1 This request for a preliminary ruling concerns the interpretation of Articles 72 and 80 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’).
2 The request has been made in proceedings between Högkullen AB and the Skatteverket (Tax Agency, Sweden) (‘the tax authority’) concerning the determination of the open market value of the services supplied by Högkullen to its subsidiaries in 2016.
3 Under Article 1(2) of the VAT Directive: ‘The principle of the common system of [value added tax (VAT)] entails the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, however many transactions take place in the production and distribution process before the stage at which the tax is charged. On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components. …’
4 Article 72 of that directive provides: ‘For the purposes of this Directive, “open market value” shall mean the full amount that, in order to obtain the goods or services in question at that time, a customer at the same marketing stage at which the supply of goods or services takes place, would have to pay, under conditions of fair competition, to a supplier at arm’s length within the territory of the Member State in which the supply is subject to tax. Where no comparable supply of goods or services can be ascertained, “open market value” shall mean the following:
5 Under Article 73 of that directive: ‘In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.’
6 Article 80(1) of that directive provides: ‘In order to prevent tax evasion or avoidance, Member States may in any of the following cases take measures to ensure that, in respect of the supply of goods or services involving family or other close personal ties, management, ownership, membership, financial or legal ties as defined by the Member State, the taxable amount is to be the open market value:
7 The dispute in the main proceedings is governed ratione temporis by the provisions of the Mervärdesskattelagen (1994: 200) (Law on VAT (1994: 200)). Articles 72, 73 and 80 of the VAT Directive were transposed into Swedish law by Chapter 1, the first paragraph of Article 9, and Chapter 7, Articles 2, 3 and 3a, of that law, respectively.
8 Högkullen is the parent company of a real estate management group and is actively involved in the management of its subsidiaries. On that basis, in 2016, it provided them with business management services, financial services, real estate management services, investment services, IT and staff administration services for a total amount charged of approximately SEK 2.3 million (approximately EUR 204 200), on which VAT was charged.
9 That consideration was determined by applying the ‘cost-plus’ method and consisted of an amount corresponding to the costs incurred by Högkullen in purchasing and performing the services together with a profit margin. In that regard, that company applied an allocation key whereby a specific percentage of the costs borne by it for the running of the business and for items such as premises, telephones, information technology, corporate hospitality and travel were regarded as being attributable to the services provided to the subsidiaries. By contrast, it regarded ‘shareholder’ costs, such as the costs of drawing up the annual accounts, auditing and the general meeting, as well as the costs of raising capital, as having no connection with the services provided. Those costs were therefore excluded from the calculation of that consideration, as were the costs associated with a planned share issuance and a stock exchange listing.
10 The total costs incurred by Högkullen in 2016 amounted to approximately SEK 28 million (approximately EUR 2 484 000). Approximately half of that amount related to costs subject to VAT, while the remainder related to costs exempt from VAT and other costs not subject to VAT, such as wage costs. Högkullen deducted all of the input VAT relating to the costs it had incurred and in respect of which VAT had been charged to it, which also included VAT relating to ‘shareholder’ costs.
11 The tax authority took the view that the services supplied by Högkullen to its subsidiaries had been charged at a price lower than the open market value. Since, according to the tax authority, there were no comparable services freely available on the market, it determined the taxable amount as the total amount of costs borne by that company for 2016.
12 After the Kammarrätten i Göteborg (Administrative Court of Appeal, Gothenburg, Sweden), by judgment of 3 March 2021, upheld, at second instance, the tax authority’s decision to revalue Högkullen’s taxable amount, Högkullen brought an appeal against that judgment before the Högsta förvaltningsdomstolen (Supreme Administrative Court, Sweden), which is the referring court.
13 The referring court notes that, under Article 80(1)(a) of the VAT Directive, measures may be taken to ensure that the taxable amount corresponds to the open market value where there are management ties between the taxable persons involved, the consideration is lower than the open market value and the recipient of the supply does not have a full right of deduction of VAT. While the first and third of those conditions are met in the present case, doubts remain as to what is meant by ‘open market value’.
14 The parties to the proceedings before the referring court disagree as to whether the first paragraph of Article 72 of the VAT Directive may be applied in order to determine the open market value of services provided by a parent company to its subsidiaries. It is apparent from that provision, in particular, that the concept of ‘open market value’ refers to the total amount that a customer would have to pay, under conditions of fair competition, to an independent supplier in order to obtain the services in question.
