C-716/18 AJPF Caraş-Severin and DGRFP Timişoara

JUDGMENT OF THE COURT (Fifth Chamber)

9 July 2020 ( *1 )

(Reference for a preliminary ruling – Taxation – Common system of value added tax (VAT) – Directive 2006/112/EC – Point 4 of the first paragraph of Article 288 – Special scheme for small enterprises – Method of calculating annual turnover which serves as a reference for the application of the special scheme for small enterprises – Concept of ‘incidental real estate transaction’ – Letting of immovable property by a natural person who exercises several liberal professions)

In Case C‑716/18,

REQUEST for a preliminary ruling under Article 267 TFEU from the Curtea de Apel Timişoara (Court of Appeal, Timişoara, Romania), made by decision of 1 November 2018, received at the Court on 14 November 2018, in the proceedings

CT

v

Administraţia Judeţeană a Finanţelor Publice Caraş-Severin – Serviciul Inspecţie Persoane Fizice,

Direcţia Generală Regională a Finanţelor Publice Timişoara – Serviciul Soluţionare Contestaţii 1,

THE COURT (Fifth Chamber),

composed of E. Regan, President of the Chamber, I. Jarukaitis, E. Juhász (Rapporteur), M. Ilešič and C. Lycourgos, Judges,

Advocate General: J. Kokott,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

CT, by N. Şvidchi, lawyer,

the Romanian Government, initially by E. Gane, L. Liţu and O.‑C. Ichim and by C.‑R. Canţăr, acting as Agents, and subsequently by E. Gane, L. Liţu and O.‑C. Ichim, acting as Agents,

the European Commission, by A. Armenia and J. Jokubauskaitė, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 6 February 2020,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of point 4 of the first paragraph of Article 288 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), as amended by Council Directive 2009/162/EU of 22 December 2009 (OJ 2010 L 10, p. 14) (‘the VAT Directive’).

2The request has been made in proceedings between CT and the Administraţia Judeţeană a Finanţelor Publice Caraş-Severin – Serviciul Inspecţie Persoane Fizice (Provincial Authority for Public Finances, Caraș-Severin – Tax Inspection Department for Natural Persons, ‘the AJFP Caraș-Severin’) and the Direcţia Generală Regională a Finanţelor Publice Timişoara – Serviciul Soluţionare Contestaţii 1 (Regional Directorate-General of Public Finances, Timișoara – Department for the Settlement of Complaints 1) concerning the method of calculating his annual turnover for the purposes of applying, to him, the special scheme for small enterprises provided for in the VAT Directive.

Legal framework

EU law

3Article 9 of the VAT Directive states:

‘1. “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.

…’

4Under Article 135(1)(l) and (2) of that directive:

‘1. Member States shall exempt the following transactions:

…

the leasing or letting of immovable property.

2. The following shall be excluded from the exemption provided for in point (l) of paragraph 1:

the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;

the letting of premises and sites for the parking of vehicles;

the letting of permanently installed equipment and machinery;

the hire of safes.

Member States may apply further exclusions to the scope of the exemption referred to in point (l) of paragraph 1.’

5Article 174(2) of that directive provides as follows:

‘By way of derogation from paragraph 1, the following amounts shall be excluded from the calculation of the deductible proportion:

the amount of turnover attributable to supplies of capital goods used by the taxable person for the purposes of his business;

the amount of turnover attributable to incidental real estate and financial transactions;

the amount of turnover attributable to the transactions specified in points (b) to (g) of Article 135(1) in so far as those transactions are incidental.’

6Under Title XII, ‘Special Schemes’, the VAT Directive contains Chapter 1, entitled ‘Special scheme for small enterprises’. Section 2 of that chapter, entitled ‘Exemptions or graduated relief’, contains Articles 282 to 292 of that directive.

7In accordance with Article 282 of that directive, the exemptions and graduated tax relief provided for in that section are to apply to the supply of goods and services by small enterprises.

8Article 287 of the directive is worded as follows:

‘Member States which acceded after 1 January 1978 may exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of the following amounts at the conversion rate on the day of their accession:

…

Romania: EUR 35000;

…’

9Article 288 of the VAT Directive provides:

‘The turnover serving as a reference for the purposes of applying the arrangements provided for in this Section shall consist of the following amounts, exclusive of [value added tax (VAT)]:

the value of supplies of goods and services, in so far as they are taxed;

the value of transactions which are exempt, with deductibility of the VAT paid at the preceding stage, pursuant to Articles 110 or 111, Article 125(1), Article 127 or Article 128(1);

the value of transactions which are exempt pursuant to Articles 146 to 149 and Articles 151, 152 or 153;

the value of real estate transactions, financial transactions as referred to in points (b) to (g) of Article 135(1), and insurance services, unless those transactions are ancillary transactions.

However, disposals of the tangible or intangible capital assets of an enterprise shall not be taken into account for the purposes of calculating turnover.’

10Under Article 1 of Council Implementing Decision 2012/181/EU of 26 March 2012 authorising Romania to introduce a special measure derogating from Article 287 of Directive 2006/112 (OJ 2012 L 92, p. 26), ‘by way of derogation from point 18 of Article 287 of [the VAT] Directive …, Romania is authorised to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 65000 at the conversion rate on the day of its accession to the European Union’.

Romanian law

11Article 127 of Lege nr. 571 privind Codul fiscal (Law No 571 on the Tax Code) of 22 December 2003 (Monitorul Oficial al României, Part 1, No 927 of 23 December 2003), as amended by lege nr. 343 pentru modificarea şi completarea Legii nr. 571 privind Codul fiscal (Law No 343 amending and supplementing Law No 571 on the Tax Code) of 17 July 2006 (Monitorul Oficial al României, Part I, No 662 of 1 August 2006) (‘the Tax Code’), entitled ‘Taxable persons and economic activities’, provides:

‘1. “Taxable person” shall mean any person who, independently, carries out in any place an economic activity as referred to in paragraph 2, whatever the purpose or results of that activity.

