Fact of the Case in Brief
In Poland the hierarchy of local authorities is organised in the following way: the first level is the ‘gmina’ (municipality), the second level is the ‘powiat’ (district) and the third level is the ‘wojewodztwo’ (regional authority).
The ownership of immovable property previously belonging to the Municipality was transferred to the Public Treasury for the purposes of the construction of a national road. The regional Governor of Lower Silesia set the compensation to which the municipality was entitled and was ordered to pay that sum.
The Municipality submitted a request to the Minister for an interpretation of the tax law, asking whether the transfer of the ownership of immovable property, in accordance with the law, in return for payment of compensation constituted a supply of goods , and therefore subject to VAT.
The Polish Minister was of the opinion that there had been a supply of goods for consideration subject to VAT, as the ownership of the immovable property had been transferred from the Municipality to the Public Treasury in return for the payment of compensation.
The Minister pointed out that the Municipality had an obligation to account for the supply of the expropriated immovable property in the form of a VAT invoice on which the mayor of the Municipality had to be listed as acting as both seller and purchaser. The Municipality lodged an appeal with the Regional Administrative Court asking the annulment of that individual tax.
As a result, the Regional Administrative Court annulled the tax ruling on the grounds that, the supplier and person to whom the supply transferred the ownership were the same entity.
The Minister appealed, relatively, against that judgment before the referring court at the Supreme Administrative Court. The court, by its decision, stated that a transfer constitutes a supply of goods within the meaning of Article 7(1)(1) of the law on VAT(polish Law) and that is was not relevant to address the issue of whether that transaction also involved the transfer of economic control over the relevant property.
Questions referred to the ECJ:
(1) ‘Does the transfer, pursuant to the law, of the ownership of immovable property owned by a municipality to the Public Treasury in return for payment of compensation, in the case where, under the rules of national law, that immovable property continues to be managed by the mayor of the municipality, who is simultaneously the representative of the Public Treasury and the executive body of the municipality, constitute a taxable transaction within the meaning of Article 14(2)(a) of [the VAT Directive]?
(2) Is it significant whether the compensation paid to the municipality consists of an actual payment or is a mere transfer of accounting entries within the municipal budget?
(3) Is it significant whether the compensation paid to the municipality consists of an actual payment or is a mere transfer of accounting entries within the municipal budget?’
CONCLUSIONS BY THE ECJ
Article 2(1)(a) and Article 14(2)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a transfer of ownership of immovable property belonging to a taxable person for value added tax purposes to the Public Treasury of a Member State, carried out in accordance with the law and in return for a payment of compensation, constitutes a transaction subject to value added tax in a situation, such as that at issue in the main proceedings, where the same person simultaneously represents the expropriating authority and the municipality that is the subject of the expropriation and where the latter continues the practical management of the relevant property, even if the payment of compensation has been made only by means of an internal accounting transfer within the budget of the municipality.
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