VAT — Exemption – Letting of immovable property – Appellant owning rental property and invoicing separately for rent and cleaning of common parts — Whether costs of cleaning common parts in apartment block exempt from VAT – Preliminary ruling made
The appellant owned rented apartment blocks in the Czech Republic. In addition to rent, it charged its tenants separately invoiced sums for the cleaning by caretakers.
A dispute arose between the appellant and the respondent tax authority as to whether the costs of cleaning the common parts in an apartment block were, as with letting, exempt from value added tax (VAT). Having taken the view that the appellant had made an excessive deduction of VAT in respect of cleaning costs, the respondent decided to increase the VAT owed by the taxpayer for May 2006 in respect of receipts for cleaning activities.
The Tax Directorate confirmed that decision and the appellant brought an action before the regional court. It contended that the letting and services related to the letting of apartments, such as the cleaning of the common parts, constituted indivisible transactions that were subject to a single regime of VAT.
The regional court had doubts concerning the interpretation of the applicable Community law. It envisaged three possible replies to the questions raised by the appeal, namely: (i) since tenants could enter into an independent contract for the cleaning of common parts with a third party, that service did not form part of the letting and its exemption had no purpose; (ii) in so far as exemption of the costs of cleaning those areas had diminished charges due for accommodation, reasons of a social nature might justify that exemption and; (iii) the referring court did not exclude the possibility that that question might have to be assessed by the member states.
In those circumstances, the national court stayed the proceedings and referred to the European Court of Justice for a preliminary ruling on whether the charges relating to the cleaning service fell within the concept of letting for the purposes of article 13B(b) of Council Directive 77/388 (the Sixth Directive) and therefore shared the tax treatment of the letting of property, which was exempt from VAT by virtue of that article.
Held: A preliminary ruling was made.
In the circumstances of the instant case, the letting of immovable property and the cleaning of the common parts of the property had to be regarded, for the purposes of applying article 13B(b) of the Sixth Directive, as independent, mutually divisible operations, so that the service did not fall within that provision.
The exemptions under article 13 had their own independent meaning in Community law and therefore had to be given a Community definition. Moreover, the terms used to specify the exemptions under article 13 had to be interpreted strictly, since they constituted exceptions to the general principle that VAT was to be levied on all goods or services supplied for consideration by a taxable party.
It followed from article 2 that, in most cases, every transaction had to be regarded as distinct and independent. In certain circumstances, several formally distinct services, which could be supplied separately and thus give rise to taxation or exemption, constituted a single transaction where they were not independent. In particular, a service had to be regarded as being ancillary to a principal service if it did not constitute, for customers, an aim in itself but a means of better enjoying the principal service supplied. A single supply would also arise where two or more elements or acts supplied by the taxable party to the customer were so closely linked that they formed, objectively, a single, indivisible economic supply that would be artificial to divide.
The letting of immovable property within article 13B(b) essentially consisted in the conferring by a landlord on a tenant, for an agreed period and in return for payment, of the right to occupy property as though that person were the owner and to exclude any other person from the enjoyment of such a right. Thus, even if the cleaning services of the common parts of an apartment block accompanied the use of the property let, they did not necessarily fall within the concept of letting for the purposes of article 13(B)(b). It was also undisputed that the cleaning services of the common parts of an apartment block could be supplied in various ways, such as, for example, the invoicing by a third party of the cost of the service direct to the tenants or by the landlord employing his own staff for the purpose or using a cleaning company.
In the instant case, it also had to be noted that the appellant invoiced the cleaning services to the tenants separately from the rent. Further, since the letting of apartments and the cleaning of the common parts of an apartment block could, in circumstances such as those in the instant case, be separated from each other, such letting and cleaning could not be regarded as a single transaction under Community law.
J Janoušková appeared for the respondent; R Lancík and J Rambousek appeared for the appellant; M Smolek, acting as agent, appeared for the Czech government; K Georgiadis, S. Alexandriou and V Karra, acting as agents, appeared for the Greek government; and D Triantafyllou and M Thomannová-Körnerová, acting as agents, appeared for the EC Commission.
Eileen O’Grady, barrister
