Judgment;Summary — ECLI:EU:C:2024:333
Date: 2024-04-18
Language of the case: Portuguese
Court formation: Seventh Chamber
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Portugal

Summary C-89/23 – 1 
Case C-89/23 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged: 
16 February 2023 
Referring court: 
Supremo Tribunal Administrativo (Supreme Administrative Court, 
Portugal) 
Date of the decision to refer: 
25 January 2023 
Appellant: 
Companhia União de Crédito Popular, SARL 
Respondent: 
Autoridade Tributária e Aduaneira (Tax and Customs Authority) 
  
Subject matter of the case in the main proceedings 
Appeal brought by Companhia União de Crédito Popular, S.A., against the 
judgment of the Tribunal Administrativo e Fiscal do Porto (Administrative and 
Tax Court, Oporto) by which that court dismissed the action brought by the 
appellant against the additional assessments for value added tax (‘VAT’) and the 
corresponding compensatory interest, issued to it by the Tax and Customs 
Authority for the financial years 2010 and 2011. 
Subject matter and legal basis of the request for a preliminary ruling 
To determine, for the purposes of imposing VAT, whether the commission which 
the law grants to the lender for the sale at auction of pledged goods, where the 
borrower defaults on the contract, may be regarded as an ancillary service to the 
principal service (loan secured by a pledge). 
Legal basis: Article 267 TFEU 
EN 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-89/23 
 
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Question referred for a preliminary ruling 
For the purposes of determining whether the 11% commission which the law 
(Article 25 of Decree-Law No 365/99 of 17 September 1999) allots to the lender 
for the sale of pledged goods is eligible for the exemption provided for in 
Article 135(1)(b) of Council Directive 2006/112/EC of 28 November 2006 on the 
common system of value added tax (corresponding to Article 9(27)(a) of the 
Código do Imposto sobre o Valor Acrescentado (Value Added Tax Code)), can 
the sale of the pledged goods (Article 19 et seq. of Decree-Law No 365/99 of 
17 September 1999), where the borrower fails to pay in accordance with the legal 
conditions, be regarded as an ancillary service to the services provided by the 
lender (activity of lending secured by a pledge)? 
Relevant provisions of EU law 
Treaty on the Functioning of the European Union – Article 267 
Council Directive 2006/112/EC of 28 November 2006 on the common system of 
value added tax – Article 135(1)(b) 
Relevant provisions of national law 
Código do Imposto sobre o Valor Acrescentado (Value Added Tax Code; ‘the 
VAT Code’) – Decreto-Lei No 102/2008 (Decree-Law No 102/2008) – 
Article 1(1), Article 18(1)(c), Article 4 and Article 9(27)(a). 
Decreto-Lei No 365/99 (Decree-Law No 365/99) of 17 September 1999 – 
Article 19 et seq. and Article 25 
Código de Procedimento e de Processo Tributário (Code of Administrative and 
Judicial Procedure in Tax Matters) – Decreto-Lei No 433/99 (Decree-Law 
No 433/99) of 26 October 1999 
Código do Imposto sobre o Rendimento das Pessoas Coletivas (Personal Income 
Tax Code) – Law No 2/2014 – Article 17 et seq. 
Regime Complementar do Procedimento de Inspeção Tributária e Aduaneira 
(Complementary Regime of the Tax and Customs Inspection Procedure) – 
Article 60 
Lei Geral Tributária (General Tax Law) – Article 6 
Código Civil (Civil Code) – Article 6, Article 666(1), Article 675(1) and 
Article 1142 
 
COMPANHIA UNIÃO DE CRÉDITO POPULAR 
 
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European case-law 
Judgment of 21 February 2008 (C-425/06) 
Judgment of 4 March 2021 (C-581/18) 
Succinct presentation of the facts and procedure in the main proceedings 
1 The appellant company, Companhia União de Crédito Popular, SARL, (‘CUCP’) 
is a limited liability company. 
2 CUCP’s business activity consists essentially in granting loans secured by a 
pledge (in the present case, gold and silver items, and watches). 
3 As a consequence of its main activity as a lender, CUCP sells second-hand goods 
that are sold at auctions which it organises. 
4 As part of an inspection procedure to which the appellant was subjected, situations 
were identified that led to VAT and personal income tax adjustments 
corresponding, in particular, to the financial years 2010 and 2011, and the 
[internal order] was issued which led to an external inspection procedure relating 
to the years 2010 and 2011. 
5 The following is apparent from the tax inspection report: 
6 Where borrowers do not recover the pledged items or are over three months in 
arrears in the payment of interest, the items are sold through a sealed competitive 
bidding procedure. 
7 In all cases, CUCP submits a purchase offer which, as a general rule, is between 
10% and 30% (30% for the years examined) higher than the residual value 
(residual value = value of the loan less any payment instalments), which has 
always allowed it to be the successful bidder. 
8 At that point, CUCP takes possession of the items and, as the owner of the goods, 
it allocates/sells the inventory in the following four ways: 
– items considered to be marketable are sent to a retail outlet (a jeweller’s), 
belonging to CUCP, to be sold for the successful bid price; 
– the items are transferred to the previous owner of the goods ― the borrower ― 
(the lender refers to this transaction as a ‘transfer’); 
– the items remain on deposit (the lender refers to this situation as ‘on hold’) 
when the previous owner of the goods (the borrower) requests time from the 
lender to recover those goods; 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-89/23 
 
