A typical problem area encountered in EU VAT practice is how transactions consisting of separately identifiable goods or services should be treated, particularly where those elements have different VAT liabilities. The Court of Justice has once more ruled on this issue.
In the case of Minister Finansów v Wojskowa Agencja Mieszkowania w Warszawie the referring court had asked (1) whether the VAT Directive must be interpreted as meaning that the supply of electricity, heating and water and refuse collection provided by third parties for a tenant directly using those goods and services must be regarded as being supplied by the landlord where he has concluded agreements for such provisions and where he simply passes on the costs to the tenant and (2) if so, whether the costs of those supplies increased the taxable amount (rent) or were supplies separate from the letting of immovable property.
The Court answered the first question in the affirmative. On the second question, the Court recalled the relevant basic principles in its case-law. For VAT purposes every supply must normally be regarded as distinct and independent but, in certain circumstances, several formally distinct services which could be supplied separately must be considered to be a single transaction when they are not independent. This is also the case where one or several services constitute the principal service, and where the other service or services constitute one or several ancillary services which share the tax treatment of the principal service.
In order to determine whether services supplied constitute independent services or a single service it is necessary to examine the characteristic elements of the transaction.
Factors pointing towards a separate supply in principle would include a tenant’s right to choose his suppliers and/or the terms of use of the relevant goods or services, a tenant’s ability to determine his own consumption of water, electricity or heating that is verifiable by the installation of individual meters and billed according to consumption and, in all cases, itemisation of the supply separately from the rent. Services such as the cleaning of common parts of a building under joint ownership should be regarded as separate from the letting if they can be organised by each tenant individually or by tenants collectively. The fact that the tenant has the right to obtain services from the provider of his choice is not, however, in itself decisive, nor does the landlord’s ability to terminate the rental agreement for non-payment of rental charges prevent the services to which those charges relate from constituting services separate from the letting.
However, if the letting of immovable property appears objectively, from an economic point of view, to form a whole with the supplies that accompany it, that can be considered a single supply that it would be artificial to split. The Court thought this might apply to the letting of turnkey offices ready for use with the provision of utilities and certain other supplies or short lettings, in particular, for holidays and professional reasons. Where the landlord is unable to choose freely and independently the suppliers and terms of use of the goods or services provided with the letting, those supplies are generally inseparable from it.
Accordingly, the Court held that the various services in question must be regarded as distinct and to be assessed separately for VAT purposes, unless, objectively speaking, the elements of the transaction, which would include those indicating the economic reason for the contract, were so closely linked that there was a single indivisible economic supply which it would be artificial to split. It was, however, a matter for the national court to assess taking into account all the circumstances of the letting.
Minister Finansów v Wojskowa Agencja Mieszkowania w Warszawie (Case C-42/14), 16 April 2015
