C-604/19 Gmina Wrocław (Transformation of the right of usufruct)

JUDGMENT OF THE COURT (First Chamber)

25 February 2021 ( *1 )

(Reference for a preliminary ruling – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Article 2(1)(a) – Article 9(1) – Article 13(1) – Article 14(1) and (2)(a) – Concept of ‘supply of goods’ – Transformation of the right of perpetual usufruct into full immovable property ownership rights by operation of law – Municipality collecting fees for the transformation – Concept of ‘compensation’ – Concept of ‘taxable person acting as such’ – Exception – Bodies governed by public law which engage in activities or transactions as public authorities)

In Case C‑604/19,

REQUEST for a preliminary ruling under Article 267 TFEU from the Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Wrocław, Poland), made by decision of 19 June 2019, received at the Court on 9 August 2019, in the proceedings

Gmina Wrocław

v

Dyrektor Krajowej Informacji Skarbowej,

THE COURT (First Chamber),

composed of J.-C. Bonichot, President of the Chamber, L. Bay Larsen, C. Toader, M. Safjan and N. Jääskinen (Rapporteur), Judges,

Advocate General: J. Kokott,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

the Gmina Wrocław, by E. Mroczko and T. Straszkiewicz, radcowie prawni,

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

the European Commission, by J. Jokubauskaitė and M. Siekierzyńska, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 3 September 2020,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Article 2(1)(a), Article 9(1), Article 13(1) and Article 14(1) and (2)(a) 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 Gmina Wrocław (Municipality of Wrocław, Poland; ‘the Municipality of Wrocław’) and the Dyrektor Krajowej Informacji Skarbowej (Director of the National Tax Information Bureau, Poland; ‘the tax authority’) concerning the tax ruling addressed to that municipality in relation to the levying of value added tax (VAT) on fees which have been paid to it on account of the transformation of the right of perpetual usufruct into full immovable property ownership rights.

Legal context

EU law

3Under 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.

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.’

5Article 13(1) of that directive is worded as follows:

‘States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.

However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.

…’

6Article 14 of the VAT Directive provides:

‘1. “Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.

2. In addition to the transaction referred to in paragraph 1, each of the following shall be regarded as a supply of goods:

the transfer, by order made by or in the name of a public authority or in pursuance of the law, of the ownership of property against payment of compensation;

…’

Polish law

The Civil Code

7Article 232 § 1 of the Ustawa z dnia 23 kwetnia 1964 r. – Kodeks cywilny (Law of 23 April 1964 establishing the Civil Code) (Dziennik Ustaw (Journal of Laws) of 1964, No 16, item 93), in the version applicable to the dispute in the main proceedings (‘the Civil Code’), provides:

‘Land belonging to the State and within the administrative limits of the cities, land belonging to the State outside those limits but incorporated into a city’s spatial development plan and used to achieve its economic objectives, as well as land belonging to a local authority or an association of local authorities, may be leased in perpetual usufruct to natural and legal persons.’

8Article 233 of the Civil Code is worded as follows:

‘Within the limits laid down by the laws and rules of social conduct and by a contract leasing land belonging to the State or land belonging to a local authority or an association of local authorities in perpetual usufruct, the usufructuary may use the land to the exclusion of any other person. Within the same limits, the perpetual usufructuary may dispose of its right.’

9Article 234 of that code states:

‘The provisions relating to the transfer of ownership of immovable property shall apply mutatis mutandis to the leasing in perpetual usufruct of land belonging to the State, to a local authority or to an association of local authorities.’

10Under Article 236 §1 of that code:

‘Land belonging to the State, to a local authority or to an association of local authorities shall be leased in perpetual usufruct for a period of 99 years. In exceptional cases, where the economic objective of perpetual usufruct does not require the land to be leased for a period of 99 years, the period may be shorter but must be at least 40 years.’

11Article 238 of the Civil Code provides:

‘The perpetual usufructuary shall pay an annual fee for the duration of its right.’

The Law on immovable property management

12Article 12a(1) of the ustawa o gospodarce nieruchomościami (Law on immovable property management) of 21 August 1997 (Dziennik Ustaw (Journal of Laws) of 2018, item 2204), in the version applicable to the dispute in the main proceedings (‘the Law on immovable property management’), provides:

‘Amounts payable in respect of the management of immovable property which are governed by private law and are collected by the State, represented by the mayor in the performance of his or her public administrative tasks or by the Minister responsible for Construction, Planning, Spatial Development and Housing, may be wholly or partly redeemed, or may be deferred or paid in instalments.’

13Article 27 of the Law on immovable property management is worded as follows:

‘The sale of immovable property, or the leasing of land in perpetual usufruct, must be the subject of a contract concluded in the form of a notarial act. The leasing of land in perpetual usufruct and the transfer of that right by contract must be entered in the land register.’

14Article 32(1) and (2) of that law states:

‘1. Land leased in perpetual usufruct may be sold only to a perpetual usufructuary …

2. Previously established rights of perpetual usufruct shall expire by operation of law on the day that a contract for the sale of the property is concluded. …’

15Article 69 of that law provides:

‘An amount equivalent to the value of the right of perpetual usufruct of the land, determined on the day of its sale, shall be included in the price of the land being sold to its perpetual usufructuary.’

16Article 71(1) of that law is worded as follows:

‘An initial fee and an annual fee shall be payable for the leasing of land in perpetual usufruct.’

17Under Article 72(1) of the Law on immovable property management, fees for perpetual usufruct are to be calculated as a percentage of the price of the land, which price is, in turn, to be determined under Article 67(1) of that law, on the basis of the value of the land. Article 72(3)(4) of that law states that, in the case of immovable property leased for residential purposes, the rate of the annual fee for perpetual usufruct is to be 1% of the price of the land.

The Law on VAT

18Article 5(1)(1) of the ustawa o podatku od towarów i usług (Law on the tax on goods and services) of 11 March 2004 (Dziennik Ustaw (Journal of Laws) of 2004, No 54, item 535; ‘the Law on VAT’), provides:

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

19Article 7(1) of the Law on VAT is worded as follows:

‘The supply of goods referred to in Article 5(1)(1) shall mean the transfer of the right to dispose of goods as owner, including:

a transfer by order made by a public authority or by a person acting in the name of that public authority or a transfer in pursuance of the law of the ownership of goods against payment of compensation;

…

the leasing of land in perpetual usufruct.’

The Law on transformation

20Article 1(1) of the ustawa o przekształceniu prawa użytkowania wieczystego gruntów zabudowanych na cele mieszkaniowe w prawo własności tych gruntów (Law on the transformation of the right of perpetual usufruct of land developed for residential purposes into ownership rights over that land) of 20 July 2018 (Dziennik Ustaw (Journal of Laws) of 2018, item 1716; ‘the Law on transformation’), provides:

‘On 1 January 2019, the right of perpetual usufruct of land developed for residential purposes shall be transformed into ownership rights over that land.’

21Article 4(1)(3) of the Law on transformation is worded as follows:

‘The certificate confirming the transformation (“the certificate”) issued by … the competent mayor (town or city mayor, Lord Mayor), district council or regional council – where the land belongs to a local authority – forms the basis for the entry of the right of ownership in the land register.’

22Paragraph 2(1) of that article states that the bodies referred to in paragraph 1 of that article must issue the certificate of their own motion within a period not exceeding 12 months from the day of transformation. Under paragraph 4 of that article, the certificate is to confirm the transformation and mention the obligation to pay an annual transformation fee, the amount of that fee and the time at which it is payable.

23Article 5(1) of that law states:

‘The court shall register of its own motion ownership of land and the right to payment in the land registers.’

