Supplies for consideration in the course or an economic activity. A recurring issue with no one-size-fits-all solution

The Court of Justice of the European Union (CJEU) issued an interesting judgment a few days ago (30 March 2023, case C-612/21, Gmina O.) in which it answered the question raised as to under what circumstances a public body could be considered as a taxable person for VAT under a private law contract which imposed a number of obligations on it.

The Court replied that in the circumstances of the specific case, the public body in question would not be carrying out an economic activity and that, therefore, should not be considered a taxable person for VAT. The conclusion reached by the Court in this particular case is based on the way in which the cost structure of the transaction in question was designed, such that the public body’s actions did not correspond to the actions that would have been taken by a private operator who would have tried at all times to make a profit margin on the transaction, which was not the case for the public body as it carried out the transaction with no prospect of making a profit on it.

It is important to note that the decision taken by the Court affects this particular case by looking at its specific circumstances. There are more than a few cases in which the CJEU, having regarded the circumstances of these other cases, ultimately concluded that a given public body was acting as a taxable person for VAT purposes.

The reason why the CJEU’s judgment in this case has caught our attention is because of the clear reasoning behind its decision. We are referring to the steps to be taken to determine that a given company or sole trader is acting as a taxable person for VAT purposes.

The analysis must be carried in two phases, as follows:

(i)  At first it must be concluded whether we are dealing with a supply of goods or of services “for consideration” within the meaning of Article 2(1)(a) and (c) of the VAT Directive. For this, there must be a direct link between the supply of goods or services and the consideration received in exchange. Thus, the remuneration received by the supplier of the transactions must constitute the actual consideration for the goods or services supplied.

(ii) The above is only the first step in the analysis to be carried out. If it is decided that a certain supply is made “for consideration” a second question must still be answered before we can conclude that a certain transaction is subject to VAT. This question is whether said transaction is carried out in the course of an economic activity according to of Article 9(1) of the VAT Directive. 

In this respect, an activity is considered  as “economic” where it is permanent and is carried out in return for remuneration. The CJEU has mentioned in many of its judgments that considering the difficulty of establishing a precise definition of economic activity (there is no uniform definition art an EU level), all the circumstances in which it is supplied have to be observed. 

Undoubtedly, the intention of obtaining an income of a permanent nature is a key aspect to consider for determining the existence of an economic activity.

In most cases, the analysis will most likely be straightforward, since the intention to earn recurring income is common in business. However, the situation is complicated in cases where we find ourselves in situations of occasional activities, which are very common, for example, in the educational sector or in the field of conferences. In this case, a given subject may not have had an initial intention to earn income on a continuous basis over time, but such occasional activity may become more recurrent and it is in these situations that doubts may arise. There is no clear and uniform definition of what is meant by occasional activity, so that, conversely, it is difficult to determine what is “continuing basis” within the meaning of Article 9(1) of the VAT Directive.

This situation is bridged in many countries by the existence of turnover thresholds, below which one has no VAT obligations. However, this option does not exist in all Member States today. Perhaps part of the problem will be solved in 2025 with the entry into force of a common regime for small enterprises.

The recent CJEU´s case reminds us that not every provision of goods and services has to take place within the framework of an economic activity. For this, we must take into account the circumstances of the case and especially the intention and prospects of the provider.

This controversy  it not something that has blossomed with this Court case. It has always existed in the field of VAT and which, nevertheless, is recurrently repeated due to the lack of a uniform position on the matter.