2. For the purposes of this title, 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.’

12Article 141 of that code, entitled ‘Exemptions for domestic transactions’, provides, in paragraph 2:

‘The following transactions shall also be exempt from VAT:

…

land leases, concessions, the letting and leasing of immovable property …’

13Article 152(1) of that code, entitled ‘Special exemption scheme for small enterprises’, is worded as follows:

‘A taxable person established in Romania, in accordance with Article 125a(2)(a), whose annual turnover, declared or achieved, is less than the upper limit of EUR 65000, in the equivalent [Romanian lei (RON)] set in accordance with the exchange rate communicated by the Banca Națională a României [(National Bank of Romania)] on the date of accession and rounded to the nearest thousand, namely RON 220000, may apply the tax exemption … in respect of the transactions referred to in Article 126(1), with the exception of intra-Community supplies of new means of transport, which are exempt under Article 143(2)(b).’

14Article 152(2) of the code specifies the transactions the total amount of which, net of tax, serves as a reference for the purposes of applying the special scheme for small enterprises and lays down the condition that those transactions cannot be ancillary to the taxable person’s principal activity.

15Article 153 of the Tax Code, entitled ‘Identification for VAT purposes’, provides:

‘1. A taxable person whose economic activity is carried out in Romania and who engages or intends to engage in an economic activity involving taxable transactions and/or VAT-exempt transactions with a right of deduction, shall be required to request registration for VAT purposes with the competent tax authority …, as follows: …

if, during a calendar year, he reaches or exceeds the exemption threshold provided for in Article 152(1) within 10 days of the end of the month in which he reached or exceeded that threshold;

…’

16The normele metodologice de aplicare a Legii nr. 571/2003 privind Codul fiscal (detailed rules for the application of Law No 571/2003 on the Tax Code), approved by hotărâre nr. 44 pentru aprobarea Normelor metodologice de aplicare a Legii nr. 571/2003 privind Codul fiscal (Government decision No 44 approving the rules for implementing Law No 571/2003 on the Tax Code) of 22 January 2004 (Monitorul Oficial al României, Part I, No 112 of 6 February 2004), as amended by hotărâre nr. 670 pentru modificarea şi completarea Normelor metodologice de aplicare a Legii nr. 571/2003 privind Codul fiscal, aprobate prin Hotărârea Guvernului nr. 44/2004 (Government decision No 670 amending and supplementing the rules for implementing Law No 571/2003 on the Tax Code, approved by Government decision No 44/2004) of 4 July 2012 (Monitorul Oficial al României, Part I, No 481 of 13 July 2012), provided, in point 47, paragraph 3:

‘A transaction is ancillary to the taxable person’s principal activity if the following cumulative conditions are met:

performing the transaction requires limited technical resources in terms of equipment and staff;

the transaction is not directly connected with the principal activity of the taxable person; and

the value of the purchases made for the purposes of the transaction and the amount of the deductible tax relating to the transaction are insignificant.’

17Point 61, paragraph 1 of those rules provided as follows in respect of Article 152 of the Tax Code:

‘In accordance with Article 152(2) of the Tax Code, a transaction is ancillary to the taxable person’s principal activity if the cumulative conditions laid down in point 47, paragraph 3 are met.’

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

18The appellant in the main proceedings, a university lecturer, practices a number of professions independently, namely he is an accountant, a tax consultant, a practitioner in collective proceedings and a lawyer and, in addition, he receives an income as an author of articles and publications. In 2008, as a natural person, he obtained a tax registration number for ‘accounting activities’ which include accounting and tax consultancy.

19The appellant in the main proceedings, who used his home address as the registered address for the majority of his activities, declared that he performed his profession as a practitioner in collective proceedings at the address of a building that he co-owns with another person, part of which is let to a commercial company of which he is a shareholder and director. That company, which is identified for VAT purposes, has its registered office in that building, where it carries out, inter alia, business consultancy and other management consultancy activities, accountancy and financial auditing, as well as tax consultancy. That company has declared its principal area of activity as: ‘Business and other management consultancy activities’.

20In 2016, the appellant in the main proceedings was the subject of a VAT tax inspection with regard to his economic activity as a natural person, following which the AJFP Caraș-Severin found that, during 2012, his turnover had exceeded RON 220000 (approximately EUR 65000), which at that time was the reference threshold for applying the special scheme for small enterprises in Romania. Accordingly, by a tax assessment notice, that tax authority charged to the appellant in the main proceedings the amount that he should have paid from the date on which he was required to identify himself for VAT purposes, namely 1 September 2012.

21In order to determine whether the appellant in the main proceedings’ annual turnover had exceeded that reference threshold in 2012, the AJFP Caraș-Severin took into account his income not only from the performance of his various liberal professions and his copyrights, but also from the letting of that property. That authority’s calculation did not include the salary that the person concerned received in his capacity as a university lecturer or the income from his activity as a lawyer since this had already been subject to VAT in connection with the professional partnership of lawyers of which he was a partner.

22In particular, after having found that, in 2012, of the total amount of the appellant in the main proceedings’ income that was relevant for the purposes of applying the special scheme for small enterprises, 69% came from his activity as a practitioner in collective proceedings, 17% from the letting of the property which he co-owned and 14% from his activity as an accountant and tax consultant, the AJFP Caraș-Severin took the view that the main activity of the person concerned, during that year, was the activity as a practitioner in collective proceedings. That authority stated that the letting of the building could not be classified as an ‘ancillary transaction’ to that main activity, for the purposes of Article 152(2) of the Tax Code, and therefore the income from that letting could not be excluded from the calculation of the turnover which serves as a reference for determining the application of the special scheme for small enterprises.

23The appellant in the main proceedings lodged a complaint against that tax assessment notice and the tax inspection report by the AJFP Caraș-Severin. By decision of 22 August 2017, the Regional Directorate-General of Public Finances, Timișoara – Department for the Settlement of Complaints 1 rejected that complaint.

