C-36/16 Posnania Investment

JUDGMENT OF THE COURT (Second Chamber)

11 May 2017 ( *1 )

‛Reference for a preliminary ruling — Taxation — Common system of value added tax — Directive 2006/112/EC — Article 2(1)(a) — Article 14(1) — Taxable transactions — Meaning of ‘supply of goods for consideration’ — Transfer to the State or to a local authority of immovable property in order to settle a tax debt — Not included’

In Case C‑36/16,

REQUEST for a preliminary ruling under Article 267 TFEU from the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland), made by decision of 21 September 2015, received at the Court on 22 January 2016, in the proceedings

Minister Finansów

v

Posnania Investment SA,

THE COURT (Second Chamber),

composed of M. Ilešič, President of the Chamber, A. Prechal, A. Rosas, C. Toader (Rapporteur) and E. Jarašiūnas, Judges,

Advocate General: J. Kokott,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

the Polish Government, by B. Majczyna, acting as Agent,

the European Commission, by L. Lozano Palacios and M. Owsiany-Hornung, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 16 February 2017,

gives the following

Judgment

Legal context and the dispute

1The present request for a preliminary ruling relates to the interpretation of Articles 2(1)(a) and 14(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’).

2The request has been made in proceedings between the Minister Finansów (Minister for Finance, Poland; ‘the Minister’) and Posnania Investment SA (‘Posnania’), concerning the liability to value added tax (VAT) of a transaction in which that company transferred ownership of immovable property to a local authority in settlement of a tax debt.

Legal framework

EU law

3Article 2(1) of the VAT Directive provides:

‘The following transactions shall be subject to VAT:

the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;

…’

4Article 9(1) of that directive provides:

‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

5According to Article 14(1) of that directive, ‘supply of goods’ is to mean the transfer of the right to dispose of tangible property as owner.

6Article 16 of the VAT Directive provides:

‘The application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible.

However, the application of goods for business use as samples or as gifts of small value shall not be treated as a supply of goods for consideration.’

Polish law

7Article 2(6) of the ustawa o podatku od towarów i usług (Law on the tax on goods and services), of 11 March 2004, as amended (Dz. U. of 2011, no 177, item 1054; ‘the Law on VAT’), provides:

‘Wherever in the following provisions there is mention of “goods”, this shall be understood as objects or parts thereof and also any forms of energy.’

8Article 5(1)(1) of that law is worded as follows:

‘The following are subject to the tax on goods and services: the supply of goods and services for consideration within the territory of the country.’

9Article 7(1) of that law states:

‘The supply of goods referred to in Article 5(1)(1) shall mean the transfer of the right to dispose of the goods as owner. …’

10Article 15(1) of that law provides:

‘Taxable persons are legal persons, organisational units without legal personality and natural persons pursuing an independent economic activity referred to in paragraph 2, regardless of the purpose or result of such activity.’

11Article 15(2) of the Law on VAT provides:

‘Economic activities shall comprise all activities of producers, traders and service providers, including mining and agricultural activities and activities of the professions, or similar activities, even if the given activity was carried out only once but in circumstances indicating an intention to perform such activities on a continuing basis. Economic activity shall also include activities consisting in the exploitation of goods or intangible or legal assets on a continuing basis for the purpose of obtaining income therefrom.’

12Article 66 of the ordynacja podatkowa of 29 August 1997 (Tax Code, Dz. U. of 2015, item 613) is worded as follows:

‘1. A particular instance of the discharge of a tax liability is the transfer of ownership of tangible property or property rights to:

the State Treasury — in settlement of tax arrears in respect of taxes constituting State budget revenues;

a municipality, district or regional authority — in settlement of tax arrears in respect of taxes constituting revenues accruing to their budget.

2. The transfer shall take place at the request of the taxable person:

in the case referred to in paragraph 1(1), on the basis of a contract concluded, with the consent of the relevant director of the tax or customs authority, between the district officer carrying out the tasks of the central administration and the taxable person;

in the case referred to in paragraph 1(2), on the basis of a contract concluded between the mayor, the town president, the district officer or the president of the region and the taxable person.

…

4. In the cases mentioned in paragraph 1, the time at which the tax debt is discharged is the date on which the transfer of ownership of the tangible property or property rights occurs. …’

The dispute in the main proceedings and the question referred for a preliminary ruling

13Posnania is a company governed by Polish law and is economically active in the field of property transactions. As such, it is subject to VAT. In order to discharge arrears for non-payment of a tax for which it was liable, the company applied to the municipality of Czerwonak (Poland; ‘the municipality’) with a view to concluding, pursuant to Article 66 of the Tax Code, a contract for the transfer of the ownership of unbuilt-on land held by it to the municipality.