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– actual sale of the inventory, which, as a general rule, is made to a single 
customer, in the present case NEVOLIN OURIVERSARIA, S.A. (‘Nevolin’). 
9 CUCP only applies VAT to sales of items by its jeweller and to ‘transfer’ 
transactions, using the special scheme for second-hand goods. 
10 In order to determine the correct VAT treatment of the sales to Nevolin, the 
inspection services of the Tax and Customs Administration (‘the TA’) collected 
information from Nevolin. 
11 The following facts, inter alia, are apparent from the information provided: 
– the goods received by Nevolin from CUCP were subjected to a melting and 
analysis process by a specialist third party, at the request of Nevolin; 
– that service provider invoiced Nevolin for the melting and analysis services 
from whom it received the corresponding amounts; 
– at least from 2008 until June 2012, there were sales of goods/items labelled as 
‘gold and silver grain with stones, various proportions and silver castings’ from 
CUCP to Nevolin; 
– those transfers of goods/items, found to be mostly of gold, were reflected in 
invoices or equivalent documents, and ownership of those goods/items was 
transferred to Nevolin; 
– cash sales documents contain specifications and elements which may preclude 
proper treatment and classification for VAT purposes. 
12 In summary: the order to melt the goods comes from Nevolin; Nevolin issues the 
delivery notes to deliver the goods to supplier ‘A’; after being melted, the gold 
and the corresponding analysis report are delivered to Nevolin; supplier ‘A’ issues 
Nevolin with the invoice for the melting and analysis service; Nevolin pays for the 
service. Since the entire melting, analysis and refining process is carried out on 
behalf of Nevolin, as the owner of the goods in question, the sales by CUCP to 
Nevolin for the years 2010 and 2011 refer to transfers of used goods/items, 
pledged as collateral, which have not been recovered by borrowers or in respect of 
which the borrowers are over three months in arrears in the payment of interest, 
and which are subject to the special scheme for taxing the margin (special scheme 
for taxing second-hand goods). 
13 The TA, taking the view that the tax had not been paid, carried out additional 
assessments for the financial years 2010 and 2011 for the amounts of 
EUR 320 887.78 and EUR 295 837.32, respectively. 
14 Those additional assessments were challenged by CUCP and are currently being 
examined by the referring court. 
COMPANHIA UNIÃO DE CRÉDITO POPULAR 
 
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15 The activity of a lender, in particular access to the activity, and the exercise and 
monitoring of that activity, was regulated (at the time of the facts) by Decree-Law 
No 365/99 of 17 September 1999. 
16 Article 1(2) of that Decree-Law defines that activity as the provision, by a natural 
or legal person, of loans secured by a pledge. 
17 A loan is a contract whereby one party lends money or another fungible asset to 
the other party and that other party is obliged to return a similar asset of the same 
kind and quality, as defined in Article 1142 of the Civil Code. 
18 A pledge is a guarantee of the performance of obligations which ‘confers on the 
creditor the right to payment of his or her claim, together with interest, if any, in 
preference to other creditors, for the value of a movable asset or for the value of 
claims or other rights not subject to a mortgage, belonging to the debtor or to a 
third party’, in accordance with Article 666(1) of the Civil Code. 
19 In the case of the provision of loans, and in accordance with Article 20 of Decree-
Law No 365/99, in the event of arrears for a period exceeding three months, the 
pledged item may be disposed of through a sealed competitive bidding procedure, 
by auction or by direct sale to entities that by law have the right to acquire certain 
goods. 
20 Such sales, when made by auction, are to be open to the public and the pledged 
goods are to be awarded to the person who has placed the highest bid, as follows 
from Article 23(1) and (2), Article 20(1) and Article 24(2) of Decree-Law 
No 365/99. 
21 In the event of the sale of the pledged items, Article 25 of Decree-Law No 365/99 
provides that the sale price is to be increased by 11% by way of a sales 
commission payable to the lender. 
22 The purpose of this commission is to compensate the lender for organising and 
completing the sales of the pledged items, which involves a series of expenses, in 
particular in the case of auctions, sending statutory communications, publishing 
the auction announcement in one of the most widely distributed newspapers in the 
geographical area in which the lender is based, and the expenses associated with 
organising the auction and exhibiting the items to be auctioned. 
23 For VAT purposes, in accordance with the following provisions of the VAT Code, 
credit granted under a ‘loan contract secured by a pledge’ is a provision of 
services within the meaning of Article 4(1) and is taxable under Article 1(1)(a), 
albeit exempt from taxation under Article 9(27)(a). 
24 Is the sales commission provided for in Article 25 of Decree-Law No 365/99 also 
covered by that exemption? 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-89/23 
 
