Recent Irish and Court of Justice of the European Union Cases

Indirect Tax Matters December 2019

Europe – CJEU Cases

C-71/18 –Skatteministeriet v KPC Herning - 4 September 2019

KPC Herning, a Danish property development and construction company, entered into an agreement with a housing body for the construction of social housing units on land belonging to the Port of Odense. 

KPC Herning purchased the land which had an existing warehouse built upon it from the Port of Odense. The sale contract was subject to the condition that KPC Herning was to conclude a contract with the Housing Body to build the units. 

Subsequently, KPC Herning, sold the land to the Housing Body. The contract stipulated that the Housing Body was to carry out the partial demolition of the warehouse built on the land at its own expense and risk. In addition, the parties agreed that KPC Herning was required to supply a fully completed building for residential use on that land. 

At the date of the successive transfers, the warehouse was fully operational. 

KPC Herning sought a ruling from the Danish Tax Authority as to whether the successive transfers were exempt from VAT. The key issue was whether the supply constituted the supply of building land subject to VAT, given that the companies intended that the building was to be wholly or partly demolished and the land re-developed or whether the supply was that of completed land with a building thereon which was exempt from VAT. 

On the basis that at the time of the sales the warehouse was fully operational and the demolition work had not yet commenced, which was the responsibility of the final purchaser, the Housing Body, to carry out at its own risk, the Court ruled that it was not a supply of building land, despite the party’s intention to demolish the existing warehouse and develop residential houses. 

The Court ruled that the supply could only be classified as a supply of land with a completed building and was therefore exempt from VAT.

C-145/18 - Regards Photographiques SARL v Ministre de l'Action et des Comptes publics - 5 September 2019

Regards Photographiques, a French photograph manufacturer, treated certain photographs it supplied, including portraits and wedding photos, as subject to the reduced VAT rate. Regards Photographiques argued that given that the creator of the photographs supervised the printing of them and signed and numbered them up to a limit of 30 copies that they constituted ‘Works of Art.’ The French Tax Authority adopted a contrary view, proposing that these photographs were taxable at the standard rate of VAT. 

The AG opined that there had been historical debate on the definition of photography as a ‘work of art’. Specifically, debate on whether photography is art, which although may suit the academic sphere, could result in difficulty when placed in the context of a business transaction, where the subject matter must be clear, defined and founded in objective criteria based in legislation. 

The CJEU in its judgement addressed this definitional concern, where it decided that a photograph could be considered art, insofar as it is sufficiently clear and defined in light of the requirements established by the Member State, in accordance with the VAT Directive.

C -700/17 - Finanzamt Kyritz v Wolf-Henning Peters - 18 September 2019

Mr Peters, a medical specialist in clinical chemistry and laboratory diagnostics, provided services to a laboratory company which in turn supplied services to doctors working in medical practices, rehabilitation clinics, public health services and hospitals. The question referred to the CJEU was whether his services were exempt from VAT as “hospital and medical care”. 

The Court ruled that the services could qualify for the VAT exemption insofar as the services qualified as “medical care” which aims to diagnose, treat and cure diseases or health disorders. The Court considered that a confidential relationship between Mr Peters and the patient was not required in order for the exemption to apply.

This case may have relevance for independent laboratories and those providing outsourced services in the health sector.

C-42/18 - Finanzamt Trier v Cardpoint GmbH - 3 October 2019

Cardpoint provides services required to operate ATMs in Germany including stocking ATMs with cash, checking customer identification, communicating with the customer’s bank to obtain authorisation for cash withdrawals and sending daily data files of transactions to the central bank. 

Despite its services being essential for the operation of the ATMs, the CJEU held in this case that the services supplied by Cardpoint were not exempt from VAT as its services did not change the legal and financial relationship of the parties, which is an essential characteristic of an exempt financial transaction. Instead, Cardpoint’s services were technical and administrative in nature and therefore subject to VAT. 

The judgment confirms that the scope of the exemption for financial services is narrow and intermediaries involved in payment services are unable to exempt their services unless they can actually transfer funds, rather than merely requesting or enabling other parties to do so.

