Provisional text
JUDGMENT OF THE COURT (Seventh Chamber)
4 July 2024 (*)
(Reference for a preliminary ruling – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Article 2(1)(c) – Supply of services for consideration – Article 9(1) – Concepts of ‘taxable person’ and ‘economic activity’ – Non-profit association carrying out projects financed by the European Regional Development Fund (ERDF) – Supply of training services through subcontractors – Inclusion of the amount of the subsidy in the taxable amount – Article 73)
In Case C‑87/23,
REQUEST for a preliminary ruling under Article 267 TFEU from the Administratīvā apgabaltiesa (Regional Administrative Court, Latvia), made by decision of 14 February 2023, received at the Court on 15 February 2023, in the proceedings
Biedrība ‘Latvijas Informācijas un komunikācijas tehnoloģijas asociācija’
v
Valsts ieņēmumu dienests,
THE COURT (Seventh Chamber),
composed of F. Biltgen, President of the Chamber, N. Wahl (Rapporteur) and J. Passer, Judges,
Advocate General: J. Kokott,
Registrar: A. Calot Escobar,
having regard to the written procedure,
after considering the observations submitted on behalf of:
– the Biedrība ‘Latvijas Informācijas un komunikācijas tehnoloģijas asociācija’, by A. Leškoviča, advokāte,
– the Latvian Government, by J. Davidoviča, K. Pommere and E. Bārdiņš, acting as Agents,
– the European Commission, by P. Carlin, M. Herold and L. Ozola, acting as Agents,
after hearing the Opinion of the Advocate General at the sitting on 7 March 2024,
gives the following
Judgment
1 This request for a preliminary ruling concerns, in essence, the interpretation of Article 2(1)(c), Article 9(1) and Articles 28 and 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).
2 The request has been made in proceedings between the Biedrība ‘Latvijas Informācijas un komunikācijas tehnoloģijas asociācija’ a Latvian information and communication technology association (‘the Association’) and the Valsts ieņēmumu dienests (State Tax Authority, Latvia) (‘the tax authority’) concerning the latter’s refusal to allow the Association to deduct input value added tax (VAT) in respect of invoices sent to it by undertakings providing training services which that association had subcontracted to those undertakings.
Legal context
European Union law
3 Under Article 2(1) of Directive 2006/112:
‘The following transactions shall be subject to VAT:
…
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
…’
4 Article 9(1) of that directive provides:
‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’
5 Article 28 of that directive states:
‘Where a taxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself.’
6 Article 73 of that directive is worded as follows:
‘In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.’
7 Under Article 132(1) of Directive 2006/112:
‘Member States shall exempt the following transactions:
…
(i) … vocational training or retraining, including the supply of services and of goods closely related thereto, by bodies governed by public law having such as their aim or by other organisations recognised by the Member State concerned as having similar objects;
…’
Latvian law
The Law on value added tax
8 The Pievienotās vērtības nodokļa likums (Law on value added tax) of 29 November 2012 (Latvijas Vēstnesis, 2012, No 197) is intended to transpose Directive 2006/112 into Latvian law.
The Law on associations and foundations
9 Article 2(1) of the Biedrību un nodibinājumu likums (Law on associations and foundations) of 30 October 2003 (Latvijas Vēstnesis, 2003, No 161) provides that an association is a voluntary union of persons set up to achieve a non-profit objective laid down in its statutes.
10 Under Article 7(1) of that law, associations and foundations are entitled to pursue, on an ancillary basis, economic activities related to the maintenance or exploitation of their assets and also to pursue other economic activities for the purpose of achieving their objectives.
The dispute in the main proceedings and the questions referred for a preliminary ruling
11 In 2016, the Association, which is established in Latvia, concluded two contracts with the Centrālā finanšu un līgumu aģentūra (Central Finance and Contracting Agency, Latvia) (‘the CFLA’) concerning the implementation of two training projects financed by the European Regional Development Fund (ERDF). Those were, first, a training project for information and communication technology professionals (‘the ICT project’) and, second, a training project for micro- and small enterprises (‘the MSE project’). The tenderer, in the context of the first project, could be an association and, in the context of the second project, an association or a public authority.