24The appellant in the main proceedings lodged an administrative appeal against that decision. By judgment of 26 March 2018, the Tribunalul Timiș (Regional Court, Timiș, Romania) dismissed that administrative appeal.

25The appellant in the main proceedings therefore lodged an appeal before the referring court, by which he claims that the letting of the immovable property which he co-owns is an ancillary transaction for the purposes of Article 152(2) of the Tax Code and the income deriving from it does not need to be included in calculation of turnover for the purposes of applying the special scheme for small enterprises. Taking the view that the resolution of the dispute before it required an interpretation of provisions of the VAT Directive, the Curtea de Apel Timişoara (Court of Appeal, Timişoara, Romania) decided to stay the proceedings and refer the following questions to the Court for a preliminary ruling:

In circumstances such as those here at issue, in which a natural person carries on an economic activity by practising several liberal professions and by letting out immovable property and thereby obtaining income of a continuous nature, do the provisions of Article 288 [first paragraph] point 4 of [the VAT] Directive … require the identification of a particular professional activity as being the principal activity in order to verify whether the letting can be classified as an ancillary transaction thereto and, if so, on the basis of what criteria is that principal activity to be identified, or must those provisions be interpreted as meaning that all of the professional activities by which the economic activity of that natural person is carried on constitute the “principal activity”?

In the event that the immovable property let by a natural person to a third party is not intended and used for the performance of the remainder of his economic activity, so that it is not possible to establish any connection between that letting and the practice of the various professions of that person, do the provisions of Article 288 [first paragraph] point (4) of [the VAT] Directive … permit the classification of the letting as an “ancillary transaction”, with the consequence that it is excluded from the calculation of the turnover which serves as a reference for the purpose of applying the special exemption scheme for small undertakings?

In the situation described in the second question, is it relevant to the classification of the letting transaction as “ancillary” that it is for the benefit of a third party – a legal person of which the natural person is a shareholder and director – established in the property let and carrying on professional activities of the same kind as those of the natural person in question?’

The questions referred for a preliminary ruling

26By its questions, which should be examined together, the referring court asks, in essence, whether point 4 of the first paragraph of Article 288 of the VAT Directive must be interpreted as meaning that, with respect to a taxable person who is a natural person and whose economic activity consists of the exercise of several liberal professions and the letting of immovable property, that letting constitutes an ‘ancillary transaction’ under that provision for the purposes of applying the special scheme for small enterprises.

27As a preliminary point, first, it should be pointed that, as an exception to the common system applicable under the VAT Directive, the special scheme for small enterprises laid down in Articles 281 to 294 of that directive must be interpreted strictly and be applied only to the extent necessary to achieve its objective (see, to that effect, judgment of 2 May 2019, Jarmuškienė, C‑265/18, EU:C:2019:348, paragraph 27 and the case-law cited).

28Secondly, in respect of the letting of immovable property, the Court has held that this is an economic activity that falls within the scope of the VAT Directive in so far as the letting transaction is done for the purpose of obtaining income therefrom on a continuing basis, in accordance with the second subparagraph of Article 9(1) of that directive (see, to that effect, judgment of 27 January 2000, Heerma, C‑23/98, EU:C:2000:46, paragraph 19 and the case-law cited).

29Thirdly, as the Advocate General noted in points 30 and 31 of her Opinion, the letting of immovable property may constitute a ‘real estate transaction’ under point 4 of the first paragraph of Article 288 of the VAT Directive only in so far as it is an exempt transaction, which it is for the referring court to ascertain having regard to Article 135(1)(l) and the final subparagraph of Article 135(2) of that directive.

30In the light of those preliminary observations, it should be noted that, since point 4 of the first paragraph of Article 288 of the VAT Directive does not contain any reference to the law of the Member States, the concept of ‘ancillary transactions’ within the meaning of that provision is an autonomous concept of EU law which must be interpreted uniformly in the territory of the European Union, taking into account not only the wording of that provision, but also the context in which that provision is found and the objective it pursues (see, to that effect, judgment of 5 February 2020, Staatssecretaris van Justitie en Veiligheid(Signing-on of seamen in the Port of Rotterdam), C‑341/18, EU:C:2020:76, paragraph 40 and the case-law cited).

31As regards the wording of point 4 of the first paragraph of Article 288 of the VAT Directive, it must be noted that it does not specify what is meant by ‘ancillary transaction’, and that concept is also not defined in any other provision of that directive.

32With regard to the context of point 4 of the first paragraph of Article 288 of the VAT Directive, reference should be had to Article 174(2)(b) of that directive, contained in Chapter 2, entitled ‘Proportional deduction’, of Title X, entitled ‘Deductions’, of that directive, which states that the amount of turnover attributable to ‘incidental real estate and financial transactions’ is to be excluded from the calculation of the deductible proportion.

33The latter provision corresponds, in essence, to Article 19(2) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), by which the EU legislature intended to exclude from the calculation of the proportion the turnover attributable to transactions of an unusual nature in relation to the normal activities of the taxable person concerned (see, to that effect, judgment of 6 March 2008, Nordania Finans and BG Factoring, C‑98/07, EU:C:2008:144, paragraph 24).

34In particular, for the purposes of interpreting the concept of ‘incidental transactions’ within the meaning of that provision, the Court has referred to the Explanatory Memorandum to the Proposal for a Sixth Council Directive on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, presented by the Commission to the Council of the European Communities on 29 June 1973 (COM(73) 950 final) (Bulletin of the European Communities, Supplement 11/73, p. 20) (‘the proposal for the Sixth Directive’). In the words of that memorandum ‘the factors mentioned in [Article 19(2) of this proposal] must be excluded from the calculation of the proportion lest, being unrepresentative of the taxable person’s business activity, they should deprive the amount of any real significance’. According to that memorandum, ‘such is the case with sales of capital items and real estate and financial transactions which are only ancillary operations, that is to say are only of secondary importance in relation to the total turnover of the business’. The memorandum stipulates that ‘these factors are only excluded if they are not part of the usual business activity of the taxable person’ (judgment of 29 October 2009, NCC Construction Danmark, C‑174/08, EU:C:2009:669, paragraph 30).