24Article 6(1) of that law provides that the new owner may challenge the information included in the certificate referred to in Article 4 of that law. An application submitted using this procedure results in the amount and deadline for payment of the transformation fee being set by way of an administrative decision.

25Article 7 of the Law on transformation provides:

‘1. The new owner of the land shall pay a fee to the current owner of the land for the transformation.

2. The amount of the fee shall be equivalent to the annual fee for perpetual usufruct in force on the day of the transformation.

…

6. The fee shall be payable for a period of 20 years from the day of transformation.

7. The owner of the land may, at any time during the period in which it is required to pay the fee, inform the competent body in writing of its intention to make a lump sum payment (one-off fee). The amount of the one-off fee shall correspond to the fee for the year in which the intention to pay a one-off fee is expressed, multiplied by the number of years remaining until expiry of the [20-year] period.’

26Under Article 12(2) of that law:

‘The provisions of Article 12a of the Law on immovable property management shall apply mutatis mutandis to fees and to one-off fees.’

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

27The Municipality of Wrocław is a local authority registered as a taxable person for the purposes of VAT which owned immovable property subject to a perpetual usufruct as provided for in Polish law.

28Under the provisions of the Civil Code, perpetual usufruct consists in surrendering the use of land, the owner of which is the State, a local authority or an association of local authorities, to a user, the perpetual usufructuary, who may use the land and dispose of its right to the exclusion of any other person. Perpetual usufructuaries may be natural persons or legal persons. In the context of perpetual usufruct, the land is in principle leased to the usufructuary for a period of 99 years which, in exceptional cases, may be reduced, but may not be less than 40 years. The perpetual usufructuary pays the owner of the land an annual fee as consideration for the perpetual usufruct for its duration.

29In accordance with Article 72(1) of the Law on immovable property management, fees for perpetual usufruct are to be calculated as a percentage of the price of the land concerned, which is to be determined, under Article 67(1) of that law, on the basis of the value of that land. Article 72(3)(4) of that law provides that, in the case of immovable property leased for residential purposes, the rate of the annual fee for perpetual usufruct is to be 1% of the price of the land in question.

30Under Article 5(1)(1) and Article 7(1)(6) of the Law on VAT, the leasing of land in perpetual usufruct constitutes a supply of goods and, therefore, the annual fees paid by the usufructuary had to be subject to VAT.

31Under the Law on transformation, on 1 January 2019, the right of perpetual usufruct of land developed for residential purposes was transformed into full ownership rights over that land.

32In accordance with Article 7 of the Law on transformation, perpetual usufructuaries who have become owners must pay the public authority which was the owner of the land in question a transformation fee. That fee is payable on 31 March of each year for a period of 20 years from the day of transformation of the right of perpetual usufruct into full immovable property ownership rights. That article states that the amount of that fee is to be equivalent to the amount of the annual fee for perpetual usufruct in force on the day of that transformation. Moreover, the new owner may, at any time during the period in which it is required to pay the transformation fee, inform the competent body in writing of its intention to make a lump sum payment (one-off fee).

33Furthermore, Article 6(1) of the Law on transformation states that the new owner of the land may challenge the amount of the transformation fee and the duration of the period during which that fee is payable, by submitting an application to the competent body. An application submitted using that procedure results in the amount and deadline for payment of the transformation fee being set by way of an administrative decision.

34On 5 January 2019, the Municipality of Wrocław requested the tax authority to issue a tax ruling concerning the application of VAT to the fees payable to it under the Law on transformation.

35That municipality submits that the fees paid by the new owners of the land under that law are not subject to VAT.

36On the contrary, the tax authority stated, in its tax ruling of 15 January 2019, that the fees payable to the Municipality of Wrocław under the Law on transformation are subject to VAT as they represent the balance of the amount due in respect of the creation of rights of perpetual usufruct over the land in question and on the ground that, when it collects those fees, that municipality acts as a taxable person for VAT purposes and not as a public authority.

37The Municipality of Wrocław brought an action against that tax ruling before the Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Wrocław, Poland).

38The referring court questions, in the first place, whether the transformation of the right of perpetual usufruct into full immovable property ownership rights which took place by operation of the Law on transformation without the parties having expressed an intention to carry out that transformation should be regarded as a transaction referred to in Article 14(2)(a) of the VAT Directive, namely as a transfer of the ownership of property against payment of compensation in pursuance of the law. That court questions, more specifically, whether, in view of its characteristics, the transformation fee may be regarded as ‘compensation’ for the purposes of that provision. The referring court is of the opinion that this is the situation in the case pending before it and that, therefore, the transformation of the right of perpetual usufruct into full immovable property ownership rights constitutes a supply of goods within the meaning of Article 14(2)(a) of the VAT Directive.

39In the second place, that court states that if, nevertheless, it were not possible to consider that there was a supply of goods within the meaning of that provision, it would then be necessary to question the classification of the legal transaction in the main proceedings as a supply of goods within the meaning of Article 14(1) of the VAT Directive.

40In the third place, the referring court wishes to ascertain whether, in the present case, the Municipality of Wrocław acts as a taxable person for VAT purposes, as is asserted by the tax authority, or, as the case may be, whether the exemption from VAT provided for in the first subparagraph of Article 13(1) of the VAT Directive applies to that municipality. That court is of the opinion that, in the circumstances of the present case, that municipality pursues an activity as a public body and, in accordance with the provisions of the Law on transformation, carries out, in essence, only tasks of an administrative nature. The referring court emphasises that the transformation of the right of perpetual usufruct into full immovable property ownership rights itself, on the other hand, takes place solely by operation of law, without the possibility of negotiating the conditions for implementing that transformation or the conditions for paying the fees for that transformation, and that the Municipality of Wrocław cannot take any action which could have an impact on the personal, material or economic scope of that transformation.

41In those circumstances, the Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Wrocław) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Does the transformation of the right of perpetual usufruct into immovable property ownership rights by operation of law … constitute a supply of goods within the meaning of Article 14(2)(a) of [the VAT Directive], read in conjunction with Article 2(1)(a) [of that directive]?

2If the answer to Question 1 is in the negative, does the transformation of the right of perpetual usufruct into immovable property ownership rights by operation of law constitute a supply of goods within the meaning of Article 14(1) of [the VAT Directive], read in conjunction with Article 2(1)(a) [of that directive]?

3Does a municipality that charges fees for the transformation of the right of perpetual usufruct into immovable property ownership rights by operation of law … act as a taxable person within the meaning of Article 9(1) of [the VAT Directive], read in conjunction with Article 2(1)(a) of that directive, or as a public authority within the meaning of Article 13 of that directive?’

The expedited procedure

42In its request for a preliminary ruling, the referring court requested that the present case be determined under the expedited procedure laid down in Article 105(1) of the Rules of Procedure of the Court of Justice. In support of its request, that court stated that the lack of legal certainty concerning the tax arrangements in respect of fees for the transformation of the right of perpetual usufruct into full immovable property ownership rights constitutes an interference with budgetary certainty and is likely to be detrimental to the many Polish citizens concerned.

43It follows from Article 105(1) of the Rules of Procedure that, at the request of the referring court or tribunal or, exceptionally, of his own motion, the President of the Court may, where the nature of the case requires that it be dealt with within a short time, after hearing the Judge-Rapporteur and the Advocate General, decide that a reference for a preliminary ruling is to be determined pursuant to an expedited procedure derogating from the provisions of those rules.

44In the present case, on 10 October 2019, the President of the Court decided, after hearing the Judge-Rapporteur and the Advocate General, to reject the referring court’s request referred to in paragraph 42 above.

45That decision was based on the fact that the reasons relied on by the referring court were not such as to demonstrate that the conditions laid down in Article 105(1) of the Rules of Procedure were satisfied in the present case (see, by analogy, judgment of 16 July 2020, Addis, C‑517/17, EU:C:2020:579, paragraph 42).

