Recent decisions of the CJEU MIM VAT & EU Conference 16 October 2015 Dr. Sarah Aquilina

Introduction

CJEU Judgments: 1. Input VAT recovery by ‘holding companies’ 2. VAT on services connected with premises rental Portugal Telecom (C- 496/11) 2.Field Fisher Waterhouse (C-392/11) Larentia + Minerva and Marenave (C-108/14 & C- 109/14) 2.Wojskowa Agencja Mieszkaniowa w Warszawie (Military Housing Agency) (C-42/14)

Joined Cases C-108/14 Larentia + Minerva and C-109/14 Marenave Holding companies – Input VAT

C-108/14 Larentia + Minerva and C-108/15 Marenave FACTS: C-108/14 Larentia + Minerva L + M Sub2 Sub1 Admin + business services to both subs VAT on services relating to share acquisition Recoverable???

C-108/14 Larentia + Minerva and C-109/14 Marenave FACTS: C-109/14 Marenave Marenave Sub4 Sub1 Admin + business services to subs VAT on services relating to SC increase Recoverable??? Sub3 Sub2 Increase in SC

C-108/14 Larentia + Minerva and C-109/14 Marenave Question by referring court to CJEU: What method is to be used to calculate a holding company’s (pro rata) input VAT deduction in respect of purchases related to the procurement of capital for the purchase of shares in subsidiary companies, if the holding company subsequently (as intended from the outset) provides various taxable services to those companies? The issue actually addressed by the CJEU: should there be an apportionment of input VAT between economic and non-economic activities of a holding company?

C-108/14 Larentia + Minerva and C-109/14 Marenave The CJEU set out the already established principles:  The acquisition and holding of shares in a company is not an economic activity;  a holding company which only holds shares in subsidiaries and is not involved in their management is not a taxable person and does not have the right to deduct (input) tax;  The involvement of a holding company in the management of companies in which it has shares is an economic activity where it entails carrying out transactions which are subject to VAT (e.g. the supply of administrative, financial, commercial and technical services). - the concept of the ‘Management' Holding Company

C-108/14 Larentia + Minerva and C-109/14 Marenave  VAT is deductible: - direct and immediate link between input transactions and output transactions (which give rise to a right of deduction); - direct and immediate link between costs and the taxable person’s economic activity as a whole (i.e. the costs in question are part of the general costs and are components of the price of the goods or services supplied).

C-108/14 Larentia + Minerva and C-109/14 Marenave Economic + non- economic activities e.g. a management holding company Mixed activities i.e. taxable and exempt businesses Partial Attribution rules apply Partial Attribution rules do not apply

C-108/14 Larentia + Minerva and C-109/14 Marenave Conclusion: 1. If a Management Holding Company manages all of its subsidiaries, input VAT incurred in connection with the acquisition of those subsidiaries is to be regarded as relating to its general expenditure - full deduction entitlement.

C-108/14 Larentia + Minerva and C-109/14 Marenave Conclusion: 2. If a management holding company only manages some of its subsidiaries, input VAT incurred in connection with the acquisition of its subsidiaries is to be regarded as only partially relating to its general expenditure – partial deduction - apportionment in terms of Member State criteria (not Partial Attribution rules)

C-108/14 Larentia + Minerva and C-109/14 Marenave  Clarification of position of ‘active’ holding companies;  Apportionment for ‘mixed’ holding companies – requires MS rules

Warsaw Military Housing Agency (C42/14) Premises rental and associated services: mixed or composite supply?

Warsaw Military Housing Agency (C42/14) Landlord

Warsaw Military Housing Agency (C42/14) Question by referring court to CJEU: 1. Where a landlord concludes contracts for the supply by specialist suppliers of electricity, heat, water and refuse disposal services to tenants, and simply passes on the costs to the tenants, is the landlord to be regarded as supplying those services to the tenants? 2. If ‘yes’, then, are the letting and the associated services (water, electricity etc) seen as a single supply or several distinct supplies?

Warsaw Military Housing Agency (C42/14) CJEU on Question 1: The landlord must be regarded as supplying electricity, heating and water and refuse collection to the tenant.

Warsaw Military Housing Agency (C42/14) CJEU on Question 2 - set out the already established principles:  …every supply must normally be regarded as distinct and independent;  …single transaction when they are not independent;  …so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split;  …principal/ancillary argument (not an end but a means of better enjoying principal supply);

Warsaw Military Housing Agency (C42/14) CJEU on Question 2 :  Must look at characteristic elements  Reference to Tellmer case (invoiced separately; services could be separated)  Reference to FFW case (content of the lease agreement; reason for contract was lease plus associated services)  Associated services can exist independently BUT may be ancillary;

Warsaw Military Housing Agency (C42/14) Several independent supplies if:  The tenant can choose suppliers and/or the terms of use of the goods or services.  The tenant can determine own consumption levels (e.g. existence of individual meters).  Supplies are itemized separately on invoices to tenant

Warsaw Military Housing Agency (C42/14) Single supply if:  the rent and the associated utilities constitute a whole from an economic point of view, e.g. letting of turnkey offices ready for use, immovable property let for short periods (for holidays or business reasons);  the landlord isn’t free to choose suppliers (e.g. a multi-dwelling building where landlord must use suppliers designated by the co-proprietors collectively).

Warsaw Military Housing Agency (C42/14) Relevant factors:  The importance attributed to the associated services by tenant  Invoicing and pricing  Must be assessed in the context of the particular transaction/fact pattern

Warsaw Military Housing Agency (C42/14) CJEU: the letting of immovable property and the provision of water, electricity and heating as well as refuse collection accompanying that letting must, in principle, be regarded as constituting several distinct and independent supplies which need to be assessed separately for VAT purposes, unless the elements of the transaction, including those indicating the economic reason for concluding the contract, are so closely linked that they form, objectively, a single, indivisible economic supply which it would be artificial to split.

Warsaw Military Housing Agency (C42/14)  Point of departure = separate supplies  Single supply if closely linked that practically indivisible  Up to national courts to decide  No factor is decisive – depends on the facts and circumstances

Other recent cases

Some other recent cases Fast Bunkering Klaip ė da UAB (c-526/13) The exemption for fuelling and provisioning of vessels does not apply to supplies to intermediaries (but only directly to owner/operator) UNLESS the transfer to the intermediary took place at the earliest at the same time that the operator was actually entitled to dispose of the goods Radu Florin Salomie (C-183/14) Principles of legal certainty and legitimate expectations; Cannot restrict the right to deduct input VAT due or paid on goods and services used in the context of taxed transactions for the sole reason that the trader was not identified for VAT purposes when he carried out those transactions; Mapfre (C-584/13) the supply of services whereby an economic operator which is independent of a second-hand motor-vehicle dealer provides, in return for payment of a lump sum, a warranty covering mechanical breakdowns which may affect certain parts of that vehicle constitutes an exempt insurance transaction

Thank you Sarah Aquilina