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
Case C-628/16 - Kreuzmayr GmbH v Finanzamt Linz - 21 February 2018
A German Company, BP Marketing GmbH (BP), sold petroleum products to an Austrian company, BIDI Ltd (BIDI), BIDI agreed to transport the goods to Austria and BP treating the sale as an intra-community supply, applied the zero-rate of VAT.
Unknown to BP, BIDI resold the goods to another Austrian company, Kreuzmayr GmbH (Kreuzmayr) and charged Austrian VAT on the sale and agreed that Kreuzmayr would arrange the transport of the goods from Germany to Austria. Kreuzmayr used the goods in question for its taxed transactions and deducted the Austrian VAT charge by BIDI.
The Austrian tax authority formed the view that Kreuzmayr had no right to deduct the input VAT as it was incorrectly charged by BIDI.
The CJEU, in its ruling, confirmed that the second supply of goods (between BIDI and Kreuzmayr) qualified as a zero-rated intra-community supply of goods as it was in relation to this supply that the intra-community transport took place and the
Kreuzmayr was therefore not entitled to recover the Austrian VAT incorrectly charged by BIDI.
This case highlights the fact that the VAT rate applicable to your transaction can change based on the subsequent actions of your customer. You may believe that you have met the conditions for an intra-community supply by dispatching the goods from your member state but if your customer sells the goods again before they leave the Member State of dispatch your supply is a domestic supply and VAT of the country of dispatch must be charged. Indicators that this scenario may apply would be that the name and address of the party to whom the goods are being delivered to in another Member State is not the same as the customer to whom the goods are being sold. The terms of contracts between parties to such transactions are critically important to determining the VAT treatment of the underlying transactions and to avoid being caught out you should ensure that the factors affecting the VAT treatment of the transactions are contractually nailed down your sales contract. This is particularly so for the first supplier in a chain transaction who, in many cases, do not have visibility on the timing or terms of any subsequent supply of the goods concerned being made by its customer.
C-396/16 – T‑2, družba za ustvarjanje, razvoj in trženje elektronskih komunikacij in opreme, d.o.o., in insolvency v Republika Slovenija, 22 February 2018
This case concerned the requirement of T-2, a Slovenian company, to adjust the VAT input deductions it had previously claimed on purchases, following a binding court agreement with its creditors to only pay 44% of its debts.
THE CJEU ruled that the formal arrangement with its creditors constituted a change in the factors used to determine the VAT input and that the Slovenian tax authority had the power to seek the adjustment.
From an Irish perspective, given that taxpayers must adjust VAT deducted in a taxable period where the consideration remains unpaid six months after that period, the effect of this judgement may have little effect for Irish taxpayers.
C 182/17 – Nagyszénás Településszolgáltatási Nonprofit Kft. v Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága, 22 February 2018
NTN, a non-profit making company owned 100% by the Municipality of Nagyszenas, engaged in a contract with the Municipality to carry out certain public tasks including management of housing and property, management of public roads, control of vermin and the maintenance of parks. In exchange for the performance of the tasks under the contract NTN received compensation from the Municipality as well as access to assets of the Municipality.
The questions referred to the CJEU concerned whether NTN as a commercial company and subsidiary of the Municipality could be considered as a body governed by public law and if so, could NTN be considered to be acting as a public authority when performing the tasks of the Municipality which were delegated to it. In addition, the CJEU was asked to consider whether the amounts received by NTN for performing the delegated tasks were consideration for the supply of services.
The CJEU found that, based on the facts of the case, NTN as it enjoyed none of the rights and powers of a public authority was not acting as such and that the activities carried out under the contract with the Municipality constituted supplies of services effected for consideration and therefore subject to VAT.
