On June 22, 2016 the Court of Justice of the European Union (CJEU) judged in Case C-267/15 Gemeente Woerden versus Staatsecretaris van Financiën (ECLI:EU:C:2016:466).
This request for a preliminary ruling concerns the interpretation of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.
In a case such as the present, in which a taxable person has had a building constructed and has sold that building for a price which does not cover all of the costs, while the purchaser of the building has given a certain part thereof to a third party for the latter’s use free of charge, is that taxable person entitled to deduct all of the VAT invoiced in respect of the construction of the building, or only a part thereof, in proportion to the parts of the building which the purchaser uses for economic activities (in the present case, the grant of a lease for consideration)?
The dispute in the main proceedings and the question referred for a preliminary ruling
· The Municipality of Woerden ordered the construction of two buildings intended for multipurpose use. It deducted almost all the VAT invoiced in respect of the works supplied.
· The Stichting Gebouwen Beheer Woerden (Building Management Foundation, Woerden, ‘the Foundation’) was formed on 6 February 2007. Its management board comprises five members, of whom one is appointed by the Municipality of Woerden, three by the boards of each of the educational institutions which use the buildings managed by the Foundation, and one by the Stichting Kindercentra Midden Nederland (Foundation for Children’s Centres, Central Netherlands). The objective of the Foundation is to manage buildings and to promote co-operation between the users of the buildings.
· Rather than grant a lease over the buildings at issue, the Municipality of Woerden decided to sell them to the Foundation. The two buildings, of which the second was divided into two plots, were sold for an amount corresponding to approximately 10% of the cost price. VAT was charged on the sale price. The purchase price owed by the Foundation was converted into an interest-bearing loan.
· In respect of the transfer of ownership over the first building, transfer duty was levied on an amount effectively corresponding to the building’s cost price. In respect of the second building, the act of transfer states that the grant of the first right over the apartments results in transfer tax on an amount effectively corresponding to the entire cost price of that building.
· The Foundation then granted the use of part of the buildings at issue without consideration to three institutions providing special primary education. Leases over the other parts were granted for consideration to various tenants. The grant of those leases for consideration is exempt from VAT, except for the lease of the sports facilities.
· The Inspector took the view that the Municipality of Woerden had not supplied the two buildings at issue within the meaning of Article 3(1)(a) of the Law on turnover tax, but had leased them to the Foundation on a VAT-exempt basis. According to the Inspector, the Municipality of Woerden was therefore liable to pay VAT on the basis of Article 3(3)(b) of that law. The Inspector claimed the VAT by a notice of additional assessment.
· On 25 April 2013, ruling on the appeal brought by the Municipality of Woerden and on the cross-appeal of the Inspector, the Gerechtshof te Amsterdam (Regional Court of Appeal, Amsterdam, Netherlands) held that there had actually been a supply within the meaning of Article 3(1)(a) of the Law on turnover tax.
· The Gerechtshof te Amsterdam (Regional Court of Appeal, Amsterdam) nevertheless held that the sale price invoiced by the Municipality of Woerden related solely to the parts of the buildings at issue that the Foundation attributed to the taxable leases. It therefore concluded that the Municipality of Woerden had acted as an entrepreneur within the meaning of the Law on turnover tax solely in respect of those parts and, accordingly, that it was entitled to deduct only the VAT charged at the time of the supply of the buildings, namely approximately 10%.
· The Municipality of Woerden brought an appeal on a point of law against the judgment of the Gerechtshof te Amsterdam (Regional Court of Appeal, Amsterdam). The Secretary of State for Finance also brought a conditional cross-appeal on a point of law.
· In its appraisal of the case, the referring court rejects the assessment of the Gerechtshof te Amsterdam (Court of Appeal, Amsterdam) according to which the Municipality of Woerden supplied certain parts of the buildings at issue as an entrepreneur and did not supply other parts in that capacity.
· The referring court considers that the sale price of the buildings at issue was directly related to their supply and that the Municipality of Woerden thus made those supplies for consideration and therefore as an economic activity.
· Furthermore, the referring court rejects the ground of appeal brought by the Secretary of State for Finance that the Municipality of Woerden did not act as an entrepreneur within the meaning of the Law on turnover tax at the time of the supply of the buildings at issue, but acted as a public authority.
· The referring court also considered whether there has been abuse of rights. However, since the management of and responsibility for the buildings was vested in the Foundation, the referring court excluded the existence, in the present case, of abuse of rights.
· The referring court nevertheless considered, of its own motion, whether, on the basis of the VAT Directive, the Municipality of Woerden is entitled to deduct a fraction only of the VAT charged at the time of the supply of those buildings given that, on the basis of the Law on primary education of 2 July 1981, in the version applicable to the facts at issue in the main proceedings, it is not to pass on the charges relating to accommodation for schools to educational institutions and that the Foundation granted the use of parts of the buildings at issue without consideration to educational institutions providing special primary education.
· In those circumstances, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:
‘In a case such as the present, in which a taxable person has had a building constructed and has sold that building for a price which does not cover all of the costs, while the purchaser of the building has given a certain part thereof to a third party for the latter’s use free of charge, is that taxable person entitled to deduct all of the VAT invoiced in respect of the construction of the building, or only a part thereof, in proportion to the parts of the building which the purchaser uses for economic activities (in the present case, the grant of a lease for consideration)?’
The CJEU judged as follows:
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that, in circumstances such as those at issue in the main proceedings, in which a taxable person has had a building constructed and has sold that building for a price less than the cost of constructing it, that taxable person is entitled to deduct all of the value added tax paid in respect of the construction of that building, and not only a part of that tax in proportion to the parts of the building which its purchaser uses for economic activities. The fact that that purchaser allows the building at issue to be used without charge is of no importance in that regard.
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