Indirect Tax News N°105 – December 2015

Fiscale Eenheid X NV cs (CJEU, case C-595/13, 9 December 2015) Exemption for the management of real estate funds

The CJEU was asked whether a real estate fund could be considered as a special investment fund (type “UCITS”) and thus obtain VAT exemption on its management costs. If so, what transactions would be considered as covered by the concept of “management”?

The Court considered that a real estate fund could be considered as a UCITS and therefore benefit from exemption for its management if (i) it were subject to State supervision, (ii) its purpose were the collective investment of capital, and (iii) it operated on the principle of risk-spreading. The concept of exempt management covers activities relating to the selection, purchase and sale of immovable prop-erty as well as related administrative and accounting tasks. By contrast, the “actual” management of immovable property is not exempt (e.g. searching for tenants to occupy the building).

This decision casts serious doubt on the VAT regime for real estate funds, in particular in France, where in practice they are considered as being subject to VAT. However, if their transactions would fall within the scope of a VAT exemption, they could decide to opt to tax their financial transactions.

CJEU, case C-332/14 (Advocate General’s opinion, 25 November 2015) VAT recovery ratio for mixed-use buildings

The CJEU has received a request for clarification concerning the method of calculating input VAT deduction relating to the costs of con-struction, utilisation and upkeep of a building intended for mixed-use (both exempt and taxable leasing). More precisely, the question was whether a Member State could apply, as a general rule, a rule other than the standard, turnover-based rule, to the residual costs. Secondly, the Court has to rule on whether a Member State could potentially revisit the VAT deduction already carried out simply by changing the method by which input VAT deduction should be calculated.

The Advocate General considered that although Member States could derogate from the rule of calculation of VAT deduction based on turnover, it should only be for clearly delimited transactions and only if so doing made the calculation more precise. Member States could potentially revisit the VAT deductions already carried out when they change the method by which VAT deduction is calculated. However, the principle of legitimate expectation may temper this rule.

By way of reminder, French tax authorities’ guidance provides for a specific rule for calculating VAT deduction on residual costs in the real estate sector.

Mapfre (Cour de Cassation, 24 November 2015) – Continuation and conclusion

The Cour de Cassation was required to consider the Mapfre case once again following the decision of the CJEU. For memory, the question was whether the transactions carried out by Mapfre Warranty were subject to Insurance Premium Tax (IPT) and, incidentally, whether they would be exempt from VAT. The Court applied the solution promulgated by the CJEU and confirmed that insurance trans-actions were transactions in the course of which there was (i) the creation of a direct contractual link between the purchaser of the vehi-cle and a third party (Mapfre Warranty) when the warranty booklet was provided, (ii) the possibility for the purchaser to demand that the third party perform the agreed service at its (i.e. the third party’s) own cost without having recourse to the seller, in the absence of a specific provision extending the guarantee that it is legally required to provide, (iii) the operation did not constitute a way of improving the service provided by the seller by adding a complementary service, but rather the conclusion of a specific agreement with a third party (iv) that in exchange for payment of the agreed sum, the third party undertook, in the event that a risk affecting the property in-sured occured, to provide the purchaser of the vehicle with the service agreed at the time at which the contract was concluded.

This important decision, which follows the position of the CJEU, is therefore liable to lead to negative consequences in terms of payroll tax, VAT and IPT.

Conseil d’Etat, decisions nos. 375055 and 375054 – Article 257 bis of the FTC and hire-purchase (23 November 2015)

A civil real estate company (French: SCI) sublet commercial premises which it held on hire-purchase. The company had acquired prop-erty “fit-outs” from a sub-tenant, with VAT, in respect of which it has deducted input VAT. The company subsequently exercised its right to purchase and immediately resold the whole of the property. The Conseil d’Etat, drawing support from the European case law, held that the exclusion from VAT provided for by Article 257 bis (transfer of a going concern) applied to this “quick” sale fol-lowing the exercise of the option. The principles underlying this response will have to be analysed in order to understand its exact reach.

Finance Law 2016 and Amending Finance Law 2015

The measures included in ITN no.103 concerning the proposed Finance Law 2016 (lowering of the distance sales threshold, use of fraudulent till software) have been adopted. Please note that, in respect of the latter, the fine has been increased to €7,500. As for the Amending Finance Law 2015, measures have been implemented in order to modify the statute of limitations in customs matters, by way of an extension as from 1 May 2016 on the one hand, and by way of an extension of the block on input VAT recovery in respect of fraudulent supplies of services on the other.

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