Court of Justice of the EU

In UCMR – ADA Association for the Copyright of Composers (C-501/19), the Court was asked about the correct VAT treatment of copyright royalties collected on behalf of copyright holders by a collective management body. The taxpayer was designated by the Romanian Copyright Office as the only collector, in Romania, of the copyrights royalties in relation to works in concerts, shows and other artistic events. A cultural association in Romania organised a show with the performance of musical works and therefore obtained a licence from the taxpayer in return for payment. There was a dispute between the taxpayer and the cultural association about non-payment of the royalties and the Romanian court, in the course of proceedings relating to that dispute, decided that the royalties should not be subject to VAT. The taxpayer appealed to the Romanian appeal court which asked the ECJ how the arrangement should be treated for VAT purposes. The Court noted that the copyright holders provided services for a fee to the show organiser, notwithstanding the intervention of the taxpayer; the taxpayer acted on behalf of copyright holders and acted as a taxable person in these circumstances. Accordingly, the rules in the VAT Directive introduces a “fictio iuris” according to which there are two identical services provided consecutively; first a licence from the copyright owner to the taxpayer and second a licence from the taxpayer to the cultural organisation. Therefore, the taxpayer had to issue a VAT invoice to the cultural organisation and the copyright holders had to issue a VAT invoice to the taxpayer.

DLA Piper comment: The copyright holder is rendering a VAT taxable service even if the consideration is collected via an “undisclosed agent” (collective management body) whose intermediary role is imposed by the law (for the exploitation of the copyrights). In this respect, the royalty received by the collecting management body shall be subject to VAT as the consideration for a supply of services. After receiving the royalties transferred by that organisation, the copyright holders, if they are taxable persons, are required to issue an invoice to the organisation for the service receives. The ECJ ruling does not consider (or consider irrelevant) the subjective nature of the copyright holder, i.e. whether that person is a taxable person for VAT purposes or not.

In LN case (C-655/19) the Court was asked about whether Article 2, par. 1, n.(a) and Article 9, par 1 of the VAT Directive are to be interpreted as meaning that a transaction whereby a person obtains immovable property seized in the context of enforcement proceedings initiated with a view to recovering the amount of a loan previously granted and, after some time, proceeds to sell that property constitutes an economic activity and that person must be regarded as a taxable person in respect of that transaction. In the course of 2009, LN granted several loans to a third party secured by mortgages on several properties. Since the loans could not be repaid, those properties were sold at auction and three of them were awarded to LN. During 2010, LN concluded two sales contracts, one concerning one of the three properties mentioned in the previous paragraph and the other concerning a plot of land that had been purchased in 2005. The other two properties that had been awarded to LN were the subject of separate sales contracts in 2011 and 2012. In the course of a tax inspection in 2016, the Romanian Tax Authority established that the transactions carried out from 2010 onwards had generated revenue (amounting EUR 145 000), so that those transactions were categorized as an economic activity of a stable nature carried on with a view to generating revenue. Therefore, the Romanian Tax Authority considered that LN should have been registered for VAT purposes. According to the Court, it is clear that the legal transactions in question were carried out by the defendant in the main proceedings in order to restore its assets and recover its debts, following the failure to repay loans granted. As a consequence, the mere exercise of the right of ownership and the proper management of private property cannot qualify as an economic activity carried out by a taxable person.

DLA Piper comment: The mere exercise of the ownership rights, including the ordinary management of private property might be requalified as an economic activity not because the number or the extent of sales (see C- 180/10 and C-181/10), but whether the person concerned has actively undertaken land marketing initiatives – as a producer, trader or service provider. Indeed, such initiatives do not normally fall within the scope of the management of personal assets (see C-331/14) and, where performed on a stable basis, lead to a VAT business activity.