The supply of services for consideration is, as a main rule, subject to value added tax. However, the letting of immovable property is exempted from taxation.
A company which provides so-called activity-based workplaces through four different types of memberships applied for an advance ruling in order to learn whether the provision of the respective membership is to be regarded as a composite supply which is subject to tax. The services included access to the premises 24 hours a day and, inter alia, Wi-Fi, reception service staffed 24 hours a day, coffee, cleaning, and security services. In addition, access to the company’s internal social network was included. In order to stimulate networking amongst customers, the company intended to employ a so-called community manager who will assist in ensuring that the customers come into contact with one another.
The Board for Advance Tax Rulings found that the company’s supply of the respective memberships is to be regarded as a composite supply of services which is tax exempt.
The European Court of Justice has defined the concept of the letting of immovable property in the VAT Directive as the conferring by a landlord on a tenant, for an agreed period and in return for rent, of the right to occupy property as if that person were the owner and to exclude any other person from enjoyment of such right. According to the European Court of Justice letting of immovable property is normally a relatively passive activity, not generating any significant added value, and that an activity is excluded from the exemption, in the absence of quite exceptional circumstances, where it also entails a certain number of commercial activities. (Veronsaajien oikeudenvalvontayksikkö, C-215/19, EU:C:2020:518.)
The Supreme Administrative Court noted that two of the memberships do not grant any guaranteed right to a workplace or a certain area. Thus, customers are not entitled to occupy a place or an area and exclude others from the corresponding right. All the conditions established by the European Court of Justice in order for a tax exempt letting of immovable property to be deemed to exist are thereby not satisfied and the supplies are accordingly subject to tax.
One of the memberships guarantees the customer a certain workstation and thereby contains an element which may be deemed to constitute a letting of immovable property. However, that which an average customer seeks may be deemed to be a combination of the right to use a workstation and the access to the other services. Since tax exemptions are to be interpreted restrictively, the supply of the membership cannot be covered by the tax exemption but, rather, is subject to tax.
The fourth membership entitled the customer to a certain lockable room and may thus exclude other from the corresponding right. In the view of the Supreme Administrative Court the right of use of the premises may be deemed to constitute the dominant element of the supply. Accordingly, the relevant membership is tax exempt.
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