Value added tax - EU - Supply of goods or services
Field Fisher Waterhouse LLP v Revenue and Customs Commissioners: Court of Justice of the European Union (Sixth Chamber) (Judges Lõhmus (president of the chamber), Rosas (rapporteur), Fernlund): 27 September 2012
The applicant solicitors’ firm leased offices in London. The lease provided that the premises were let in consideration of the payment of three rents, including for the provision of services which the landlord was obliged to provide under the lease. The lease provided that the landlord could terminate the lease if the tenant failed to pay those three rents.
The landlord had not exercised his right to opt for taxation of the leasing of the premises within the meaning of article 137(1)(d) of Council Directive (EC) 2006/112 (on the common system of value added tax) (the VAT directive) and the lease of the immovable property was therefore exempt from VAT. The landlord had also not invoiced VAT on the supplies of services to the applicant, as he considered that they too were exempt from VAT. The applicant considered that those supplies of services by the landlord constituted transactions subject to VAT.
It accordingly made an application to the respondent Revenue and Customs Commissioners (Revenue and Customs) to reclaim the VAT paid in respect of those supplies. Revenue and Customs rejected the application on the principal ground that the lease and the supplies of services constituted a single supply which was exempt from VAT. The applicant appealed to the referring court. The referring court decided to stay the proceedings and refer questions to the Court of Justice of the European Union (the court).
By its questions, the referring court asked whether the VAT directive should be interpreted as meaning that the leasing of immovable property and the supplies of services linked to that leasing should be regarded as constituting a single supply, entirely exempt from VAT, or several independent supplies, assessed separately as regards whether they were subject to VAT. It sought in particular to know what importance should be attached to the fact that: (i) the lease provided that the tenant should receive the services supplied by the landlord, even though it could in principle be supplied with at least part of the services by a third party; and (ii) the tenant’s failure to pay the service charges gave the landlord the right to terminate the lease.
The court ruled: It was settled law that, for VAT purposes, every supply should normally be regarded as distinct and independent. Further, a supply should be regarded as a single supply where two or more elements or acts supplied by the taxable person were so closely linked that they formed, objectively, a single, indivisible economic supply, which it would be artificial to split (see ,  of the judgment).
In all the circumstances, the VAT directive should be interpreted as meaning that the leasing of immovable property and the supplies of services linked to that leasing might constitute a single supply from the point of view of VAT. The fact that the lease gave the landlord the right to terminate it if the tenant failed to pay the service charges supported the view that there was a single supply, but it did not necessarily constitute the decisive element for the purpose of assessing whether there was such a supply.
On the other hand, the fact that services could in principle be supplied by a third party did not allow the conclusion that they could not constitute a single supply. It would be for the referring court to determine whether, in the light of the interpretative guidance provided by the court in the judgment and having regard to the particular circumstances of the case, the transactions in question were so closely linked to each other that they should be regarded as constituting a single supply of the leasing of immovable property (see  of the judgment).