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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

Ireland – Appeal Commissioners’ Cases

12TACD2019 - Name Redacted v The Revenue Commissioners – December 2018

In this case the taxpayer entered into three contracts with two separate parties for the purchase of a site and the construction of an investment property on same. These three contracts provided for a net consideration plus VAT. However, the VAT payable by the taxpayer pursuant to these three contracts, was neither sought by the vendors, nor paid by the taxpayer.

Invoices (dated January 2007) were subsequently provided to the taxpayer in June 2011 who then sought repayment of the VAT arising on same via a supplementary VAT3 return for the period January/February 2007. This claim was refused by Revenue on the basis that it was made outside the four-year limit imposed by the VAT Act. The taxpayer did not appeal this decision.

In July 2012, the appellant submitted another repayment claim via for the period May/June 2012 based on three amended invoices, which were identical to the original invoices but dated in June 2012. Revenue again refused this claim on the basis that it was made outside the four-year time limit. The taxpayer appealed this decision.

Following submissions by Revenue and the taxpayer, the commissioner ruled that the correction of the invoices “operated retroactively, and could not and did not give rise to a new right to claim a VAT deduction”. The commissioner ruled that the right to deduct VAT arose for the taxpayer in June 2011 when he first received VAT invoices in relation to the 2007 transactions. The commissioner agreed that the right to deduct VAT did not accrue to the taxpayer in May/June 2012 and it was therefore found that the refusal of the taxpayers’ claim for a repayment of VAT was correct but that the claim had been rejected by Revenue on an incorrect basis. The taxpayers appeal was dismissed.

15TACD2019 - Name Redacted V The Revenue Commissioners – February 2019

This case involved the application of transfer of business relief. The matter at issue was whether the transfer of assets (being the premises, stock, fixtures and fittings of a hotel) constituted the transfer of an undertaking or part of an undertaking, capable of being operated on an independent basis. The taxpayer was charged VAT on the transfer and sought to recover the input VAT incurred. The Revenue Commissioners denied this deduction on the basis that VAT was not correctly chargeable as the transaction fell within the provisions of transfer of business relief and therefore was deemed not to be a supply for VAT purposes.

The taxpayer in the appeal, contended the relief did not apply as they did not intend to trade, did not retain a hotel or publican’s licence and that there were fire safety issues with the hotel. Despite the fact that the taxpayer argued that there was no intention to trade, it was found as fact which was undisputed by the taxpayer, that they had in fact traded subsequent to the transfer albeit without the necessary license to do so.

The taxpayers appeal was denied by the Commissioner.

Europe – CJEU cases

C-434/17 - Human Operator Zrt. v Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága - 13 February 2019

From 1 January 2015, Hungary introduced a provision into national law requiring the reverse charge mechanism to apply to services which consisted of the supply of staff. As this was a provision derogating from the EU VAT Directive, Hungary sought and received an Implementing Decision from the EU authorising it to introduce this measure. The Implementing Decision was notified to Hungary on 15 December 2015.

Human Operator, a Hungarian company, acquired services which consisted of human resources and the supply of staff, from other Hungarian companies. These companies charged Hungarian VAT to Human Operator which it deducted in its VAT return. The Hungarian Tax Authority challenged this treatment on the basis that the new reverse charge rule was applicable from the 1 January 2015.

The CJEU ruled in this case that the Implementing Decision received by Hungary could not have retroactive application and as such was only applicable from the date the decision was received despite the fact that the decision did not mention its date of entry into force.

This case highlights the fact that the principles of legal certainty and legitimate expectations must be observed by Member States in their implementation of EU VAT rules.

C-562/17 - Nestrade SA v Agencia Estatal de la Administración Tributaria (AEAT) and Tribunal Económico-Administrativo Central (TEAC) - 14 February 2019

Nestrade, a Swiss company, procured goods from a Spanish company and sought to recover the Spanish VAT charged via a Thirteenth Directive claim. The claim was refused because Nestrade’s Dutch VAT number, rather than the Swiss VAT number, had been quoted on invoices. The Spanish authorities gave Nestrade 10 days to provide corrected invoices and having not received any response rejected the claim 5 months later.

The CJEU found that Spain had not made Nestrade’s right to refund excessively impossible or difficult. The Court held that the Spanish tax authority was entitled to reject the claim on the basis that Nestrade had received the invoices almost three months prior to the final decision to reject the claim but had failed to provide these to the tax authority. In addition, having been notified of the rejection of its claim Nestrade failed to appeal this decision, which it would have been entitled to do, within the required time.

The judgment illustrates the need to ensure that processes are in place to make Directive claims on time and with the right evidence to avoid unnecessary VAT costs.

C-531/17 - Vetsch Int. Transporte GmbH v Zollamt Feldkirch Wolfurt - 14 February 2019

Freight forwarders like Vetsch Int Transporte regularly use a customs procedure when importing goods which are destined for onward transport to another EU Member State. This procedure allows for an exemption from import VAT and the customer will account for VAT when the goods arrive at their final destination in the EU.

Vetsch imported goods from Switzerland into Austria which were destined for customers in Bulgaria. However, those customers used Vetsch’s details to evade Bulgarian VAT by claiming that the subsequent domestic sales were dispatches to another EU Member State. As a result of the fraudulent actions of the Bulgarian customers, the Austrian tax authorities challenged Vetsch’s entitlement to claim exemption on the initial import.

While the entitlement to exemption on import does depend on a subsequent intra-Community supply, in this case the CJEU ruled that as the fraudulent transaction occurred further down the supply chain and there was no evidence that Vetsch knew or ought to have known of these transactions, the VAT exemption in Austria could not be refused.

