VAT on Chain Supplies - Ruling changes the game

Ruling on VAT treatment of bunkering of sea-going vessels

The Court of Justice of the European Union (CJEU) has just delivered a ruling regarding the VAT treatment of bunkering of sea-going vessels. However, the impact of the ruling is not clear and other types of chain supplies might also be effected.

The CJEU has made a ruling in the Fast Bunkering Klaipéda case, which as such confirms earlier practice from CJEU, but also opens up for new questions in relation to how we should treat chain transactions with respect to VAT.

Fast Bunkering Klaipéda
In accordance with earlier practice from the CJEU, the court confirms that only one party in a chain transaction can benefit from the exemption relating to supplies to sea-going vessels. The CJEU rules that the exemption only applies to supplies made directly to the operator of the vessel, i.e. the exemption does not apply to the supply to an intermediary that acts in its own name.

However, the CJEU also rules that there might be situations where the exemption applies to the supply to the intermediary, if the transfer of the ownership of the goods to the intermediary takes place at the earliest at the same time when the operators of vessels are actually entitled to dispose of those goods as if they are the owners.

The CJEU does not comment further on this and leaves the interpretation up to the national court.

What are the consequences?
Today intermediaries of supplies of fuel to sea-going vessels often treat their supply as VAT exempt, even if they do not supply the fuel directly to the operator of the sea-going vessel. Based on the ruling, there is a risk that the tax authorities will be of the opinion that VAT should be charged in such situations.

However, with the additional remark by the CJEU, new questions arise. For instance, if the exemption applies for the supply to the intermediary, how should the supply from the intermediary to the operator of the sea-going vessel then be treated? Is this instead a supply of services and not goods? Is the transfer from the intermediary to be considered outside the scope of VAT? As the CJEU does not comment further on the VAT treatment, there is a risk that the tax authorities in the different EU member states will interpret the ruling differently. Furthermore, what is the impact of this ruling on other chain supplies than supplies to sea-going vessels? Though the ruling relates to supplies of goods to sea-going vessels, the additional comments from the CJEU might also be applicable for other chain transactions.

Consequently, many different suppliers might be affected by this ruling. We do not assume that the tax authorities will change the VAT taxable treatment for supplies made by intermediaries in general, but it is difficult to predict what the consequences are. Still, if you would like to discuss the ruling and how this might affect your business, please do not hesitate to contact your local VAT consultant.

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