35It should be observed that point 4 of the first paragraph of Article 288 of the VAT Directive responds to the same considerations. The provision corresponds to Article 25(2) of the proposal for a Sixth Directive, which became Article 24(4) of the Sixth Directive 77/388. According to the explanatory memorandum to the proposal for a Sixth Directive, ‘[that provision] lays down the method of determining turnover for the purposes of applying exemptions and graduated tax relief’. In accordance with that memorandum, ‘it excludes unusual transactions which may make drastic changes in the turnover within one year’ and ‘it also disregards operations which, as in the case of the transfer of debts, do not indicate the actual size of the undertaking’.

36Admittedly, it should be noted that some language versions of the VAT Directive, inter alia the Bulgarian, German, English, Croatian, Dutch and Slovenian versions, do not use identical terminology in Article 174(2) and point 4 of the first paragraph of Article 288 of that directive, the English version using ‘incidental … transactions’ and ‘ancillary transactions’.

37However, in the light of the considerations set out in paragraphs 34 and 35 of this judgment, it must be concluded that the concepts contained in those provisions, although used in different contexts, have the same subject matter.

38Therefore, the concept of ‘ancillary transactions’ refers to certain transactions which are not part of the taxable person’s usual business activity.

39In the context of the special scheme at issue, the classification of a transaction as an ‘ancillary transaction’ of the taxable person does not require an element of that taxable person’s economic activity to be identified as being the main activity, nor does is need to be connected to any other economic activity that that taxable person carries out. That expression must be regarded as an autonomous concept.

40That interpretation of point 4 of the first paragraph of Article 288 of the VAT Directive is supported by the objective pursued by the special scheme for small enterprises. In that regard, the Court held that that scheme provides for administrative simplifications intended to support the creation, activities and competitiveness of small undertakings, and to retain a reasonable relationship between the administrative charges connected with fiscal supervision and the small amounts of tax to be reckoned with. Thus, that scheme is aimed at sparing small undertakings and the tax authorities from such an administrative burden (judgments of 26 October 2010, Schmelz, C‑97/09, EU:C:2010:632, paragraphs 63 and 68, and of 2 May 2019, Jarmuškienė, C‑265/18, EU:C:2019:348, paragraph 37).

41It follows that, in order to ensure the attainment of the objective pursued by the special scheme for small enterprises, there is no need to impose such administrative burdens on account of transactions which are not part of the taxable person’s usual business activity.

42It should be noted that, in respect of the current provisions of Article 174(2) of the VAT Directive, the Court has held that an economic activity cannot be classified as ‘incidental’ if it constitutes the direct, permanent and necessary extension of the usual business activity of the enterprise concerned (see, to that effect, judgment of 29 October 2009, NCC Construction Danmark, C‑174/08, EU:C:2009:669, paragraph 31).

43In situations other than the one set out in the preceding paragraph, the decisive factor is whether or not the real estate transaction was carried out in the context of the taxable person’s usual business activity, a factor which must be assessed by the tax authorities and, where appropriate, by the national courts.

44Therefore, the tax authorities and the national courts must take into account the evidence submitted to them, in particular the kind of immovable property concerned, the origin of the finances used to purchase that property and its use.

45As regards the situation at issue in the main proceedings, it is clear from the order for reference that, as the Advocate General noted in points 51 and 52 of her Opinion, first, the registered office for the appellant in the main proceedings’ activity as a practitioner in collective proceedings is established at the address of the let property which he co-owns. Secondly, that property, which includes premises for office use, is let by the appellant in the main proceedings to a legal person of which he is a shareholder and director. Moreover, that legal person has its registered office in that building and carries out the same kind of activities as those carried out by the appellant in the main proceedings. It is for the referring court to assess whether those factors demonstrate that the letting in question is part of the taxable person’s usual business activity.

46It follows from all of the foregoing considerations that the answer to the questions referred is that point 4 of the first paragraph of Article 288 of the VAT Directive must be interpreted as meaning that, with respect to a taxable person who is a natural person and whose economic activity consists of the exercise of several liberal professions and the letting of immovable property, that letting does not constitute an ‘ancillary transaction’ under that provision where that transaction is carried out in the context of a usual business activity of the taxable person.

Costs

47Since 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 (Fifth Chamber) hereby rules:

Point 4 of the first paragraph of Article 288 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2009/162/EU of 22 December 2009, must be interpreted as meaning that, with respect to a taxable person who is a natural person and whose economic activity consists of the exercise of several liberal professions and the letting of immovable property, that letting does not constitute an ‘ancillary transaction’ under that provision where that transaction is carried out in the context of a usual business activity of the taxable person.

Signatures

[Signatures]

( *1 ) Language of the case: Romanian.

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 6 February 2020 ¹

(Reference for a preliminary ruling — Directive 2006/112/EC — Articles 287 and 288 of the VAT Directive — Special scheme for small enterprises — Exemption below certain turnover limits — Calculation of that turnover exemption limit in the case of multiple economic activities — Concept of ‘real estate transactions’ to be taken into account which are not ‘ancillary transactions’)

I. Introduction

1The present case concerns the ‘small enterprise exemption’, whereby taxable persons whose annual turnover is below a certain amount may be exempted from VAT by the Member State. In Romania that amount is EUR 65000. The question at issue is how that amount is to be calculated if a taxable person carries on various activities. In the present case, the taxable person received income in 2012 from consultancy work as an accountant, tax consultant and lawyer, as an insolvency practitioner, as an author and from the letting of a property.