46It is settled case-law that neither mere economic interests, however important and legitimate they may be (order of the President of the Court of 2 September 2015, Leonmobili and Leone, C‑353/15, not published, EU:C:2015:552, paragraph 8), nor the risk of economic loss or the economic sensitivity of the case in the main proceedings (order of the President of the Court of 29 January 2014, E., C‑436/13, not published, EU:C:2014:95, paragraph 27), are such as to establish the existence of urgency within the meaning of Article 105(1) of the Rules of Procedure.

47In addition, the large number of cases whose proceedings have been suspended pending the Court’s decision on the present reference for a preliminary ruling is not capable, as such, of constituting an exceptional circumstance that could justify the application of an expedited procedure (see, to that effect, orders of the President of the Court of 8 March 2012, P, C‑6/12, not published, EU:C:2012:135, paragraph 8; of 31 March 2014, Indėlių ir investicijų draudimas and Nemaniūnas, C‑671/13, not published, EU:C:2014:225, paragraph 10; and of 28 November 2017, Di Girolamo, C‑472/17, not published, EU:C:2017:932, paragraph 15).

Consideration of the questions referred

The first and second questions

48By its first and second questions, which it is appropriate to examine together, the referring court asks, in essence, whether Article 14 of the VAT Directive must be interpreted as meaning that the transformation of the right of perpetual usufruct into full immovable property ownership rights provided for by national legislation against payment of a fee constitutes a supply of goods within the meaning of paragraph 2(a) of that article or, alternatively, within the meaning of paragraph 1 of that article.

49It should be noted at the outset that the VAT Directive establishes a common system of VAT based on, inter alia, a uniform definition of taxable transactions (judgment of 13 June 2018, Gmina Wrocław, C‑665/16, EU:C:2018:431, paragraph 30 and the case-law cited).

50Thus, in accordance with Article 2(1)(a) of that 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.

51Article 14(1) of the VAT Directive defines the concept of ‘supply of goods’ as being the transfer of the right to dispose of tangible property as owner.

52In that regard, according to settled case-law, the concept of ‘supply of goods’ referred to in Article 14(1) of the VAT Directive does not refer to the transfer of ownership in accordance with the procedures prescribed by the applicable national law, but covers any transfer of tangible property by one party which empowers the other party actually to dispose of it as if he were its owner (judgment of 15 May 2019, Vega International Car Transport and Logistic, C‑235/18, EU:C:2019:412, paragraph 27 and the case-law cited).

53Moreover, Article 14(2)(a) of that directive provides that, in addition to the transaction referred to in paragraph 1 of that article, the transfer, by order made by or in the name of a public authority or in pursuance of the law, of the ownership of property against payment of compensation is to be regarded as a supply of goods.

54Therefore, while Article 14(1) of the VAT Directive defines generally the concept of ‘supply of goods’, it can be concluded from a literal interpretation of paragraph 2 of that article, in particular the expression ‘in addition to the transaction referred to in paragraph 1’, that paragraph 2 refers to other transactions which, while being classified as ‘supplies of goods’, have characteristics different from those referred to in Article 14(1) of that directive. In particular, the definition of the transactions that are the subject of Article 14(2)(a) of that directive does not make any reference to the ‘right to dispose of tangible property as owner’, as referred to in Article 14(1) of the same directive (see, to that effect, judgment of 13 June 2018, Gmina Wrocław, C‑665/16, EU:C:2018:431, paragraph 35). On the other hand, Article 14(2)(a) of the VAT Directive refers explicitly to the transfer of ownership of that property (see, to that effect, judgment of 13 June 2018, Gmina Wrocław, C‑665/16, EU:C:2018:431, paragraph 40).

55It therefore follows from the wording and structure of Article 14 of the VAT Directive that, as against the general definition set out in paragraph 1 thereof, paragraph 2 of that article constitutes a lex specialis, the conditions for the application of which are independent of those in paragraph 1 thereof (see, to that effect, judgment of 13 June 2018, Gmina Wrocław, C‑665/16, EU:C:2018:431, paragraph 36).

56Thus, in order to qualify as a ‘supply of goods’ within the meaning of Article 14(2)(a) of the VAT Directive, three cumulative conditions must be satisfied. First, there has to be a transfer of a right to ownership. Second, that transfer has to be by order made by, or in the name of, a public authority or in pursuance of the law. Third, there has to be payment of compensation (judgment of 13 June 2018, Gmina Wrocław, C‑665/16, EU:C:2018:431, paragraph 37).

57In the present case, as regards the first two conditions referred to in the preceding paragraph of this judgment, it is apparent from the information provided by the referring court that it is not disputed that the transformation of the right of perpetual usufruct into full immovable property ownership rights, which led to the Municipality of Wrocław’s ownership rights being transferred to the former perpetual usufructuaries, must be classified as a transfer of the right to ownership for the purposes of Article 14(2)(a) of the VAT Directive. Furthermore, it is common ground that that transformation took place in pursuance of the law.

58As regards the question whether the transformation of the right of perpetual usufruct into full immovable property ownership rights took place against payment of compensation for the purposes of Article 14(2)(a) of the VAT Directive, it must be noted, in the first place, that the expression ‘payment of compensation’, under that provision, must, in the absence of any reference to the national law of the Member States, be given an autonomous and uniform definition, specific to EU law, which takes account, in particular, of the lex specialis nature of that provision, as is clear from paragraph 55 of this judgment. Thus, the meaning of that expression cannot depend on its meaning and scope in the national laws of the Member States.

59In that regard, it is clear from the Court’s case-law that, in order for there to be a ‘payment of compensation’ for the purposes of Article 14(2)(a) of the VAT Directive, it is irrelevant, having regard to the lex specialis nature of that provision, that such a payment has all the constitutive elements of the concept of supply of goods for ‘consideration’ referred to in Article 2(1)(a) of that directive (see, to that effect, judgment of 13 June 2018, Gmina Wrocław, C‑665/16, EU:C:2018:431, paragraph 44).

60In the second place, it should be emphasised that the wording of Article 14(2)(a) of the VAT Directive refers to the ‘payment’ of compensation, without laying down conditions concerning the nature or the amount of that compensation.

61In the third place, it is clear from the case-law of the Court that, in order to determine whether the condition relating to the payment of compensation is satisfied, it is necessary only to establish that the compensation at issue is directly linked to the transfer of ownership and that its payment has become effective, which it is for the national court to determine (see, to that effect, judgment of 13 June 2018, Gmina Wrocław, C‑665/16, EU:C:2018:431, paragraph 45).

62In the present case, it is apparent from the documents before the Court that the obligation to pay the transformation fee arises from the wording of the law on the day on which the transformation of the right of perpetual usufruct into full immovable property ownership rights takes place and that the amount of that fee is to be equivalent to the amount of the annual fee for perpetual usufruct on the day of that transformation, that fee being payable for a period of 20 years. According to the information provided by the referring court, the annual fees for perpetual usufruct are, in turn, to be calculated as a percentage of the price of the land. The transformation fees at issue in the main proceedings, the effective payment of which is to be verified by the referring court, are therefore directly linked to the transfer of ownership.

63In the light of the foregoing considerations, the answer to the first and second questions is that Article 14(2)(a) of the VAT Directive must be interpreted as meaning that the transformation of the right of perpetual usufruct into full immovable property ownership rights provided for by national legislation against payment of a fee constitutes a supply of goods within the meaning of that provision.

The third question

64By its third question, the referring court asks, in essence, whether the VAT Directive must be interpreted as meaning that, where the transformation of the right of perpetual usufruct into full immovable property ownership rights provided for by national legislation takes place against payment of a fee, a municipality acts as a taxable person within the meaning of Article 9(1) of that directive, or as a public authority for the purposes of Article 13(1) of that directive.