14That contract, concluded on 5 February 2013, resulted in the partial discharge of Posnania’s tax debt concurrently with the transfer of ownership of that immovable property to the municipality.

15Posnania lodged an application for an individual tax ruling in order to determine whether, in such a situation, the transaction concluded with the municipality was subject to VAT and whether, as a result, it had to issue a corresponding invoice.

16In its application, Posnania submitted that the transaction at issue ought not to be subject to VAT on the basis of the case-law of the referring court, the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland), according to which the transfer of ownership of an asset to the State Treasury in settlement of tax arrears in respect of taxes constituting State budget revenues is a transaction that is not subject to VAT.

17By his individual tax ruling of 10 May 2013, the Minister expressed the view that, upon the transfer of ownership of the immovable property from Posnania to the municipality, the latter acquired all the rights of an owner and, therefore, that transfer of ownership in settlement of tax arrears constituted a supply of goods for consideration, within the meaning of the Polish legislation, and was, in principle, subject to VAT.

18Posnania brought an action before the Wojewódzki Sąd Administracyjny w Warszawie (Regional Administrative Court, Warsaw, Poland) seeking annulment of that individual tax ruling.

19By judgment of 13 February 2014, that court upheld the action and annulled the tax ruling. It ruled that VAT may be due in the event of the transfer of ownership of tangible property by order of the public authorities or by force of law, on condition that such a transfer is effected in return for consideration. Given that, under Polish law, that was not the position in the present case, that court decided that the transfer of ownership of tangible property to the State Treasury in settlement of arrears of taxes constituting State budget revenues was a transaction that was not subject to VAT.

20The Minister brought an appeal on a point of law against that judgment before the referring court.

21In its request for a preliminary ruling, the referring court states that, while Posnania’s status as a taxable person is not in dispute, the question nonetheless arises as to whether it is possible to consider the transfer of the right to dispose of tangible property as owner, made in settlement of a tax debt, to be a ‘supply of goods for consideration’ within the meaning of the VAT Directive.

22In this regard, the referring court cites its own case-law, according to which the transfer of ownership of tangible property to the State Treasury in settlement of arrears of taxes constituting State budget revenues is a transaction that is not subject to VAT inasmuch as a tax is not a pecuniary performance which may be obtained in exchange for another performance, its principal feature being that it is unilateral.

23In those circumstances, the Naczelny Sąd Administracyjny (Supreme Administrative Court) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Does the transfer of ownership of land (tangible property) by a person taxable for VAT purposes to:

the State Treasury — in settlement of tax arrears in respect of taxes constituting State budget revenues, or

a municipality, district or regional authority — in settlement of tax arrears in respect of taxes constituting their budget revenues, resulting in the discharge of tax liabilities,

constitute a transaction that is subject to tax (supply of goods for consideration) within the meaning of Article 2(1)(a) and Article 14(1) of the [VAT] Directive?’

Consideration of the question referred for a preliminary ruling

24By its question, the referring court asks, essentially, whether Articles 2(1)(a) and 14(1) of the VAT Directive must be interpreted as meaning that the transfer of ownership of immovable property by a person subject to VAT, for the benefit of the State Treasury or a local authority of a Member State, occurring, as in the main proceedings, in payment of tax arrears, constitutes a supply of goods for consideration that is subject to VAT.

25It must be remembered, first of all, that the VAT Directive establishes a common system of VAT based on, inter alia, a uniform definition of taxable transactions (judgment of 20 June 2013, Newey, C‑653/11, EU:C:2013:409, paragraph 39).

26According to Article 2(1)(a) of the VAT Directive, the supply of goods for consideration within the territory of a Member State by a taxable person acting as such is subject to VAT.

27Pursuant to Article 9(1) of the VAT Directive, ‘taxable person’ means any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis is in particular to be regarded as an ‘economic activity’.

28Article 14(1) of the VAT Directive defines ‘supply of goods’ as the transfer of the right to dispose of tangible property as owner.

29As regards the transaction at issue in the main proceedings, it is common ground, firstly, that the contract concluded between Posnania and the municipality resulted in the transfer of ownership of immovable property and, secondly, that Posnania has the status of a taxable person.

30Thirdly, the condition of the place of supply of the goods is undoubtedly met, the transaction having taken place within the territory of a Member State, namely in Poland.

