Judgment of the Court of Justice of the European Union as of September 26, 2013, on a Preliminary Ruling Regarding the Legal Treatment of a Transaction for the Acquisition of a Fixed Intangible Asset in Exchange for Assumption of the Costs Involved in Improving a Leased Asset or an Asset the Use of which has been Assigned in Some Other Way with Regard to the Value Added Tax Directive
On September 26, 2013, the Court of Justice of the European Union (hereinafter referred to as the “CJEU”) held a judgment regarding case C-283/12 for a preliminary ruling, requested by Varna Administrative Court (Bulgaria) in proceedings between “Serebryannay vek” EOOD and the Director of “Appeal and Management of the Execution” Directorate – in Varna, related to the Central Bureau of the National Revenue Agency (“NRA”).
“Serebryannay vek” EOOD is company with purpose of letting of property, tourism and hotel business. In June 2009, Mr. Bodzuliak – sole owner of the share capital and manager of “Serebryannay vek” EOOD, bought, in a personal capacity, two apartments in Varna, whereas the said apartments are acquired as joint matrimonial property with his wife.
On April 8, 2009, Mr. Bodzuliak, in his own name, concluded two contracts with identical content with “Serebryannay vek” EOOD, under which he granted that undertaking a “right in rem to use” the shells of his immovable property, and in particular the two apartments in question, for a period of 5 years, with the possibility of extension. It was envisaged that “Serebryannay vek” EOOD would let those apartments to third parties. Under those contracts, the company does not have to pay rent to Mr. Bodzuliak and his wife, during the term of the contracts. “Serebryannay vek” EOOD undertook to carry out in its own name at its expense and according to its own assessment, fitting-out and assembly work in order to complete the apartments and put them into service for the purposes of use, inter alia, the purchase and provision of floors, furniture, decoration and bathroom installations. It is envisaged that, at the end of those contracts, the owners (Mr. Bodzuliak and his wife) shall recover the apartments concerned with the fixtures to be found there.
On October 21, 2010, the tax revenue authorities carried an inspection and issued a tax adjustment notice, whereas they took the view that “Serebryannay vek” EOOD had supplied services to the owners free of charge and that taxable amount of that supply corresponded to the value of the expenditure incurred by the company for the purposes of that supply. “Serebryannay vek” EOOD lodged an administrative objection to that notice with the Director of “Appeal and Management of the Execution” Directorate – in Varna, and the latter annulled the notice, since he took the view that there had been an exchange of services because the apartments concerned had been let to the company as remuneration for its services of fitting them out and furnishing them.
The tax revenue authorities carried out a second inspection and they found that there had been an exchange of services. They consider that since the date of approval for use of the first apartment (June 29, 2010) was the date on which the fitting-out and furnishing services were rendered and since the date of on which those services were supplied, regarding the second apartment, was the date of the final acceptance certificate (June 30, 2010), then “Serebryannay vek” EOOD should have issued, by July 5, 2010, at the latest, an invoice relating to the fitting-out and furnishing services which it had rendered.
On December 14, 2011, the tax revenue authorities issued a new tax adjustment notice stating that “Serebryannay vek” EOOD was, in respect of the month of July 2010, liable for a VAT debt of BGN 111 600 toghether the default interest in the amount of BGN 6 341.55.“Serebryannay vek” EOOD lodged an administrative objection to that notice with the Director of
“Appeal and Management of the Execution” Directorate – in Varna, who, by decision of March 12, 2012, dismissed that objection. The company brought an action against that decision before the Varna Administrative Court. In those circumstances and based on art. 267 of the Treaty on the Functioning of the European Union (“TFEU”), Varna Administrative Court refer the following question to the CJEU for a preliminary ruling:
Can Article 2 (1) (c) of the VAT Directive be interpreted as meaning that the acquisition of a fixed intangible asset (in this particular case a “right in rem to use” of the apartments) in exchange for assumption of the costs involved in improving a leased asset or an asset the use of which has been assigned in some other way constitutes payment for the service of making the improvement, regardless of the fact that, under the contract, the owner of the asset is not required to pay any remuneration?
In order to answer to the question of the preliminary ruling, the CJEU decided firstly to remind that:
– The possibility of classifying a transaction as a transaction for consideration requires only that there be a direct link between the supply of goods or the provision of services and the consideration actually received by the taxable person. Such a direct link is established if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient.
– The consideration for a supply of goods may consist of a supply of services, and so constitute the taxable amount within the meaning of Article 73 of the VAT Directive, provided however, that there is a direct link between the supply of goods and the supply of services and that the value of those services can be expressed in monetary terms, whereas the same is true if a supply of services is performed in exchange for another supply of services, as long as the same conditions are satisfied.
– Barter contracts, under which the consideration is by definition in kind, and transactions for which the consideration is in money are, economically and commercially speaking, two identical situations.
With regard to all of the above-said, the CJEU considers that Article 2 (1) (c) of the VAT Directive must be interpreted as meaning that a supply of services to fit out and furnish an apartment must be regarded as having been carried out for consideration if, under a contract concluded with the owner of that apartment, the supplier of those services, first, undertakes to carry out that supply of services at its own expense and, secondly, obtains the right to have that apartment at its disposal in order to use it for its business activities during the term of that contract, without being required to pay rent, wheras the owner recovers the improved apartment at the end of that contract.
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