65In order to answer that question, it is necessary to assess, as a preliminary point, whether the transformation of the right of perpetual usufruct into full immovable property ownership rights against payment of a fee constitutes an economic activity within the meaning of Article 9(1) of the VAT Directive.

66The application of Article 13(1) of the VAT Directive requires a prior finding that the activity in question is economic in nature. If the existence of an economic activity within the meaning of the second subparagraph of Article 9(1) of that directive is established, then the applicability of the exception concerning bodies governed by public law provided for in the first subparagraph of Article 13(1) of that directive must be examined (see, by analogy, judgments of 29 September 2015, Gmina Wrocław, C‑276/14, EU:C:2015:635, paragraph 30; of 29 October 2015, Saudaçor, C‑174/14, EU:C:2015:733, paragraph 31; and of 13 June 2018, Gmina Wrocław, C‑665/16, EU:C:2018:431, paragraph 47).

Economic nature of the activity

67The concept of ‘economic activity’ is defined in the second subparagraph of Article 9(1) of the VAT Directive as covering any activity of producers, traders or persons supplying services and, more particularly, transactions involving ‘the exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis’.

68As regards the concept of ‘exploitation’ for the purposes of the second subparagraph of Article 9(1) of the VAT Directive, it is clear from the case-law of the Court that, in accordance with the requirements of the principle of neutrality of the common system of value added tax, that concept refers to all transactions, whatever may be their legal form, by which it is sought to obtain income from the goods in question on a continuing basis (judgments of 6 October 2009, SPÖ Landesorganisation Kärnten, C‑267/08, EU:C:2009:619, paragraph 20 and the case-law cited, and of 2 June 2016, Lajvér, C‑263/15, EU:C:2016:392, paragraph 24 and the case-law cited).

69Whilst demonstrating that the scope of the concept of ‘economic activity’ is very wide, the analysis of the wording of Article 9(1) of the VAT Directive also clarifies the objective character of that concept, in the sense that the activity is considered per se and without regard to its purpose or results (see, to that effect, judgment of 13 June 2019, IO (VAT – Activities of a member of a supervisory board), C‑420/18, EU:C:2019:490, paragraph 31 and the case-law cited).

70In the present case, account must be taken, in particular, of the fact that the Municipality of Wrocław collects a fee, as consideration for the transformation of the right of perpetual usufruct into full immovable property ownership rights, from the former perpetual usufructuaries which is payable, in principle, for a period of 20 years from the day of that transformation. Similarly, if that fee is paid in the form of a one-off fee, that one-off fee is to correspond to the fee payable for the year in which the intention to make a lump sum payment has been expressed multiplied by the number of years remaining until expiry of the 20-year period, calculated from the day of that transformation.

71Those factors, which it is for the referring court to verify, support the finding that the transformation of the right of perpetual usufruct into full immovable property ownership rights enables the Municipality of Wrocław to obtain income therefrom on a continuing basis and that, consequently, that transaction constitutes an economic activity within the meaning of Article 9(1) of the VAT Directive.

72In that regard, it is irrelevant that such a transformation takes place in pursuance of the law and that the amount of the transformation fee was established by that same law having regard to the necessary compliance with the effectiveness of Article 14(2)(a) of the VAT Directive.

73Similarly, the fact that the Municipality of Wrocław took no active steps for the purpose of transforming the right of perpetual usufruct into full immovable property ownership rights, since that transaction took place by operation of law, cannot, in itself, lead to the finding that that transformation does not fall within the scope of the exploitation of tangible property for the purpose of obtaining income therefrom on a continuing basis for the purposes of the second subparagraph of Article 9(1) of the VAT Directive.

74It cannot be inferred from the Court’s case-law that the fact of taking active steps to market property is a necessary condition for an activity relating to property asset management to be regarded as being carried out for the purpose of obtaining income therefrom on a continuing basis and therefore to be classified as ‘economic’ (see, to that effect, judgment of 13 June 2019, IO (VAT – Activities of a member of a supervisory board), C‑420/18, EU:C:2019:490, paragraph 29 and the case-law cited).

75It should be added that such a condition would also be incompatible with the necessary compliance with the effectiveness of Article 14(2)(a) of the VAT Directive, which, by definition, refers to the transfer of the ownership of property which takes place following an order made by or in the name of a public authority or in pursuance of the law.

Exercise of the activity as a public authority

76With regard to the question whether, in a case such as that in the main proceedings, the Municipality of Wrocław is to be regarded as a taxable person acting as such within the meaning of Article 9(1) of the VAT Directive, or as a public authority for the purposes of the first subparagraph of Article 13(1) of that directive, it should be borne in mind, as a preliminary point, that, in derogation from the general rule on treatment as taxable persons laid down in Article 9(1) of that directive, Article 13(1) of that directive excludes local government authorities from the capacity as a taxable person in respect of activities or economic transactions in which they engage as a public authority, unless their treatment as non-taxable persons leads to significant distortions of competition (judgment of 29 September 2015, Gmina Wrocław, C‑276/14, EU:C:2015:635, paragraph 29 and the case-law cited).

77As a derogation from the general rule that any activity of an economic nature is subject to VAT, that provision must be interpreted strictly (order of 20 March 2014, Gmina Wrocław, C‑72/13, not published, EU:C:2014:197, paragraph 19 and the case-law cited).

78According to settled case-law, it follows from the very wording of that provision that, in order for the rule of treatment as a non-taxable person to apply, two cumulative conditions must be satisfied, that is to say, the activities in question must, first, be carried out by a body governed by public law and, second, that body must act as a public authority. As regards the latter condition, it is the manner in which the activities at issue are carried out that determines the scope of the treatment of public bodies as non-taxable persons. Thus, activities carried out as public authorities for the purposes of the first subparagraph of Article 13(1) of the VAT Directive are those engaged in by bodies governed by public law under the special legal regime applicable to them and do not include activities pursued by them under the same legal conditions as those that apply to private traders (order of 20 March 2014, Gmina Wrocław, C‑72/13, not published, EU:C:2014:197, paragraph 19 and the case-law cited).

79The Court has also made it clear that the subject matter or purpose of the activity in question is in that regard irrelevant and that the fact that the pursuit of that activity involves the use of powers conferred by public law shows that that activity is subject to a public law regime (judgment of 29 October 2015, Saudaçor, C‑174/14, EU:C:2015:733, paragraph 70 and the case-law cited).

80As regards specifically the first of the two conditions laid down in Article 13(1) of the VAT Directive, for the rule of treatment as a non-taxable person to apply, there is no question that the Municipality of Wrocław is a body governed by public law.

81However, the second condition laid down by that provision must also be satisfied, that is to say, that only activities engaged in by a body governed by public law acting as a public authority are exempt from VAT.

82In the present case, subject to verification by the referring court, several factors seem to indicate that, in connection with the transformation of the right of perpetual usufruct into full immovable property ownership rights, the Municipality of Wrocław does not exercise powers conferred by public law.

83In addition, it appears that the Municipality of Wrocław, in implementing measures adopted by the national legislature, has no decision-making power as regards the personal scope of such a transformation and the detailed rules of application of that transformation.

84It is apparent that, in accordance with the provisions of the Law on transformation, the role of the Municipality of Wrocław consists, in essence, in verifying the facts, issuing a certificate confirming the transformation of the right of perpetual usufruct into full immovable property ownership rights and informing the new owner of the obligation to pay a transformation fee. As the Advocate General observed in point 61 of her Opinion, the fee payable by the former perpetual usufructuaries is not fixed by the Municipality of Wrocław in an administrative procedure as a public authority under a special public law regime applicable to it.