31Concerning, fourthly, the question whether the transaction transferring ownership of immovable property to a public entity — in this instance, the transfer of land to a municipality — in payment of tax arrears can be considered to have been made for consideration, it should be noted that a supply of goods is made ‘for consideration’, within the meaning of Article 2(1)(a) of the VAT Directive, only if there is a legal relationship between the supplier and the purchaser entailing reciprocal performance, the price received by the supplier constituting the value actually given in return for the goods supplied (judgments of 27 April 1999, Kuwait Petroleum, C‑48/97, EU:C:1999:203, paragraph 26, and of 21 November 2013, Dixons Retail, C‑494/12, EU:C:2013:758, paragraph 32).

32In the present case, there does, admittedly, exist, between the supplier of the immovable property and the beneficiary of that property, a legal relationship, such as that which links a creditor and its debtor.

33However, the obligation of the taxpayer, as a debtor owing a tax debt, to make payment to the tax authorities, as creditor of that debt, is unilateral in nature inasmuch as the payment of the tax by that taxpayer results only in the statutory discharge of its tax debt, even if this is done, as in the present case, by means of the provision of immovable property.

34A tax is a compulsory charge imposed by the sovereign power of the public authorities on the resources of persons coming under their fiscal jurisdiction. That charge is intended to be used, through public budgets, for services in the public interest. Such a charge, whether it relates to a sum of money or, as in the present case, to tangible property, does not result in any performance on the part of the public authority or, therefore, in any corresponding performance on the part of the taxable person.

35Consequently, there is no legal relationship entailing reciprocal performance, within the meaning of the Court’s case-law cited in paragraph 31 of this judgment.

36As such, a transaction providing property in lieu of payment, the purpose of which is to discharge a tax debt, cannot be considered to be a transaction effected for consideration within the meaning of Article 2(1)(a) of the VAT Directive, and cannot be subject to VAT.

37It should, nonetheless, be added that, although the national court has sole jurisdiction to determine the facts in the case before it and to interpret the national legislation, in preliminary ruling proceedings the Court, which is called on to provide answers of use to the national court, may provide guidance based on the documents in the file in the main proceedings and on the observations submitted to it, in order to enable the national court to give judgment (judgment of 24 February 2015, Grünewald, C‑559/13, EU:C:2015:109, paragraph 32).

38With regard to a transaction such as that at issue in the main proceedings, it cannot be ruled out that a taxable person such as Posnania has already made a deduction of input tax in relation to the immovable property at issue in the main proceedings, by virtue of its status as a person subject to VAT.

39In this regard, as the Advocate General has observed in point 44 of her Opinion, if there is a risk of an untaxed final consumption, that risk is, nevertheless, covered by the provisions of Article 16 of the VAT Directive.

40It follows from the Court’s case-law that the purpose of that provision is to ensure equal treatment as between a taxable person who applies goods for his own private use or for that of his staff, on the one hand, and a final consumer who acquires goods of the same type, on the other (see, to that effect, judgment of 17 July 2014, BCR Leasing IFN, C‑438/13, EU:C:2014:2093, paragraph 23 and the case-law cited).

41In order to attain that objective, Article 16 of the VAT Directive treats as a supply of goods for consideration the application, by a taxable person, of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, where the VAT on those goods or the component parts thereof was wholly or partly deductible (judgment of 17 July 2014, BCR LeasingIFN, C‑438/13, EU:C:2014:2093, paragraph 24).

42Having regard to the foregoing considerations, the answer to the question referred is that Articles 2(1)(a) and 14(1) of the VAT Directive must be interpreted as meaning that the transfer of ownership of immovable property by a person subject to VAT, for the benefit of the State Treasury or a local authority of a Member State, occurring, as in the main proceedings, in payment of tax arrears, does not constitute a supply of goods for consideration that is subject to VAT.

Costs

43Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Second Chamber) hereby rules:

Articles 2(1)(a) and 14(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the transfer of ownership of immovable property by a person subject to value added tax, for the benefit of the State Treasury or a local authority of a Member State, occurring, as in the main proceedings, in payment of tax arrears, does not constitute a supply of goods for consideration that is subject to value added tax.

Signatures

[Signatures]

( *1 ) Language of the case: Polish.

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 16 February 2017 ¹

‛Request for a preliminary ruling — Tax law — Common system of value added tax — Taxable transactions — Supply for consideration — Taxable person acting as such — Taxability of the transfer of property in lieu of payment in discharge of a tax debt’

I. Introduction

1Is the transfer of property in lieu of payment in settlement of tax debts a transaction that is subject to VAT where the tax debtor is at the same time also a taxable person within the meaning of the law on VAT? This hitherto unresolved question forms the basis of the present request for a preliminary ruling.

