On October 12, 2016 the Court of Justice of the European Union (CJEU) judged in Case C-340/15, Christine Nigl and Others versus Finanzamt Waldviertel (ECLI:EU:C:2016:764).
This request for a preliminary ruling concerns the interpretation of 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 (OJ 1977 L 145, p. 1), as amended by Council Directive 2004/66/EC of 26 April 2004 (OJ 2004 L 168, p. 35) (‘the Sixth Directive’), and of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) (‘the VAT Directive’).
The request has been made in proceedings between the members of the Nigl family, who are members of three civil-law partnerships each engaged in wine production, and the Finanzamt Waldviertel (Tax Office, Waldviertel, Austria; ‘the Tax Office’) concerning, first, the determination of the status of taxable person for the purposes of value added tax (VAT) and, second, the refusal to apply the common flat-rate scheme for farmers to those civil-law partnerships.
The dispute in the main proceedings and the questions referred for a preliminary ruling
· Since 1998, the appellants in the main proceedings have been engaged in wine production through three civil-law partnerships, each of them operating vineyards on different sites and each being subject to VAT. The first of those civil-law partnerships was formed by Mr Martin Nigl and Ms Christine Nigl, the second by Ms Gisela Nigl (senior) and Mr Josef Nigl, and the third by Mr Martin Nigl and Ms Gisela Nigl (junior). No written contract was drawn up during the creation of the three civil-law partnerships.
· In order to meet increased demand for high-quality wines, a market sector developed by Mr Martin Nigl, the appellants in the main proceedings created, in 2001, Wein-Gut Nigl GmbH (‘the trading company’). In the main, that company either purchases wines from the holdings of the civil-law partnerships in order to sell them to retailers or markets those wines to end consumers, in the name and on behalf of each civil-law partnership concerned. In addition, it produces wine from purchases made from contractually-linked vineyards and operates a hotel and restaurant.
· The civil-law partnerships were the subject of declarations made to the public authorities, including the Tax Office, which classified those partnerships of independent taxable persons as undertakings, for turnover-tax purposes, and as joint ventures, for income-tax purposes.
· The income and expenditure of the three civil-law partnerships is accounted for separately, via bank accounts owned by each of them separately, the profits are distributed within each civil-law partnership between its members and there are no assets or bank account shared by those partnerships. Each civil-law partnership separately operates vineyards belonging to it or leased by it, employs workers and owns its own equipment, such as tractors or machines. The equipment used for carrying out the work — in the amount of 15% to 20% — is purchased centrally by the trading company and then distributed among the civil-law partnerships, according to the quantities of wine produced. The operating costs relating to the buildings and gas and electricity costs are invoiced at the end of the year by the trading company.
· Wine-making takes place separately at each holding, whereas bottling is carried out at a shared facility. The wines produced by the civil-law partnerships are marketed under a common trade mark, ‘Weingut Nigl’, by the trading company, and are sold at jointly-fixed prices, the prices for purchase by that company being determined by applying an allowance to its own sale prices. Neither the advertisements, the website nor the price-lists make reference to the different holdings or producing civil-law partnerships. Finally, the trading company performs all administrative tasks on behalf of the three civil-law partnerships.
· Until 2012, the Tax Office took the view that the holding was being operated by four taxable persons, namely the three civil-law partnerships and the trading company.
· Following a tax inspection in 2012, the Tax Office found that, in view of the closely interconnected economic and organisational nature of the civil-law partnerships, their members had formed, since 2005, a single association of persons. In its view, there was only one source of income, the proceeds of which had to be assigned to the various members of the three civil-law partnerships.
· With regard to VAT, the Tax Office took the view that there existed, with retroactive effect from 2005, two taxable undertakings, namely the single association of persons, made up of the members of the three civil-law partnerships, and the trading company. VAT assessments were issued to all the members of the three civil-law partnerships and to the trading company, and, by a decision of 18 July 2012, the VAT identification number of each of the civil-law partnerships was restricted.
· As a result, the Tax Office called into question the common flat-rate scheme for farmers enjoyed by the civil-law partnerships.
· Dealing with proceedings to determine whether the appellants in the main proceedings were operating, as independent undertakings, four or only two wine-producing holdings, the Bundesfinanzgericht (Federal Finance Court, Austria) notes that, under Austrian law, every structure which conducts itself outwardly as such in relation to third parties and which provides services independently, within the meaning of the Law on turnover tax, has the capacity to be an undertaking, even if it consists of an association of persons lacking legal capacity.