85It follows from the foregoing that, subject to the verifications which it is for the referring court to carry out, the activities engaged in by the Municipality of Wrocław in the context of the transformation of the right of perpetual usufruct into full immovable property ownership rights, while being economic in nature, cannot be regarded as involving the exercise of powers conferred by public law.

86In the light of the foregoing, the answer to the third question is that the VAT Directive must be interpreted as meaning that, where the transformation of the right of perpetual usufruct into full immovable property ownership rights provided for by national legislation takes place against payment of a fee to the municipality which owns the property, enabling it to obtain income therefrom on a continuing basis, that municipality, subject to the verifications to be made by the referring court, acts as a taxable person within the meaning of Article 9(1) of that directive, and not as a public authority for the purposes of Article 13(1) of that directive.

Costs

87Since 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 (First Chamber) hereby rules:

Article 14(2)(a) 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 transformation of the right of perpetual usufruct into full immovable property ownership rights provided for by national legislation against payment of a fee constitutes a supply of goods within the meaning of that provision.

Directive 2006/112 must be interpreted as meaning that, where the transformation of the right of perpetual usufruct into full immovable property ownership rights provided for by national legislation takes place against payment of a fee to the municipality which owns the property, enabling it to obtain income therefrom on a continuing basis, that municipality, subject to the verifications to be made by the referring court, acts as a taxable person within the meaning of Article 9(1) of that directive, and not as a public authority for the purposes of Article 13(1) of that directive.

Signatures

[Signatures]

( *1 ) Language of the case: Polish.

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 3 September 2020 ¹

(Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 14(2)(a) – Concept of ‘supply’ of goods – Transformation of perpetual usufruct into ownership by operation of law – Transfer of the right to dispose of tangible property as owner – Fiction of a supply – Municipality as a taxable person where it collects fees for a statutory transformation)

I. Introduction

1In these proceedings the Court must consider the VAT treatment of acquisition of ownership by operation of law against payment of a transformation fee. In the present case, land was encumbered by a special right in rem (perpetual usufruct). This meant that the ‘economic owner’ – who used the land as owner – and the ‘formal owner’ – to whom the land belonged under civil law – were different persons. Fees paid by the holder of the right of perpetual usufruct to the owner of the land were subject to Polish VAT.

2As part of a reform of the law on property, the previous owners of the land have now, by operation of law, lost their ownership to the holders of the right of perpetual usufruct. The latter are required to continue to pay annual instalments for perpetual usufruct for 20 years or to make a one-off payment in the same amount. Are the fees now collected by the former owners still subject to VAT as before?

3In this case it was a municipality’s land that was affected. It must therefore also be clarified whether in this instance the municipality acted as a taxable person or as a public authority such that no VAT is incurred.

II. Legal framework

A. EU law

4The EU law framework is determined by Articles 2, 9, 13 and 14 as well as Articles 24 and 25 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’). ²

5Under Article 2(1) of the VAT Directive, the supply of goods for consideration (point a) and the supply of services for consideration (point c) are subject to VAT.

6Article 9(1) of the VAT Directive provides that ‘taxable person’ means any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

7Article 13(1) of the VAT Directive lays down an exemption from VAT for certain activities of bodies governed by public law:

‘1. States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.

However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.

In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a small scale as to be negligible.’

8Article 14(1) and (2) of the VAT Directive specifies when a supply of goods exists:

‘1. “Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.

2. In addition to the transaction referred to in paragraph 1, each of the following shall be regarded as a supply of goods:

the transfer, by order made by or in the name of a public authority or in pursuance of the law, of the ownership of property against payment of compensation;

the actual handing over of goods pursuant to a contract for the hire of goods for a certain period, or for the sale of goods on deferred terms, which provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment;

the transfer of goods pursuant to a contract under which commission is payable on purchase or sale.’

9Article 24(1) of the VAT Directive defines supply of services:

‘1. “Supply of services” shall mean any transaction which does not constitute a supply of goods.’

10Article 25(c) of the VAT Directive provides:

‘A supply of services may consist, inter alia, in one of the following transactions:

…

the performance of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law.’

B. Polish law

11These requirements under EU law were transposed into Polish law by the Law on the tax on goods and services (‘the Law on VAT’). ³ Article 7(1) of the Law on VAT states:

‘Supply of goods … shall mean the transfer of the right to dispose of goods as owner, including:

a transfer by order made by a public authority or by a person acting in the name of that public authority or a transfer by operation of law of the ownership of goods against payment of compensation; …

the leasing of land in perpetual usufruct.’

12The right of perpetual usufruct is regulated in the Law on immovable property management. ⁴ Under Article 12a(1) of the Law on immovable property management, the amounts owed by perpetual usufructuaries are subject to private law.

13Under Article 32(1) of the Law on immovable property management, land leased in perpetual usufruct may be sold only to the perpetual usufructuary.

14Article 32(2) of the Law on immovable property management makes clear that previously established rights of perpetual usufruct expire by operation of law on the day that a contract for the sale of the property is concluded.

15Under Article 69 of the Law on immovable property management, the purchase price to be paid by the perpetual usufructuary includes an amount equivalent to the value of the right of perpetual usufruct of the land, determined on the day of its sale.

16The Law on the transformation of the right of perpetual usufruct of land developed for residential purposes into ownership rights over that land (‘the Law on transformation’) ⁵ provides in Article 1(1) that on 1 January 2019 the right of perpetual usufruct of land developed for residential purposes is transformed into ownership rights over that land.

17Article 7 of the Law on transformation lays down provisions concerning the fee to be paid. Under Article 7(2), the amount of the fee is equivalent to the annual fee for perpetual usufruct. Article 7(6) stipulates that the annual payment is to be made for a period of 20 years from the day of transformation. Article 7(7) establishes the option to make a one-off payment of the same amount upon request. Article 12(2) of the Law on transformation declares Article 12a of the Law on immovable property management to be applicable.

III. Facts

18The dispute underlying the request for a preliminary ruling stems from a request for a tax ruling made by the Municipality of Wrocław (Wrocław, Poland) (the applicant in the main proceedings, ‘the applicant’) to the Dyrektor Krajowej Informacji Skarbowej (Director of the National Tax Information Bureau, ‘the tax authority’).

19The applicant is a body governed by public law, but is also registered as an active taxable person. It was the owner of immovable property which was subject to a third-party perpetual usufruct.

20Perpetual usufruct is a time limited, right in rem to use land, which confers on the holder a status similar to ownership. The perpetual usufructuary pays an annual fee to the owner during the perpetual usufruct. All the parties agree that such leasing in perpetual usufruct is to be classified as a supply of goods for consideration under Article 5(1)(1) in conjunction with Article 7(1)(6) of the Law on VAT. It also seems to be common ground that the municipality collects the payments from the perpetual usufructuary as a taxable person.

21On the basis of the Law on transformation, ownership of immovable property was transferred to the respective perpetual usufructuaries on 1 January 2019. In return, the former owners receive an annual payment for a period of 20 years. The amount of the annual instalment corresponds exactly to the instalment previously payable annually for perpetual usufruct. Upon request, the transformation fee is also payable as a one-off payment.

22The applicant wished to know from the tax authority whether these fees are also subject to VAT. By decision of 15 January 2019, the tax authority confirmed that to be the case. It considers the transformation of the right to be a continuation of the supply originally established through the leasing in perpetual usufruct. Accordingly, the transaction of transfer of ownership shares the same legal status as perpetual usufruct.

23The applicant brought an action against that decision before the Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Wrocław, Poland). It takes the view that the transformation fee is not subject to VAT. The perpetual usufructuary already had a status similar to ownership by virtue of perpetual usufruct and thus acquired the economic right of disposal over the land. If perpetual usufruct is now consolidated into ownership, the same land cannot be the object of a supply again. Furthermore, it acted here in the context of non-taxable activity as a public authority.

