Recent Irish and Court of Justice of the European Union Cases

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

C‑390/15, Rzecznik Praw Obywatelskich (RPO), 7 March 2017

Poland’s Commissioner for Civic Rights made an application for a ruling that national provisions precluding the application of a reduced rate of VAT to the supply of books and other digital publications electronically do not comply with the Polish constitution. However, the CJEU ruled against Poland’s Commissioner, deferring to the broad discretion enjoyed by national legislatures. The Court found that e-books and printed books should be treated the same, as they both promoted reading, unless there was a justification for their different treatment. In this instance, the CJEU accepted the justification that electronically supplied services needed to be subject to a clear and uniform set of rules including the VAT rate applicable to such supplies. 

The ruling was a surprise considering that the Court had previously indicated that supplies of goods or services sold in competition with each other should have the same VAT rate applicable.

C‑564/15, Tibor Farkas, 26 April 2017

Farkas purchased a mobile hangar at an auction of property held by a judgement debtor. Under Hungarian law, the purchase of the hangar was subject to the reverse-charge procedure, which Farkas was unaware of, and he accounted for VAT in the normal way. He was denied VAT recovery and a 50% penalty was imposed, even though no loss of revenue occurred to the Hungarian exchequer.  The CJEU found that deduction could be blocked and that the affected taxpayer could be directed back to the party which had incorrectly charged the VAT to recoup it from them rather than from the tax authority. Interestingly the Court stated that if the party who had charged VAT had gone into liquidation the taxpayer could then purse the tax authority for a refund. 

Unsurprisingly the CJEU found that the imposition of a 50% penalty was precluded by EU law when there was no loss of revenue to the Hungarian authorities.  This case follows a number of decisions in which the Court has indicated that the actions of the authorities must be reasonable and proportionate to the offence.  Significant financial penalties must be reserved for those involved in activities which imperil the collection of tax and not for breaches of formality.

C‑699/15, Brockenhurst College 4 May 2017

The CJEU ruled that the supplies of a college training restaurant which charged its customers, and the college’s theatre, which charged audience members for their attendance, was VAT exempt. The Court ruled that the training restaurant and theatre were closely related to education, and gave weight to the fact that only those on a mailing list were permitted to use the restaurant or attend the theatre’s performances. They also gave consideration to the fact that both ran at significant financial loss.

The case shows that some commercial subsidy of educational activity does not change the educational nature of the activity.

C‑274/15, Commission v Luxembourg, 4 May 2017

The CJEU determined, in this case, that Luxembourg’s legislation for groups of independent persons carrying out VAT exempt activities is too broad and must be reduced in scope. Under current legislation in Luxembourg, members of a cost-sharing group who carry out VAT exempt activities can supply services to all of its cost-sharing members without reference to the purpose for which the services being supplied were being used. The Luxembourg rules allowed companies whose exempt activities composed of 70% of their turnover to join such groups.  The Court held that the exemption for independent groups of persons carrying on VAT exempt activities did not require that the companies concerned supplied any particular level of VAT exempt activity but that the exemption only applied to supplies made between the group members which were used for VAT exempt activities.

This decision may widen the application of this VAT grouping provision for exempt entities.  In several Member States the tax authorities currently insist that the group members should be 95% exempt in order to enter such a grouping.  This judgment makes it clear that the relief looks to the exempt activities of the group Members and applies to supplies for the purposes of those activities regardless of the level of taxable activity carried out by its members.

C‑33/16, A Oy, 4 May 2017

The Court ruled that the loading and unloading of cargo are services supplied for the direct needs of cargo ships. It also held that any subcontracted service of loading and unloading of cargo further down a supply chain could also qualify for the zero rating.  There has been some inconsistency from the Court in the area of zero rating for subcontractors in this area.  The Court has held that the exemption does not apply to subcontractors in certain instances relating to this area and it is not clear why it has done this in some instances and not in others.

If you are operating in the field of supplying goods or services to ships or aircraft under subcontract you should ensure that you qualify for zero rating.

C‑36/16, Posnania Investment SA, 11 May 2017

The Court found that the compulsory transfer of property to a national authority in settlement of tax arrears does not constitute a supply of goods for consideration that is subject to value added tax.

