Opinion of Advocate General Sharpston delivered on 6 December 2018.

• Jurisdiction: European Union
• Celex Number: 62017CC0566
• ECLI: ECLI:EU:C:2018:995
• Date: 06 December 2018
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling
• Docket Number: C-566/17

Provisional text

OPINION OF ADVOCATE GENERAL

SHARPSTON

delivered on 6 December 2018(1)

Case C‑566/17

Związek Gmin Zagłębia Miedziowego w Polkowicach

v

Szef Krajowej Administracji Skarbowej

(Request for a preliminary ruling from the Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Wrocław, Poland))

(Reference for a preliminary ruling — Common system of value added tax — Right to deduct input tax incurred on supplies of goods and services used indissociably for the purpose of economic and non-economic activities — Determination of the deductible share of input tax — Principle of fiscal neutrality — Whether and to what extent calculation of input tax must be provided for by law — Absence of national rules on methods determining apportionment of input tax for goods and services used indissociably for the purpose of economic and non-economic activities)

1. The present request for a preliminary ruling arises in the context of a dispute concerning the scope of the right to deduct input VAT incurred on goods and services used indissociably by taxable persons for the purposes of both their economic and non-economic activities.

2. Whilst it appears to follow from the scheme of Directive 2006/112 (2) that that right can be claimed only in so far as the goods and services are used for the purpose of the former type of activity, that directive does not provide for methods or criteria for apportionment of input tax in such situations. The referring court seeks guidance on whether the fact that national law also lacks specific rules addressing that issue affects the extent to which a taxable person may exercise the right to deduct input VAT in relation to such goods and services. In particular, the question arises whether there is in EU law a general principle or a fundamental right that would preclude the national court in such circumstances from applying those limitations on the right to deduct in the case in the main proceedings.

Directive 2006/112

3. Article 9(1) of Directive 2006/112 defines ‘taxable person’ as ‘any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity’. Pursuant to Article 13 of that directive, public bodies should 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’.

4. Title X of Directive 2006/112 (‘Deductions’) is divided into several chapters. Article 168 in Chapter 1, which is entitled ‘Origin and scope of right of deduction’, provides that ‘in so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, [that] taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct … from the VAT which he is liable to pay: ^[(3)^] (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’. (4)

5. Within Chapter 2 (‘Proportional deduction’), Article 173(1) provides that ‘in the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible … and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible’. That article further specifies that ‘the deductible proportion is to be determined in accordance with [the formula provided for in] Articles 174 and 175’. (5)

National law

Constitution of the Republic of Poland

6. In accordance with Article 217 of the Constitution of the Republic of Poland, measures relating to the imposition of taxes, including the determination of taxable persons, tax rates, as well as the rules for granting tax reliefs and remissions, together with the categories of taxable persons exempt from taxation should be provided by law.

Law on VAT

7. Directive 2006/112 was transposed into the Polish legal order by means of the Ustawa o podatku od towarów i usług (Law on tax on goods and services) of 11 March 2004, as amended. (6)

8. Article 15(6) of the Law on VAT provides that ‘taxable persons’ shall not include public authorities and the offices of such authorities as regards duties laid down by relevant provisions, for the accomplishment of which they have been appointed, with the exception of activities carried out under private law contracts.

9. Article 86(1) of the Law on VAT transposes Article 168 of Directive 2006/112 into the national legal order. It provides that ‘in so far as the 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 …’ (emphasis added).

10. Article 90(1) to (3) of the Law on VAT reflect Articles 173 to 175 of Directive 2006/112 in so far as those provisions govern the proportional deduction of VAT in the case of goods and services used by a taxable person both for economic activities in respect of which VAT is deductible and for those in respect of which VAT is not deductible.

11. As from 1 January 2016, paragraphs 2a to 2h were added to Article 86 of the Law on VAT. Those provisions insert a non-exhaustive list of methods that a taxable person may use for determining the deductible share of input VAT incurred on supplies used both for the purpose of that taxable person’s economic and non-economic activities.

Facts, procedure and the question referred

12. Związek Gmin Zagłębia Miedziowego w Polkowicach (‘the Local Government Association’) is a public law entity to which several local authorities have conferred the task of carrying out their statutory duties regarding waste management in the geographical areas for which they are severally responsible. The Local Government Association receives a waste management fee for discharging those duties. Under national law the Local Government Association is not regarded as a taxable person in that respect and its activities are accordingly not subject to VAT.

13. Between 2013 and 2015, the Local Government Association provided additional services for payment consisting of making available and transporting containers for various types of waste. Supply of those services constitutes an economic activity for the purpose of Directive 2006/112. Some of those services are subject to VAT at different rates, whilst others are VAT-exempt.

14. During that period, the Local Government Association incurred capital and revenue expenditure. Some of that expenditure related to supplies made in relation to both its economic and non-economic activities.

15. The Local Government Association was in doubt as to how correctly to calculate the deductible share of input VAT levied on such supplies. It therefore requested the Szef Krajowej Administracji Skarbowej (Head of Fiscal Administration, Poland) (7) to give a ruling on its position under the VAT rules.

16. On 17 October 2016, the Head of Administration (8) ruled that to determine the deductible share of input tax, the Local Government Association should, first, determine the share of input tax connected with its economic activity, that is to say transactions liable to VAT or exempted from that tax and second since some of its activities were exempt from VAT, apply to the amount thus obtained the formula defined in Article 90 of the Law on VAT. The Head of Administration also held that it was the sole responsibility of the taxable person to select the method for calculation.

17. The Local Government Association contested that decision before the referring court. It argued that the Law on VAT does not provide for any initial apportionment of input VAT and that therefore its right to deduct that tax can be subject only to the application of the formula defined in Article 90 of the Law on VAT.

18. In that connection, the referring court states that at the material time there were no provisions in the national legal order laying down criteria or methods of calculation of the deductible share of input VAT incurred on supplies used indissociably both for the purpose of a taxable person’s economic and non-economic activities. The referring court indicates that in case of legal persons who perform public law statutory duties, although only a fraction of such supplies effectively serves the purposes of economic activity whilst the remainder is used for activities which fall outwith the scope of Directive 2006/112, the absence of such rules led to an administrative practice recognising the right to deduct the entire input VAT incurred on such supplies. (9) The referring court adds that that practice was developed on the basis of the Naczelny Sąd Administracyjny’s judgment (Supreme Administrative Court, Poland) of 24 October 2011 (10) in conjunction with the principle, set out in Article 217 of the Constitution of the Republic of Poland, that the right to impose taxes and levies is the exclusive province of the legislature.

19. Against that background the referring court stayed the proceedings and referred the following question to this Court:

‘Do Article 168(a) of Directive 2006/112 … and the principle of VAT neutrality preclude a national practice where the right is granted to a full deduction of input VAT in connection with the purchase of goods and services used both for the purposes of a taxable person’s transactions falling within the scope of VAT (taxed and exempted) and falling outside the scope of VAT, owing to the absence in national law of methods and criteria for apportioning the input tax in relation to those types of transaction?’

20. The Local Government Association, the Republic of Poland and the Commission submitted written observations. At the hearing on 20 September 2018, all those parties...