Commercial premises – Service charge – VAT – Appellant firm leasing premises from landlord – Respondent tax authority seeking to classify transaction for VAT purposes – Whether transaction consisting of single supply or several independent supplies – Preliminary ruling made The appellant was a firm of solicitors which leased offices in London. The lease provided that the premises were let in consideration of the payment of three rents which corresponded, first, to occupation of the premises, secondly, to the appellant’s share of the cost of insuring the building and, thirdly, to the provision of services which the landlord was obliged under the lease to provide (“the service charges”) including the supply of water, heating throughout the building, repair of the structure and machinery of the building (including the lifts), cleaning of the common parts, and the security of the building. If the appellant failed to pay those three rents the landlord was entitled to terminate the lease. The landlord had not exercised his right to opt for taxation of the leasing of the premises within the meaning of article 137(1)(d) of Council Directive 2006/112 so that the lease at issue was exempt from VAT. The landlord had also not invoiced VAT on the supplies of services to the appellant as it considered that they too are exempt from VAT. However, the appellant took the view that those supplies of services constituted transactions subject to VAT and applied to HM Revenue and Customs (“the commissioners”) to reclaim the VAT paid in respect of those supplies. The application was rejected on the principal ground that the lease and the supplies of services constituted a single supply which was exempt from VAT. The appellant appealed to the First-tier Tribunal (Tax) (“FTT”), arguing that the supplies of services which were the subject of the service charges had to be treated as transactions subject to VAT. The FTT stayed the proceedings and referred to the Court of Justice of the European Union (“EUCJ”) for a preliminary ruling whether the 2006 Directive had to be interpreted as meaning that the leasing of immovable property in question, and the supplies of services linked to that leasing, constituted a single supply, entirely exempt from VAT, or several independent supplies, assessed separately as regards whether they were subject to VAT. Held: A preliminary ruling was made. (1) In view of the fact that every supply normally had to be regarded as distinct and independent and that a transaction which comprised a single supply from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the characteristic elements of the transaction had to be examined to determine whether the supplies constituted several distinct principal supplies or one single supply. However, as there was no absolute rule for determining the extent of a supply from the point of view of VAT, all the circumstances had to be considered to determine the extent of a supply. (2) In the present case, the lease concluded between the landlord and the appellant provided that, in addition to the leasing of the premises to the appellant, a number of services were also provided to it by the landlord. In return, the appellant was obliged to pay the landlord the rents specified in the lease. Furthermore, in default of payment of those rents, the landlord was entitled to terminate the lease. In those circumstances, in order to consider whether all the supplies which the landlord made to the appellant constituted a single supply, one had to examine whether the supplies formed a single, indivisible economic supply which it would be artificial to split, or whether they consisted of a principal supply in relation to which the other supplies were ancillary. For the purpose of that examination, the content of a lease might be an important factor in assessing whether there was a single supply. In the present case, it appeared that the economic reason for concluding the lease was not only to obtain the right to occupy the premises concerned, but also for the appellant to obtain a number of services. The lease accordingly designated a single supply agreed between the landlord and the appellant. Moreover, the leasing of immovable property and the supply of associated services might objectively constitute such a supply. Obtaining the services concerned could not be regarded as an end in itself for an average tenant of premises but as a means of better enjoying the principal supply of leasing commercial premises. (3) The mere fact that a supply was included in a lease could not in itself constitute the decisive element leading to the conclusion that there was a single supply. If a lease were to provide for the inclusion of supplies which by their nature could not objectively be regarded as indivisible from, or ancillary to, the principal supply of the leasing of immovable property, but were independent of it with only an artificial link to the principal supply, those supplies would not form part of a single supply of the leasing of immovable property, exempt from VAT. It was for the referring court to determine whether, in the particular circumstances of the case, the transactions in question were so closely linked to each other that they should be regarded as constituting a single supply of the leasing of immovable property. N Beecham, advocate, D Goy QC, and M Jones appeared for the appellant; A Robinson, acting as agent, and R Hill, appeared for the UK Government; M Szpunar, acting as agent, appeared for the Polish Government; C Soulay and R Lyal, acting as agents, appeared for the European Commission. Eileen O’Grady, barrister