IV. Reference for a preliminary ruling

24By decision of 19 June 2019, the Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Wrocław) referred the following questions to the Court:

Does the transformation of the right of perpetual usufruct into immovable property ownership rights by operation of law, such as in the circumstances of the present case, constitute a supply of goods within the meaning of Article 14(2)(a) of the VAT Directive, read in conjunction with Article 2(1)(a) thereof, which is subject to VAT?

If the answer to Question 1 is in the negative, does the transformation of the right of perpetual usufruct into immovable property ownership rights by operation of law constitute a supply of goods within the meaning of Article 14(1) of the VAT Directive, read in conjunction with Article 2(1)(a) thereof, which is subject to VAT?

Does a municipality that charges fees for the transformation of the right of perpetual usufruct into immovable property ownership rights by operation of law, such as in the circumstances of the present case, act as a taxable person within the meaning of Article 9(1) of the VAT Directive, read in conjunction with Article 2(1)(a) thereof, or as a public authority within the meaning of Article 13 of that directive?’

25In the proceedings before the Court, written observations were submitted by the applicant, the Republic of Poland and the European Commission.

V. Legal assessment

A. The questions referred for a preliminary ruling

26In essence, by its first and its second questions, the referring court is seeking to clarify whether the transformation of perpetual usufruct into ownership rights by operation of law is subject to VAT where in return a statutory fee is to be paid by the new owner. As these situations primarily concern land owned by bodies governed by public law, by its third question the court asks whether the municipality actually acted as a taxable person.

27The first two questions can be answered together. However, in so far as they refer expressly to whether the transformation of the right of perpetual usufruct constitutes a supply of goods within the meaning of Article 14(2)(a) or Article 14(1) of the VAT Directive, the following should be noted.

28The court is incorrect in its assumption, which evidently underlies the first two questions, that liability to VAT in this case is dependent on the existence of a supply. Taxable transactions exist not only in the case of a supply of goods under Article 2(1)(a) in conjunction with Article 14 of the VAT Directive, but also in the case of a supply of services under Article 2(1)(c) in conjunction with Article 24 of the VAT Directive. For the purposes of the VAT Directive, anything which does not constitute a supply of goods is a supply of services (Article 24(1) of the VAT Directive).

29The distinction whether a taxable transaction is a supply of goods or a supply of services is important for the place of performance, the time of performance and the tax rate. However, it is immaterial for determining whether VAT is incurred in principle. In order to give the court an answer which will be of use to it, the questions therefore require some clarification.

30Specifically, the court in fact wishes to know whether the transfer of ownership by operation of law in return for payment of a transformation fee constitutes a taxable transaction (supply of goods or supply of services for consideration) (see B) and whether the applicant acted as a taxable person in this regard (see C). If that is the case, the transformation of the right of perpetual usufruct into ownership by operation of law in return for a transformation fee is subject to VAT, as no exemption is applicable.

B. The first and second questions: transformation of the right of perpetual usufruct into ownership as a taxable transaction (supply of goods or supply of services for consideration)

31With regard to the first and second questions, there are two conceivable solutions in my view. Either there are two isolated actions: the leasing of land in perpetual usufruct and the acquisition of land ownership rights by operation of law. If the latter does not constitute a supply of goods, then the transformation into ownership is a supply of services (see 1.). Or, taking an economic overview, the transformation represents the continuation of perpetual usufruct in that the Law on transformation subsequently extends the object of the supply (see 2.).

32Regardless of which approach the Court may take (analysis in isolation or economic overview), a taxable transaction exists in both cases. Therefore, the question asked by the referring court regarding the interpretation of Article 14(2)(a) of the VAT Directive ultimately does not arise (see 3.).

1. Analysis in isolation of the transfer of ownership

33On a formal analysis, the owner first transfers the right of disposal over the land to the perpetual usufructuary, which constitutes a taxable supply of goods within the meaning of Article 14(1) of the VAT Directive. In a second step, the right of perpetual usufruct is transformed into ownership by operation of law. If the transformation is not a supply of goods because the right of disposal had already been transferred to the holder of the right of perpetual usufruct, there is in any case a taxable supply of services under Article 24(1) of the VAT Directive.

34Under Article 24(1) of the VAT Directive, transactions which do not constitute a supply of goods are taxable as a supply of services. According to the Court’s case-law, a taxable supply of services for consideration requires only that there is a legal relationship between a provider of the service and a recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient. ⁶ This is the case if there is a direct link between the service supplied and the consideration received. ⁷

35Not all payments necessarily result in taxable reciprocal performance. Taxation in the form of a tax on consumption occurs only where the recipient also obtains a consumable benefit. ⁸ There is thus no supply of services within the meaning of Article 24(1) of the VAT Directive where a payee receives a payment not as consideration for an identifiable service, but for other reasons (for example compensation for damage caused by delay ⁹ or for loss of profit ¹⁰). ¹¹

36In the present case, a consumable benefit for the previous perpetual usufructuary can be readily affirmed. Such a benefit exists here because, from an economic point of view, the perpetual usufructuary, as holder of the right of disposal, used the land as owner even before the transformation. As owner, however, it can now not only derive income from the land, but also transfer the land to third parties. The transformation of the right of perpetual usufruct into ownership is thus a consumable benefit. On an analysis in isolation, there is therefore a supply of services under Article 24(1) of the VAT Directive.

2. Economic overview: transfer of ownership as the mere continuation of the original supply of goods

37Like Poland, however, I consider an economic overview to be more compelling in this case. Contrary to the view taken by the applicant, the transformation of perpetual usufruct into ownership is not irrelevant for VAT purposes, but is to be regarded as the continuation of a supply of goods under Article 14(1) of the VAT Directive.

38According to the Court’s case-law, a supply of goods covers any transfer of tangible property by one party which empowers the other party actually to dispose of it as if he were its owner. ¹² If the recipient of a supply cannot dispose of property ‘as owner’, this does not exclude a supply if he can at least deal with it ‘like an owner’. ¹³ This is made clear in certain language versions of the VAT Directive at least. ¹⁴

39This is also confirmed by the Court’s case-law. The principles of the uniform application of EU law and equality require an autonomous and uniform interpretation of concepts in EU law. ¹⁵ This would be jeopardised if the existence of a supply of goods, which determined the acquisition of ownership under civil law, depended on the arrangements under national civil law. It is therefore immaterial to the concept of supply of goods whether ownership is transferred. ¹⁶ Accordingly, the right of disposal for the purposes of Article 14 of the VAT Directive cannot be equated with legal ownership. A supply of goods is not precluded, in the view of the Court, in the absence of a transfer of ownership under civil law. ¹⁷

40The economic right of disposal was acquired by the current owners upon the transfer of the right of perpetual usufruct. The perpetual usufructuary is able to use the land as owner. The transfer of perpetual usufruct is thus correctly regarded by all the parties as a taxable supply of goods under Article 14(1) of the VAT Directive, such that the annual fees are subject to VAT. This is explicitly mentioned by the referring court.

41However, the applicant’s conclusion that the transformation transaction is irrelevant for VAT purposes is incorrect. Previously the annual payments made by the perpetual usufructuaries to the owner served as consideration for the acquisition of the right of disposal over the land. They were therefore subject to VAT, as consideration for the supply of goods under Article 5(1) and Article 7(7)(6) of the Law on VAT. The fact that ownership has now also been transferred to the previous perpetual usufructuary, who pays a transformation fee rather than perpetual usufruct instalments, cannot affect the status of the payments for VAT purposes.