2Because Romania does not include income/turnover from activity as a lawyer in that calculation, the limit of EUR 65000 would be exceeded only if the turnover from letting were included. However, point 4 of the first sentence of Article 288 of the VAT Directive includes ‘real estate transactions’ in the calculation only if they are not ‘ancillary transactions’. The Court now has an opportunity for the first time to clarify whether the letting of a property is to be classified as a ‘real estate transaction’ and when an immaterial ‘ancillary transaction’ is to be taken to exist.

II. Legal framework

A. EU law

3The EU law framework is determined by Articles 287 and 288 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’). ²

4Point 18 of Article 287 of the VAT Directive provides:

‘Member States which acceded after 1 January 1978 may exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of the following amounts at the conversion rate on the day of their accession: …

Romania: EUR 35000; …’

5Under Article 1 of the Council Implementing Decision of 26 March 2012, ³ by way of derogation from point 18 of Article 287 of Directive 2006/112, Romania is authorised to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 65000 at the conversion rate on the day of its accession to the European Union.

6Article 288 of the VAT Directive reads as follows:

‘The turnover serving as a reference for the purposes of applying the arrangements provided for in this Section shall consist of the following amounts, exclusive of VAT:

the value of supplies of goods and services, in so far as they are taxed;

the value of transactions which are exempt, with deductibility of the VAT paid at the preceding stage, pursuant to Articles 110 or 111, Article 125(1), Article 127 or Article 128(1);

the value of transactions which are exempt pursuant to Articles 146 to 149 and Articles 151, 152 or 153;

the value of real estate transactions, financial transactions as referred to in points (b) to (g) of Article 135(1), and insurance services, unless those transactions are ancillary transactions.

However, disposals of the tangible or intangible capital assets of an undertaking shall not be taken into account for the purposes of calculating turnover.’

7Furthermore, in connection with the apportionment of the input tax deduction, Article 174(2) provides as follows:

‘By way of derogation from paragraph 1, the following amounts shall be excluded from the calculation of the deductible proportion: …

the amount of turnover attributable to incidental real estate and financial transactions;

the amount of turnover attributable to the transactions specified in points (b) to (g) of Article 135(1) in so far as those transactions are incidental.’

B. Romanian law

8The relevant rules in Romanian law are laid down in Legea nr. 571 din 22 decembrie 2003 privind Codul fiscal (Law No 571 of 22 December 2003 on the Tax Code), as subsequently amended and supplemented (‘the Tax Code’). Article 152 of the Tax Code provides:

‘1. Taxable persons established in Romania in accordance with Article 125(2)(a), whose annual turnover, declared or achieved, is less than the upper limit of EUR 65000, … or RON 220000, may apply for exemption … in respect of the transactions referred to in Article 126(1) …

2. The turnover serving as a reference for the purposes of applying paragraph 1 shall consist of the total amount, net of tax — in the situation of taxable persons who request removal from the register of persons registered for VAT purposes — of supplies of goods and services rendered by the taxable person in the course of a calendar year that are taxable or, as appropriate, would be taxable if they were not carried out by a small undertaking, and turnover resulting from economic activities for which the place of delivery or supply is deemed to be abroad, provided the tax would be deductible if the transaction were carried out in Romania in accordance with Article 145(2)(b), and exempt transactions for which a right to deduct exists and exempt transactions for which no right to deduct exists, as referred to in Article 141(2)(a), (b), (e) and (f), where they are not ancillary to the principal activity …’

9Point 47(3) of Hotărârea Guvernului României nr. 44 din 22 ianuarie 2004 pentru aprobarea Normelor metodologice de aplicare a Legii nr. 571/2003 privind Codul fiscal (Decree No 44 of the Romanian Government of 22 January 2004 approving the rules for implementing Law No 571/2003 on the Tax Code), as amended and supplemented by Government Decree No 670 of 4 July 2012, states as follows:

‘A transaction is ancillary to the principal activity if the following cumulative conditions are met:

performing the transaction requires limited technical resources in terms of equipment and staff;

the transaction is not directly connected with the principal activity of the taxable person; and

the value of the purchases made for the purposes of the transaction and the amount of the deductible tax relating to the transaction are insignificant.’

III. Facts and reference for a preliminary ruling

10As has already been mentioned, in addition to working as a university professor, the appellant in the main proceedings (‘the appellant’) practices a number of liberal professions, working as an accountant, tax consultant, insolvency practitioner and lawyer. He also occasionally receives copyright royalties.

11In accordance with Romanian legislation, the appellant obtained a single tax registration code, for ‘accounting and financial audit activities, tax consultancy’, corresponding to the professions of tax consultant and accountant. For the purposes of his pursuit of those professions, the appellant declared various registered offices. The seat of the appellant’s individual insolvency practitioner’s office is registered at the address of a property owned by him.

12Since 2007, the appellant has also received income from the letting of that property. The property was let to a company of which the appellant is a shareholder and director. This company has its registered office at the rented property and there carries out, inter alia, consultancy, accounting, financial audit and tax consultancy activities, having as its principal declared area of activity ‘business and management consultancy activities’.

13In 2016, the appellant was the subject of a VAT tax inspection covering the period from 1 January 2011 to 30 June 2016. Following that inspection, the tax authorities (Administraţia Judeţeană a Finanţelor Publice, ‘the AJFP’) found that during 2012 the appellant had exceeded the turnover ceiling of 220000 Romanian lei (RON) (EUR 65000) established for the application of the special exemption scheme for small enterprises and, for that reason, should have registered as a taxable person subject to VAT. Consequently, the AJFP assessed the VAT which the appellant ought to have paid in the sum of RON 95184.

14In determining that turnover, the AJFP took into account both the income received from the appellant’s practice of the liberal professions of tax consultant, accountant and insolvency practitioner, as well as from copyright royalties, and rental income from the jointly owned property. It did not include in its calculation either the appellant’s salary as a professor or his income from his activity as a lawyer, which are subject to specific tax regimes.

