Opinion of Advocate General Kokott delivered on 3 September 2020.

• Jurisdiction: European Union
• Celex Number: 62019CC0604
• ECLI: ECLI:EU:C:2020:647
• Date: 03 September 2020
• Court: Court of Justice (European Union)

Provisional text

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 3 September 2020 (1)

Case C‑604/19

Gmina Wrocław

v

Dyrektor Krajowej Informacji Skarbowej

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

(Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 14(2)(a) – Concept of ‘supply’ of goods – Transformation of perpetual usufruct into ownership by operation of law – Transfer of the right to dispose of tangible property as owner – Fiction of a supply – Municipality as a taxable person where it collects fees for a statutory transformation)

I. Introduction

1. In these proceedings the Court must consider the VAT treatment of acquisition of ownership by operation of law against payment of a transformation fee. In the present case, land was encumbered by a special right in rem (perpetual usufruct). This meant that the ‘economic owner’ – who used the land as owner – and the ‘formal owner’ – to whom the land belonged under civil law – were different persons. Fees paid by the holder of the right of perpetual usufruct to the owner of the land were subject to Polish VAT.

2. As part of a reform of the law on property, the previous owners of the land have now, by operation of law, lost their ownership to the holders of the right of perpetual usufruct. The latter are required to continue to pay annual instalments for perpetual usufruct for 20 years or to make a one-off payment in the same amount. Are the fees now collected by the former owners still subject to VAT as before?

3. In this case it was a municipality’s land that was affected. It must therefore also be clarified whether in this instance the municipality acted as a taxable person or as a public authority such that no VAT is incurred.

II. Legal framework

A. EU law

4. The EU law framework is determined by Articles 2, 9, 13 and 14 as well as Articles 24 and 25 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’). (2)

5. Under Article 2(1) of the VAT Directive, the supply of goods for consideration (point a) and the supply of services for consideration (point c) are subject to VAT.

6. Article 9(1) of the VAT Directive provides that ‘taxable person’ means any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

7. Article 13(1) of the VAT Directive lays down an exemption from VAT for certain activities of bodies governed by public law:

‘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.’

8. Article 14(1) and (2) of the VAT Directive specifies when a supply of goods exists:

‘1. “Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.

2. In addition to the transaction referred to in paragraph 1, each of the following shall be regarded as a supply of goods:

(a) the transfer, by order made by or in the name of a public authority or in pursuance of the law, of the ownership of property against payment of compensation;

(b) the actual handing over of goods pursuant to a contract for the hire of goods for a certain period, or for the sale of goods on deferred terms, which provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment;

(c) the transfer of goods pursuant to a contract under which commission is payable on purchase or sale.’

9. Article 24(1) of the VAT Directive defines supply of services:

‘1. “Supply of services” shall mean any transaction which does not constitute a supply of goods.’

10. Article 25(c) of the VAT Directive provides:

‘A supply of services may consist, inter alia, in one of the following transactions:

…

(c) the performance of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law.’

B. Polish law

11. These requirements under EU law were transposed into Polish law by the Law on the tax on goods and services (‘the Law on VAT’). (3) Article 7(1) of the Law on VAT states:

‘Supply of goods … shall mean the transfer of the right to dispose of goods as owner, including:

(1) a transfer by order made by a public authority or by a person acting in the name of that public authority or a transfer by operation of law of the ownership of goods against payment of compensation; …

(6) the leasing of land in perpetual usufruct.’

12. The right of perpetual usufruct is regulated in the Law on immovable property management. (4) Under Article 12a(1) of the Law on immovable property management, the amounts owed by perpetual usufructuaries are subject to private law.

13. Under Article 32(1) of the Law on immovable property management, land leased in perpetual usufruct may be sold only to the perpetual usufructuary.

14. Article 32(2) of the Law on immovable property management makes clear that previously established rights of perpetual usufruct expire by operation of law on the day that a contract for the sale of the property is concluded.

15. Under Article 69 of the Law on immovable property management, the purchase price to be paid by the perpetual usufructuary includes an amount equivalent to the value of the right of perpetual usufruct of the land, determined on the day of its sale.

16. The Law on the transformation of the right of perpetual usufruct of land developed for residential purposes into ownership rights over that land (‘the Law on transformation’) (5) provides in Article 1(1) that on 1 January 2019 the right of perpetual usufruct of land developed for residential purposes is transformed into ownership rights over that land.

17. Article 7 of the Law on transformation lays down provisions concerning the fee to be paid. Under Article 7(2), the amount of the fee is equivalent to the annual fee for perpetual usufruct. Article 7(6) stipulates that the annual payment is to be made for a period of 20 years from the day of transformation. Article 7(7) establishes the option to make a one-off payment of the same amount upon request. Article 12(2) of the Law on transformation declares Article 12a of the Law on immovable property management to be applicable.

III. Facts

18. The dispute underlying the request for a preliminary ruling stems from a request for a tax ruling made by the Municipality of Wrocław (Breslau, Poland) (the applicant in the main proceedings, ‘the applicant’) to the Dyrektor Krajowej Informacji Skarbowej (Director of the National Tax Information Bureau, ‘the tax authority’).

19. The applicant is a body governed by public law, but is also registered as an active taxable person. It was the owner of immovable property which was subject to a third-party perpetual usufruct.

20. Perpetual usufruct is a time limited, right in rem to use land, which confers on the holder a status similar to ownership. The perpetual usufructuary pays an annual fee to the owner during the perpetual usufruct. All the parties agree that such leasing in perpetual usufruct is to be classified as a supply of goods for consideration under Article 5(1)(1) in conjunction with Article 7(1)(6) of the Law on VAT. It also seems to be common ground that the municipality collects the payments from the perpetual usufructuary as a taxable person.

21. On the basis of the Law on transformation, ownership of immovable property was transferred to the respective perpetual usufructuaries on 1 January 2019. In return, the former owners receive an annual payment for a period of 20 years. The amount of the annual instalment corresponds exactly to the instalment previously payable annually for perpetual usufruct. Upon request, the transformation fee is also payable as a one-off payment.

22. The applicant wished to know from the tax authority whether these fees are also subject to VAT. By decision of 15 January 2019, the tax authority confirmed that to be the case. It considers the transformation of the right to be a continuation of the supply originally established through the leasing in perpetual usufruct. Accordingly, the transaction of transfer of ownership shares the same legal status as perpetual usufruct.

23. The applicant brought an action against that decision before the Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Breslau, Poland). It takes the view that the transformation fee is not subject to VAT. The perpetual usufructuary already had a status similar to ownership by virtue of perpetual usufruct and thus acquired the economic right of disposal over the land. If perpetual usufruct is now consolidated into ownership, the same land cannot be the object of a supply again. Furthermore, it acted here in the context of non-taxable activity as a public authority.

IV. Reference for a preliminary ruling

24. By decision of 19 June 2019, the Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Breslau) referred the following questions to the Court:

‘(1) Does the transformation of the right of perpetual usufruct into immovable property ownership rights by operation of law, such as in the circumstances of the present case, constitute a...