42The payments still relate to the supply of the land. The previous perpetual usufructuary continues to pay a fee for the acquisition of the right of disposal over the land. The transformation transaction consists merely in a modification of the object of the supply. Originally the consideration was paid for perpetual usufruct alone, now it is for perpetual usufruct consolidated into ownership.

43This is also clear from the arrangements governing the transformation fee, as is rightly asserted by Poland. The previous perpetual usufructuary still pays the instalments it owes for perpetual usufruct, but under modified terms. The amount of the fee paid in connection with the transformation of ownership corresponds exactly to the amount payable annually for perpetual usufruct.

44Where the option of a one-off payment is available upon request under Article 7(7) of the Law on transformation or a limit of 20 annual instalments is established under Article 7(6) of the Law on transformation, this is merely an adjustment of the terms of payment. It does not affect the legal basis for the payment. The aim of the Law on transformation seems to be solely to resolve the previous divergence between formal and material ownership. Both the payment obligation and the amount of the fee follow from the original transfer of perpetual usufruct and should therefore also be regarded from an economic point of view uniformly as consideration for that supply.

3. Supply of goods within the meaning of Article 14(2) of the VAT Directive?

45Whatever approach is adopted by the Court, the interpretation of Article 14(2)(a) of the VAT Directive, under which the transfer, in pursuance of the law, of the ownership of property against payment of compensation is to be regarded as a supply of goods, is therefore immaterial. A taxable transaction exists in any case.

46The referring court is nevertheless seeking clarification of the relationship between Article 14(1) and Article 14(2)(a) of the VAT Directive. In the context of the relationship of cooperation with the national courts the Court answers their questions as far as possible. However, the question asked by the referring court appears to be based on a false assumption. It seemingly assumes that Article 14(2)(a) of the VAT Directive deems a supply of goods to exist in the absence of a transfer of the right of disposal within the meaning of Article 14(1) of the VAT Directive.

47The Court has once ruled ¹⁸ – albeit in a case where there was a supply of goods under Article 14(1) of the VAT Directive ¹⁹ – that Article 14(2)(a) constitutes a lex specialis in relation to Article 14(1) of the VAT Directive. It also deemed a supply to exist in the absence of the acquisition of control. ²⁰ However, on closer analysis, this is precluded by the wording and the scheme of that provision (see points 48 and 49), its history (see points 50 and 51) and teleological considerations (see point 52 et seq.).

48It follows from the wording and the scheme of Article 14 of the VAT Directive that Article 14(2)(a) of the VAT Directive always presumes a supply of goods to exist. It refers to the ‘transfer of the ownership’. A transfer of ownership is the classic case of a supply of goods under Article 14(1) of the VAT Directive. ²¹

49The parallel provision in Article 25(c) of the VAT Directive also militates against a lex specialis relationship. It makes it absolutely clear (‘inter alia’) that the supply of services in accordance with the basic requirement under Article 24(1) of the VAT Directive includes those which are forced to be performed. Article 25 of the VAT Directive is thus important only as a standard example. That provision certainly does not deem anything to exist. This understanding can also be applied to the relationship between Article 14(1) and Article 14(2)(a) of the VAT Directive. ²²

50This also reflects the will of the legislature. Article 14(2)(a) of the VAT Directive goes back to Article 5(4) of Sixth VAT Directive, ²³ which is in turn based on Article 5(2)(f) of the Proposal for a Sixth Council Directive, ²⁴ which states: ‘The following shall also be considered supplies within the meaning of paragraph 1: … (f) the transfer, by order made by or in the name of a public authority, of the ownership in property against payment of compensation, where the transfer of such property by private agreement would attract liability to the tax.’

51The provision was therefore intended to ensure a parallelism between the VAT treatment of a normal transfer by private agreement and of a transfer of ownership by order made by a public authority.

52From a teleological point of view too, the view that Article 14(2)(a) of the VAT Directive implies the fiction of a supply of goods in the absence of the transfer of the right of disposal ²⁵ is unconvincing.

53This is confirmed if we consider the other two alternatives in Article 14(2) of the VAT Directive. Article 14(2)(b) or (c) of the VAT Directive also do not simply establish the fiction of a supply. Article 14(2)(b) of the VAT Directive merely makes clear that a supply of goods exists overall in the case of finance leasing, for example, ²⁶ regardless of the order in which the economic right of disposal and ultimately ownership are transferred.

54A specific purpose is also apparent in Article 14(2)(c) of the VAT Directive, which relates to commission transactions. Although the agency work provided by the commission agent to the principal should be treated in principle as a supply of services under Article 24(1) of the VAT Directive, Article 14(2)(c) reclassifies it as a supply of goods in the case of a sales commission. The provision thus creates a fiction of two identical supplies of goods made consecutively ²⁷ in order to ensure a parallelism in the assessment for VAT purposes between the transactions between the commission agent and the principal, on the one hand, and between the commission agent and the purchaser, on the other.

55However, there is no clear reason, in the context of Article 14(2)(a) of the VAT Directive, why a supply of goods should be deemed to exist in a case where ownership is transferred separately from the right of disposal. On the contrary, such an interpretation in cases like the present one would lead to duplication of the supply of goods which runs counter to the system. Goods which have already been supplied once to the purchaser cannot be supplied to the same purchaser a second time. There is no risk of a gap in taxation in view of the catch-all definition of supply of services under Article 24(1) of the VAT Directive.

56The regulatory content of Article 14(2)(a) of the VAT Directive thus amounts to no more than a clarification that a (forced) transfer of ownership on the basis of public law is subject to VAT as a supply of goods within the meaning of Article 14(1) of the VAT Directive if a comparable transaction under private law would constitute such a supply. This is ultimately also suggested by the fact that the legislature may have had in view above all situations such as expropriation or enforcement. ²⁸ In both these cases the right of disposal over the goods is undoubtedly transferred.

C. The third question: no activity as a public authority

57By the third question, the referring court asks whether in the present case the municipality is actually acting as a taxable person within the meaning of Article 9 of the VAT Directive. If the municipality collects the transformation fee as a body governed by public law in the exercise of an activity in which it engages as a public authority, the exception under the first subparagraph of Article 13(1) of the VAT Directive could preclude a taxable transaction.

58Even if – as is suggested in the written observations submitted by Poland – the statutory transformation of the right of perpetual usufruct in Poland was intended to apply above all or even exclusively to land owned by bodies governed by public law, Article 13 of the VAT Directive is not relevant here.

59The background to this provision is that certain activities, while fully economic in nature, are closely linked to the exercise of rights and powers of public authority ²⁹ which are reserved solely for bodies governed by public law. A distortion of competition can then be ruled out.

60Bodies governed by public law therefore act as public authorities, according to the Court’s case-law, only where they act under a special legal regime applicable to them and specifically do not pursue activities under the same legal conditions as those that apply to private economic operators. ³⁰

61Neither the loss of ownership nor the collection of the transformation fee appears to be an exercise of public authority here. It is true that the Law on transformation requires the municipality to conduct an administrative procedure. However, the fee payable by the previous perpetual usufructuaries is not fixed by the municipality in an administrative procedure as a public authority under a special legal regime applicable to it.

62Instead, the municipality receives the payment in its capacity as the previous owner of the land. It is also immaterial that the transformation by operation of law forms part of the revision of property law relating to the acquisition of public land, which was evidently prohibited during communist times and which is why at that time recourse was had to the instrument of perpetual usufruct. From an economic point of view, the current transfer of ownership constitutes a continuation of the supply of goods connected with the leasing of land in perpetual usufruct (see above, 2.). As the Commission rightly asserts, the obligation to pay a fee is thus connected with the surrender of the perpetual usufruct of the municipal land. This has its basis in civil law, however.