2In the main proceedings, a company availed itself of such a possibility of settling arrears of tax by means of benefits in kind, allowed under the Polish law of tax procedure, by transferring the ownership of a plot of land to the State. However, that company also operated as, among other things, a dealer in immovable property.

3The question whether a tax settlement transaction can be taxed again does seem odd, however. Even in the light of the indirect nature of VAT, in which the tax burden is intended to be passed on to the customer — in this case the State — it appears strange to assume that a liability for VAT arises.

II. Legal framework

A. EU law

4The framework for the case under EU law is provided by Article 2(1)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ² (‘the VAT Directive’). Under that provision, the following is to be subject to VAT:

‘the supply of goods for consideration within the territory of a Member State by a taxable person acting as such …’.

5Article 9(1) of the VAT Directive defines a taxable person as follows:

‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

6Article 16(1) of the VAT Directive further provides:

‘The application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible.’

B. National law

7The requirements of the VAT Directive have in this respect been implemented by the Polish legislature. Moreover, according to the referring court, Article 66(1) of the Tax Code adopted as the Law of 29 August 1997 allows the taxable person the possibility of settling arrears of tax debt by the transfer of ownership to the State Treasury or, inter alia, a municipality, in so far as the latter benefits from the corresponding tax revenue. Under Article 66(2) of the Polish Tax Code, that transfer and the associated discharge of the tax debt take place on the basis of a contract between the municipality (or the State Treasury, etc.), the terms of which lay down more detailed rules for the application of Article 66(2) and (3) of the Polish Tax Code. Under Article 66(4) of the Polish Tax Code, the time when the tax debt becomes discharged is the moment when the passage of ownership of the transferred property occurs.

III. The main proceedings

8The appellant in the main proceedings, Posnania Investment SA (‘the company’ or ‘the appellant’) is a company governed by Polish law whose business consists, inter alia, in dealing in immovable property. In order to settle arrears of tax, it availed itself of the possibility provided for in Article 66(1) of the Polish Tax Code and, on 5 February 2013, concluded with the relevant municipality a contract for the transfer of ownership of a plot of unbuilt land. This resulted in a partial discharge of the tax debt.

9The company subsequently submitted a question to the Minister for Finance, asking whether the transfer of ownership to the municipality was subject to VAT. In its view, that could not be the case. In that regard, it cited, in particular, the case-law of the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland), according to which the transfer of ownership to the State Treasury in settlement of arrears of tax in the case of taxes constituting State budget revenues is not subject to VAT.

10By contrast, the Minister for Finance, in his information of 10 May 2013, took the view that the transfer of ownership on the part of the company was a supply that is subject, in principle, to VAT. The company brought an action against that.

11By judgment of 13 February 2014, the court of first instance annulled the information issued by the Minister for Finance by reference to the abovementioned case-law of the Naczelny Sąd Administracyjny (Supreme Administrative Court). In particular, the approach adopted by the tax administration infringed the ‘principle of building confidence’. The Minister for Finance appealed in cassation against that judgment.

IV. Request for a preliminary ruling and procedure before the Court

12By order of 21 September 2015, the Naczelny Sąd Administracyjny (Supreme Administrative Court) now hearing the case referred the following question to the Court for a preliminary ruling pursuant to Article 267 TFEU:

‘Does the transfer of ownership of land (tangible property) by a person taxable for VAT purposes to:

the State Treasury — in settlement of tax arrears in respect of taxes constituting State budget revenues, or

a municipality, district or regional authority — in settlement of tax arrears in respect of taxes constituting their budget revenues,

resulting in the discharge of tax liabilities, constitute a transaction that is subject to tax (supply of goods for consideration) within the meaning of Article 2(1)(a) and Article 14(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax?’

13The Republic of Poland and the European Commission submitted written observations on this question in the proceedings before the Court of Justice.

V. Legal assessment

14Article 2(1)(a) of the VAT Directive contains five prerequisites for VAT to become chargeable. There must be a supply or service (1) which a taxable person (2) acting as such (3) carries out for consideration (4) within the territory of a Member State (5). Of those prerequisites, three are indisputably present. The transfer of a plot of land is a supply. That supply was also carried out by a taxable person and within the territory of a Member State.

