On 17 October 2019, the Court of Justice of the European Union (ECJ) delivered the judgement between Paulo Nascimento Consulting – Mediação Imobiliária Lda and Autoridade Tributária e Aduaneira concerning the exemption for financial services and transfer of debt or transfer of immovable property.
Summary of the facts
In accordance with the order for reference, Paulo Nascimento Consulting (‘PNC’) agreed, in the context of its activity as a property agency, to provide its agency services on an exclusive basis for a sale of agricultural land. An offer of sale was proposed by PNC but rejected by its principal, the owner of the land, who refused to pay it for the service provided. PNC has brought an action before the Family, Juvenile and District Court (Tribunal de Família e Menores e de Comarca de Portimão, Portugal), which granted a final judgment ordering the principal to pay to PNC the property agency fee plus VAT and default interest until the date of full payment. Since the debtor failed to pay, PNC brought before the same court an enforcement action seeking to recover the debt owed to it as recognised by that judgment, whereby the immovable property belonging to the debtor was made subject to attachment in order to secure payment of the amount due, and subsequently, awarded to PNC in exchange for the obligation on the part of PNC to pay to the enforcement agency the surplus.
By the agreement, PNC transferred to Starplant — Unipessoal Lda (‘Starplant’) all the rights and obligations deriving from its position in the ongoing enforcement proceedings in exchange for a payment by Starplant. PNC entered in its accounts the amounts received in exchange for the services provided to the abovementioned principal and paid the VAT. PNC also entered in its accounts an amounts recorded as ‘other unspecified income’ corresponded to the remainder of the price paid by Starplant, and paid no VAT.
The Tax and Customs Authority (Autoridade Tributária e Aduaneira, Portugal) issued VAT assessments to PNC on the ground that the transaction was separate from that relating to the property agency fee and subject to VAT, since it constituted an assignment of a right for consideration by a taxable person acting as such, which fell within the concept of the supply of services and was not covered by any exemption provided for by the VAT Code.
The Administrative and Tax Court (Tribunal Administrativo e Fiscal de Loulé, Portugal) upheld PNC’s action for annulment of the VAT assessments. In its judgment, the Southern Central Administrative Court (Tribunal Central Administrativo Sul, Portugal), before which the matter was brought by the Public Treasury (Fazenda Pública, Portugal), set aside the judgment at first instance on the ground that the debt assignment at issue formed part of the economic activity of PNC, was to be regarded as a taxable supply of services and did not benefit from any of the exemptions referred to in Article 9 of the VAT Code, in particular the exemption provided for banking and financial transactions granting and negotiating credit. PNC appealed against that judgment to the Supreme Administrative Court (Supremo Tribunal Administrativo, Portugal), arguing primarily that the exemption provided for debt assignment transactions even where they were carried out by entities other than financial institutions; based on the case-law of the Court relating to the provision of EU law transposed into Portuguese law.
Questions referred to the ECJ
For the purposes of application of the exemption provided for in Article 135(1)(b) of [Directive 2006/112/EC], do the terms “granting”, “negotiation” and “management of credit” encompass the assignment for consideration to a third party of the position held by a taxable person liable for VAT in enforcement proceedings for recovery of a debt, recognised by a judgment and resulting from the breach of a property agency agreement, plus VAT at the rate in force on the date of payment and the default interest already accrued or which may accrue until full payment?
Conclusion by the ECJ
The Court upheld that the Article 135(1)(b) 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 exemption laid down by it in respect of transactions concerning the granting, negotiation or management of credit does not apply to a transaction which, for the taxable person, consists in assigning, to a third party, for consideration all the rights and obligations deriving from the taxable person’s position in enforcement proceedings for recovery of a debt recognised by a judgment, a debt the payment of which was secured by a right over immovable property awarded to that taxable person and made the subject of attachment.
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