On June 16, 2016 the Court of Justice of the European Union (CJEU) judged in Case C-229/15 Minister Finansów versus Jan Mateusiak (ECLI:EU:C:2016:454).
This request for a preliminary ruling concerns the interpretation of Article 18(c) and Article 187 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), as amended by Council Directive 2009/162/EU of 22 December 2009 (OJ 2010 L 10, p. 14; ‘the VAT Directive’).
The request has been made in proceedings between the Minister Finansów (Minister for Finance) and Mr Jan Mateusiak concerning the levying of value added tax (VAT) on immovable property owned by the latter upon the cessation of his economic activity.
Must Article 18(c) of the [VAT Directive] be interpreted as meaning that, on expiry of the adjustment period referred to in Article 187 of the directive, a taxable person’s fixed assets upon the acquisition of which he deducted VAT, should not be subject to tax and included in the winding-up inventory at the time he ceases his activity, if the period laid down in law for adjusting the input tax on the acquisition thereof, which arises from the estimated period for using those assets in the taxable person’s economic activity, has passed, or as meaning that the fixed assets are subject to tax at the time the taxable person ceases his economic activity, regardless of the adjustment period?
The dispute in the main proceedings and the question referred for a preliminary ruling
· Between 1997 and 1999, Mr Mateusiak made an investment consisting of the construction of a residential and commercial building with a footprint area of 108.7 m2 and a total usable floor space of 357.6 m2 (including 87.8 m2 allocated to the provision of services) (‘the part of the building allocated to services’). On 26 July 1999 he was granted permission to use the building.
· Mr Mateusiak deducted the input tax contained in the original invoices for the purchases of building materials, labour and other items which were related solely to the part of the building allocated to the provision of an activity subject to VAT, namely a notary’s office.
· On 10 August 1999 the part of the building allocated to the provision of services was entered in the register of fixed assets held for the purposes of income tax for natural persons, and was brought into use for the purposes of a non-agricultural economic activity. The book value of the fixed asset named the ‘Office Building’ amounted to PLN 101 525.70.
· On 14 January 2013 Mr Mateusiak lodged an application for an individual tax ruling with the director of the Tax Office in Łódź (Izba Skarbowa w Łodzi), acting under the authority of the Minister for Finance (‘the tax authority’), asking whether or not a winding-up inventory drawn up with a view to winding up the economic activity carried out by a natural person, who is at the same time an active taxable person for the purposes of VAT, should include the value of that person’s fixed assets in the form of immovable property owned by that person on the date of the winding-up. Should the answer be in the affirmative, the applicant wished to know what value should be included in the taxable amount for the purposes of VAT on the date on which the economic activity in question had ceased.
· According to Mr Mateusiak, the value of the fixed assets that he owned should not be taken into account since taking them into account would infringe the principle of neutrality of VAT, inasmuch as the cessation took place after the end of the adjustment period, which, in the case of immovable property, is 10 years. In the event that his point of view was not followed, Mr Mateusiak considered that it must be found that VAT was to be applied only to the part of the building which was used for the purposes of the economic activity carried out by including in the taxable amount the cost price, if it is lower than the current market price.
· With reference, inter alia, to Article 14(1)(2), Article 14(4) and (8) and Article 29(10) of the Law on VAT, the tax authority concluded that taxation of the goods in connection with the cessation of taxable activity was justified by the structure of the VAT itself as a consumption tax, and that it was also an expression of the principle of neutrality of that tax. All goods on whose acquisition input tax was deducted must be subject to VAT in order to offset that deduction.
· The appeal lodged by Mr Mateusiak before the Wojewódzki Sąd Administracyjny w Lublinie (Regional Administrative Court of the province of Lublin, Poland) against the individual tax ruling was upheld in a judgment of 16 October 2013. That court held that Articles 14 and 91 of the Law on VAT should be read together since the legislature had established a correlation between the taxation of fixed assets on the winding-up of activity and the right to deduct the part of the input tax on the acquisition thereof which was not deducted during the adjustment period. On expiry of the adjustment period, the taxable person’s fixed assets at the time he winds up his activity must not be subject to tax nor included in the winding-up inventory, since the time laid down by law for adjusting input tax on the acquisition thereof, which arises from the time established for consuming those fixed assets in the taxable person’s activity, has passed.
· The Minister for Finance brought an appeal on a point of law before the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland). The Naczelny Sąd Administracyjny (Supreme Administrative Court) questions whether, even after expiry of the adjustment period laid down for a specific type of goods, a retained fixed asset pursuant to Article 18(c) of the VAT Directive must be subject to tax when the economic activity has ceased.
· The court states that once the time laid down by law for consuming the capital goods for the purposes of the taxable person’s economic activity, expressed by the adjustment period (Article 187 of the VAT Directive), has passed, it could be assumed that during the period in which that fixed asset was used in his taxable activity, the taxable person ‘consumed’ the tax deducted in connection with its acquisition; the tax deducted is connected throughout the period of its use (adjustment) with the tax owed, generated by that fixed asset in the taxable person’s economic activity.
· In those circumstances, the Naczelny Sąd Administracyjny (Supreme Administrative Court) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:
‘Must Article 18(c) of the [VAT Directive] be interpreted as meaning that, on expiry of the adjustment period referred to in Article 187 of the directive, a taxable person’s fixed assets upon the acquisition of which he deducted VAT, should not be subject to tax and included in the winding-up inventory at the time he ceases his activity, if the period laid down in law for adjusting the input tax on the acquisition thereof, which arises from the estimated period for using those assets in the taxable person’s economic activity, has passed, or as meaning that the fixed assets are subject to tax at the time the taxable person ceases his economic activity, regardless of the adjustment period?’
The CJEU judged as follows:
Article 18(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2009/162/EU of 22 December 2009, must be interpreted as meaning that, when a taxable person ceases to carry out a taxable economic activity, the retention of goods by that taxable person, where valued added tax on such goods became deductible upon their acquisition, can be treated as a supply of goods for consideration and be subject to value added tax if the adjustment period laid down in Article 187 of Directive 2006/112, as amended by Directive 2009/162, has passed.
For further information click here to be forwarded to the text of the judgment as published on the website of the CJEU, which will open in a new window.
The opinion in this case as delivered on March 3, 2016 by Advocate General Kokott can be found here.
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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