15 In that regard, Högkullen argues that the various services provided by a parent company to its subsidiaries must be assessed individually and that equivalent services may be acquired freely on the market. By contrast, the tax authority maintains that the active management of the subsidiaries by the parent company is a single joined-up service, which has no equivalent between independent parties on the open market. Since the services involved are specific to the group formed by the parent company and its subsidiaries, their open market value cannot be determined in accordance with the provisions of the first paragraph of Article 72 of the VAT Directive, rather it must be determined on the basis of the provisions of the second paragraph of Article 72.
16 According to the referring court, it is necessary for the Court to clarify whether it is possible to find, as the tax authority did, that there are no comparable services freely available on the market in respect of the type of services at issue and that it is therefore consistent with Articles 72 and 80 of the VAT Directive always to determine the open market value in that situation on the basis of the alternative rule set out in the second paragraph of Article 72 of that directive.
17 As regards the second paragraph of Article 72, the opinions of the parties to the dispute before the referring court also differ. Under that provision, ‘open market value’ means an amount that is not less than the full cost to the taxable person of providing the service. According to Högkullen, the cost-plus method which it used to calculate the consideration in question results in that consideration being at least equal to the costs which it incurred in providing services. By contrast, the tax authority takes the view that all the costs incurred by the parent company constitute costs for the provision of the services provided to the subsidiaries.
18 The referring court therefore wishes to know whether, where the sole activity of a parent company consists of actively managing its subsidiaries and that company has deducted all the input VAT relating to its costs, it is consistent with Articles 72 and 80 of the VAT Directive to find that all the costs of that company, including shareholder costs, constitute costs incurred by that company in providing services to its subsidiaries.
19 In those circumstances, the Högsta förvaltningsdomstolen (Supreme Administrative Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
20 By its first question, the referring court is, in essence, asking whether Articles 72 and 80 of the VAT Directive must be interpreted as precluding the services provided by a parent company to its subsidiaries in the context of the active management of those subsidiaries from being, in all situations, regarded by the tax authority as constituting a single supply which precludes the open market value of those services from being determined using the comparison method laid down in the first paragraph of Article 72 of that directive.
21 In order to provide an answer to that question, it should be recalled that, according to the general rule set out in Article 73 of the VAT Directive, in respect of the supply of goods or services, other than as referred to in Articles 74 to 77 of that directive, the taxable amount is to include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply. The taxable amount is therefore the consideration established between the parties and actually received by the taxable person, and not a value estimated according to objective criteria, such as the market value or a reference value determined by the tax authority (see, to that effect, judgments of 7 November 2013, Tulică and Plavoşin, C‑249/12 and C‑250/12, EU:C:2013:722, paragraph 33, and of 25 November 2021, Amper Metal, C‑334/20, EU:C:2021:961, paragraph 28).
22 In order to prevent tax evasion and avoidance, Article 80(1)(a) of the VAT Directive establishes an exception to the general rule laid down in Article 73 thereof (see, to that effect, judgment of 25 November 2021, Amper Metal, C‑334/20, EU:C:2021:961, paragraph 29), in so far as it permits the inference that the taxable amount is the open market value of the transaction where, first, that transaction is a supply of goods or services involving family or other close personal ties, management, ownership, membership, financial or legal ties, where, second, the consideration is lower than the open market value and where, third, the recipient of the supply of goods or services does not have a full right of deduction of VAT.
23 In the present case, as regards the services which Högkullen supplied to its subsidiaries, it is common ground that the first and third conditions for the application of Article 80(1)(a) of the VAT Directive, referred to in the preceding paragraph, are met. However, there are doubts regarding the application of the second condition, relating to ‘open market value’.
24 That concept is defined in the first paragraph of Article 72 of the VAT Directive as ‘the full amount that, in order to obtain the services in question at that time, a customer at the same marketing stage at which the supply of services takes place, would have to pay, under conditions of fair competition, to a supplier at arm’s length within the territory of the Member State in which the supply is subject to tax.’
25 The tax authority maintains that, in circumstances such as those at issue in the main proceedings, it is not possible, as a matter of principle, to determine a normal value in accordance with the first paragraph of Article 72, since the active management of the subsidiaries by a parent company constitutes a single joined-up service, which has no equivalent between independent parties on the open market.