Case C-307/16 – Stanisław Pieńkowski v Dyrektor Izby Skarbowej w Lublinie, 28 February 2018
This case concerned the Retail Export Scheme i.e. the zero-rating of goods purchased by non-EU travellers. Mr Pienkowski, a telecommunications trader, applied the scheme by making refunds of VAT to travellers that satisfied the conditions. In accordance with Polish law, only vendors which have achieved a minimal level of turnover in the previous year are entitled to operate the scheme directly and as Mr Pienkowski had not reached the prescribed turnover level the Polish tax authority sought to deny his right to provide refunds directly to his customers.
Mr Pienkowski challenged the decision on the basis that the turnover threshold provided for in Polish law was incompatible with the VAT Directive. The Polish Supreme Court counter-argued that whilst the turnover test was not prescribed in the VAT directive, the provision in Polish law was permissible as Member States are entitled to impose additional obligations on taxpayers which they deem necessary to ensure the correct collection of VAT and to prevent evasion.
The CJEU held that the turnover test as provided for in Polish law was incompatible with the VAT Directive and that it was not necessary in order to prevent tax evasion. Therefore as all the conditions for the VAT exemption under the scheme were met, the Polish tax authority was precluded from denying Mr Pienkowski from using that scheme.
This case reinforces a taxpayer's right to rely directly on EU law against national authorities.
Case C-387/16 – Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos v Nidera BV – 28 February 2018
In this case, the CJEU ruled the Lithuanian authority was precluded from reducing the amount of default interest due under national legislation on VAT overpaid by a taxpayer.
Lithuanian legislation provided that interest at a flat rate was due to be paid on VAT due to a taxpayer within 30 days of a refund claim being made, however the tax authority sought to extend this to the date of the decision ruling on the refund claim. The reduction, the tax authority claimed was justified on the basis that it was to compensate the actual loss suffered by the taxpayer as a result of the delayed repayment.
However, the Court ruled in favour of the taxpayer and considered that on the basis that the rule set down in national law was based on 30 days from the date of a claim, any reduction would breach the concepts of foreseeability and fiscal neutrality.
Case C-672/16 - Imofloresmira — Investimentos Imobiliários SA v Autoridade Tributária e Aduaneira – 28 February 2018
Imofloresmira, a company involved in the purchase, sale, letting and management of properties, claimed a VAT deduction on costs associated with two properties which it had let and exercised an option to tax on the lettings. Following the original lettings, the properties remained unoccupied for a period of more than two years, during which Imofloresmira actively marketed the properties for rent and had the intention to make VATable lettings of these properties.
The Portuguese tax authority, as provided for under national legislation, sought for an adjustment of the VAT initially deducted on the basis that the property, being unoccupied, was no longer being used by the taxpayer for the purposes of its taxed transactions.
The CJEU ruled that the national legislation was incompatible with the Directive and confirmed that the right to deduct can only be determined at that time the VAT is chargeable and this right is retained even if that taxable person could not, for reasons beyond its control, use the goods or services giving rise to the deduction in the context of taxed transactions.
C – 159/17 – Întreprinderea Individuală Dobre M. Marius v Ministerul Finanțelor Publice - 7 March 2018
Dobre was registered for VAT in Romania for the period July 2011 and July 2012. However, having failed to submit VAT returns for the fourth quarter of 2011 and the first quarter of 2012 the tax authority revoked its VAT number from August 2012. From August 2012 to July 2013, Dobre continued to issue invoices charging VAT but did not submit VAT returns.
The tax authority, following a tax inspection carried out in 2015, issued a tax demand requiring Dobre to pay approximately €40,000 for the VAT charged and collected during the period after the VAT number was revoked. Dobre then filed a counter refund claim for approximately €27,000 in respect of the input VAT it had incurred on goods and services used for the purpose of supplying the taxable transactions in the same period. The refund claim was rejected in the Romanian courts.
The Romanian Court of Appeal referred the case to the CJEU seeking confirmation as to whether the VAT Directive precludes national legislation which requires a taxpayer, whose VAT registration has been revoked, to pay VAT collected during the period in which the VAT registration was revoked, without recognising the right to deduct VAT on purchases made during the same period.
