The Advocate General of the European Court of Justice (ECJ) has delivered an opinion in the case of Gmina Wroclaw. The municipality of Wroclaw applied to the Polish Finance Minister on the issue of whether a budgetary unit of a municipality could be treated as a value added tax (VAT) taxable person. The municipality considered that the unit could not be a taxable person and that the municipality itself should be registered for VAT as the taxable person in relation to activities of the budgetary unit.

The Polish Finance Minister however ruled that as the units were separate from the structure of the whole municipality and they are engaging in independent economic activities that would be subject to VAT they should be registered as separate persons for VAT.

Following an unsuccessful appeal at the district municipal court the municipality took the issue to the Supreme Administrative Court in Poland. This ruled that a budgetary unit could not be a VAT taxable person because the economic activities were not carried out in an independent way as required by Polish VAT law. However to obtain clarification of the application of the independence requirement to public bodies the Court referred the case to the ECJ.

Provisions of the EU VAT Directive

The EU VAT Directive states in Article 9 (1) that a taxable person is any person who independently carries out in any place any economic activity, whatever the purpose or results of that activity. Article 13 of the Directive states that States, regional and local government authorities and other bodies governed by public law are not regarded as taxable persons in respect of the activities in which they engage as public authorities, however they are regarded as taxable persons in respect of activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.

Advocate General’s Opinion

The Advocate General opined that based on a consideration of Articles 9 and 13 of the EU VAT Directive and ECJ case law a number of criteria are involved in the assessment of whether budgetary units of a municipality are taxable persons. First it must be established that the activities of the budgetary units are economic activities and that they are carried out independently. Then the application of the exclusion in Article 13 for activities of public bodies must be considered. The Advocate General referred to the Saudacor case in relation to these points.

With regard to the independent nature of the economic activities of the budgetary units reference was made by the Advocate General to the Van der Steen case. Consideration must be given to whether the economic activity is carried out by the budgetary units of the municipality as the responsible unit in their own name for their own account and whether the units bear the risk of the economic activities.

This type of analysis in the present case requires knowledge of the particular features of the system of local government in Poland and the Advocate General therefore opined that the Polish Court must assess in the light of these criteria whether the municipal budgetary units are carrying out their economic activities independently.

The opinion of the Advocate General was therefore that the Directive should be interpreted as meaning that an organizational unit of a local municipality could be considered to be a taxable person for VAT purposes if it is carrying out economic activities independently as set out in the relevant Article of the EU VAT Directive. The national Court in Poland must make an assessment of whether the budgetary units of the municipality are carrying out their economic activities independently.

When the ECJ considers its final decision in the case it may take into account the opinion of the Advocate General but is not obliged to follow it.