Court of Justice of the European Union
Judgment of 11 June 2015
Preliminary ruling – Value Added Tax – Directive 2006/112/EC – Articles 9, 73, 78, first paragraph (a), and 79 first paragraph (c) – Taxable amount - Inclusion of the amount of municipal land use taxes paid by the company holding the concession for the gas distribution network in the taxable amount for VAT applicable to supplies of services made by that company to the company responsible for marketing the gas
In the Judgment in question, rendered in the context of a reference for a preliminary ruling by the Tax Arbitration Court (Administrative Arbitration Centre – CAAD), the Court of Justice of the European Union (CJEU) gave its opinion as to whether the amount of “municipal land use taxes” paid to municipalities by a company awarded with the concession agreement for the gas distribution network, and subsequently passed on to the company responsible for commercializing the gas, and then by this company to final consumers, should be included in the taxable amount for VAT applicable to services supplied by the concessionaire to the distributor.
In the specific case, the concessionaire of the public gas distribution network was obliged to pay land use taxes for pipes installed on municipal publicly -owned property.
The concessionaire passed on the amount of those taxes to the company responsible for marketing gas when it billed that company for the use of the network infrastructures and the company then passed on the amount of land use taxes to final consumers in their gas supply bill.
The concessionaire self-assessed VAT at the standard rate of 23% on the land use tax amounts, seeking its recovery, considering, in brief, that: (i) the passing on of the land use taxes does not constitute an ‘economical activity’ within the meaning of Article 9(1) of the VAT Directive; (ii) the collection of the land use taxes does not represent an actual compensation for a taxable transaction carried out by the entity which markets the gas; and (iii) since land use taxes fall outside the scope of VAT upon its collecting from the municipalities, the act of simply passing them on without any additional amount cannot lead to their inclusion in the taxable amount for VAT.
Examining the question, the CJEU notes that, under point (a) of the first paragraph of Article 78 of the VAT Directive, taxes, excluding the VAT itself, are to be included in the taxable amount.
However, so that taxes may be included in the VAT taxable amount, even though they do not represent any added value and do not constitute the financial consideration for the supply of goods or services, they must have a direct link to that supply and the question whether the chargeable event for the tax coincides with that for VAT is a decisive factor for the purposes of establishing the existence of such direct link.
In this regard, the CJEU notes that, by passing on the amount of the land use taxes to the company responsible for marketing the gas, billing that company for the use of those infrastructures to supply gas to consumers, the concessionaire passes on not the land use taxes as such, but rather the price for the use of publicly-owned municipal property.
That price is part of the set of costs borne by the concessionaire which in turn forms part of the price for its supply of services to be paid for by the company responsible for marketing the gas.
Consequently, the CJEU says that the amount of land use taxes constitutes part of the consideration received by the concessionaire for its supply of services and it is not disputed that it constitutes an “economic activity”, within the meaning of Article 9(1) of the VAT Directive. Accordingly, under Article 73 of that directive, that amount must be included in the taxable amount for VAT on that supply.
Moreover, the value of the land use taxes cannot be excluded from the taxable amount for VAT on the latter supply on the basis of point (c) of the first paragraph of Article 79 of the VAT Directive, since that amount is charged not by way of reimbursement of costs incurred on behalf of the company responsible for marketing the gas or of consumers, but as consideration for the cost of using the municipal property borne by the concessionaire for the needs of its activity.
Thus, the CJEU concludes that Articles 9(1) and 73, point (a) of the first paragraph of Article 78 and point (c) of the first paragraph of Article 79 of the VAT Directive m ust be interpreted as meaning that the amount of taxes, such as those at issue in the main proceedings, which is paid to municipalities by the company holding the gas distribution concession in return for the use of publicly-owned property belonging to those municipalities and which is then passed on by that company to another company responsible for marketing the gas, then by that company on to the final consumers, must be included in the taxable amount for VAT applicable to the supply of services effected by the first company to the second company under Article 73 of that directive.