12 As part of the ICT project, the Association concluded contracts to provide training services to recipients. Under those contracts, those recipients had to pay the Association the costs of the training and the corresponding VAT and, in some cases, management costs equal to 5% or 10% of the amount of aid granted to the Association by the CFLA and to be transferred to those recipients at the end of the ICT project, that amount being increased by VAT. The Association also concluded contracts with training service providers to carry out the training activities in question on its behalf. At the end of the training, those service providers invoiced the Association for the full cost of those services and applied VAT. The Association paid the invoices of those service providers and declared the VAT as input tax. At the end of the project, the Association paid the funds received from the CFLA to the recipients of the training (those payments varied in amount, ranging from 30% to 70% of the cost of the services supplied) and invoiced them for the management costs of the project, amounting to 5% or 10% of the aid granted by the CFLA.
13 As part of the MSE project, the Association paid the training service providers in full, which payments included VAT. The contract under which that payment was made had been concluded between the Association, the training service provider and the recipient of those services. Under that contract, the recipient undertook to co-finance the training and the service provider was required to pay the amount corresponding to that co-financing (30% of the total payment, including VAT) to the Association. The funding granted by the ERDF constituted 70% of the total payment, paid at the end of the project to the Association by the CFLA, excluding VAT.
14 Following an audit, the tax authority questioned the Association’s ability to deduct input VAT. Consequently, in 2019 and 2021, it adopted eight decisions requiring the Association to pay VAT in the amount of EUR 87 299.37 in respect of the period from January to October 2018, a fine of EUR 611.96 and a late-payment penalty of EUR 7 707.52. It also refused the Association’s request for a refund in respect of the excess VAT recorded in respect of July and September to December 2018, and in respect of February, March, May and December 2019, in the total amount of EUR 101 363.24.
15 According to the tax authority, the ICT and MSE projects could be carried out only by an association or by a public authority, but not by an economic operator. Given the Association’s lack of a profit-making objective and the fact that no profits are expected to be made from the implementation of those projects, that implementation cannot be regarded as an economic activity on the part of the Association. That association managed the projects and made payments from European funds, which benefited the recipients of the training services, but it did not itself provide such services and therefore does not have the right to deduct input VAT.
16 The Association challenged the decisions of the tax authority, taking the view that its status as an association had no bearing on its right to deduct input VAT. It argued that it was entered in the Latvian register of taxable persons subject to VAT and that, in the context of the ICT and MSE projects, it had provided training services as an intermediary.
17 The Administratīvā rajona tiesa (District Administrative Court, Latvia) upheld the actions for annulment of those decisions. The tax authority brought an appeal against the judgments at issue before the Administratīvā apgabaltiesa (Regional Administrative Court, Latvia), the referring court, which joined all the cases brought before it concerning those judgments.
18 In those circumstances, the Administratīvā apgabaltiesa (Regional Administrative Court) stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling:
‘(1) Must Article 9(1) of [Directive 2006/112] be interpreted as meaning that a not-for-profit organisation whose activity is aimed at implementing State aid schemes financed by the [ERDF] is to be treated as a taxable person who carries out an economic activity?
(2) Must Article 28 of [Directive 2006/112] be interpreted as meaning that an association which does not actually supply training services is nevertheless to be equated with a supplier of services where the services were acquired from another economic operator in order to ensure the implementation of a State aid project financed by the [ERDF]?
(3) Pursuant to Article 73 of [Directive 2006/112], if a supplier of services receives only partial consideration from the recipient of the service for the service supplied (30%) but the remaining cost of the service is covered by an aid payment from the [ERDF], is the taxable consideration the total amount received by the supplier of services from both the recipient of the service and a third party in the form of an aid payment?’
Consideration of the questions referred
19 It should be noted that the first question referred by the referring court concerns the interpretation of the concept of ‘economic activity’ under Article 9(1) of Directive 2006/112, while the second question referred by that court relates, in essence, to the concept of ‘supply of services for consideration’, within the meaning of Article 2(1)(c) of that directive, in conjunction with Article 28 thereof.
20 An activity can be regarded as an economic activity within the meaning of Article 9(1) of Directive 2006/112 only where the activity corresponds to one of the chargeable events defined in Article 2 of that directive (judgment of 12 May 2016, Gemeente Borsele and Staatssecretaris van Financiën, C‑520/14, EU:C:2016:334, paragraph 21).
21 The second question must therefore be answered first. The answer to that question will then, where appropriate, allow an answer to be given to the third question, by determining whether subsidies such as those which, in the present case, were granted by the CFLA after the ERDF had itself paid those subsidies to the CFLA, form part of the taxable amount for services such as those supplied by the Association in the context of the ICT and MSE projects. Lastly, the first question will be considered, if necessary.
The second question
22 In its request for a preliminary ruling, the referring court describes the supply of services invoiced by the Association on the basis of two characteristics relating to their context, namely the use by the Association of subcontractors for the supply of those services, and the subsidisation of those services by the ERDF, through the CFLA.