C-329/18 – Valsts ieņēmumu dienests v ‘Altic’ SIA - 3 October 2019

Altic purchased rapeseed oil from two suppliers and deducted the VAT paid. The suppliers in question were fictitious entities that were involved in missing trader fraud. The question arose as to whether Altic had the right to deduct the input VAT paid, whether the company had acted in good faith and whether it knew or should have known that the transactions it was party to involved VAT fraud.

The CJEU held that Member States are precluded from refusing input deduction to a taxable person solely on the grounds that the taxpayer has not complied with obligations under a Regulation of the EU in relation to food law. Such Regulations require a purchaser to identify his suppliers for the purposes of traceability of foodstuffs. 

The Court did however advise that if other factors are present, which when taken together, indicate that the taxpayer knew or should have known that he was involved in a transaction involving VAT fraud that there may be sufficient grounds to deny VAT deduction. In this regard, the Court considered that failure to verify that the supplier was registered with the competent authorities in relation to the control of foodstuffs was not relevant to determine whether the taxpayer should have known he was involved in a transaction involving VAT fraud. 

The EU VAT System is particularly vulnerable to this type of fraud, known as missing trader fraud. Missing trader fraud occurs where a party engages in a transaction solely for the purpose of collecting VAT, and then disappears, without remitting that VAT to the Tax Authorities.

Joined Cases: C- 573/18 - C GmbH & Co. KG and C- 574/18 - C-eG v Finanzamt Z - 9 October 2019 

The applicants in these joined cases were fruit and vegetable wholesalers/cooperatives that sold products grown by their producer members. For the benefit of their members the applicants managed operational funds made up of contributions from their producer members as well as grant aid from the EU. The funds were to be used to finance capital goods and equipment for the members.

The applicants therefore acquired capital goods including equipment from third party suppliers and subsequently supplied these to their producer members for 50%/75% of the original purchase price, the remainder being financed by the operational fund. The applicants accounted for VAT only on the amount invoiced to their members. 

The CJEU held that VAT was due on the full value of the goods including the portion which was financed from the operational funds. The Court considered that this portion was a subsidy linked to the price of that supply paid for by a third party and as such must be taken into account when determining the taxable amount for VAT purposes.

Joined Cases: C- 4/18 – Michael Winterhoff v Finanzamt Ulm and C- 5/18 – Jochen Eisenbeisvv Bundeszentralamt für Steuern - 16 October 2019

In this case, the CJEU held that providers which hold a national licence permitting them to supply services which consist of the formal servicing and delivery of court or administrative authority documents, must be regarded as ‘universal service providers’ whose services are ‘public postal services’ and therefore exempt from VAT.

C-692/17 - Paulo Nascimento Consulting - Mediação Imobiliária Lda v Autoridade Tributária e Aduaneira – 17 October 2019

Paulo Nascimento Consulting (PNC), an estate agency, successfully sued one of its clients for unpaid commission. Still refusing to pay, one of the client’s properties was seized and PNC was given the option to acquire it. PNC had insufficient funds and sold its option to the property and its entitlement to the existing debt to Starplant.

The CJEU ruled that the supply by PNC to Starplant was a single supply being the transfer of property. The Court considered that the assignment of the debt owed could not be separated from this supply and treated independently from the supply of property. On this basis the Court ruled that the transaction was subject to VAT and that no part of PNC's supply amounted to an exempt supply of credit.

C-653/18 – Unitel Sp. z o.o. w Warszawie v. Dyrektor Izby Skarbowej w Warszawie - 17 October 2019

Unitel, a Polish company, sold and exported mobile phones to two Ukrainian companies. Following an audit carried by the Polish tax authority it was discovered that while the goods had been exported from Poland, they had not been acquired by the customers stated on the invoices. The Polish authority therefore sought to deny the treatment of the supply as an export subject to VAT at 0% and took the view that Unitel would be liable to account for Polish VAT on the supply.

Upon referral, the CJEU held that a supplier cannot be held liable for payment of VAT, due to tax evasion committed by the acquirer of the goods over which he has no influence and in particular given that this did not have a material effect on whether or not an export had been made for VAT purposes. Though it is required that suppliers take reasonable measures to prevent fraud that concerns the EU VAT system, given that the goods in this case had left the EU and the supply appeared to satisfy the substantive requirements to qualify as zero-rated exports, the Court found that it would be disproportionate to levy Polish VAT on exports that were genuinely made.

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