Judgment summary
This judgment concerns a request for a preliminary ruling on the interpretation of Article 19 of Council Directive 2006/112/EC (the VAT Directive), transmitted to the General Court by the Court of Justice under Article 50b of the Statute of the Court of Justice of the European Union (para 1).
The dispute arose between D.B. and the Dyrektor Krajowej Informacji Skarbowej concerning a tax ruling on the VAT treatment of a donation of assets (para 2).
The General Court held that the transfer, without consideration, of an undertaking to two natural persons, each receiving a half share, who intend immediately to make a contribution in kind of those shares to a company of which they are partners, does not constitute a transfer of a totality of assets or part thereof within the meaning of the first paragraph of Article 19 of the VAT Directive (para 38, operative part).
Background
D.B. carries on an undertaking known as 'Przedsiębiorstwo B.' (undertaking B.) (para 7). She intended to donate the entire undertaking to her two daughters, A.K. and P.K., each receiving a half share, retaining no assets herself and ceasing business immediately thereafter (para 7).
A.K. and P.K. already ran a separate undertaking, P., as a general partnership, and planned to incorporate undertaking B. into it, continuing its activities in substantially unchanged form (para 8).
D.B. applied to the tax authority for a ruling on the VAT exemption applicable to the donation (para 9). On 26 June 2020, the tax authority issued a ruling finding no disposal of an undertaking within the meaning of Article 6(1) of the Law on VAT, reasoning that the subject of the transfer was shares in various components of the undertaking, not undertaking B. itself, and that the economic activity would ultimately be carried on by the general partnership, not by either individual recipient (para 10).
D.B.'s appeal was dismissed by the Wojewódzki Sąd Administracyjny w Poznaniu on 30 March 2021, which upheld the tax authority's reasoning (para 11). D.B. then lodged an appeal on a point of law before the Naczelny Sąd Administracyjny, alleging breach of Article 6(1) of the Law on VAT and Article 19 of the VAT Directive read with Article 55 of the Civil Code (para 12).
Core dispute
The referring court asked whether Article 19 of the VAT Directive must be interpreted as meaning that a transfer of a totality of assets occurs where a taxable person transfers, without consideration, a half share each of a totality of assets to two individuals who are not taxable persons and who intend immediately to contribute those shares as a contribution in kind to a business partnership of which they are partners (para 14).
The Commission questioned admissibility, arguing the question was hypothetical because the donation, being without consideration, was not in principle subject to VAT and the referring court had not identified the legal basis for taxing the supply (para 15).
Court findings
The Court first addressed admissibility, recalling that questions on EU law referred by a national court enjoy a presumption of relevance and can be refused only where manifestly unrelated to the facts, hypothetical, or where the Court lacks the necessary material (para 16). It found the requested interpretation was not manifestly unrelated to the facts, since if the transfer did not fall within Article 19, it would not be exempt from VAT, and declared the request admissible (paras 17 to 19).
On the substance, the Court examined first whether the series of transactions (the donation of shares and the subsequent contribution to the general partnership) constituted a 'single transaction'. It recalled that, as a rule, each transaction must be regarded as distinct and independent, but that closely linked transactions forming a single indivisible economic supply must be treated as one (paras 24 and 25).
The Court noted that A.K. and P.K. were separate legal entities, each sole owner of their respective share, free to dispose of it without the other's consent, and that the second transaction (transfer to the partnership) was not conditional upon the first, was independent of it, and would occur at a later date (para 27). It concluded, subject to verification by the referring court, that the transactions were not so closely linked as to constitute a single indivisible economic transaction (para 28), and that the four transactions at issue had to be regarded as separate and independent under Article 1(2) of the VAT Directive (para 29).
The Court then addressed the substantive conditions under Article 19: first, that the elements transferred together constitute an undertaking or part of an undertaking capable of carrying on an independent economic activity, and second, that the transferee intends to operate the transferred business rather than immediately liquidate it (paras 31 and 32). It emphasised that, because the transactions were distinct, the first condition had to be assessed separately in respect of each daughter (para 34).
The Court found that each half share of undertaking B. did not constitute an autonomous unit capable of allowing the recipient to carry on an independent economic activity separately (para 35). It held that the transfer to two persons of a half share each, such that neither could individually carry on an independent economic activity, did not satisfy the first condition of Article 19, irrespective of their intention to contribute those shares to a company carrying on an economic activity (para 36). Because the first condition was not met, the Court found no need to examine the second condition relating to the recipients' intention to continue the activity (para 37).
Outcome
The Court ruled that the first paragraph of Article 19 of the VAT Directive must be interpreted as meaning that the transfer, without consideration, of an undertaking to two natural persons, each receiving a half share, who intend to make an immediate contribution in kind of those shares to a company carrying on an economic activity of which they are partners, does not constitute a transfer of a totality of assets or part thereof within the meaning of that provision (para 38, operative part).
The Court also ruled that the decision on costs is a matter for the referring court, and that costs incurred by parties other than those to the main proceedings in submitting observations are not recoverable (para 39).
Major issues / areas of contention
- Whether the request for a preliminary ruling was admissible given the Commission's argument that the question was hypothetical.
- Whether the donation of half-shares of an undertaking, followed by their contribution to a general partnership, constituted a single transaction or separate and independent transactions.
- Whether each half share transferred to a daughter constituted an autonomous unit capable of carrying on an independent economic activity.
- Whether the transfer amounted to a 'transfer of a totality of assets or part thereof' within the meaning of Article 19 of the VAT Directive.
- Whether the recipients' intention to continue the economic activity through a jointly owned partnership was relevant once the first condition under Article 19 was not satisfied.