23 It follows that, by that question, the referring court is asking, in essence, whether Article 2(1)(c) of Directive 2006/112, read in conjunction with Article 28 thereof, must be interpreted as meaning that the supply of training services invoiced by a non-profit association, which supply is subcontracted for the most part to third parties and has received subsidies from European funds of up to 70% of the total amount of those services, constitutes a supply of services for consideration.
24 It should be recalled that it is for the referring court, which alone has jurisdiction to assess the facts, to determine the nature of the transactions at issue in the main proceedings (judgment of 30 March 2023, Gmina L., C‑616/21, EU:C:2023:280, paragraph 22 and the case-law cited).
25 That said, it is nevertheless for the Court of Justice to provide that court with all the guidance as to the interpretation of EU law which may be of assistance in adjudicating on the case before it (judgment of 30 March 2023, Gmina L., C‑616/21, EU:C:2023:280, paragraph 23 and the case-law cited).
26 In that regard, it is apparent from the case-law that a supply of services is carried out ‘for consideration’, for the purposes of Article 2(1)(c) of Directive 2006/112, and is therefore taxable, only if there is a direct link between that supply of services, on the one hand, and the consideration actually received by the taxable person, on the other. Such a direct link is established where there is a direct link between the provider of the supply of services, on the one hand, and the recipient, on the other, a legal relationship in which there is reciprocal performance, the remuneration received by the provider of the transactions constituting the actual consideration for the service supplied to that recipient (see, to that effect, judgment 30 March 2023, Gmina O., C-612/21, EU:C:2023:279, paragraph 25 and the case-law cited).
27 In order for such a transaction to be regarded as having been carried out ‘for consideration’, within the meaning of that directive, it is not necessary, as is also apparent from Article 73 of that directive, that the consideration for the supply of services must be obtained directly from the recipient thereof, since it may be obtained from a third party (see, to that effect, judgment 30 March 2023, Gmina O., C-612/21, EU:C:2023:279, paragraph 26 and the case-law cited).
28 The fact that the price paid for the transaction in question is higher or lower than the cost price, and, therefore, higher or lower than the open market value, is irrelevant for the purpose of establishing whether it was a transaction ‘for consideration’, since that circumstance is not such as to affect the direct link between the transaction supplied and the consideration received or to be received, the amount of which is determined in advance and according to well-established criteria (see, to that effect, judgment 30 March 2023, Gmina O., C-612/21, EU:C:2023:279, paragraph 27 and the case-law cited).
29 In the present case, it is apparent from the information provided by the referring court that the Association organises, prepares the material for, and oversees training for information and communication technology professionals (ICT project) and for micro- and small enterprises (MSE project), but that it delegates the performance of that training to subcontractors.
30 In the context of the ICT project, subject to verification by the referring court, two supplies of services appear to coexist. The first binds the recipient of the training to the Association, to which the recipient pays the full price charged. After receipt of the grant by the CFLA, the Association transfers the amount due to each recipient of the training service, which has the effect of reducing the price originally paid by that recipient to the Association. The second follows from the contract between the Association and the training company, which it pays for the services rendered.
31 It is therefore clear that the Association must be regarded as the supplier of the training services vis-à-vis the recipient of the training. In that regard, it is irrelevant that the Association chose to secure the services of a subcontractor rather than recruit its own staff.
32 Article 28 of Directive 2006/112, the wording of which requires the taxable person to act in his, hers or its own name on behalf of another person, is therefore not relevant in the context of a project such as the ICT project since, first, the Association acted in its own name and on its own behalf by invoicing the recipients of the training for the cost of that training and, second, the training company acted in the name and on behalf of another person that is to say, the Association by carrying out the training services in question, which were then paid for by the Association.
33 In the context of the MSE project, also subject to verification by the referring court, things appear to be slightly different since, as is apparent from paragraph 13 of the present judgment, there is, as in the case of the ICT project, a contract between the Association and a subcontractor for the supply of the training service to the recipients of that training, but the relationship with those recipients is itself defined in another tripartite contract between the Association, the training company and each recipient of the training. That other contract stipulates that the recipient of the training is to bear 30% of the cost of the service; the amount corresponding to that percentage appears to be invoiced by the Association itself. The grant by the CFLA of the subsidy amounting to 70% of the cost of the supply of training services, therefore enables the Association to obtain the full cost.
