BI: CJEU to overturn municipalities’ VAT settlements again? This time it is about subsidies for photovoltaics
On Thursday, two important judgements were handed down by the CJEU on VAT. They concern the taxation of subsidies that municipalities received for photovoltaic installations and for asbestos removal. For many years, Polish courts were unable to decide whether the municipality was a VAT payer in such cases, and it was only the CJEU that did so. Experts admit that for some municipalities its verdict may mean problems, writes Business Insider.
Andrzej Kapczuk, tax advisor and partner at Thedy & Partners was asked to comment on the case. He stressed that both judgments have a common denominator. This is:
– the implementation of an own task by each municipality,
– the absence of a fixed income from the task in question, and
– covering the costs of its implementation either in full (as in the case of asbestos removal) or in a significant part (as in the case of RES installations) with external public funds.
In both cases, the CJEU’s judgement in principle favoured the approach suggested by the municipality and rejected in the individual interpretation by the tax authority. The CJEU acknowledged that, in principle, the criterion of the existence of a taxable activity (supply of goods / provision of services for remuneration – even if this remuneration is disproportionately low in relation to the cost incurred) is met. However, at the same time it considered that the criterion of the municipality acting as a taxable person (i.e. the absence of an economic activity) is not fulfilled. This, in turn, effectively means that VAT is not levied, as both of the above criteria should be met simultaneously for taxation to occur.
Significantly, the CJEU no longer examined whether the municipality was acting as a ‘public authority’ here, as the lack of economic activity by definition precludes the need for such an analysis. This, in turn, also means that, in a sense, both judgments may also apply indirectly to other entities (foundations, associations, but in some situations perhaps even commercial companies).
It is worth noting the wording used by the CJEU in both judgments: “only the risk of loss with no prospect of profit” – this seems to be the basic premise determining this and not the other ruling.