In a judgment delivered in January 2024 in Case C-433/22, HPA – Construções, the Court of Justice of the European Union (CJEU) ruled that a reduced VAT rate for labour-itensive services for private residences (primary or secondary) may be compatible with the VAT Directive.
Under EU law, Member States are under an obligation to apply the principle of neutrality to indirect taxes like value-added tax (VAT). Member States, however, may adjust VAT for certain goods and services where so permitted by applicable EU secondary law. Consequently, this is a balancing act:
- Ensuring the principle of neutrality in VAT matters is preserved.
versus
- Allowing Member States to reduce tax selectively.
Article 96 of the VAT Directive (Directive 2006/112) states,
‘Member States shall apply a standard rate of VAT, which shall be fixed by each Member State as a percentage of the taxable amount and which shall be the same for the supply of goods and for the supply of services.’
However, Article 98 of the same Directive allows for Member States to apply reduced rates for specific categories of goods and services.
In the case at hand, the national law of the Member State allowed for certain a reduced rate of VAT for:
- ‘Works contracts for the improvement, refurbishment, renovation, restoration, repair or conservation of immovable properties and independent parts of immovable properties used for residential purposes, with the exception of cleaning services, grounds maintenance services and works on buildings which cover all or part of the constituent elements of swimming pools, saunas, tennis courts, golf courses or minigolf courses or similar facilities.’
The case turned on the types of immovable property that would be covered by such reduced rate of VAT.
The Court ruled in Case C-433/22, HPA – Construções that,
‘The decisive factor in assessing whether the consumer may be given an advantage by the application of the reduced rate of VAT lies in the fact that, at the time when the cost is generated, that property is actually used by that consumer for residential purposes.’
para. 34.
Thus, it is only private residences that are covered by the selectivity. What is not included are hotels and staff accommodation (para. 25), nor commercial residences, or investments residences (para. 25).
The Court, however, confirmed that as long as it is genuinely a private residence, it covers both primary residences and secondary residences (para. 35), meaning that summer houses and holidays homes are included. .
The judgment of the Court of Justice of the European Union in Case C-433/22, HPA – Construções is available here.