· In addition, that court notes that it has previously held that, as the Republic of Austria had failed to seek consultation from the Advisory Committee on VAT mentioned in Article 29 of the Sixth Directive, joint enterprises independent of each other for income tax purposes do not constitute a single undertaking for turnover tax purposes, whatever the relationships between them.
· It is in that context that the Bundesfinanzgericht (Federal Finance Court) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
‘(1) Do three associations of persons constitute three independent traders (taxable persons) where those associations consist of different members of one family, conduct themselves outwardly as such independently in relation to their suppliers and to public authorities, possess their own production facilities, with the exception of two business assets, but market under a common trade mark the greater part of their products through a limited company whose shares are held by the members of the associations of persons and other members of the family?
(2) If the three associations of persons are not to be regarded as three independent traders (taxable persons), is any of the following to be regarded as an independent trader (taxable person):
(a) the marketing company, or
(b) an association of persons consisting of the members of the three associations of persons, which does not conduct itself as such on the market in relation either to suppliers or to customers, or
(c) an association of persons consisting of the three associations of persons and the limited company, which does not conduct itself as such on the market in relation either to suppliers or to customers?
(3) If the three associations of persons are not to be regarded as three independent traders (taxable persons), is the refusal of the status of a trader (taxable person)
(a) retrospective,
(b) only for the future, or
(c) not permissible at all
if the associations of persons were at first, after investigations by the tax authorities, recognised by the Tax Office as independent traders (taxable persons)?
(4) If the three associations of persons are to be regarded as three independent traders (taxable persons), are they, as wine producers and therefore farmers, flat-rate farmers if each of those associations of persons which cooperate in practice is in itself covered by the flat-rate scheme for farmers, but the limited company, an association of persons formed of the members of the three associations of persons or an association of persons formed of the limited company and the members of the three associations of persons is, under national law, not covered by the flat-rate scheme on account of the size of the business or its legal form?
(5) If the flat-rate scheme for farmers is in principle excluded for the three associations of persons, is that exclusion
(a) retrospective,
(b) only for the future, or
(c) not effective at all?’
The CJEU judged as follows:
1. Article 4(1) and the first subparagraph of Article 4(4) of 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, as amended by Council Directive 2004/66/EC of 26 April 2004, on the one hand, and the first subparagraph of Article 9(1) and Article 10 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, on the other, must be interpreted as meaning that multiple civil-law partnerships, such as those at issue in the main proceedings, which conduct themselves outwardly as such and independently in relation to their suppliers, public authorities and, to a certain extent, their customers, and each of which carries out its own production by using for the most part its means of production, but which market a large proportion of their products under a common trade mark through a limited company the shares in which are held by members of those civil-law partnerships and by other members of the family in question, must be regarded as independent undertakings which are taxable persons for value-added-tax purposes.
2. Article 25 of Sixth Directive 77/388, as amended by Directive 2004/66, and Article 296 of Directive 2006/112 must be interpreted as not excluding the possibility of refusing the application of the common flat-rate scheme for farmers, laid down in those articles, to multiple civil-law partnerships, such as those at issue in the main proceedings, regarded as independent undertakings which are taxable persons for value-added-tax purposes and which cooperate with each other, on the ground that a limited company, an association of persons made up of that limited company and members of the civil-law partnerships in question could not be subject to that scheme, on account of the size of its operation or its legal form, even if those civil-law partnerships do not belong to a category of producers excluded from that flat-rate scheme, in so far as they are, owing to their links with that company or one of those associations, materially capable of assuming the administrative burden of the tasks arising from the application of the normal arrangements or the simplified scheme, this being a matter for the referring court to verify.
3. In the event that the common flat-rate regime for farmers has, in principle, to be excluded for civil-law partnerships such as those at issue in the main proceedings, such an exclusion would apply to the period prior to the date on which the appraisal on which it is based took place, provided that that appraisal occurs within the limitation period for action on the part of the tax authority and its effects do not apply retroactively to a date earlier than that on which the legal and factual elements on which it is based occurred.
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 by Advocate General Szpunar on June 30, 2016 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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