The CJEU held that the right to deduct VAT, in the circumstances of the case, could be refused on the basis of the infringements committed by the taxpayer. The infringement being the failure by the taxpayer to file VAT returns prevented the correct collection of VAT and denied the tax authority from having access to the information needed to establish that the substantive requirements giving rise to the right to deduct were met.
C-532/16 – Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos v SEB bankas AB - 11 April 2018
In 2007, SEB purchased six plots of land from VKK for LTL 4,800,000 (inclusive of VAT). The parties regarded the transaction as a supply of building land subject to VAT and SEB reclaimed the VAT charged in its VAT return for the period.
In 2010, deciding that the supply should have been VAT exempt, VKK credit noted the original invoice and issued a new invoice to SEB for LTL 4,800,000 with no VAT charge.
SEB refused to recognise the credit note and the new invoice and during a tax inspection in 2012, the tax authority ordered the repayment of the VAT incorrectly deducted in 2007, plus interest and a penalty.
The CJEU in its decision held that the taxpayer was obliged to adjust VAT unduly deducted on the basis that the initial deduction was not lawful as the transaction was in fact exempt from VAT.
C-8/17 – Biosafe – Indústria de Reciclagens (Biosafe) v Flexipiso – Pavimentos (Flexipiso) – 12 April 2018
During the period February 2008 to May 2010, Biosafe sold granulated rubber to Flexipiso for €664,538 on which Biosafe applied VAT at the reduced rate of 5%. In 2011, following a tax inspection, the Portuguese tax authorities found that VAT at the standard rate of 21% should have been applied on the sale, the tax authority raised an assessment and Biosafe paid the additional VAT due. Biosafe then sought to recover the additional VAT due from Flexipiso, who refused on the grounds the four year period for the right to deduct had already expired in relation to the earlier transactions.
Biosafe brought an action seeking an order that Flexipiso reimburse for the amount it had paid along with interest for late payment. The court held that the time period for the deduction of VAT is to be determined by reference to the original invoice and that Biosafe could not pass on the VAT relating to those invoices to Flexipiso as Flexipiso no longer had the right to deduct the VAT.
Upon referral to the CJEU, the Court held that national legislation was precluded from denying the right to deduct based on the fact that four years had elapsed since the original invoice. The Court held that the right to deduct only arose for the customer upon receipt of the subsequent amending invoices.
C-580/16 - Firma Hans Bühler KG v Finanzamt de Graz-Stadt – 19 April 2018
In this case, the CJEU found that the conditions for triangulation relief are met even where the taxable person who relies on the relief (i.e. the middle party in the supply) is registered for VAT in the Member State from which the goods are dispatched, provided that taxable person uses their VAT identification number in another Member State for the purpose of the specific supplies.
Furthermore, the Court ruled that triangulation relief cannot be denied if the taxpayer does not submit the required recapitulative statement in good time on the basis that the substantive requirements for the relief are satisfied, even if the taxable person has failed to comply with some of the formal requirements.
This case clarifies the conditions which need to be met by taxpayers in order to avail of triangulation relief and provides that once the substantive conditions are met the relief cannot be denied on the basis that the recapitulative statements are filed late.
C-81/17 – Zabrus Siret SRL v Direcția Generală Regională a Finanțelor Publice Iași — Administrația Județeană a Finanțelor Publice Suceava – 26 April 2018
In this case the Romanian tax authority sought to deny Zabrus a right to make corrections relating to previous VAT periods, where such corrections resulted in a VAT refund claim, on the basis that the corrections related to VAT periods previously audited by the tax authority.
Upon referral to the CJEU, the Court held that Romanian legislation which limited the right to make corrections and deduct input VAT relating to periods already subject to a tax inspection was incompatible with the VAT Directive as it derogated from the five-year limitation period for correction of VAT returns provided for in national legislation and was in breach of the principles of effectiveness, fiscal neutrality and proportionality.
The Court by its decision has reiterated the taxpayer’s right to deduct may not be limited by national authorities in cases where the taxpayer has met the substantive and formal conditions laid down in the VAT Directive.