Opinion of Advocate General Kokott delivered on 10 November 2022.

JurisdictionEuropean Union
CourtCourt of Justice (European Union)
Celex Number62021CC0612
Date10 November 2022

Provisional text



delivered on 10 November 2022 (1)

Case C612/21

Gmina O.


Dyrektor Krajowej Informacji Skarbowej

(Request for a preliminary ruling from the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland))

(Request for a preliminary ruling – Tax legislation – Value added tax – Directive 2006/112/EC – Articles 2, 9 and 13 – Services for consideration – Meaning of ‘taxable person’ – Economic activity – Typological approach – A body governed by public law which organises the installation of renewable energy sources in a municipality for the residents in return for a contribution from the latter of 25%, with 75% of the costs being reimbursed by a subsidy from a third party – Transactions performed in the exercise of public authority – No significant distortions of competition)

I. Introduction

1. Support from local government units such as municipalities for renewable energy sources is not only welcome right now, but also raises interesting questions in terms of VAT. If a resident had himself or herself commissioned a company to install solar panels, for example, the VAT assessment would be clear. The business provides him or her with an assessable and taxable service (supply of goods or services). The State receives the corresponding VAT. A State subsidy for 75% of the costs to the resident would have no relevance in terms of VAT law.

2. But what about when a municipality organises and pays for the company to build this facility on land belonging to one of its residents? Here, too, the State receives its VAT at least once, specifically from the installation company. However, if the municipality receives a subsidy from State funds totalling 75% and the residents pay approximately 25% to the municipality as their contribution, does this lead to further VAT being incurred because the municipality is providing a further assessable and taxable service to the residents?

3. The consequence of the resulting chain of supply (service provided by the installation company via the municipality to the resident) would be that the municipality would have to pay this VAT but could in principle claim an input tax deduction from the input supply. If the subsidy and the resident contribution is as high as the input costs, this amounts to a ‘zero-sum game’ involving a great deal of administrative effort. If the subsidy plus the resident contribution is lower (or the subsidy is not included within the taxable amount), an input tax surplus would remain, which would reduce the tax revenue. If the subsidy plus the resident contribution is higher, additional tax revenue would be generated via a state support programme. None of these options seem appropriate, especially when the municipality’s general interest objectives of environmental protection and energy security are also considered.

4. The VAT assessment of the installation of renewable energy sources subsidised by State funds raises some fundamental questions which the Court of Justice (2) must answer in this request for a preliminary ruling. Among other things, it must be clarified how the recipient and the provider of a service are to be identified. Equally fundamental is the question of whether a municipality – assuming it were a provider of a service – is carrying out an economic activity in such a case. If so, it would have to be decided whether it is carrying out these transactions to support the installation of renewable energy sources in the exercise of public authority, and whether these lead to significant distortions of competition.

II. Legal context

A. European Union law

5. Article 2(1)(a) and (c) of Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’) (3) provides:

‘The following transactions shall be subject to VAT:

(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;

(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such’.

6. Article 9(1) of the VAT Directive provides:

‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

7. Article 13 of the VAT Directive, on the other hand, states:

‘1. States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.

However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.

In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a small scale as to be negligible.

2. Member States may regard activities, exempt under Articles 132, 135, 136, 371, 374 to 377, and Article 378(2), Article 379(2), or Articles 380 to 390, engaged in by bodies governed by public law as activities in which those bodies engage as public authorities.’

8. Article 73 of the VAT Directive governs the taxable amount:

‘In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.’

B. Polish law

9. The Republic of Poland adopted the VAT Directive through the Ustawa z dnia 11 marca 2004 r. o podatku od towarów i usług (Law of 11 March 2004 on Tax on Goods and Services, Dz. U. of 2018, item 2174, as amended; ‘the Law on VAT’).

10. Article 29a(1) of the Law on VAT relates to the taxable amount and provides that:

‘Subject to paragraphs 2, 3 and 5, Articles 30a to 30c, Article 32, Article 119 and Article 120(1), (4) and (5), the taxable amount shall be everything that constitutes consideration which the supplier of goods or services has received or is to receive on account of a sale from the purchaser, customer or a third party, including subsidies, subventions and other similar amounts received which have a direct effect on the price of the goods or services supplied by the taxable person.’

11. The Ustawa z dnia 27 kwietnia 2001 r. Prawo ochrony środowiska (Environmental Protection Law of 27 April 2001, Dz. U. of 2020, item 1219, as amended; ‘Environmental Protection Law’) provides in Article 400a(1) that:

‘The financing of environmental protection and water management shall include: …

21) projects related to air protection;

22) supporting the use of local renewable energy sources and the introduction of more environmentally friendly energy carriers …’

12. Article 403(2) of the Environmental Protection Law states:

‘The municipalities’ own tasks shall include financing environmental protection within the scope set out in Article 400a(1) … (21-25) … in an amount not lower than the amount of revenue from the fees and penalties referred to in Article 402(4), (5) and (6) which constitutes municipal budget revenue, less the surplus of such revenue transferred to the provincial funds.’

III. Facts and preliminary ruling procedure

13. Gmina O. (Municipality of O., Poland; ‘the Municipality’) is a local authority which is responsible for its own administration. It is also registered as a taxable person for VAT purposes.

14. Together with three other municipalities, the Municipality entered into a partnership agreement in order to implement a project consisting in the installation of renewable energy source systems (‘RES’) in those four municipalities (‘the Project’).

15. One of the municipalities, acting as Project leader, entered into a co-financing agreement with the provincial authority on behalf of all the partners. The resources themselves come from an EU fund. The co-financing received is transferred to the individual partners within the scope in which it is granted to them.

16. The co-financing is only intended to cover part of the eligible costs. The decision on how to fund the remaining costs of the Project is at the discretion of each municipality. The co-financing received by the Municipality covers the expenditure related to the Project and may only be used to fund the expenditure necessary for the implementation of the Project. The Municipality was granted co-financing that amounted to 75% of the total eligible costs of the Project.

17. The main objectives of the Project are to increase the share of RES in total energy production, reduce emissions of atmospheric pollutants, promote the use of solar energy and stimulate the use of RES among individual customers through the installation of environmentally friendly RES systems. Within the framework of the Project, the Municipality is implementing ‘Poland’s Energy Policy until 2030’, adopted by the Council of Ministers on 10 November 2009, under which RES are to account for 20% of energy produced.

18. Under the Project, photovoltaic panels, air source heat pumps for domestic water heating and solar thermal collectors will be installed on properties belonging to both individuals and legal persons. The Municipality has entered into agreements with...

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