63Consequently, the municipality also acted as a taxable person in the collection of perpetual usufruct instalments. There is therefore no reason to classify the municipality’s activity now any differently than previously.

64In this regard, the Law on transformation is without prejudice to the (civil-law) legal character of the fee. This is confirmed by Article 12(2) of the Law on transformation. It refers expressly to Article 12a of the Law on immovable property management, which establishes the civil-law legal character of the fees paid by the perpetual usufructuary.

D. Conclusion

Conclusion

65I therefore propose that the Court should rule as follows:

The transformation of the right of perpetual usufruct into immovable property ownership rights by operation of law, such as in the case at issue, constitutes a supply of goods within the meaning of Article 14(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Article 2(1)(a) thereof, which is subject to value added tax (VAT).

A municipality that charges fees for the transformation of the right of perpetual usufruct into immovable property ownership rights by operation of law, such as in the circumstances of the present case, acts as a taxable person within the meaning of Article 9(1) and not as a public authority within the meaning of Article 13 of Directive 2006/112.

¹ Original language: German.

² OJ 2006 L 347, p. 1.

³ Ustawa o podatku od towarów i usług of 11 March 2004.

⁴ Ustawa o gospodarce nieruchomościami of 21 August 1997.

⁵ Ustawa o przekształceniu prawa użytkowania wieczystego gruntów zabudowanych na cele mieszkaniowe w prawo własności tych gruntów of 20 July 2018.

⁶ See, most recently, judgments of 11 June 2020, Vodafone Portugal (C‑43/19, EU:C:2020:465, paragraph 31); of 11 March 2020, San Domenico Vetraria (C‑94/19, EU:C:2020:193, paragraph 21); and the leading judgment of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 14).

⁷ Judgments of 22 November 2018, MEO – Serviços de Comunicações e Multimédia (C‑295/17, EU:C:2018:942, paragraph 39); of 23 December 2015, Air France-KLM and Hop!-Brit Air (C‑250/14 and C‑289/14, EU:C:2015:841, paragraph 22); and of 18 July 2007, Société thermale d’Eugénie-les-Bains (C‑277/05, EU:C:2007:440, paragraph 19).

⁸ See my Opinion in MEO – Serviços de Comunicações e Multimédia (C‑295/17, EU:C:2018:413, points 35 and 36), with reference to the judgments of 18 December 1997, Landboden-Agrardienste (C‑384/95, EU:C:1997:627, paragraph 13), and of 29 February 1996, Mohr (C‑215/94, EU:C:1996:72, paragraph 20).

⁹ Judgment of 1 July 1982, BAZ Bausystem (222/81, EU:C:1982:256, paragraph 8 regarding default interest).

¹⁰ Judgment of 18 July 2007, Société thermale d’Eugénie-les-Bains (C‑277/05, EU:C:2007:440, paragraph 35 regarding compensation for loss of profit suffered as a result of default).

¹¹ Judgment of 29 February 1996, Mohr (C‑215/94, EU:C:1996:72, paragraph 21); see also my Opinion in MEO – Serviços de Comunicações e Multimédia (C‑295/17, EU:C:2018:413, points 35 and 36).

¹² Judgments of 2 July 2015, NLB Leasing (C‑209/14, EU:C:2015:440, paragraph 29); of 18 July 2013, Evita-K (C‑78/12, EU:C:2013:486, paragraph 33); of 3 June 2010, De Fruytier (C‑237/09, EU:C:2010:316, paragraph 24); of 14 July 2005, British American Tobacco and Newman Shipping (C‑435/03, EU:C:2005:464, paragraph 35); and of 8 February 1990, Shipping and Forwarding Enterprise Safe (C‑320/88, EU:C:1990:61, paragraph 7).

¹³ My Opinion in Herst (C‑401/18, EU:C:2019:834, point 34).

¹⁴ Thus, according to the German and French language versions, ‘wie ein Eigentümer’ and ‘comme un propriétaire’ respectively, whereas in the English and Estonian language versions (‘as owner’ and ‘Kaubatarne on materiaalse vara omanikuna käsutamise õiguse üleminek’ respectively). See my Opinion in Herst (C‑401/18, EU:C:2019:834, footnote 16 in point 34).

¹⁵ Judgments of 21 June 2018, Oberle (C‑20/17, EU:C:2018:485, paragraph 33), and of 29 July 2019, B (Turnover of a second-hand car dealer) (C‑388/18, EU:C:2019:642, paragraph 30).

¹⁶ Judgments of 13 June 2018, Gmina Wrocław (C‑665/16, EU:C:2018:431, paragraph 39); of 2 July 2015, NLB Leasing (C‑209/14, EU:C:2015:440, paragraph 29); of 16 February 2012, Eon Aset Menidjmunt (C‑118/11, EU:C:2012:97, paragraph 39); of 6 February 2003, Auto Lease Holland (C‑185/01, EU:C:2003:73, paragraph 32); and of 8 February 1990, Shipping and Forwarding Enterprise Safe (C‑320/88, EU:C:1990:61, paragraphs 7 and 8).

¹⁷ Judgment of 8 February 1990, Shipping and Forwarding Enterprise Safe (C‑320/88, EU:C:1990:61, paragraph 9).

¹⁸ Judgment of 13 June 2018, Gmina Wrocław (C‑665/16, EU:C:2018:431, paragraph 36), in which the Court followed the Opinion of Advocate General Bobek (Gmina Wrocław (C‑665/16, EU:C:2018:112, point 47)).

¹⁹ In that case the conveyed property merely continued to be managed by the municipality that had lost ownership rights. However, the management of a third-party property cannot be equated with the right of disposal for the purposes of Article 14(1) of the VAT Directive. Because of the imprecise questions referred for a preliminary ruling, this was not addressed by the Court.

²⁰ Judgment of 13 June 2018, Gmina Wrocław (C‑665/16, EU:C:2018:431, paragraph 36 et seq.).

²¹ See, for example, judgment of 19 December 2018, AREX CZ (C‑414/17, EU:C:2018:1027, paragraph 78).

²² See judgment of 4 May 2017, Commission v Luxembourg (C‑274/15, EU:C:2017:333, paragraph 88), in which the Court itself makes links between Article 14(2)(c) of the VAT Directive and the parallel provision applicable to the supply of services (Article 28 of the VAT Directive).

²³ Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes (OJ 1977 L 145, p. 1).

²⁴ Proposal for a Sixth Council Directive on the harmonisation of legislation of Member States concerning turnover taxes, COM(73) 950 final.

²⁵ See Opinion of Advocate General Bobek in Gmina Wrocław (C‑665/16, EU:C:2018:112, point 52).

²⁶ Opinion of Advocate General Szpunar in Mercedes-Benz Financial Services UK (C‑164/16, EU:C:2017:414, point 41).

²⁷ Judgments of 4 May 2017, Commission v Luxembourg (C‑274/15, EU:C:2017:333, paragraph 88), and of 14 July 2011, Henfling, Davin, Tanghe (C‑464/10, EU:C:2011:489, paragraph 35).

²⁸ With regard to supplies of goods effected through enforcement, see for example judgment of 26 March 2015, Macikowski (C‑499/13, EU:C:2015:201, paragraph 33 et seq.).

²⁹ Judgment of 16 September 2008, Isle of Wight Council and Others (C‑288/07, EU:C:2008:505, paragraph 31).

³⁰ Judgments of 13 June 2018, Gmina Wrocław (C-665/16, EU:C:2018:431, paragraph 48); of 16 September 2008, Isle of Wight Council and Others (C-288/07, EU:C:2008:505, paragraph 21); of 12 September 2000, Commission v Greece (C‑260/98, EU:C:2000:429, paragraph 35); and of 14 December 2000, Fazenda Pública (C-446/98, EU:C:2000:691, paragraph 17).