The case clearly declares that because of the compulsory nature of the transfer of the property there was no consideration payable by the authority and the essentials for taxation a contract between the two parties did not exist and therefore VAT did not apply.  However it indicated that it believed that the supply could be a disposal free of charge by the person and that if the taxpayer had claimed VAT input deduction on the property that it could be recouped.

C‑624/15, ‘Litdana’ UAB, 18 May 2017

In this case, a car dealer in Lithuania purchased second-hand cars from a Danish supplier. The Danish supplier did not charge VAT on the invoices and stated that it was operating the margin scheme. The Danish dealer, it was subsequently revealed, was operating fraudulently, and the Lithuanian tax authorities assessed the Lithuanian purchaser for VAT on its Danish purchases. The CJEU, however, precluded the Lithuanian authorities from denying the dealer the right to apply the margin scheme, in spite of the subsequent investigation carried out by the tax authorities uncovering that the taxable dealer supplying the second-hand goods had not actually applied that scheme to the supply of those goods.

The Lithuanian tax authorities could only refuse the purchaser’s application of the scheme if it was established by the competent authorities that the taxable person did not act in good faith or did not take every reasonable measure in his power to satisfy himself that the transaction carried out by him does not result in his participation in tax evasion.

Case C‑571/15, Wallenborn Transports SA, 1 June 2017

In this case the Court found that where goods are removed from customs supervision (in this instance, Hamburg - a free port not considered part of the EU), and if the goods are not deemed to have entered the EU (a matter for national courts to determine), import VAT cannot arise.

This case shows again that a breach of formality should not cause the collection of tax or disproportionate penalties and that the underlying facts need to be carefully examined before tax is collected.  This is not to say that import VAT and duties would not have to be paid had the breach of customs procedure concerned resulted in the goods being present within the territory of the EU.  It clearly would.

C‑38/16, Compass Contract Services Limited, 14 June 2017

The Court found that the staggered implementation of input and output VAT credit claim time-limits did not breach the principle of fiscal neutrality as all entities were treated equally. The Court commented that the principles of fiscal neutrality, equal treatment and effectiveness do not preclude national legislation, such as that at issue in the main proceedings, which, in the context of the reduction of the limitation period for claims for overpaid VAT and, on the other hand, for claims for deduction of input value added tax, provides different transitional periods, with the result that claims relating to two accounting periods of three months are subject to different limitation periods depending on whether they concern the repayment of overpaid value added tax or the deduction of input value added tax. 

In essence the Court is saying that you can have different time limits for making an input deduction and getting refunds of tax, resulting from such deduction, provided that the rules apply to everyone equally. The decision effectively endorses the Member States entitlement to have different rules for dealing with claims for VAT which was not due but collected and rules for claiming an entitlement to input deduction which was omitted.

C‑26/16 Santogal M-Comércio e Reparação de Automóveis Lda 14 June 2017

Council Directive 2006/112/EC requires private purchasers of new means of transport to self-account for VAT in the Member State in which they acquire the vehicle. However, this case demonstrated the need for intra-community sellers of new means of transport, cars, to satisfy themselves as to the likelihood that such purchasers will properly account for VAT, particularly in the instance of high-value vehicles. It is important to emphasise however that the Court upheld its previous position with regard to the vendors’ obligations being limited and that the Court was critical of the Portuguese Tax authorities behaviour in the case. 

The Portuguese tax authorities accepted the evidence of export of the car to Spain from the company and then sought to charge VAT to the Portuguese company when it later realised that the purchaser had not declared VAT in Spain. The Court indicated that the company may be able to rely on the principle of legitimate expectation against the Portuguese Tax authorities provided that there was no evidence that the company was involved or culpable because of fraud.

C‑254/16, Glencore Agriculture Hungary Kft. 6 July 2017

The Court found Hungary’s laws to be in breach of the principle of fiscal neutrality with regard to its interest and penalties regime.  The finding arose after a relatively minor delay by Glencore in the provision of extensive data backing up a large VAT refund claim to the tax authorities was used as justification for a failure to pay interest on the refunds from the date that the refunds originally were due. The Court held that where a tax investigation procedure is initiated by a tax authority and where a taxable person is fined for failure to cooperate, the date from which interest had to be paid on the refund could not be delayed until the formal report on that investigation had been delivered to the taxable person. Interest had to be paid from the date the original claim was made. 

This is again an endorsement by the Court of a requirement on the Tax Authorities to act reasonable and proportionately.

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