The company lets the apartments on the one hand and claims consideration from the tenants for the cleaning of the common parts on the other hand. Tellmer invoices the cleaning services to the tenants separately from the rent, although the cleaning services are carried out by its own caretakers.
Tellmer had the opinion that the letting of apartments and the cleaning of the common parts constitute a single service, therefore it applied the VAT exemption applicable to the principal element (letting of apartments).
However, the Czech authorities were of the opinion that the two services cannot be regarded as constituting a single service, since the tenants have the possibility of concluding a separate contract for the cleaning of the common parts. Therefore, VAT should have been charged on the cleaning services in accordance with the general rules of the VAT Directive on supply of services.
Main question referred to the European Court of Justice
Should the letting of apartments and the cleaning of the common parts of the property be treated as independent services or as a single service?
The European Court of Justice stated on the one hand that the tax exemption applicable to letting of apartments must be interpreted strictly, since this exemption constitutes an exception to the general principle that VAT is to be levied on services supplied. On the other hand, it repeatedly pointed out that it follows from Article 2 of the Sixth VAT Directive that every transaction must normally be regarded as independent.
The European Court of Justice has defined the concept of „letting of property”: conferring by a landlord on a tenant, for an agreed period and in return for payment, of the right to occupy property as if that person were the owner and excluding any other person from enjoyment of such a right. It stated in line with this definition that the cleaning services of the common parts of the property do not necessarily fall within the concept of letting, since the cleaning services can be supplied in various ways: they can be carried out by a third party who invoices the costs of the cleaning services directly to the tenants or by the own staff of the landlord or by a cleaning company assigned by the landlord.
There can also be various ways of compensation: Tellmer, for example, invoiced the cleaning costs to the tenants separately from the rent.
Based on all the above, the European Court of Justice concluded that the letting of apartments and the cleaning of the common parts of the property can be separated from each other in this case, therefore they cannot be regarded as constituting a single service.
In its judgement, the European Court of Justice fine-tuned the principles specified in the judgements made in the Card Protection Plan (Case C-349/96), Levob (Case C-41/04) and Talacre Beach (Case C 251/05.) cases. Based on this case, the characteristics of multiple transactions can be summarised in the following non-exhaustive, conclusive listing:
- On determining whether the letting of property and the cleaning of the common parts of the property constitute a single service, the main considerations are:
- Who assigns the cleaners with the cleaning? (the landlord assigns the cleaners with the cleaning, or the tenants themselves have the possibility of assigning the cleaners with the cleaning)
- Is the compensation for the cleaning included in the rent or is it charged separately from the rent?
- The cleaning of the common parts constitutes a separate service from the letting of the property if the tenants pay the costs of cleaning separately from the rent.
- It is an important factor that the tenants themselves had the possibility of concluding a contract with the cleaners, that is the validity of the tenancy agreement did not depend on the concluding of the cleaning contract, thus the two contracts are separated.