2005 (1) TMI 672 - Other - Service Tax

Issues Involved:
1. Interpretation of Articles 2, 5(6), and 6(2)(b) of the Sixth Council Directive 77/388/EEC.
2. Determination of the taxable amount for the provision of meals by a company to its staff.
3. Compatibility of Swedish national provisions with the Sixth Directive.
4. Application of VAT to transactions involving consideration less than cost price.

Detailed Analysis:

1. Interpretation of Articles 2, 5(6), and 6(2)(b) of the Sixth Council Directive 77/388/EEC:
The case revolves around the interpretation of specific articles of the Sixth Directive related to VAT. Article 2(1) subjects the supply of goods or services for consideration to VAT. Article 5(6) treats the application of goods for private use or free of charge as supplies made for consideration if VAT on those goods was deductible. Article 6(2)(b) treats the provision of services free of charge for private use as supplies for consideration.

2. Determination of the Taxable Amount for the Provision of Meals by a Company to Its Staff:
The primary issue is whether the provision of meals by a company to its employees at a price lower than the cost should be taxed based on the actual consideration received or the cost price. According to Article 11A(1)(a) of the Sixth Directive, the taxable amount is the consideration obtained by the supplier, which includes subsidies directly linked to the price.

3. Compatibility of Swedish National Provisions with the Sixth Directive:
Swedish law equates the application of goods and services for private use with transactions where the consideration is less than the cost price, thus subjecting them to VAT. The Regeringsr"atten questioned whether this national provision aligns with Articles 2, 5(6), and 6(2)(b) of the Sixth Directive.

4. Application of VAT to Transactions Involving Consideration Less Than Cost Price:
The Court examined whether transactions with consideration less than the cost price should be treated as applications for private use under Articles 5(6) and 6(2)(b). The Greek and Swedish Governments argued that these articles extend VAT to such transactions to prevent unjustified advantages. Conversely, the Commission and Danish Government contended that these articles apply only to free-of-charge transactions.

Court's Findings:

General Rule for Taxable Amount:
The Court emphasized that the taxable amount for the supply of goods or services is the consideration actually received by the taxable person, as stated in Article 11A(1)(a). This consideration must reflect the subjective value received, not an estimated objective value, and must be expressible in money.

Application of Articles 5(6) and 6(2)(b):
Articles 5(6) and 6(2) treat certain free-of-charge transactions as supplies for consideration to ensure equal treatment between taxable persons and final consumers. These provisions prevent taxable persons from escaping VAT when applying goods or services for private use.

Consideration Paid by Employees:
The Court noted that the employees of Scandic paid actual consideration for the meals, making the transaction one for consideration under Article 2. Therefore, Articles 5(6) and 6(2)(b) do not apply, as they concern transactions without actual consideration.

Symbolic Consideration:
The Court dismissed the Swedish Government's concern about symbolic consideration, stating that the risk of tax avoidance should be addressed through specific derogations under Article 27 of the Sixth Directive.

Subsidies and Taxable Amount:
The Court clarified that subsidies directly linked to the price form part of the taxable amount only in three-party situations. Since the case involved only Scandic and its employees, the cost incurred by Scandic could not be considered part of the taxable amount.

Conclusion:
The Court concluded that Articles 2, 5(6), and 6(2)(b) of the Sixth Directive preclude national rules treating transactions with actual consideration as applications for private use, even if the consideration is less than the cost price. The decision on costs was left to the national court, and costs incurred in submitting observations to the Court were deemed non-recoverable.

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