Highlights & Insights on European Taxation (H&I) – Year 2022, no. 1

News & Media
Please find below a selection of articles published this month (January 2022) in Highlights & Insights on European Taxation (H&I), plus one freely accessible article.

Highlights & Insights on European Taxation (H&I) is a publication by Wolters Kluwer Nederland BV.

The journal offers extensive information on all recent developments in European Taxation in the area of direct taxation and state aid, VAT, customs and excises, and environmental taxes.

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Year 2022, no. 1   





–               Icade Promotion (C-299/20). Scope of the margin taxation scheme. Supply of building land. Court of Justice

(comments by Damien Falco) (H&I 2021/760)

–               Dubrovin & Tröger – Aquatics (C-73/19). VAT exemption for school and university education does not apply to swimming lessons. Court of Justice

(comments by Luis Aires) (H&I 2021/777)


–    Communication from the Commission supplementing the Guidelines on certain State aid measures in the context of the system for greenhouse gas emission allowance trading post-2021

(comments by Tatiana Falcao) (H&I 2021/775)

–    Commission adopts new annexes to EU Emission Trading System State aid Guidelines, defining applicable efficiency benchmarks and CO2 factors

(comments by Tatiana Falcao) (H&I 2021/776)




Icade Promotion (C-299/20). Scope of the margin taxation scheme. Supply of building land. Court of Justice.

Comment by Damien Falco 

This judgment has been awaited by legal professionals. In a judgment of 30 September 2021, the Court of Justice of the European Union (hereinafter: ‘CJ’) ruled for the first time on the VAT margin regime in the real estate sector in a case relating to a French dispute between the company Icade Promotion and the French tax authorities. 

In fact, the CJ had been questioned by the Council of State on the scope of Article 392 of the VAT Directive which allows States to provide for a tax regime on the margin (taxation on the difference between the purchase price and the sale price) of deliveries of buildings and building land when the acquisition did not give rise to the right to deduct. 

In its dispute against the French tax administration, the company Icade Promotion contested the application of the margin regime to resale transactions to individuals of building land which were acquired from individuals and on which the company proceeded to servicing work before reselling them. 

Even if the judgment of the CJ is applicable to the provisions currently in force, it is important to specify that the dispute concerned a period prior to the entry into force of the law of 9 March 2010. 

Indeed, the property VAT regime was reformed in France in 2010. It has led to a simplification of regulations while integrating real estate transactions into the scope of ordinary VAT (Law n° 2010-237 of 9 March 2010). Thus, in principle, when carried out by a taxable person acting as such, in the course of his economic activity, supplies for consideration of buildings constitute transactions falling within the scope of VAT. In other words, the transaction is subject to VAT on its total price (General Tax Code, Art. 266). Despite this rule of principle, Article 392 of the VAT Directive offers an option to States by allowing them to apply the VAT regime on the margin for certain real estate transactions and under certain conditions. 

The Council of State, therefore, questioned the CJ on the scope of the provisions of Article 392 of the General Tax Code on the following points: 

‘Does the margin regime only concern sales for which the acquisition had been subject to VAT without opening the right to deduction or also to situations in which the acquisition had not been subject to VAT (excluding VAT application or exempt)? 

Does the margin regime apply to land which has been acquired undeveloped in order to become building land and when changes in their characteristics have been made such as division into lots or carrying out connection works?’ 

If the conclusions of Advocate General Athanasios Rantos of 20 May 2021 did not allow to anticipate with certainty the position of the CJ, the judgment brings several important lessons with regard to the regime of acquisition of the property (Section 1 below) and the condition of identity between the resold property and the acquired one (Section 2 below). 


The regime relating to the acquisition of the property

Article 392 of the VAT Directive provides that: ‘Member States may provide that, in respect of the supply of buildings and building land purchased for the purpose of resale by a taxable person for whom the VAT on the purchase was not deductible, the taxable amount shall be the difference between the selling price and the purchase price’. 