15According to Article 2(1)(a) of the VAT Directive, the answer to the question referred therefore presupposes an examination of whether, in this case, a supply ‘for consideration’ can be assumed to exist (see A below), in which the taxable person acted ‘as such’ (see B below).

A. Supply for consideration within the territory of a Member State by a taxable person

16In agreement with the Commission and the Republic of Poland, the handing over of the plot of land in the context of settlement of tax took place for consideration within the meaning of Article 2(1)(a) of the VAT Directive. The release from a pecuniary liability arising from a supply cannot be treated differently from the establishment of a pecuniary claim on account of a supply.

17It could at most be questionable whether the supply and the release from the tax debts are based upon a bilateral legal relationship. Such a relationship has indeed been regarded as necessary by the Court in its judgments. A supply of goods is effected ‘for consideration’ within the meaning of Article 2(1)(a) of the VAT Directive only if there is a legal relationship between the supplier of the goods and the recipient pursuant to which there is reciprocal performance, the remuneration received by the supplier of the goods constituting the value actually given in return for the goods supplied to the recipient. ³

18The fact that the supply of the plot of land and the discharge of the tax debts are based on a proper legal relationship in the present case already follows from Article 66(1) of the Polish Tax Code. That article lays down a legal relationship as a rule. Such a relationship is also confirmed by the public-law contract provided for in Article 66(2) of the Polish Tax Code. It is at most questionable whether, in the case of a discharge of the tax debt by law (Article 66(4) of the Polish Tax Code) on account of the transfer of property in lieu of payment, there is actually a bilateral or only a unilateral legal relationship. However, that question can ultimately remain open.

19VAT is a general tax on consumption ⁴ which taxes the recipient’s expenditure on receiving a consumable benefit (supply of goods or services). The concept of a legal relationship deemed necessary for that purpose must therefore be construed very widely. It can depend neither on the validity in civil law nor on the basis in civil or public law nor on the reciprocity of that basis. The sole decisive factor is whether the recipient expends assets on a consumable benefit (a supply of goods or services) which is bestowed on him by a taxable person. ⁵ The relevant feature is therefore the reciprocity between the expenditure and the consumable benefit and not the reciprocity of the basis in civil or public law.

20In the present case, on that wide construction required under the law governing taxes on consumption, a supply for consideration must — in agreement with the Commission and the Republic of Poland — be affirmed. This applies even if the tax debts are discharged by operation of the law upon transfer of the ownership of the plot of land (Article 66(4) of the Polish Tax Code).

B. A taxable person acting as such

1. Payment of tax debts as economic activity?

21Moreover, it must be clarified whether a taxable person for the purposes of VAT, who pays his taxes not in money but in kind, in that respect also acts as a taxable person for the purposes of VAT, that is, ‘as such’ within the meaning of Article 2(1)(a) of the VAT Directive.

22A taxable person acts in that capacity (‘as such’) only where he carries out transactions in the course of his taxable activity. ⁶ Furthermore, as is evident from Article 9 of the VAT Directive, an activity for consideration alone is not sufficient for that purpose. Rather, the Directive demands a certain standard, namely, an economic activity at the moment of acting.

23Consequently, the crucial question here is whether the settlement of tax debts constitutes a tax debtor’s economic activity within the meaning of Article 9 of the VAT Directive. If the answer to that question is in the negative, it would still need to be asked whether that is altered in any way if the tax debts are settled, not in money, but in kind.

24According to the second sentence of Article 9(1) of the VAT Directive, the term ‘economic activity’ covers any activity of producers, traders or persons supplying services and, according to the case-law, comprises all stages of production, distribution and the provision of services. ⁷

25The second sentence of Article 9(1) of the VAT Directive uses occupational images to describe the economic activities. On closer examination, this is a typological description, since types (occupational images) of undertakings are listed. In contrast to an abstract definition, a typological description is more open. Whether a particular thing belongs to the type does not have to be determined by logical/abstract subsumption, but can be determined according to the degree of similarity to the prototype (pattern). The characteristic features of the type do not all have to be present, but one or other feature can be absent in an individual case. The individual case to be assessed is only assigned to the type by way of an evaluative comparison for similarity. That assignment demands a view of the overall picture in each individual case, taking into account the generally accepted standards and based on the degree of similarity to the type (prototype).

26Even though the concept of economic activity is to be interpreted widely, ⁸ the payment of tax debts is no such economic activity. On the contrary, the payment of tax is simply the discharge of a personal duty under public law, which exists for any person liable to pay tax, even if they are not a taxable person for the purposes of VAT. That remains the case even where the taxes concerned arise from an economic activity — such as, for example, the payment of VAT debts.