Field Fisher Waterhouse LLP v Commissioners of HM Revenue and Customs (Case C-392/11)
Commercial premises – Service charge – VAT – Appellant firm leasing premises from landlord – Respondent tax authority seeking to classify transaction for VAT purposes – Whether transaction consisting of single supply or several independent supplies – Preliminary ruling made The appellant was a firm of solicitors which leased offices in London. The lease provided that the premises were let in consideration of the payment of three rents which corresponded, first, to occupation of the premises, secondly, to the appellant’s share of the cost of insuring the building and, thirdly, to the provision of services which the landlord was obliged under the lease to provide (“the service charges”) including the supply of water, heating throughout the building, repair of the structure and machinery of the building (including the lifts), cleaning of the common parts, and the security of the building. If the appellant failed to pay those three rents the landlord was entitled to terminate the lease. The landlord had not exercised his right to opt for taxation of the leasing of the premises within the meaning of article 137(1)(d) of Council Directive 2006/112 so that the lease at issue was exempt from VAT. The landlord had also not invoiced VAT on the supplies of services to the appellant as it considered that they too are exempt from VAT. However, the appellant took the view that those supplies of services constituted transactions subject to VAT and applied to HM Revenue and Customs (“the commissioners”) to reclaim the VAT paid in respect of those supplies. The application was rejected on the principal ground that the lease and the supplies of services constituted a single supply which was exempt from VAT. The appellant appealed to the First-tier Tribunal (Tax) (“FTT”), arguing that the supplies of services which were the subject of the service charges had to be treated as transactions subject to VAT. The FTT stayed the proceedings and referred to the Court of Justice of the European Union (“EUCJ”) for a preliminary ruling whether the 2006 Directive had to be interpreted as meaning that the leasing of immovable property in question, and the supplies of services linked to that leasing, constituted a single supply, entirely exempt from VAT, or several independent supplies, assessed separately as regards whether they were subject to VAT. Held: A preliminary ruling was made. (1) In view of the fact that every supply normally had to be regarded as distinct and independent and that a transaction which comprised a single supply from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the characteristic elements of the transaction had to be examined to determine whether the supplies constituted several distinct principal supplies or one single supply. However, as there was no absolute rule for determining the extent of a supply from the point of view of VAT, all the circumstances had to be considered to determine the extent of a supply. (2) In the present case, the lease concluded between the landlord and the appellant provided that, in addition to the leasing of the premises to the appellant, a number of services were also provided to it by the landlord. In return, the appellant was obliged to pay the landlord the rents specified in the lease. Furthermore, in default of payment of those rents, the landlord was entitled to terminate the lease. In those circumstances, in order to consider whether all the supplies which the landlord made to the appellant constituted a single supply, one had to examine whether the supplies formed a single, indivisible economic supply which it would be artificial to split, or whether they consisted of a principal supply in relation to which the other supplies were ancillary. For the purpose of that examination, the content of a lease might be an important factor in assessing whether there was a single supply. In the present case, it appeared that the economic reason for concluding the lease was not only to obtain the right to occupy the premises concerned, but also for the appellant to obtain a number of services. The lease accordingly designated a single supply agreed between the landlord and the appellant. Moreover, the leasing of immovable property and the supply of associated services might objectively constitute such a supply. Obtaining the services concerned could not be regarded as an end in itself for an average tenant of premises but as a means of better enjoying the principal supply of leasing commercial premises. (3) The mere fact that a supply was included in a lease could not in itself constitute the decisive element leading to the conclusion that there was a single supply. If a lease were to provide for the inclusion of supplies which by their nature could not objectively be regarded as indivisible from, or ancillary to, the principal supply of the leasing of immovable property, but were independent of it with only an artificial link to the principal supply, those supplies would not form part of a single supply of the leasing of immovable property, exempt from VAT. It was for the referring court to determine whether, in the particular circumstances of the case, the transactions in question were so closely linked to each other that they should be regarded as constituting a single supply of the leasing of immovable property. N Beecham, advocate, D Goy QC, and M Jones appeared for the appellant; A Robinson, acting as agent, and R Hill, appeared for the UK Government; M Szpunar, acting as agent, appeared for the Polish Government; C Soulay and R Lyal, acting as agents, appeared for the European Commission. Eileen O’Grady, barrister