Facts of the case
A Polish farmer (J.S.) is a VAT entrepreneur (‘taxable person’) engaged in agricultural activities. He acquired parcels of agricultural land with the intention to perform agricultural activities. The ownership of these parcels was transferred to the State Treasury in exchange for compensation. At the same time, the farmer did not trade in real estate or take any steps to sell the parcels of land at issue.
The Polish public authority found that VAT was due on the expropriation of this land. The farmer disagreed.
The question referred to the ECJ was whether this expropriation was subject to VAT.
Main conclusions of the decision
The ECJ ruled that such expropriation of property is subject to specific VAT rules which are independent of general rules applicable to supplies of goods.
According to the ECJ case law, such transfer is subject to three cumulative conditions that must be fulfilled: :
- There has to be a transfer of a right of ownership.
- That transfer has to be by order made by, or in the name of, a public authority or in pursuance of the law.
- There has to be payment of compensation.
As regards the concept of a ‘taxable person acting as such’, the ECJ ruled that a taxable person who transfers property that is used for his economic activity is considered to act ‘as such’ where a taxable person transfers ownership of immovable property allocated to that economic activity in the broad sense.
The ECJ ruled that a taxable person who performs a transaction in a private capacity does not act as a taxable person. Consequently, a transaction performed by a taxable person in a private capacity is not, therefore, subject to VAT.
The Court ruled that it is apparent in the present case that the agricultural land at issue was part of the business assets of J.S.’s undertaking on the date on which ownership thereof was transferred to the State Treasury.
It follows that J.S., who is a taxable person for VAT purposes because of his agricultural activity, acted as a taxable person in transferring the ownership of parcels of agricultural land allocated to his economic activity, even though he does not carry out any activity relating to the marketing of the property and did not take any steps to that end.
The ECJ argued that a condition requiring that the taxable person must have taken active steps to sell the land would be incompatible with the effectiveness of legal provision determining the VAT payable on the expropriation of property, 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.
What are the practical consequences?
From the ECJ decision, it follows that it is important whether the assets are acquired as business or private assets to determine their VAT treatment. It is not required that the assets are already taken into use by the business at the moment of expropriation but rather what their intended use is. The VAT on expropriation of property applies even though the taxable person does not carry out any activity relating to the marketing of the property and did not take any steps to that end.
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