27Nothing in that finding is altered even where the tax debt is paid in kind. The transfer of the benefits in kind ultimately constitutes only a particular form of payment in the context of tax collection. As in a normal tax procedure, the lawfully incurred tax debt is paid, instead of in money, by means of a benefit in kind in the amount of its objective value — and not in the amount of a purchase price. Such an act in the context of public-law tax collection cannot therefore be described as economic activity. The transfer of assets in payment of a person’s own tax debt is not remotely comparable with the activity of a typical taxable person for the purposes of VAT within the meaning of Article 9(1) of the VAT Directive (for example, with a trader who buys goods in order to sell them).

28The public-law contract provided for in the Polish Tax Code also alters nothing in that regard. It merely secures the agreement of the parties to that particular form of payment. The tax creditor thereby merely agrees that the tax debt can be settled by means of those benefits in kind.

29Moreover, the request for a preliminary ruling also contains no indication that national law would allow the State Treasury to approach the tax debtor and offer him the possibility that, instead of paying the tax by means of money, it might be better if he were to transfer ownership of a particular plot of land which would otherwise have to be acquired by purchase. The decision whether to pay his taxes in kind and by means of which benefits in kind he wishes to pay them lies solely with the tax debtor. The State Treasury can then, at most, agree to that choice, but cannot demand such a payment.

30In particular, the tax debt becomes discharged by operation of law upon the transfer in the amount of the value of the property. It is not dependent on the will or negotiation of the parties to the contract governed by public law. The value of the property in a State of taxation governed by the rule of law is probably determined on the basis of abstract valuation standards which are applicable to all persons liable for tax. Based on those premisses — which must however be reviewed by the referring court — the payment of tax debts by transfer of property cannot, in principle, be described as a (typical) economic activity.

2. Exception on account of close connection to the principal taxable activity

31However, in this instance, the transfer of the plot of land was effected, not by a lawyer or a doctor, for example, but by dealer in real estate. That being the case, some degree of closeness in the connection of the activity concerned (transfer of the plot of land in lieu of payment) to the economic activity pursued (dealing in real estate) cannot be denied.

32The Court was concerned with a similar situation in Kostov. ⁹ In that case, a taxable person (a self-employed bailiff) had concluded individual contracts of agency to purchase plots of land at auction on behalf of third parties, contracts which were to some extent close in subject matter to his principal activity (auctioneering). The Court affirmed that they were taxable.

33The Court held ‘that Article 9(1) of the VAT Directive is to be interpreted as meaning that a natural person who is already a taxable person for VAT purposes in respect of his activities as a self-employed bailiff must be regarded as a “taxable person” in respect of any other economic activity carried out occasionally, provided that that activity constitutes an activity within the meaning of the second subparagraph of Article 9(1) of the VAT Directive’. ¹⁰

34However, that cannot be construed to the effect that all acts of a taxable person performed for consideration are suddenly also performed in his capacity as a taxable person. In the specific case on which the ruling was given, there was in fact a close relationship between the bailiff’s ‘sideline’ and his taxable principal activity. Consequently, on the required type-based classification approach, the agency business for unconnected third parties which was engaged in only occasionally and was at issue in that case was indeed also an economic activity.

35By contrast, on a type-based view of classification, no economic activity within the meaning of second subparagraph of Article 9(1) of the VAT Directive is involved where a real estate dealer’s tax debts are settled by the transfer of a plot of land in lieu of payment.

36It is true that the requirement of neutrality as regards competition — as the Commission points out by way of analogy — demands that all competing suppliers to consumers be subject to VAT in the same way. However, in the case of payment of tax debts in kind, no situation of competition with other persons liable for tax is involved at all. Nor is a person liable for tax who pays his tax debt competing at that moment with other taxable persons for the purposes of VAT (other real estate dealers, for example). He does not in fact possess any negotiating power in terms of the ‘purchase price discovery’ of the property to be transferred. On the contrary, in the context of tax collection, the valuation of the plot of land to be transferred is bound to be made according to objective criteria. In that way, any competition on price definitely cannot take place.

37In that respect, the transfer of an asset in settlement of tax debts takes place outside of any market. This applies to ‘normal’ taxpayers in the same way as to taxpayers who at the same time are also taxable persons for the purposes of VAT. Nor does the State, as the customer, have any option as to whether it ‘acquires’ that plot of land or another. It has only the choice of whether, in lieu of money, it will also accept, in settlement of tax, benefits in kind in the amount of their objective value.