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25 That sales commission is payable to the lender and, in so far as it is intended to 
compensate the lender for organising and carrying out the sale of the pledged 
items, it does not constitute consideration for the actual provision of a public 
service, but rather recompense for the costs incurred by the lender in executing the 
guarantee, that is to say selling the item pledged as collateral for the loan. 
26 Is the sale by the lender of the pledged items in the event of a default under the 
loan contract to be regarded as falling within the activity of providing loans or, at 
the very least, as an activity ancillary to that of providing loans, for the purposes 
of levying VAT, or must the activity of selling the pledged assets at auction be 
regarded as an autonomous and independent activity? 
27 If it is concluded that auction services fall within the scope of, or are ancillary to, 
loan provision services, they will be treated for tax purposes in the same way as 
such services, that is to say they should be regarded as taxable transactions, but 
exempt from taxation under Article 9(27)(a) of the VAT Code. 
28 If it is concluded that the auction services are autonomous and independent in 
nature and that the commission in question is the consideration obtained for the 
provision of services to the borrower in connection with the sale of the pledged 
items within the meaning of Article 4(1) of the VAT Code, those services must be 
subject to the tax treatment reserved for the provision of services in general, that is 
to say taxation at the standard rate, as provided for in Article 1(1)(a) of that Code, 
as follows from Article 18(1)(c) of that Code. 
The essential arguments of the parties in the main proceedings 
29 The appellant argues that a loan contract secured by a pledge governed by Decree-
Law No 365/99 is a typical or nominate contract governed by mandatory law, that 
is to say it is not subject, as configured, to the mere principle of the freedom of 
choice, which is structured and is similar to what, in civil law, are known as 
‘mixed contracts’ or, as the case may be, ‘linked contracts’, but the content of 
which does not the stem from the freedom of the parties, but from the law. 
30 The appellant invokes national case-law which states that contracts of this type 
(both mixed and linked) should be considered a single unit and treated as such, 
although it is possible to identify elements of the different contractual types within 
the contract (maintaining the ‘inherent individuality’ of each type). 
31 In the appellant’s view, it is not possible to dissociate a loan contract from a 
pledge contract or to separate the transactions in which the security in question is 
provided under the terms of their legislative framework. The contract in question 
is defined by law, and the law considers that the auction procedure forms part of 
the contract. In the present case, the taxable event is the transfer of the pledged 
items and not an intermediation service aimed at concluding the sale. 
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32 The appellant further argues that it is not a service provider in the sales in which 
the guarantees are enforced. It does not act in the service of, on behalf of or in the 
interest of any principal to whom its right to consideration would correspond. 
33 It submits that the lower court incorrectly classifies the ‘sales commission’ 
provided for in Article 25 of Decree-Law No 365/99 and infringes the principle of 
tax legality/classification by incorrectly interpreting and applying Article 4(1) and 
Article 18(1)(c) of the VAT Code, since the operation is not a ‘provision of 
services’ nor does the profit margin applied to the sale constitute consideration for 
services. 
34 It submits that compensatory interest is compensatory in nature, meaning that it 
was therefore incumbent on the TA to argue and prove the appellant’s fault, since 
purely objective liability and imputation are not legally possible. However, the TA 
has not provided any argument or justification for the assessment and collection of 
compensatory interest. 
35 The appellant concludes that the assessment and collection of the compensatory 
interest were therefore vitiated by a failure to state reasons and that those 
assessments and collections can therefore be annulled, meaning that the judgment 
also erred in its application of the law. 
36 For its part, the TA submits that a sale at auction does not form part of a loan 
contract secured by a pledge, since, for the purchaser, it constitutes an end in and 
of itself and is not a means of better enjoying the principal service provided. It is 
an operation independent of the provision of the loan and not an ancillary service 
to the services provided by the lender, that is to say the provision of the loan 
secured by a pledge, which is the principal service. Therefore, the exemption 
provided for in Article 9 of the VAT Code is not applicable and, consequently, it 
constitutes a provision of services. Pursuant to Article 4(1) of the VAT Code, it is 
to be taxed at the standard rate, as laid down in Article 18(1)(c) of the VAT Code. 
37 The TA argues that the sale at auction of the pledged items is not an ancillary 
service to the main operation (a loan secured by a pledge), but constitutes a 
transfer of goods within the meaning of Article 3(1) of the VAT Code. The profit 
margin/sales commission on the sale of the pledged items, which the appellant 
obtains and which is charged to the borrowers, constitutes consideration for the 
provision to the borrower of the services inherent in the sale of the pledged items, 
within the meaning of Article 4(1) of the VAT Code, given the residual nature of 
that provision, which is taxable under Article 1(1)(a) of the VAT Code. 
38 Under the special profit margin tax scheme, transfers of second-hand goods, 
works of art, collectables and antiques, made under that scheme by taxable 
resellers or auction organisers acting on their own behalf, on behalf of a client or 
under a sales commission contract, are subject to VAT. 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-89/23 
 
