An update and our view on some recent CJEU decisions regarding VAT related cases

Ireland – Appeal Commissioners’ Cases

95TACD2021 – Appellant v Revenue Commissioners –24 June 2021

This case relates to the application of the Elida Gibbs and Boehringer EU VAT cases in an Irish context.

More specifically, the case related to a situation where a manufacturer of medical products provided volume based rebates to private health insurance companies, whether that resulted in a reduction in the consideration received by the Appellant and whether the Appellant is entitled to a repayment of VAT for the rebated amount (in line with the aforementioned cases).

Drawing extensively from a number of EU VAT cases, including Elida Gibbs and Boehringer, the Tax Appeals Commission (TAC) found that it was a matter of fact that the Appellant granted discounts to the insurance companies in respect of the reimbursement payments to the private hospitals.

The Appeal Commissioner came to the conclusion that the Appellant should therefore be entitled to reduce the taxable amount in respect of these supplies to the amount of consideration actually received. In coming to her decision, the Appeal Commissioner commented “for VAT purposes, the Revenue Commissioners have allowed rebate payments to private hospitals as a reduction in the consideration received by the Appellant. The Revenue Commissioners have not allowed rebate payments to private health insurance companies as a reduction in the consideration received by the Appellant. In my view, the VAT position of the Appellant in relation to the discounts granted to private health insurance companies comes within the conclusion of the Court in Boehringer that ‘since part of the consideration is not received by the taxable person because of the discount granted by the latter to private health insurance companies, there has in fact been a reduction in price after the time at which the supply took place’.”

EU – CJEU

CJEU (Case C-931/19): Titanium – 3 June 2021

The Court of Justice of the European Union (the 'CJEU') delivered its decision in Titanium (C-931/19) on 3 June 2021. While the case relates to the letting of immovable property, it will be of relevance for any situations where you need to consider whether a taxpayer, or perhaps a supplier or customer, may have a fixed establishment in an EU jurisdiction.

Titanium is a company whose registered office and management are located in Jersey, and whose corporate purpose is property management, asset management and the management of housing and accommodation.

Titanium owned a property in Austria which it let to two Austrian customers. It engaged a local property management company in Austria to deal with day-to-day operations in relation to the letting of the property. Titanium did not have any staff in Austria and all decision-making power remained with Titanium in Jersey (i.e. it did not delegate such authority to the Austrian property management company).

The Austrian tax authorities took the view that Titanium had a fixed establishment in Austria but Titanium challenged that position.

Following a referral by the national courts in Austria, the CJEU has now opined on the matter and held that the concept of a fixed establishment, in accordance with its settled case-law, ‘implies a minimum degree of stability derived from the permanent presence of both the human and technical resources necessary for the provision of given services. It thus requires a sufficient degree of permanence and a structure adequate, in terms of human and technical resources, to supply the services in question on an independent basis.’

Accordingly, the CJEU went on to conclude that the mere ownership and letting of a property does not, in itself, constitute a fixed establishment.

While the CJEU’s position in this regard will have little impact in an Irish context, the impact of the decision is more likely to be seen in other jurisdictions where tax authorities have fiercely contested what constitutes a fixed establishment. However, businesses located in Ireland may potentially be impacted and see some of their suppliers and / or customers taking different positions regarding their establishment position going forward (which may impact the nature of the VAT treatment of its acquisitions/supplies).

CJEU (Cases C-58/20 & 59/20): K & DBKAG – 17 June 2021

In these combined Austrian cases, the CJEU has confirmed that the managing of tax-related responsibilities (e.g. ongoing compliance) of special investment funds (SIFs) and the use of specialist software to perform specific and essential activities in connection with management of SIFs can qualify for VAT exemption. This is the case where the services provided are intrinsically linked to the management of SIFs and if they are provided exclusively for the purposes of managing such funds, regardless of whether the services are outsourced in their entirety. In particular, in respect of the technology, it was held that the services provided by that technology needed to be specific to the management of a special investment fund, and not to other types of funds, in order for the exemption to apply.

