of [the VAT Directive] and thus a transaction subject to VAT?
(1b) If the answer is in the affirmative, must the prize money obtained in the race (which not every horse taking part in the race obtains, however), or the acquisition of the service consisting in the opportunity for the horse to run in the race which the organiser of the race provides to the owner of the horse, or some other consideration, be regarded as the consideration?
(1c) If the answer is in the negative, is that circumstance in itself a ground for reducing the deduction of input VAT on the taxable supplies acquired and used for the preparation of the breeder/trainer’s own horses for races, or must the running of a horse in a race be regarded as a component of the economic activity of a person who operates in the field of breeding and training his own and other owners’ racehorses, and the expense of breeding his own horses and running them in races be included in the overheads associated with that person’s economic activity? If the answer to that part of the question is in the affirmative, must prize money be included in the taxable amount and output VAT accounted for, or is this income which does not affect the taxable amount for VAT at all?
(2a) If for VAT purposes it is necessary to regard several part services as a single transaction, what are the criteria for determining their mutual relationship, that is, for determining whether they are supplies of equal status with each other or supplies in the relationship of a principal and an ancillary service? Does any hierarchy exist between those criteria as regards their ranking and weight?
(2b) Must Article 98 of [the VAT Directive] in conjunction with Annex III to that directive be interpreted as precluding the classification of a service under the reduced rate if it is composed of two part supplies which must be regarded for VAT purposes as a single supply and those supplies are of equal status with each other, and one of them may not in itself be classified in any of the categories set out in Annex III to [the VAT Directive]?
(2c) If the answer to Question 2b is in the affirmative, does the combination of the part service of the right to use sports facilities and the part service of a trainer of racehorses, in circumstances such as those of the present proceedings, preclude the classification of that service as a whole under the reduced rate of VAT mentioned in point 14 of Annex III to [the VAT Directive]?
(2d) If the application of the reduced rate of tax is not excluded on the basis of the answer to Question 2c, what influence on the classification under the relevant rate of VAT does the fact have that the taxable person provides, in addition to the service of the use of sports facilities and the service of a trainer, also stabling, feeding and other care of a horse? Must all those part supplies be regarded for VAT purposes as a single whole sharing the same tax treatment?
· Written observations in the present proceedings have been submitted by the Czech Government and the Commission.
Conclusion
The Advocate General proposes that the Court answer the questions referred for a preliminary ruling by the Nejvyšší správní soud (Supreme Administrative Court, Czech Republic) as follows:
– insofar as the running of a horse in a race is a component of the economic activity of a person who operates in the field of breeding and training racehorses, the expenses related to that component give rise to deduction of input value added tax. The award of prizes to the horses producing the best performances gives rise to taxable transactions under Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax;
– subject to verification by the national court, the operation of racing stables cannot as a whole be subject to a reduced rate of value added tax by virtue of point 14 of Annex III to Directive 2006/112.
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