The German Federal Fiscal Court (BFH) has referred a question to the ECJ for a preliminary ruling regarding the tension between the uniformity of the service and the apportionment requirement. In the case, a stable building for turkey farming has been leased together with the permanently installed equipment and machinery. In this context, it is questionable whether the entire revenue is exempt from VAT or whether the remuneration has to be divided into a part that is exempt from VAT and a part that is subject to VAT.
The plaintiff leased a stable building for turkey farming with permanently installed equipment and machines, which are specially adapted equipment elements for the contractual use as turkey farming barn. The plaintiff assumed that the leasing of the barn building and the equipment and machinery were exempt from VAT entirely. In principle, the VAT Directive and the German VAT Act provide an exemption for the leasing and letting of immovable property. However, certain transactions - such as the letting of permanently installed equipment and machinery - are excluded from this exemption. The German tax office was of the opinion that the lease fee, which is attributable to the leasing of the installed equipment, is subject to VAT. In the appeal proceedings, however, the tax court assumed that the lease of the installed equipment and machinery was overall tax-exempt and thus also in the context of the lease in question. This point of view was justified with reference to an ECJ ruling according to which a single supply of a service exists if a building offered for rent with accompanying services objectively forms a whole in economic terms.
In the next step, the German Federal Fiscal Court dealt with the case, referring the following question to the ECJ for a preliminary ruling: Does the tax liability for the letting of permanently installed equipment and machinery covers only the isolated (stand-alone) rental of such equipment and machinery, or also the letting (leasing) of such equipment and machinery which is tax-exempt on the basis of (and as an ancillary service to) a leasing of a building between the same parties?
At the outset, the German Federal Fiscal Court states that, in principle, according to the established case law of the ECJ, a transaction should not be split artificially. There is a single supply where two or more elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. The German Federal Fiscal Court cites the following arguments as regards the application of the uniformity of the service:
As a consequence, the exclusion from the VAT exemption for operating equipment would only apply to the isolated transfer of equipment and machinery.
As an argument for the application of the apportionment rule, the German Federal Fiscal Court argued that the lease of land and the lease of machinery and equipment differ in nature. The argument in favor of this view could be that the leasing of equipment and machines contradicts the passive character of the lease. As a consequence, the remuneration would have to be split into a VAT-exempt and a taxable part.
The decision of the ECJ remains awaited eagerly. Moreover, this decision will also be relevant for Austrian cases, as the exemption and the exclusion are implemented in the national VAT law.
Verena Gabler ist Partner im Bereich Steuerberatung und leitet die Tax Management Consulting Abteilung bei Deloitte Österreich. Die Umsatzsteuer-Spezialistin hat sich auf die Prozessberatung spezialisiert und unterstützt ihre Klienten bei der Entwicklung und Implementierung von Steuerkontrollsystemen. Dabei begleitet sie ihre Klienten bei der Analyse und Reduktion von steuerlich relevanten Risiken, der Optimierung von Prozessen und der Erhöhung des Automatisierungsgrades der Steuerfunktion durch den Einsatz von steuerrelevanter Software.