34 It therefore appears, subject to verification by the referring court that there is no agency agreement between the Association and the training company, that notwithstanding the difference with the ICT project relating in particular to the existence of a tripartite contract, it was also in its own name and on its own behalf that the Association supplied, through a subcontractor, the training services in question, since those services were not supplied by the subcontractor in its own name and on its own behalf. Article 28 of Directive 2006/112 is therefore not applicable in the light of the request for a preliminary ruling.
35 It should be added with regard to the two projects, first, that the fact that the financing of the supply of training services comes, even to a large extent, from a body such as the CFLA, the CFLA having itself received the sums in question from the ERDF, does not preclude the classification of that supply as a supply of services for consideration, as is clear from the case-law referred to in paragraph 27 of the present judgment, according to which the consideration for the supply of services may be obtained from a third party.
36 Second, the fact that the income consisting, first, of the payment of the aid, through the CFLA, from the ERDF and, second, of the remuneration paid by the recipients of the training services fully covers the Association’s costs but does not allow it to make a profit, in accordance with its status as a non-profit association, is also not such as to prevent the supply of services at issue in the main proceedings from being classified as a supply of services for consideration, as follows expressly from the case-law referred to in paragraph 28 of the present judgment, according to which a transaction, even if carried out at a price lower than the cost price, may be classified as a transaction carried out for consideration.
37 The answer to the second question is therefore that Article 2(1)(c) of Directive 2006/112 must be interpreted as meaning that the supply of training services invoiced by a non-profit association, which supply has been subcontracted for the most part to third parties and received subsidies from European funds of up to 70% of the total amount of those services, constitutes a supply of services for consideration, without Article 28 of that directive being applicable, in the absence of an express agency agreement capable of establishing the existence of a supply of services by a taxable person in its own name and on behalf of another person.
The third question
38 By its third question, the referring court asks whether Article 73 of Directive 2006/112 must be interpreted as meaning that, where the provider of a service receives only partial consideration from the recipient of that service for the service supplied, since the consideration for the remaining cost of that service consists of an aid payment from ERDF resources, the taxable amount corresponds, nevertheless, to the total amount received by the provider of that service.
39 It follows both from the case-law cited in paragraph 27 of the present judgment and from the findings set out in paragraph 35 thereof that that question must be answered in the affirmative. Article 73 of that directive must therefore be interpreted as meaning that subsidies paid to a service provider by a European fund for a specific supply of services are, in accordance with that provision, included in the taxable amount as a payment obtained from a third party.
The first question
40 By its first question, the referring court asks whether Article 9(1) of Directive 2006/112 must be interpreted as meaning that a non-profit association the activities of which are aimed at implementing State aid schemes financed by the ERDF must be treated as a taxable person carrying out an economic activity.
41 In that regard, in the first place, it should be recalled that, subject to the referring court’s assessment of the facts of the case in the main proceedings, it follows from the answer to the second question that the supply of training services in question satisfies the criteria for classifying that supply as a supply of services for consideration within the meaning of Article 2(1)(c) of Directive 2006/112, so that that condition, which is necessary, but not sufficient, for establishing that an economic activity has been carried out, is satisfied.
42 In the second place, the analysis of the wording of Article 9(1) of Directive 2006/112, while highlighting the scope of the concept of ‘economic activity’, also clarifies the objective nature of that concept, in the sense that the activity is considered per se and without regard to its purpose or results (judgments of 30 March 2023, Gmina O., C‑612/21, EU:C:2023:279, paragraph 33 and the case-law cited, and of 30 March 2023, Gmina L., C‑616/21, EU:C:2023:280, paragraph 41 and the case-law cited).
43 Therefore, the fact that, on account of its legal form, a legal person may engage in commercial activities only on an ancillary basis has no bearing on the existence of an economic activity designed to obtain income on a continuing basis, which is the criterion of economic activity within the meaning of Article 9(1) of that directive (see, to that effect, judgment 2 June 2016, Lajvér, C‑263/15, EU:C:2016:392, paragraph 35 and the case-law cited).
44 Consequently, in the main proceedings, it was by misinterpreting that provision that the tax authority took the view that the mere fact that the applicant in the main proceedings was a non-profit association precluded it from carrying on an economic activity within the meaning of that provision.
45 In the third place, the fact that the training courses concerned were financed to a large extent by ERDF aid cannot affect the economic or non-economic nature of the activity carried out by the Association, since the concept of ‘economic activity’, on account of its objective nature referred to in paragraph 42 of the present judgment, applies without regard to the method of financing chosen by the operator concerned, which also holds true in relation to public subsidies (judgment of 2 June 2016, Lajvér, C‑263/15, EU:C:2016:392, paragraph 38 and the case-law cited).