France has opted for this regime, which was introduced into domestic law by Article 268 of the General Tax Code. It indicates that: 

‘regard to the delivery of a building land, or an operation mentioned in Article 261-5, 2° and for which has been formulated the option provided for in 5° bis of Article 260 (subject to VAT on option), if the acquisition by the transferor did not give rise to the right to deduct value added tax, the tax base is constituted by the difference between: 

  • On the one hand, the expressed price and the charges which are added thereto;
  • On the other, as the case may be;

Either the sums paid by the transferor, for whatever reason, for the acquisition of the land or building; or

the nominal value of the shares or units received in return for the contributions in kind he has made.’

This provision implies that the margin regime applies to disposals of building land as well as to disposals of buildings completed for more than five years (subject to VAT on option) as soon as the acquisition by the seller has not opened the right to deduct the tax. This is the only condition required by the text. 

On this point, the CJ recalled that the objective pursued by the margin regime is to prevent a property (building land or a building) from being resold on the market by applying a VAT when this property has already borne a definitive VAT. 

The application of a VAT on the margin is therefore perfectly justified regarding the very spirit of this tax. Indeed, its objective is to limit the tax base in order to tax only the added value of a property. As soon as an operator resells building land acquired without the right to deduct, taxation on the full price at the time of resale would result in the operator being taxed on a larger base than only added value. 

Using the margin regime corrects this problem (see para. 39 of the judgment). The legislature’s objective was to preserve the sale price of certain real estate by maintaining an amount of VAT equivalent to that which was applied before the reform of 2010. 

Despite this general principle, the question could legitimately arise as to whether the rule is limited to property subject to VAT and not giving rise to the right to deduct, or whether it extends to properties not subject to VAT (exempt or out of scope)? 

The Court considered on this point that the margin system applies ‘to operations of delivery of building land as well when their acquisition has been subject to VAT without the taxable person who resells it having had the right to deduct this tax, only when their acquisition has not been subject to VAT while the price at which the taxable dealer acquired this property incorporates an amount of VAT which has been paid upstream by the initial seller.’ 

Apart from this situation, the Court indicated that the margin system ‘does not apply to operations of delivery of building land the initial acquisition of which was not subject to VAT, or that it is outside the scope, or is exempt from it.’ 

Consequently, the resale of a property can only fall under the margin regime:

  • if the acquisition was subject to VAT without the seller being able to deduct it, or
  • if the acquisition was outside the scope of application or exempt from VAT when the price at which the taxable dealer acquired these properties incorporates an amount of VAT which was paid upstream by the initial seller. 

While the first case is not surprising regarding the aforementioned provisions, the second tends to complicate the application of the margin regime. It is now essential to look at the VAT regime to which the initial seller was subject to know what regime was applicable to the taxable dealer. 

This position seems perfectly in line with the spirit of the margin regime which is, let us remember, to avoid the application of VAT on a total price when the seller has borne the weight of the tax during the acquisition. The neutrality of VAT is thus ensured. 

It will still be necessary to await the comments of the French tax administration to know the exact scope of this second possibility, knowing that it is likely to use its interpretative power to reduce its practical scope. 


The question of the identity of the property between its acquisition and its resale

The answer to the second question was expected by professionals as this point has been the subject of debate in recent years. Does the application of the margin regime imply a condition of legal and/or physical identity? 

In practice, the implementation of the VAT regime on the margin has proven to be delicate in France since the administration has added in its administrative doctrine an additional condition by reserving the application of the regime to only the disposal of acquired buildings and resold while keeping the same legal qualification (a building plot or a building retaining the same legal nature) and the same physical characteristics (for example, the property must be strictly identical regarding the area). 