15The AJFP found that in 201269% of the appellant’s total income had been obtained from his activity as insolvency practitioner, 17% from the letting of the property and 14% from his activity as accountant and tax consultant. The AJFP therefore considered that the appellant’s principal activity in that year had been that of insolvency practitioner, given the proportion of his income received from that activity by comparison with his total income. It also took the view that the letting of the property could not be classified as a ‘transaction ancillary’ to the activity of insolvency practitioner such as to exclude it from the calculation of turnover in that year.

16The appellant’s preliminary administrative appeal against the tax assessment notice was dismissed by decision of 22 August 2017. The administrative appeal against that decision was dismissed by the Tribunalul Timiș (Regional Court, Timiș, Romania) by judgment of 26 March 2018. The appellant brought an appeal against that judgment before the referring court. The Curtea de Apel Timişoara (Court of Appeal, Timişoara, Romania) stayed the proceedings and referred the following three questions to the Court for a preliminary ruling pursuant to Article 267 TFEU:

In circumstances such as those here at issue, in which a natural person carries on an economic activity by practising several liberal professions and by letting out immovable property and thereby obtaining income of a continuous nature, do the provisions of Article 288 [first paragraph] point 4 of the VAT Directive require the identification of a particular professional activity as being the principal activity in order to verify whether the letting can be classified as an ancillary transaction thereto and, if so, on the basis of what criteria is that principal activity to be identified, or must those provisions be interpreted as meaning that all of the professional activities by which the economic activity of that natural person is carried on constitute the ‘principal activity’?

In the event that the immovable property let by a natural person to a third party is not intended and used for the performance of the remainder of his economic activity, so that it is not possible to establish any connection between that letting and the practice of the various professions of that person, do the provisions of Article 288 [first paragraph] point (4) of the VAT Directive permit the classification of the letting as an ‘ancillary transaction’, with the consequence that it is excluded from the calculation of the turnover which serves as a reference for the purpose of applying the special exemption scheme for small undertakings?

In the situation described in the second question, is it relevant to the classification of the letting transaction as ‘ancillary’ that it is for the benefit of a third party — a legal person of which the natural person is a shareholder and director — established in the property let and carrying on professional activities of the same kind as those of the natural person in question?’

17In the proceedings before the Court, the appellant, Romania and the European Commission submitted written observations.

IV. Legal assessment

18By the three questions, which — as Romania rightly suggests — can be answered together, the referring court would like to know, in essence, how point 4 of the first sentence of Article 288 of the VAT Directive is to be interpreted. Specifically, it wishes to ascertain how to determine whether there are ‘real estate transactions’ which are not ‘ancillary transactions’.

19This depends on the spirit and purpose of the exemption under Article 287 of the VAT Directive (see A below). It is necessary to clarify whether the letting of a building is a ‘real estate transaction’ (see B below) and on the basis of what criteria this is to be classified as an ‘ancillary transaction’ within the meaning of point 4 of the first sentence of Article 288 of the VAT Directive (see C below). If, applying those criteria, the letting in the case at issue is to be regarded as such an ancillary transaction (see D below), the appellant would not, in the referring court’s view, exceed the turnover limits for the exemption under Article 287 of the VAT Directive.

20However, because the Court is also to give the referring court an answer which will be of use to it in determining the outcome of the underlying dispute, note should be taken, as the Commission asserts, of the following point: according to the order for reference, neither income from the salary as a professor nor income from the appellant’s activity as a lawyer was included in the calculation of the exemption limit for a small enterprise. This is apparently because these are subject to specific tax regimes.

21The non-inclusion of income from employed (not independent) activity (here as a professor) is understandable from the perspective of VAT law, as there are no taxable transactions in this regard. However, as the activity of self-employed lawyer undoubtedly constitutes an independent economic activity for the purposes of Article 9(1) of the VAT Directive, that involves taxable transactions which must be factored into the calculation. It is irrelevant whether or not those transactions are subject to other taxation. The situation would be different if the appellant had received income as an employed (i.e. not independent) lawyer or the turnover was generated not by him, but by the company. As the request for a preliminary ruling is unclear on this point, this is a matter which must be verified by the national court.

A. The spirit and purpose of the exemption under Article 287 of the VAT Directive

22In order to be able to assess whether the appellant can still come under the exemption for a ‘small enterprise’ ⁴ under Article 287 of the VAT Directive, despite the letting turnover, it is first necessary to consider the spirit and purpose of the special exemption. As it is not objectively linked to the nature of the activity, but only to a turnover limit not being reached by the taxable person, Article 287 of the VAT Directive provides for a subjective exemption.

23As the Court has already ruled, ⁵ and I have stated elsewhere, ⁶ the purpose behind this subjective exemption resides primarily in administrative simplification.

24Without such a limit, the tax authorities would have to treat any person who carries on even a limited economic activity for the purposes of Article 9 of the VAT Directive as a taxable person from the first euro. This would give rise to administrative expenditure not only for the taxable person but also for the tax authorities, for which there would be no corresponding tax revenue. ⁷ This supervisory burden and the associated expenditure for the tax authorities, without any corresponding tax revenue, is intended to be avoided by means of a de minimis limit. This is also clear from the 1973 Commission proposal for a Sixth Council Directive on the harmonisation of legislation of Member States concerning turnover taxes, which expressly referred to the difficulties encountered by Member States in applying the normal VAT arrangements to small undertakings. ⁸

25The associated preferential treatment of smaller enterprises, for example the promotion of start-ups, ⁹ is an inevitable consequence rather than the spirit and purpose of this scheme. This is particularly evident from the relevant provision here, Article 288 of the VAT Directive, which makes clear that the de minimis limit laid down in Article 287 of the VAT Directive (which can be determined by the Member States) does not relate to the size of the enterprise or how long it has been present on the market, but only the amount of the expected tax revenue.

26The relevant turnover for determining whether a ‘small enterprise’ exists includes only taxable transactions (point 1 of the first sentence of Article 288 of the VAT Directive) and certain exempt transactions (points 2 to 4) of the undertaking. The amount of the other exempt transactions can still be sufficiently high that they would not preclude an exemption of the other taxable transactions. Large hospitals are also covered, for example, provided they carry out only small taxable transactions. These taxable persons may then also treat those transactions as exempt, even though they cannot really be described in everyday language as small enterprises because of their size or as start-ups because of their longstanding market activity.

