The blurred boundaries of taxable person status
Does someone who has already passed through the taxable person gateway drag their occasional side activities in with them? Kostov suggested so, but Advocate General Kokott puts up a partition.
Many entrepreneurs see opportunities everywhere. It therefore happens that someone takes on other activities alongside their core business. The question then arises whether they are a taxable person for all of them. The well-known 2013 Kostov judgment sketched the boundaries of taxable person status, but does it still cover the ground today?
Kostov
Galin Kostov, from Bulgaria, worked as a self-employed private bailiff, but in 2008 accepted a paid engagement to act as agent at three auctions of immovable property. In that case (C-62/12) the Court of Justice held that Kostov had to be treated as a taxable person for that occasional economic activity too.
The Court reasoned that Kostov was already within the scope of VAT for his work as a bailiff and was therefore also liable for this service, which he performed occasionally and unconnected with that work. It must, the Court noted, be an economic activity.
Are side activities drawn in?
Can we conclude from Kostov that once someone has passed through the taxable person gateway, their occasional and non-continuous side activities are drawn in with them?
Advocate General Kokott says no. In her opinion in TP (C-288/22) she states that one activity cannot contaminate another so that both automatically fall within the scope of VAT. That case concerns a lawyer with his own practice who also sits, for remuneration, on a management board. Does that side activity, which is not carried out independently, fall within the scope?
In her view it does not. She sees the work as a lawyer and the board membership as two independent activities, one an independently performed economic activity and the other not. A side activity carried out independently of an economic activity does not suddenly become an economic activity merely because the knowledge needed for the one is also useful for the other. She therefore wants an explicit partition between activities carried out independently of one another.
The position may differ where a side activity is not carried out independently of an economic activity. That will more readily fall within the scope of VAT, or so the Court's message appears to be. In Paulo Nascimento Consulting (C-692/17) it was rightly observed that treating an occasional activity by a non-taxable person differently from the same occasional side activity by a taxable person does not serve equality before the law.
To be continued
The Court has yet to give judgment in TP. We are curious whether, ten years after Kostov, it will actually put up a partition between an independent economic activity and a non-independent side activity.