This condition of identity, however, appeared to be questionable insofar as it found its source in administrative doctrine which has particular significance in France by virtue of Article L. 80 A of the Book of Tax Procedures. This text establishes the principle of the opposability of tax doctrine by allowing taxpayers to avail themselves of it. However, this rule finds particular application when the doctrine does not content itself with providing clarifications on a text but adds new elements to what is provided for by law. In this situation, we speak of illegal administrative doctrine and two legal regimes apply depending on whether the text is favourable or unfavourable for the taxpayer. Regarding what interests us, the administrative doctrine relating to VAT on margin for deliveries of building land and buildings completed for more than five years is illegal and unfavourable to the taxpayer given that it adds a condition not provided for by law. However, an illegal and unfavourable doctrine is not opposable to the taxpayer. It remains questionable in front of the court with the appeal for excess of power, which makes it possible to ask the court to review the legality of an administrative decision. 

Despite this, the condition of identity has created significant legal uncertainty, particularly for the ongoing operations of developers and developers whose activity consists in carrying out plot divisions. Especially as the tax administration’s position was confirmed in four ministerial responses from 2016 (Ministerial response, Laure de La Raudière, 30 August 2016, p. 7769 question 94061; Ministerial response, Olivier Carré, 30 August 2016, question 91143; Ministerial response, Dominique Bussereau, 20 September 2016, question 96679; Ministerial response, Gilles Savary, 20 September 2016, question 94538). 

Despite the position of the tax administration and the ministerial responses, the administrative court of Grenoble admitted, in a judgment of 14 November 2016 (Administrative tribunal, Grenoble, 14 November 2016, n° 1403397), the application of VAT on the margin to a transaction of a properties dealer relating to the sale of plots of building land extracted from buildings with land acquired without the right to deduct. The administrative court ruled in favour of the taxpayer by noting in the view of Article 268 CGI: ‘that the application of VAT on the margin […] is conditional on the sole fact that the acquisition by the transferor has no open right to deduct VAT; contrary to what the administration maintains, it does not emerge from these provisions that land resold as building land must necessarily have been acquired as land not having the character of a built building.’ This position has been confirmed on several occasions by the trial judges (Administrative tribunal, Grenoble, 18 May 2017, n° 1502588, Fimiron company). 

Faced with differing interpretations, the government revised its position in 2018, specifying in a ministerial response that only legal identity should be respected (Ministerial response, Senate, 14 May 2018, question 04171). This solution was finally confirmed by a decision of the Council of State of 27 March 2021 (Council of State, 27 March 2020, n° 428234). 

The position of the CJ, therefore, was expected on this point and it brings three important lessons:

The margin regime imposes a condition of legal identity. It is therefore necessary to compare the qualification of the property during its acquisition and during its resale. The same legal qualification is necessary (for example, building land) (see para. 53 of the judgment). 

The margin regime does not impose a condition of physical identity. Consequently, a building plot of 2000 m2 which is the subject of a division and resale into two building plots of 1000 m2 each does not constitute an obstacle to the application of the regime of my margin (para. 60 of the judgment). 

The connection work to the networks of a building plot does not lead to the qualification as a building (para. 57 of the judgment). This point, which was not obvious to the Advocate General, implies that the connection work on land which adds a certain added value to its value cannot lead to the resale of the property being excluded from the margin regime, absence of construction of a building. 

The position of the CJ seems justified by a concern for consistency between the spirit of Article 392 of the VAT Directive and the practical application of its provisions. 

Reading this judgment makes it possible to identify a criterion of application, and non-application, of the margin regime: the significant increase in the value of the property by change in its nature (for example, building land becomes built land). In the presence of this criterion, the margin regime does not apply. In the absence of this criterion, the margin regime does apply. 

While the position of the CJ is clear, some points remain unanswered: what if there is a significant decrease in the value of the property due to a change in its nature? This would be the case, for example, of the sale of a plot of land after detachment of a plot that supported a built building (building land became built land). 

The CJ will have the opportunity to shed light on this point in the context of the preliminary question referred to it by the Lyon Administrative Court of Appeal (ACA, LYON, 18 March 2021, n° 19LY00501). 

In the meantime, it is to be hoped that the administration will quickly publish its comments on the judgment so that French law is brought into line with the CJ’s judgment. In fact, in order to avoid further legal uncertainty, it is essential for the administration to secure the operations carried out before the CJ judgment and especially those which would be initiated before the administration’s comments.

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