The Court found the following:

“In particular, in Case C‑58/20, the referring court will have to examine inter alia whether the tax-related services performed by K comply with the obligations laid down by Austrian law which are specific to special investment funds and which are therefore distinct to the obligations laid down for other types of investment fund.

In Case C‑59/20, it is apparent from the order for reference that the referring court finds that risk management and performance measurement services are activities specific to the management of such funds. That court also states that the software calculations at issue in the main proceedings constitute an essential basis for DBKAG to fulfil the risk management and performance measurement functions required by Austrian law. Therefore, the fact that that software is used to carry out calculations essential for the administrative services of risk management and performance measurement of the fund in question could lead to the conclusion that that software is essential for the management of that fund. It will nevertheless be for the referring court to determine whether the services provided are intrinsically connected to the management of special investment funds and if they are provided exclusively for the purposes of managing such funds”.

This is a significant development and follows on from the conclusion of the litigation in Blackrock Investment Management UK Ltd which left the issue of the application of the investment management exemption to supplies of specialised software unresolved.

CJEU (Case C-521/19): Tribunal Económico Administrativo Regional de Galicia – 1 July 2021

In this Spanish case, CB is a self-employed individual who carried out VATable agency services for the Lito group, a group of undertakings responsible for the management of feast days and festivals in Spain. Payments made by festival committees to the Lito group were in cash and no invoices were raised. As a result, the transactions were not reported to the tax authorities. It was agreed that CB would receive 10% of this fee as consideration for his agency services.

Following an inspection, the tax authorities took the view that the amounts paid to the Lito group and CB were the taxable base and therefore assessed for VAT in addition to this amount. CB appealed this decision on the basis that because he is unable to claim VAT and is unable to pass the VAT on because the transaction was part of a fraudulent activity, the VAT must be regarded as being included in the price of the taxable services which he supplied.

The Court found that a guiding principle of the VAT system is that it is aimed at taxing the end consumer and, as a result, the consideration received must be regarded as inclusive of VAT. The only exception to this is in situations where the VAT can be passed on. The Court also stated that it is by penalties that CB and the Lito group should be punished for its fraudulent activities, not by increasing the amount subject to VAT.

CJEU (Case C-695/19): Rádio Popular – 8 July 2021

Rádio Popular is a limited company located in Portugal whose main activity is the sale of household electrical appliances and household equipment. In addition, it offers purchasers an extended warranty on purchased items by way of a separate insurance contract with a third party, with Rádio Popular acting as an intermediary to this insurance contract.

Rádio Popular charges its customers an additional fee for this service and does so at the same time as the sale of the underlying product subject to the warranty. While Rádio Popular took the view that the income derived from the warranty offering was exempt from VAT, it still took full VAT recovery of its costs.

Following an investigation, the tax authorities concluded that that company had wrongly deducted all the VAT paid in the years 2014-2017, on the ground that the sales of warranty extensions made by Rádio Popular were exempt from VAT and therefore did not give rise to a full right to deduct VAT and raised four assessments for VAT and compensatory interest totalling €356,433.

Making reference to Article 174 (2), Rádio Popular challenged this assessment on the basis that the sale of warranties on its products constituted incidental financial transactions to the much more significant sale of electrical goods and therefore should not be included as part of any apportionment exercises in respect of its recovery position. The authorities, meanwhile, referred to the previous CJEU decision in EDM (C-77/01) and held that sales of warranty extensions do not constitute ‘incidental transactions’.

The Court agreed with the position held by the tax authorities and held that the turnover earned by the taxpayer from the intermediation in the sale of extended warranties on the goods it sells as part of its ordinary business activities could not be regarded as incidental and therefore should be included in any calculation of the overall level of VAT recovery available to that taxpayer.