38Accordingly, the Court holds that even a transaction which is indisputably economic and for consideration (the sale of drugs) is not taxable where all (lawful) competition within an economic sector is precluded. ¹¹ That concept can usefully be applied to the combination of circumstances in the present case. Where a personal tax debt is discharged by the transfer of ownership of benefits in kind to the tax creditor (that is to say, in the course of tax collection), all competition amongst the taxpayers themselves is likewise precluded.

39The decisive factor is whether national law (in this case concerning the public-law contract provided for) allows the parties, in the context of a tax collection procedure governed by public law, to determine by agreement the property to be transferred and the price, as with a purchase. As long as that is not the case, the taxable person for the purposes of VAT is not acting in the context of his economic activity when settling his tax debt. He is then not acting ‘as such’ within the meaning of Article 2(1)(a) of the VAT Directive. That also applies where the taxable person for the purposes of VAT is a dealer in real estate and, instead of money, transfers ownership of a plot of land in lieu of payment.

3. Nature of VAT

40The nature of VAT as an indirect tax on consumption confirms that conclusion. The VAT is to be borne by the final consumer, ¹² the taxable person acting ‘only’ as tax collector for the State. ¹³ In the present case, this further militates against the assumption that an economic activity is involved. Economic activity within the meaning of Article 9 of the VAT Directive is clearly based on the premiss that the taxable person, by means of his consideration — which he negotiates with the other party to the contract — can pass on the burden of VAT to the customer and collect it from him. That concept is not compatible with a tax debt being discharged by operation of law and with the fact that the recipient State wishes to collect tax and not to bear further taxes (in this case, the VAT burden to be passed on to it).

4. Danger of advantaging the State as ‘consumer ’?

41I cannot, moreover, see the objections to that argument which are raised by the Commission as regards the danger of advantaging the person liable for tax and/or the State. The person liable for tax obtains no advantage, since the transfer of property for the purpose of paying tax would not be affected by a liability for VAT. Such a liability would operate as follows: if a person liable for tax owes tax in the amount of X, the plot of land has a value of X and the transaction is taxable, then the tax in the amount of X would become discharged and the State would still, in addition, have to pay the VAT to the person liable for tax debtor, so that the person liable for tax could pay it (back to the State). The State, on the other hand, would also not save any VAT, since it receives the benefits in kind regardless of its own consumer needs and therefore does not save other items of expenditure on which VAT is charged.

42Contrary to the view taken by the Commission, there is, rather, the danger that the assumption of a taxable event makes possible the deduction of input tax even in the case of the acquisition of assets for private use because these may possibly at some time have to be used to satisfy tax debts. ¹⁴

43Even the differential treatment of the tax payment — according to whether the taxes are paid in money (no tax charge) or in kind (full tax charge) — would not be plausible. The same applies to the differential treatment of tax payments in kind, according to whether they are made by taxable or non-taxable persons for the purposes of VAT. In terms of the level of tax revenue (from the other types of tax from which tax debts arise), such a classification under VAT law cannot have any relevance.

44In this respect, only the danger of an untaxed final consumption ultimately remains if the transfer of benefits in kind in lieu of payment were not to be regarded as economic activity. However, that danger exists only if the supplier (in this case, the company) had already made a deduction of input tax in relation to the transferred property by virtue of his status as a taxable person for the purposes of VAT.

45However, the provisions of Article 16 (and also Article 26) of the VAT Directive preclude such a danger in conformity with the system. If the payment of taxes by means of benefits in kind is not economic activity, then the goods forming part of the business assets, when transferred in lieu of payment, are being applied for purposes other than those of the business. By application of Article 16 of the VAT Directive, any deduction made is then corrected and thus any untaxed final consumption prevented. The taxable person for the purposes of VAT is then treated in the same way as a private individual who surrenders property to the State in settlement of tax debts. In effect, that ensures equal treatment of all tax payments made by all persons liable for tax, regardless of whether they are also, at the same time, (more or less coincidentally) taxable persons for the purposes of VAT.

5. Conclusion

46In conclusion, the transfer of property forming part of the assets of the taxable person in settlement of his tax debts in lieu of payment is not economic activity in which the taxable person acts ‘as such’ within the meaning of Article 2(1)(a) of the VAT Directive. This applies even where he transfers property in which he would normally deal for the purposes of his business. In that respect, there is no transaction subject to VAT within the meaning of Article 2(1)(a) of the VAT Directive.

