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Romania-European Union

20 July 2020

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CJEU Holds Lawyers Considered Taxable Persons for VAT

The Court of Justice of the European Union (CJEU) issued a judgment on 16 July 2020 concerning whether lawyers may be considered taxable persons for VAT purposes. The case involved a Romanian law firm, UR, which requested the Public Revenue Authority to remove it from the register of taxable persons for VAT purposes and to reimburse the VAT collected by that authority during the period 1 January 2010 to 31 December 2014, on the grounds that UR had been entered in that register in error. By a decision of 17 February 2017, the Regional Court, Bucharest dismissed UR's action, which was then appealed by UR before the Court of Appeal, Bucharest, Romania.

In its appeal, UR relied on the authority of res judicata attaching to a 30 April 2018 judgment of the Court of Appeal, which upheld a 21 September 2016 judgment of the Region Court, holding that a taxpayer such as UR that practices the profession of lawyer does not engage in any economic activity and, consequently, cannot be regarded as carrying out transactions for the supply of goods or services, since the contracts concluded with its clients are contracts for legal assistance and not contracts for the provision of services. The Court of Appeal decided to stay the proceedings and to refer the following questions to the CJEU for a preliminary ruling:

  1. In the context of the application of Article 9(1) of Directive 2006/112 (the VAT Directive), does the concept of "taxable person" include persons who practice the profession of lawyer?
  2. Does the principle of the primacy of EU law permit an exception to be made, in subsequent proceedings, to the authority of res judicata attaching to a final judicial decision in which it has been established, in essence, that, in accordance with national VAT legislation, as it is interpreted and applied, lawyers do not supply goods, do not carry out an economic activity and do not conclude contracts for the supply of services, but instead conclude contracts for legal assistance?

With regard to the first question, the CJEU found that, since the profession of lawyer is a liberal profession, it follows from Article 9(1) that a person practicing that profession carries out an economic activity and must be regarded as a 'taxable person' within the meaning of that provision.

With regard to the second question, the CJEU found that that EU law must be interpreted as meaning that a national court, in a dispute relating to VAT, may not apply the principle of the authority of res judicata where that dispute does not relate to a tax period identical to the one which was at issue in the dispute which gave rise to the judicial decision having the authority of res judicata, does not have the same subject matter as that dispute, and where the application of that principle would prevent that court from taking into account EU legislation on VAT.

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