27The fact that the exemption is not intended to promote start-ups is also shown by the domestic link in the provision. It exempts only transactions which are subject to tax domestically. Accordingly, large domestic enterprises with high taxable turnover abroad and only negligible taxable turnover domestically still fall within the scope of the exemption. Furthermore, Article 287 of the VAT Directive does not provide for a tax-free allowance, but an exemption limit. Where the limit is exceeded, all transactions from the first euro become liable to tax, whereas a tax-free allowance remains. This all-or-nothing principle is not very appropriate for promoting start-ups, as it disadvantages particularly successful start-ups compared with less successful start-ups.

28Consequently, Article 287 of the VAT Directive serves primarily to simplify administration for the Member States.

B. Interpretation of the criterion of ‘real estate transactions’

29If Article 287 of the VAT Directive constitutes a de minimis rule exempting smaller taxable transactions for reasons of administrative simplification, it is to be interpreted strictly. A broad interpretation is not consistent with the character of a de minimis rule. ¹⁰

30Furthermore, under point 1 of the first sentence of Article 288 of the VAT Directive, the value of supplies of goods and services, in so far as they are taxed, is included in the calculation of turnover for the application of the de minimis limit. This provision therefore makes expressly clear that all taxable transactions are to be included in the calculation.

31The other values to be taken into account, as mentioned in points 2 to 4, can therefore refer only to exempt transactions. Otherwise, there would be no point in mentioning them separately. Points 2 and 3 of the first sentence of Article 288 of the VAT Directive also explicitly emphasise the exempt character of the transactions in question.

32In addition, the words ‘real estate transactions’ in point 4 can only mean real estate transactions coming under the exemption laid down in Article 135(1)(j), (k) and (l) of the VAT Directive. It is therefore immaterial that, unlike for financial transactions, which are also referred to in point 4, the EU legislature does not mention those rules expressly.

33It is not entirely clear, however, whether the expression ‘real estate transaction’ covers only exempt property trading (Article 135(1)(j) and (k) of the VAT Directive) or also exempt property letting (Article 135(1)(l) of the VAT Directive). The wording seems to suggest the former, as the other language versions tend to be transaction-related (in French ‘opérations immobilières’; in English ‘real estate transactions’). Nevertheless, even those language versions do not rule out that the letting of a property in everyday language can also be covered.

34In view of this open-ended wording, the spirit and purpose of Article 287 of the VAT Directive, that is to say, the de minimis character of the small enterprise scheme, is crucial. I therefore consider that a broad interpretation must be given to the concept of the exempt real estate transactions to be taken into account and, in accordance with the view taken by the Commission, that exempt letting transactions should also be included, in order to limit the scope of Article 287 of the VAT Directive.

35Consequently, there must have been an exempt letting transaction by the appellant for the question of its character as an ancillary transaction to arise at all. It is not clear from the request for a preliminary ruling whether that was the case and it is therefore a matter to be examined by the national court.

C. Requirements for an ‘ancillary transaction’

36It is also necessary to clarify the requirements for an ‘ancillary transaction’ within the meaning of point 4 of the first sentence of Article 288 of the VAT Directive. The exempt transactions covered by that provision are to be included in the calculation of the exemption limit only if they are not ancillary transactions.

37The legislature thereby ensures that the sectors covered, whose transactions are exempt in principle (banks, insurance companies and the real estate sector), cannot take advantage of the ‘small enterprise exemption’ for their taxable transactions that do not exceed the exemption limit. For them, the exempt transactions are not ancillary transactions, but principal transactions.

38The Court has not previously determined the requirements for the existence of an ancillary transaction.

39However, the VAT Directive uses the similar term ‘incidental transaction’ in calculating the deductible proportion in Article 174(2)(b) and (c). ¹¹ This concerns the extent of the deduction where taxable inputs are used for both taxable and exempt outputs.

40In that regard, the Court has already ruled ¹² that an economic activity cannot be classified as an incidental transaction if it constitutes the direct, permanent and necessary extension of the business or if it entails a significant use of goods and services subject to VAT.

41This negative delimitation can be applied to the scope of the exemption in Article 287 of the VAT Directive. Where there is a direct, permanent and necessary extension of the business, this activity shares the fate of the ‘principal activity’ and can no longer be regarded as an incidental transaction or even as an ancillary transaction. There is simply no objective reason to treat those transactions separately.

42In a decision concerning Article 174(2) of the VAT Directive, furthermore, the Court also ruled that the scale of the turnover generated may be an indication that those transactions should not be regarded as incidental. However, the fact that income greater than that produced by the activity stated to be its main activity by the enterprise concerned is generated by such transactions is not sufficient to preclude their classification as ‘incidental transactions’ within the meaning of that provision. ¹³

43This statement may be true of Article 174(2) of the VAT Directive and the deductible proportion, but not of an exemption for reasons of administrative simplification (de minimis rule). The former concerns the apportionment of the tax paid on inputs according to outputs (a proportion is necessary for that purpose). The latter, on the other hand, determines when an exemption should cease to apply because a turnover limit constituting a mere de minimis limit (with regard to the spirit and purpose, see above, point 22 et seq.) has been exceeded.

44The value of the supposed ancillary transactions has considerable importance for such an exemption. In my view, exempt real estate transactions whose value, for example, exceeds the exemption limit in Article 287 can never therefore be ancillary transactions of a ‘small enterprise’ because they are not sufficiently minimal.

45The idea behind point 4 of the first sentence of Article 288 of the VAT Directive seems to be that the exemption of an enterprise for reasons of administrative simplification is not intended to be disapplied as a result of more or less arbitrary, in particular non-recurring, exempt real estate transactions beyond the actual object of the enterprise which do not affect the amount of tax revenue.