26 In that regard, it is settled case-law that, where a transaction comprises a bundle of elements and acts, regard must be had to all the circumstances in which the transaction in question takes place in order to determine whether that transaction gives rise, for the purposes of VAT, to two or more distinct supplies or to one single supply (judgments of 18 April 2024, Companhia União de Crédito Popular, C‑9/23, EU:C:2024:333, paragraph 34, and of 17 October 2024, Digital Charging Solutions, C‑60/23, EU:C:2024:896, paragraph 46 and the case-law cited).
27 In particular, while it follows from the second subparagraph of Article 1(2) of the VAT Directive that each transaction must normally be regarded, for the purposes of VAT, as being distinct and independent, a transaction which comprises a single supply from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system. There is a single supply where a number of elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split (judgments of 18 April 2024, Companhia União de Crédito Popular, C‑89/23, EU:C:2024:333, paragraph 35, and of 17 October 2024, Digital Charging Solutions, C‑60/23, EU:C:2024:896, paragraph 47 and the case-law cited).
28 In addition, in certain circumstances, several formally distinct services, which could be provided in isolation and thus give rise, in turn, to taxation or exemption, must be considered to be a single transaction when they are not independent (judgments of 18 April 2024, Companhia União de Crédito Popular, C‑89/23, EU:C:2024:333, paragraph 36, and of 17 October 2024, Digital Charging Solutions, C‑60/23, EU:C:2024:896, paragraph 48 and the case-law cited).
29 That is the case where, inter alia, one or more elements are to be regarded as constituting the principal supply, while other elements are to be regarded, by contrast, as one or more ancillary supplies which share the tax treatment of the principal supply. In that respect, a criterion to be taken into consideration is the absence of a distinct purpose of the supply from the perspective of the average consumer. Accordingly, a supply must be regarded as ancillary to a principal supply if it does not constitute for customers an end in itself, but a means of better enjoying the principal service of the supplier (judgments of 18 April 2024, Companhia União de Crédito Popular, C‑89/23, EU:C:2024:333, paragraph 37, and of 17 October 2024, Digital Charging Solutions, C‑60/23, EU:C:2024:896, paragraph 48 and the case-law cited).
30 In that context, the fact that a single price is charged or that separate prices are contractually provided for has no decisive significance for the purposes of determining whether it is necessary to find that there are two or more distinct and independent transactions or only a single transaction (see, to that effect, judgments of 25 February 1999, CPP, C‑349/96, EU:C:1999:93, paragraph 31, and of 2 December 2010, Everything Everywhere, C‑276/09, EU:C:2010:730, paragraph 29 and the case-law cited).
31 In the present case, the services provided by Högkullen to its subsidiaries were, more specifically, business management services, financial services, real estate management services, investment services and IT and staff administration services.
32 In the light of the case-law referred to in paragraphs 26 to 30 of the present judgment, it cannot be concluded that, as a matter of principle, such services are so closely linked that they form, objectively, a single, indivisible economic supply and, consequently, a single supply.
33 As the Advocate General observed in points 43 and 44 of her Opinion, first, those services, even if they are provided together, appear each to have their own character and to be identifiable. Second, the fact that an overall price is paid by each of the subsidiaries to Högkullen for all of the services which Högkullen provides to it cannot be decisive in relation to intra-group supplies since, otherwise, the group would itself be able to influence the classification to be given to those supplies for VAT purposes by means of the remuneration arrangements agreed.
34 In the light of the foregoing considerations, the answer to the first question is that Articles 72 and 80 of the VAT Directive must be interpreted as precluding the services provided by a parent company to its subsidiaries in the context of the active management of those subsidiaries from being, in all situations, regarded by the tax authority as constituting a single supply which precludes the open market value of those services from being determined using the comparison method laid down in the first paragraph of Article 72 of that directive.
35 By its second question, the referring court is, in essence, seeking an interpretation of the second paragraph of Article 72 of the VAT Directive.
36 In that regard, it is apparent from the order for reference that that question is based on the premiss that the interpretation of the VAT Directive permits the assumption that, in the case of active management of its subsidiaries by a parent company, there are no comparable services freely available on the market. If that premiss were correct, it would then be necessary to determine whether it is consistent with that directive always to determine, in that situation, the open market value on the basis of the single nature of the services at issue, in accordance with the alternative rule laid down in the second paragraph of Article 72 of that directive.
37 As is apparent from the reasons supporting the answer to the first question, the argument that the services provided by a parent company to its subsidiaries in the context of the active management of those subsidiaries constitute, in all situations, a single supply cannot be accepted.
38 In those circumstances, there is no need to answer the second question.
39 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.