The CJEU issued a judgment indicating that the principle of prohibition of abuse should be directly applied. This means that a harmonised tax base and national legislation transposing sixth The VAT Directive should be interpreted in the light of the principle of general Union law prohibiting abuse of VAT rights.
The court asks the question third – how to re-interpret and assess transactions for VAT purposes. In this respect, the TEU indicated that, in the event of a finding of a breach of the principle of prohibition of abuse, transactions covered by this practice should be redefined in such a way as to re-establish a situation that would have existed if there had not been a transaction constituting the abuse.
Facts
As described in Case C 251/16 Edward Cussens, John Jennings and Vincent Kingston (hereinafter referred to as ‘the complainants’) built 15 years cottages on a plot located in Cork (Ireland). The complainants dismissed the property as a rent on 20 years and one the month of the related company.
Under Irish law, rent for the period 20 years were treated as first a real estate right exercise. VAT was charged on the capitalised rental value. This agreement was terminated a month later and the properties were sold by the complainants to third.
Irish law states that these sales transactions were not subject to VAT because VAT was charged only from first the management, i.e. the long-term lease. The Irish tax authority then ruled that first a legal act, long-term lease, constituted an artificially created transaction and an abuse of the law.
This rent should therefore be disregarded for VAT purposes and VAT should be charged on sales to persons subsequently. third, As if it were first the law enforcement act. This would result in a significantly higher VAT burden on the complainants.
The decision of the tax authority was contested and the case eventually went to Supreme Court (the Supreme Court). That court referred it to the Court of Justice eight questions.
TEU Response
Through Questions first and second The Supreme Court aims to determine whether the principle of Union law prohibiting abuse has direct effectiveness and power over the principles of legal certainty and the protection of legitimate expectations. The CJEU points out that a harmonised tax base and national transposition provisions sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes should be interpreted in the light of the principle of general Union law prohibiting fraud in the field of VAT.
The court asks the question third – how to re-interpret and assess transactions for VAT purposes. In this respect, the TEU indicated that, in the event of a finding of a breach of the principle of prohibition of abuse, transactions covered by this practice should be redefined in such a way as to re-establish a situation that would have existed if there had not been a transaction constituting the abuse.
In response to the question fourth, concerning the conditions of application of the principle, the TEU points out that the setting of the ‘essential objective’ should not relate to transactions prior to the sale and final sale considered together. It is for the referring court to determine specific pre-sale transactions for which the assessment of the ‘essential objective’ is best suited for the purpose of indicating potential abuse of VAT rights.
Questions fifth, sixth and eighth The TEU dismissed as inadmissible.
Regarding the question seventh concerning the objective sixth Whereas the VAT Directive and the national legislation transposing the Directive, the TEU indicated that, in those circumstances, where:
- – long-term lease agreement is concluded between one and a second, related taxable person;
- – the contract was terminated within a very short period of time after its signature, taking into account its overall duration; and
- – Whereas, during this short period, a rental agreement has been concluded with the effect that the taxable person giving the property in long-term lease has in fact never given control of the property,
- treatment of long-term lease contract as ‘deliveries before first settlement’ within the meaning of Article 4(3) point (a) sixth The VAT Directive would be contrary to the objective of this Directive.
Author:
Aurelia Ulita
Younger consultant in the tax advisory department. From 2017 associated with Russell Bedford Poland. A fifth year student of the Faculty of Law and Administration at Maria Curie-Skłodowska University in Lublin. She gained her professional experience in renowned Lublin tax law firms. Its professional interests are tax law and, in particular, income taxes.