46In the Commission proposal from 1973 it is stated that ‘unusual transactions which may make drastic changes in the turnover within one year’ and transactions which ‘do not indicate the actual size of the undertaking’ are to be disregarded. ¹⁴ This is confirmed by the second sentence of Article 288 of the VAT Directive. That provision expressly excludes the disposal of capital assets of an undertaking from the calculation of the turnover limit.

47The underlying reason is presumably to prevent a difference in VAT treatment arising between exempt taxable persons (that is to say, ‘small enterprises’) (one remains an exempt small business, the other loses that status) because of such ‘exceptional’ transactions.

48An example would appear to be the long-term letting of private property. If point 4 of the first sentence of Article 288 of the VAT Directive did not exclude that turnover from the calculation, one enterprise would have to pay tax on the entire annual turnover from the remainder of its activity. On the other hand, a comparable enterprise which does not let private property could still benefit from the exemption. The more or less arbitrary factor of the use of other assets does not influence the fundamental status as ‘small enterprises’ in competition with each other. There is not a sufficient link to the actual economic activity of the ‘small enterprise’. Accordingly, the existence of ancillary transactions is a matter of evaluative apportionment. ¹⁵

49In my view, the concept of ancillary transaction therefore covers only transactions which do not have any close link to the (actual) taxable activity of the taxable person. There is no such link if they either (1) constitute non-recurring, exceptional acts beyond the actual object of the enterprise or (2) do not entail a significant use of goods and services within the enterprise, but are to be considered as separate from it and are only de minimis (the minimal letting of private property — see point 44 — would be conceivable, for example).

D. Application to the case at issue

50In the case at issue, it must therefore be clarified whether the letting of the property in which the appellant carries on economic activity as an insolvency practitioner does not have any close link to the appellant’s actual taxable activity.

51This seems doubtful. In the present case, the letting of the property is neither arbitrary nor separate from the appellant’s actual taxable (consultancy) activity. First, he uses the property himself as the registered office for his taxable activity as an insolvency practitioner. There is thus no letting independent of the business activity.

52Second, according to the referring court, the appellant lets the property to a company of which he is himself a shareholder and director and for which he also does consultancy work. That is not a non-recurring act that is not intended to distort the calculation of annual turnover (see point 45 above). Rather, there is a strong link (see point 48 above) to the appellant’s actual taxable (consultancy) activity.

53It would therefore seem that, on account of the close material and personal link, it cannot now be claimed that there is a minimal activity beyond the appellant’s actual economic activity (consultancy), in accordance with the view taken by the Commission and Romania.

54However, the Court has jurisdiction primarily for the interpretation of EU law. The application of the abovementioned principles of interpretation and the associated evaluative apportionment is a task to be carried out by the referring court.

V. Conclusion

Conclusion

55I therefore propose that the Court answer the questions referred by the Curtea de Apel Timişoara (Court of Appeal, Timişoara, Romania) as follows:

The concept of real estate transactions, which are ancillary transactions, covers all exempt transactions within the meaning of Article 135(1)(j), (k) and (l) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax which do not have any close link to the enterprise’s (actual) taxable activity and are minimal, that is to say, they do not themselves exceed the exemption limit. There is no close link if they either constitute non-recurring acts beyond the actual object of the enterprise or do not entail a significant use of the enterprise’s goods and services.

¹ Original language: German.

² OJ 2006 L 347, p. 1, in the version applicable to 2012.

³ Council Implementing Decision authorising Romania to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (2012/181/EU), OJ 2012 L 92, p. 26.

⁴ See the heading of Chapter 1 of Title XII (Special scheme for small enterprises).

⁵ Judgments of 2 May 2019, Jarmuškienė (C‑265/18, EU:C:2019:348, end of paragraph 37), and of 26 October 2010, Schmelz (C‑97/09, EU:C:2010:632, paragraph 63).

⁶ Opinion in Schmelz (C‑97/09, EU:C:2010:354, end of point 33).

⁷ As is also expressly held in the judgment of 2 May 2019, Jarmuškienė (C‑265/18, EU:C:2019:348, paragraph 38).

⁸ See the Explanatory note at Article 25 (small undertakings) on p. 29 of the Commission proposal of 20 June 1973, COM(73) 950 final.

⁹ See judgments of 29 July 2019, B (turnover of a second-hand car dealer) (C‑388/18, EU:C:2019:642, paragraph 42 and the case-law cited); and of 26 October 2010, Schmelz (C‑97/09, EU:C:2010:632, paragraphs 63 and 70); and my Opinion in Schmelz (C‑97/09, EU:C:2010:354, points 33 and 54).

¹⁰ Judgment of 2 May 2019, Jarmuškienė (C‑265/18, EU:C:2019:348, paragraph 27). Similarly, the Court has held that any exception to or derogation from a general rule is to be interpreted strictly; see, for example, judgment of 28 September 2006, Commission v Austria (C‑128/05, EU:C:2006:612, paragraph 22).

¹¹ In the French version the two terms are even identical (charactère d’opérations accessoires). The same applies to the Romanian version (operațiuni accesorii). That is not true, however, of the German (Nebenumsatz vs. Hilfsumsatz) and English (ancillary transactions vs. incidental transactions) versions.

¹² Judgment of 29 October 2009, NCC Construction Danmark (C‑174/08, EU:C:2009:669, paragraph 31), citing judgment of 29 April 2004, EDM (C‑77/01, EU:C:2004:243, paragraph 66), and judgment of 11 July 1996, Régie dauphinoise (C‑306/94, EU:C:1996:290, paragraph 22).

¹³ Judgment of 29 April 2004, EDM (C‑77/01, EU:C:2004:243, paragraph 77).

¹⁴ Explanatory note at Article 25 (small undertakings) on p. 29 of the Commission proposal of 20 June 1973, COM(73) 950 final.

¹⁵ See Stadie, H., in Rau/Dürrwächter, UStG, § 19, note 112 (as at 183rd update — July 2019).