46 In the fourth place, given the difficulty of establishing a precise definition of economic activity, all the circumstances in which it is supplied have to be examined, by making a case-by-case assessment, referring to the typical conduct of an active entrepreneur in the field concerned (judgments of 30 March 2023, Gmina O., C‑612/21, EU:C:2023:279, paragraph 35 and the case-law cited, and of 30 March 2023, Gmina L., C‑616/21, EU:C:2023:280, paragraph 43 and the case-law cited), that is to say, in the present case, an undertaking that organises and supplies training services.
47 In that regard, it is true that the fact that, in fixing the cost of the supply of training services which it invoices to the recipients of those services, the Association seeks solely to cover its operating costs in order to achieve financial equilibrium appears not to correspond to the typical conduct of any entrepreneur, which is to strive for profitability.
48 However, that analysis does not correspond to the wording of Article 9(1) of Directive 2006/112 and is also not supported by the facts set out in the order for reference.
49 First of all, it follows from the wording of that provision that ‘taxable person’ means any person who, independently, carries out any economic activity, whatever the purpose or results of that activity. It follows that the Association’s aim of simply balancing its accounts is not sufficient to rule out the possibility that it is carrying out an economic activity. For the same reason, an undertaking which seeks to make a profit but the activity of which proves to be loss-making on a long-term basis, for example due to underperformance, would nevertheless remain a taxable person if an analysis of all the circumstances in which that activity is carried out, referred to in paragraph 46 of the present judgment, leads to that activity being regarded as economic in nature.
50 Next, the Association acts as an undertaking organising and providing training when it implements training projects financed by the ERDF, through the CFLA. In particular, it seeks out projects, clients and instructors, acquiring their services on a subcontracting basis. It has the recipients of the training services pay part of the cost, assesses their level of knowledge and obtains their feedback on the training, which corresponds to a typical quality survey.
51 Nor is it disputed that the Association has its own staff for the organisation of its projects, in addition to the subcontractors on which it relies. It should be borne in mind, in that regard, that subcontracting is quite common in the context of economic life.
52 It follows that, from the outside, the Association appears to be a provider of training services or of services relating to the organisation thereof comparable to any other economic operator present on the same market, with which it therefore competes.
53 Finally, even if the fact that a large part of its financing is derived from public subsidies appears to create uncertainty as to the economic viability of the Association, it must be emphasised that those subsidies and their foreseeable amount constitute factors on the basis of which the Association draws up its business plan and its search for clients.
54 It follows from all those considerations that a non-profit entity such as the Association must be regarded as a taxable person carrying out an economic activity within the meaning of Article 9(1) of Directive 2006/112, so that the supply of training services for which it invoices falls within the scope of that provision.
55 That being so, it will nevertheless be for the referring court to verify that that supply of services does not fall within the scope of the exemption provided for in Article 132(1)(i) of that directive, concerning ‘vocational training or retraining’, since that question has not been referred to the Court and there is no information in the case file which would allow that question to be decided.
56 In the light of the foregoing considerations, the answer to the first question is that Article 9(1) of Directive 2006/112 must be interpreted as meaning that the status of non-profit association enjoyed by an association does not preclude, following an analysis which takes account of all the circumstances of the association’s activity and, in particular, the fact that that activity is comparable to the typical conduct of an economic operator in the same sector, that association from being regarded as a taxable person carrying out an economic activity within the meaning of that provision.
Costs
57 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Seventh Chamber) hereby rules:
1. Article 2(1)(c) 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 supply of training services invoiced by a non-profit association, which supply has been subcontracted for the most part to third parties and received subsidies from European funds of up to 70% of the total amount of those services, constitutes a supply of services for consideration, without Article 28 of that directive being applicable, in the absence of an express agency agreement capable of establishing the existence of a supply of services by a taxable person in its own name and on behalf of another person.
2. Article 73 of Directive 2006/112
must be interpreted as meaning that subsidies paid to a service provider by a European fund for a specific supply of services are, in accordance with that provision, included in the taxable amount as a payment obtained from a third party.
3. Article 9(1) of Directive 2006/112
must be interpreted as meaning that the status of non-profit association enjoyed by an association does not preclude, following an analysis which takes account of all the circumstances of the association’s activity and, in particular, the fact that that activity is comparable to the typical conduct of an economic operator in the same sector, that association from being regarded as a taxable person carrying out an economic activity within the meaning of that provision.
[Signatures]