Only one VAT rate for a uniform supply - ECJ judgement "Finanzamt X" (C-516/21)

VAT law includes a splitting requirement for certain combinations of supplies. Thus, the leasing of permanently installed equipment and machinery does not enjoy the same VAT-exempt status as the leasing of the property even if the equipment/machinery is an essential component of the property. Upon referral by the BFH, the ECJ addressed the question of whether different VAT rates must be applied even if these constitute an ancillary supply to the principal supply of letting a building.

The case: Turkey barn with operating equipment

The plaintiff leased a barn for rearing turkeys with permanently installed equipment and machinery.  The facility included an industrial screw conveyor for feeding the turkeys as well as a heating, ventilation, and lighting system to ensure a temperature and illumination appropriate to the animals' stage of development. The provisions of the lease agreement stipulated that the plaintiff would receive a uniform remuneration as compensation for the use of the turkey barn and its equipment and machinery. The plaintiff assumed that this overall supply was exempt from VAT.

The question referred:  Does the uniformity of supply take precedence over the splitting requirement?

According to the wording of § 4 no. 12 sentence 2 UStG (German VAT Code) and also according to Art. 135 No. 2 lit. c of the VAT Directive, only the leasing of the turkey barn itself would be exempt from VAT, and the leasing of the equipment and machinery would be taxable. The uniform remuneration would have to be allocated accordingly.

The BFH was of the opinion that the transaction in question also fulfilled the requirements of a uniform supply: The operating equipment was a special feature of the turkey barn that only served to provide the barn with optimal conditions for the intended purpose. Thus, the leasing of the equipment was a dependent ancillary supply to the leasing of the turkey barn as the principal supply. The latter is certainly VAT-exempt as the lease of a property.

The BFH therefore referred the question to the ECJ as to whether the leasing of permanently installed equipment and machinery was only denied a VAT exemption if considered separately, or also if it was an ancillary supply to the VAT-exempt leasing of a building. Accordingly, the ECJ had to clarify whether the principle of the uniformity of the supply took precedence over the splitting requirement - or vice versa.

ECJ: No two separate VAT rates for a single supply

In this case, the ECJ’s decision is clear: If the leasing of the equipment is only a dependent ancillary supply to the leasing of the turkey barn as the principal supply, the question of taxability as a whole is based on the principal supply. However, whether or not there was actually a uniform supply was a question the BFH would have to decide for itself. This was despite the fact that the BFH had already stated this in its submission and the ECJ at least hinted that this was comprehensible.

Unfortunately, the ECJ did not make a distinction between this case and its earlier case law, and it was this inconsistency that prompted the BFH to refer the case. In the cases Talacre Beach Caravan Sales Ltd (6 July 2006, C-251/05) and Commission v. France (6 May 2010, C-94/09), the ECJ had ruled that components of a uniform supply could be taxed at different rates. In its later judgement in the case of Stadion Amsterdam CV (18 January 2018, C-463/16), the ECJ ruled that in the case of a supply that had two components (a principal supply and an ancillary supply), the overall VAT rate is based on the principal supply.

Practical relevance

Taxpayers who make uniform supplies whose components would be taxed differently if taken separately should (continue to) keep the corresponding assessments open if uniform treatment would be more favourable for them. This applies in particular to lessors of real estate with operating facilities. Based on the ECJ case law, it’s conceivable to begin immediately treating the supply as VAT-exempt overall if the principal supply is VAT-exempt, but this should definitely be disclosed to the tax office. In any case, the prerequisite is that it is actually a uniform supply, and this must be checked carefully.

In its decision of 7 March 2022 (XI B 2/21), the Federal Fiscal Court (Bundesfinanzhof, BFH) suspended another case in order to await the ECJ decision discussed here. That case involved hotel accommodation that included breakfast, which is also subject to a splitting requirement under § 12 (2) no. 11 sentence 2 UStG. Under the premise that this is a uniform supply, this apportionment would also not be compatible with ECJ case law.

Dated: 23 May 2023


Nadia Schulte
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