VI. Proposed answer

47I therefore propose that the question referred by the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland) be answered as follows:

The transfer of ownership of a plot of land by the taxable person for the purposes of VAT to the tax creditor, resulting in the discharge of the tax debt by operation of law, does not constitute a transaction that is subject to VAT within the meaning of Article 2(1)(a) of the VAT Directive. In that respect, the taxable person is not acting as such. However, a deduction of input tax made in relation to the transferred property must be corrected in accordance with Article 16 of the VAT Directive.

The prerequisite is that the possibility of settling taxes by means of benefits in kind in lieu of payment is available only to the tax debtor and is only executed by the public-law contract provided for. In that respect, the parties must not have any influence on the ‘purchase price’. On the contrary, the latter must be determined according to objective valuation standards, which is a matter for the referring court to verify.

¹ Original language: German.

² OJ 2006 L 347, p. 1.

³ Judgments of 21 November 2013, Dixons Retail (C‑494/12, EU:C:2013:758, paragraph 32); of 20 June 2013, Newey (C‑653/11, EU:C:2013:409, paragraph 40); of 23 March 2006, FCE Bank (C‑210/04, EU:C:2006:196, paragraph 34); of 17 September 2002, Town & County Factors (C‑498/99, EU:C:2002:494, paragraph 18); and of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 14).

⁴ Judgments of 24 October 1996, Elida Gibbs (C‑317/94, EU:C:1996:400, paragraph 19), and of 7 November 2013, Tulică and Plavoşin (C‑249/12 and C‑250/12, EU:C:2013:722, paragraph 34); and order of 9 December 2011, Connoisseur Belgium (C‑69/11, not published, EU:C:2011:825, paragraph 21).

⁵ Even the tip given unilaterally and of one’s free will after the contract to provide food and drink in a restaurant has been performed therefore constitutes consideration for provision of a service.

⁶ See, to that effect, the judgments of 4 October 1995, Armbrecht (C‑291/92, EU:C:1995:304, paragraph 17 et seq.); of 29 April 2004, EDM (C‑77/01, EU:C:2004:243, paragraph 66); and of 12 January 2006, Optigen and Others (C‑354/03, C‑355/03 and C‑484/03, EU:C:2006:16, paragraph 42).

⁷ See, inter alia, judgments of 4 December 1990, van Tiem (C‑186/89, EU:C:1990:429, paragraph 17); of 26 June 2003, MKG-Kraftfahrzeuge-Factoring (C‑305/01, EU:C:2003:377, paragraph 41); and of 12 January 2006, Optigen and Others (C‑354/03, C‑355/03 and C‑484/03, EU:C:2006:16, paragraph 41).

⁸ Judgments of 12 September 2000, Commission v United Kingdom (C‑359/97, EU:C:2000:426, paragraph 39); of 26 June 2003, MKG-Kraftfahrzeuge-Factoring (C‑305/01, EU:C:2003:377, paragraph 42); of 26 June 2007, T-Mobile Austria and Others (C‑284/04, EU:C:2007:381, paragraph 35); and of 20 June 2013, Fuchs (C‑219/12, EU:C:2013:413, paragraph 17).

⁹ Judgment of 13 June 2013 (C‑62/12, EU:C:2013:391).

¹⁰ Judgment of 13 June 2013, Kostov (C‑62/12, EU:C:2013:391, paragraph 31).

¹¹ See, inter alia, judgments of 29 June 1999, Coffeeshop “Siberië” (C‑158/98, EU:C:1999:334, paragraphs 14 and 21); of 29 June 2000, Salumets and Others (C‑455/98, EU:C:2000:352, paragraph 19); of 12 January 2006, Optigen and Others (C‑354/03, C‑355/03 and C‑484/03, EU:C:2006:16, paragraph 49).

¹² Judgments of 24 October 1996, Elida Gibbs (C‑317/94, EU:C:1996:400, paragraph 19), and of 7 November 2013, Tulică and Plavoşin (C‑249/12 and C‑250/12, EU:C:2013:722, paragraph 34); and order of 9 December 2011, Connoisseur Belgium (C‑69/11, not published, EU:C:2011:825, paragraph 21).

¹³ Judgments of 20 October 1993, Balocchi (C‑10/92, EU:C:1993:846, paragraph 25), and of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 21).

¹⁴ In particular, leisure activities of taxpayers which are permanently loss-making (in regard to income tax, this frequently concerns self-employed lawyers and doctors owning vineyards, horse-breeding facilities, private yachts, etc.) may be very effectively engaged in thanks to the deduction of input tax at public expense.