Opinion of Advocate General Kokott delivered on 19 April 2018.

• Jurisdiction: European Union
• Celex Number: 62017CC0140
• ECLI: ECLI:EU:C:2018:273
• Date: 19 April 2018
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling
• Docket Number: C-140/17

Provisional text

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 19 April 2018 (1)

Case C‑140/17

Szef Krajowej Administracji Skarbowej

v

Gmina Ryjewo

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

(Request for a preliminary ruling — Common system of value added tax — Deduction of input tax — Acquisition of capital goods — Allocation of the capital goods where their intended economic use remains uncertain — Original use for a (public authority) activity which does not confer entitlement to deduct input tax — Subsequent use for a taxable activity (change of use) — Subsequent deduction of input tax by means of an adjustment of the deduction)

I. Introduction

1. In these proceedings, the Court must decide whether a subsequent deduction of input tax remains possible even where the taxable person did not expressly allocate the goods to his business at the time of acquisition because at that time their subsequent use was not yet specifically foreseeable. This question arises here (2) in the case of a municipality, which at the time of acquisition was also registered as a taxable person and which used the goods acquired to generate taxable revenues only four years later (but still within the period for the adjustment of input tax).

2. If the sequence of events were reversed, the municipality would indisputably have had a right to deduct input tax. Such a deduction would have been adjusted subsequently simply by taxing the application. May, however, a taxable person now be charged VAT depending on the chance chronological sequence in which the capital goods are used?

3. In the case of a natural person who has acquired goods exclusively for his private use, the Court has — since the judgment in Lennartz (3) — ruled against a deduction of input tax, even where the goods are subsequently put to economic use. The legal situation has, however, changed in the meantime, such that it is necessary to clarify whether that case-law may be continued. Does it likewise apply, as the case may be, where a municipality was registered as a taxable person at the time of acquisition and did not expressly allocate the goods to its public authority remit? Is it relevant in that connection that a municipality is to be regarded as a non-taxable person only subject to the conditions laid down in Article 13 of the VAT Directive?

II. Legal context

A. EU law

4.Article 13 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (4) (‘the VAT Directive’) establishes when bodies governed by public law are not to be regarded as taxable persons:

‘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. …’

5.Article 167 of the VAT Directive provides:

‘A right of deduction shall arise at the time the deductible tax becomes chargeable.’

6.Article 168 of the VAT Directive contains the following provision:

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person; …’

7.Article 184 of the VAT Directive concerns the adjustment of the initial deduction:

‘The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.’

8.Article 187 of the VAT Directive governs the adjustment period:

‘1. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured.

Member States may, however, base the adjustment on a period of five full years starting from the time at which the goods are first used.

In the case of immovable property acquired as capital goods, the adjustment period may be extended up to 20 years.

2. The annual adjustment shall be made only in respect of one-fifth of the VAT charged on the capital goods, or, if the adjustment period has been extended, in respect of the corresponding fraction thereof.

The adjustment referred to in the first subparagraph shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired, manufactured or, where applicable, used for the first time.’

B. Polish law

9. Article 15 of the Polish Law on the tax on goods and services (‘the Law on VAT’) (5) governs which persons are liable to tax:

‘1. “Taxable persons” shall mean legal persons, organisational entities without legal personality and natural persons independently pursuing an economic activity as referred to in paragraph 2, regardless of the purpose or result of such activity.

2. Economic activities shall comprise all activities of producers, traders and service providers, including economic operators which extract natural resources and farmers, as well as the activities of the professions. Activities consisting in the exploitation of goods or intangible assets and rights on a continuing basis for the purpose of obtaining income therefrom shall, in particular, be regarded as economic activity. …

6. “Taxable persons” shall not include public authorities and offices which support public authorities with regard to the tasks established by specific provisions, for the accomplishment of which they have been appointed, with the exception of activities carried out by them under private law contracts.’

10. Article 86(1) of the Law on VAT provides:

‘In so far as goods and services are used to conduct taxable transactions, a taxable person within the meaning of Article 15 shall have the right to deduct the amount of input tax from the amount of tax due, subject to Articles 114, 119(4), 120(17) and (19) and 124.’

11. Article 91 of the Law on VAT contains provisions on the adjustment of input tax:

‘2. In the case of goods and services which are treated by the taxable person as forming part of his depreciable fixed assets or intangible assets and rights under the provisions applying to income tax, and also land and rights of perpetual usufruct over land …, the taxable person shall effect the adjustment referred to in paragraph 1 over the five subsequent years, and, in the case of land and rights of perpetual usufruct over land, over ten years, from the year in which they were surrendered for use. ...

7. The provisions of paragraphs 1 to 6 shall apply mutatis mutandis where the taxable person … did not have the right to deduct the whole amount of the input tax due on the goods and services used by that taxable person, and that right to deduct the input tax due on those goods or services was subsequently amended.’

III. Dispute in the main proceedings

12. The dispute in the case pending before the referring court concerns whether the municipality of Ryjewo (‘the municipality’) is entitled, at a later date, to claim a proportional deduction of input tax in relation to its investment expenditure. The facts underlying the dispute were that the municipality had a local community centre built and initially used it for governmental purposes. The construction costs included VAT.

13. At the time of construction, the municipality was registered as a taxable person for the purposes of VAT and submitted corresponding tax returns. However, a deduction of input tax was not initially claimed because the community centre was not used for taxable transactions. In that connection, nor was the community centre constructed expressly designated as forming part of the municipality’s ‘business assets’.

14. Four years after completion of the community centre, the nature of its use was changed, such that the municipality now also uses it for taxed transactions. In the municipality’s view, it is entitled, with effect from the start of the rental of the cultural centre for a fee, to deduct part of the input tax arising from the invoices documenting the expenditure incurred in the centre’s construction by means of the multi-annual adjustment provided for in Article 91(7) and (7a) in conjunction with Article 91(1) and (2) of the Polish Law on VAT.

15. However, the tax authority found that the municipality did not have the right to deduct VAT from the expenditure incurred in the construction and operation of the cultural centre. The Minister for Finance was of the view that the goods and services acquired for investment purposes — that is the construction of the community centre, which was to be transferred free of charge to the Municipal Cultural Centre — were not acquired in the context of an economic activity, and therefore the municipality did not act as a taxable person for the purposes of VAT. In the minister’s opinion, the subsequent use of the capital goods for an economic activity does not mean that the municipality acted as a taxable person at the time of acquisition.

16. The court of first instance took the opposing view. It found that it could not be ruled out on the basis of the facts of the present case that, at the time of the...