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39 This ‘profit margin scheme’ is characterised by the fact that the taxable amount is 
the difference between the sale price and the purchase price of the goods, duly 
evidenced (that is to say only the profit margin is taxed). 
40 The profit margin/sales commission, which is payable to the lender (Article 25 of 
Decree-Law No 365/99), does not benefit from the exemption provided for in 
Article 9 of the VAT Code and, therefore, constitutes a provision of services 
within the meaning of Article 4(1) of the VAT Code, which is taxed at the 
standard rate, as provided for in Article 18(1)(c) of the VAT Code. 
41 The TA concludes that the tax should be assessed under the special profit margin 
scheme. 
Succinct presentation of the reasoning in the request for a preliminary ruling 
42 The matter at issue arises from the different positions held by the appellant and the 
TA in respect of the VAT treatment of the sale of pledged items, which takes the 
form of the profit margin/sales commission that the appellant obtains from the 
forced sale of the pledged items in the context of the pledge contracts which it 
concluded in 2010 and 2011. 
43 The purpose of this commission is to compensate the lender for the costs it will 
have to incur in order to organise and carry out the sale of the pledged items. The 
compensation for those expenses was calculated on the basis of a fixed amount, it 
being clear that, when the law states that the successful bid price ‘shall be 
increased by 11%’, it refers only to the coefficient, proportion or percentage used 
to calculate the commission. 
44 In accordance with the case-law of the Court of Justice, in certain circumstances, 
several formally distinct services, which could be provided separately and thus 
give rise in turn to taxation or exemption, must be considered to be a single 
transaction when they are not independent. Such is the case, for example, where 
one or more services are to be regarded as constituting the principal service, while 
the other services are to be regarded as one or more ancillary services which share 
the tax treatment of the principal service. In particular, a service must be regarded 
as ancillary to a principal service if it does not constitute for customers an aim in 
itself, but a means of better enjoying the principal service provided. This means, 
therefore, that a service is ancillary to a principal service when both are part of the 
same transaction, which must relate to the same person, whether taxable or not. 
45 In the light of that case-law, although the referring court considers that the sale of 
the pledged items does not meet the requirements for it to be regarded as an 
ancillary transaction to the performance of the loan contract, it accepts that the 
fact that the law assigns responsibility for such a sale to the lender and regulates 
that responsibility may give rise to doubts as to its nature as an ancillary activity 
to the activity of providing loans secured by a pledge, which is why such a 
classification is key to determining whether the VAT exemption applies to the 
COMPANHIA UNIÃO DE CRÉDITO POPULAR 
 
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commission which the law allots to the lender for the sale of the pledged items in 
the event of default under the loan contract. 
46 The VAT exemption scheme for domestic transactions is a matter which is subject 
to harmonisation in the laws of the various Member States, with the result, first, 
that the Member States must adopt domestic rules in harmony with EU law and, 
second, that the relevant provisions of the Member States must be interpreted in a 
manner consistent with the EU provisions which they have transposed, even 
where domestic transactions are involved. 
47 Thus, in accordance with Article 267 TFEU, the national court takes the view that 
the Court of Justice of the European Union should be asked to give a preliminary 
ruling on the question of whether, for the purposes of the application of the 
exemption provided for in Article 135(1)(b) of Directive 2006/112/EC, the 11% 
commission which the national legislation allots to the lender for the sale of the 
pledged items, where the borrower defaults on payment in accordance with the 
legal conditions, may be regarded as stemming from an ancillary service to the 
services provided by the lender – a loan secured by a pledge – or whether, on the 
contrary, the services provided are to be regarded as distinct and independent from 
each other.