C-278/18 - Manuel Jorge Sequeira Mesquita v Fazenda Pública - 28 February 2019

A Portuguese taxpayer concluded a contract for the transfer of the use of its land with vineyards for agricultural purposes to an agricultural company with business intent. The contract had been concluded for a period of one year and was automatically renewable for a period of the same length until terminated by one of the parties.

In this case, the CJEU considered that the transfer could qualify for VAT exemption as the letting of immovable property on the basis that it qualified as a single and passive supply of property. The Court considered that the fact that one of the main purposes of the transfer was for the tenant to use the vines planted on the land for commercial purposes did not preclude the exemption applying, as the vines were an integral part of the land in question and while they could be exploited they could not be removed or replaced by the tenant.

C-647/17 - Skatteverket v Srf konsulterna AB - 13 March 2019

Srf konsulterna AB provides accounting and management seminars to taxable persons established in Sweden but the courses are given at locations in Sweden and in other EU Member States. The courses last 30 hours spread over five days, with one day’s break in the middle. Participation in the courses is subject to prior registration and payment in advance.

The CJEU ruled that the courses were taxable where the event took place despite the fact that they were subject to advance registration and payment.

This case highlight the importance for training providers and conference organisers to determine the place where their supplies will be taxable and therefore which Member States VAT rules apply.

C-449/17 - A & G Fahrschul-Akademie GmbH v Finanzamt Wolfenbüttel - 14 March 2019

The CJEU ruled in this case that motor vehicle driving tuition provided by a driving school for the purpose of acquiring driving licenses for vehicles in categories B and C1 was not covered by the VAT exemption in the EU VAT Directive for education/vocational training.

C-201/18 - Mydibel SA v État belge - 27 March 2019

Mydibel fully deducted VAT on purchase invoices for development work on its buildings. For liquidity reasons, Mydibel entered into “sale and leaseback” agreements for these buildings. First, long leases were established with two financial institution, while at the same time, financial lease agreements (including a purchase option at the end of the contract) were concluded, whereby Mydibel leased the buildings back from the financial institutions. Mydibel used the buildings in an uninterrupted and permanent manner for its taxable activity.

Since the establishment of the long lease right by Mydibel was exempt from VAT, the tax authorities claimed that an adjustment of the input VAT initially deducted on the buildings was required.

 

According to the CJEU, the initial VAT deduction by Mydibel should not be adjusted because:

  • Firstly, Mydibel continued to use the buildings for its VATable activities. The Court considered that the establishment of a long lease right without VAT did not break the direct link between the works performed on the buildings and Mydibel’s VAT taxable activity; and
  • Secondly, to the extent that the “sale and leaseback” arrangement did not constitute a VAT exempt supply of the buildings by Mydibel, there was no change in the buildings’ use that affected the deduction entitlement in the years following acquisition.

Although the CJEU refers to the national courts for a final assessment of facts, the CJEU clearly puts forward several arguments to state that both the sale and (immediate) leaseback must be disregarded from a VAT perspective.

This case creates a more uncertain position for future sale and leaseback transactions, which are generally treated by EU Member States as separate transactions for VAT purposes, firstly a supply of goods followed by a supply of services. 

C-275/18 - Milan Vinš v Odvolací finanční ředitelství - 28 March 2019

The taxpayer, Mr. Vinš, posted goods to outside the EU. Mr. Vinš was able to demonstrate, based on documents from the postal providers that the goods were actually exported, but he failed to place the goods under the export customs procedure.  The local tax authorities denied the VAT exemption for export since Czech VAT law states that the exemption only applies if the goods are placed under this export customs procedure.

 

The CJEU, in its decision, applied the principle of substance over form. Based on the EU VAT Directive, Member States are to exempt the supply of goods dispatched or transported to a destination outside of the EU by or on behalf of the vendor. The CJEU held that the exemption for exports may not be denied for failure to comply with a formal requirement (of placing the goods under the export customs procedure), when it is established that the more substantive conditions of the exemption (i.e. proof that the goods did leave the territory of the EU) are met.

C-214/18 - PSM "K" – 10 April 2019

Until June 2015, the services provided by court enforcement officers were treated as exempt from VAT under Polish law but from this date it was announced by the Finance Minister that the fees would be regarded as taxable.

In accordance with Polish law the fees which a court enforcement officer can charge in an enforcement procedure are fixed as a percentage of the debt collected but the law does not state whether these fees are inclusive of or excluding VAT. The CJEU was asked to consider the taxable amount in this case.  

The CJEU reiterated the rule set out in the EU VAT Directive that the taxable base for a transaction is to include everything, which constitutes consideration obtained or to be obtained by the supplier, in return for the supply from the customer or a third party, excluding the VAT itself.

The Court in its ruling concluded that on the basis that the amount which could be charged by a court enforcement officer could not increase beyond the level provided for in national law and that the taxable amount and VAT due could not exceed the consideration actually received, that the Polish tax authority were not precluded from considering that the fees charged were inclusive of VAT.

C-691/17 - PORR Építési Kft. v Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága – 11 April 2019

This case concerned the right of a taxpayer to deduct VAT incorrectly invoiced by suppliers.

PORR received invoices from suppliers in relation to the provision of construction services upon which Hungarian VAT was incorrectly charged, as these service correctly fell within the domestic reverse charge rules. The Hungarian tax authority sought to deny the right to deduct on the grounds that this VAT was incorrectly charged and that PORR could request the suppliers to amend the invoices and repay the amount of VAT paid.

PORR challenged the tax authority’s refusal of its right to deduct on the basis that the authority failed to consider that this VAT had actually been paid to the tax authority and also given that the self-correction procedure was likely no longer available under national VAT rules in order for PORR to seek reimbursement from the supplier.

The CJEU in its judgement declared that the right to deduct can only apply in respect of tax actually due. The Court further highlighted the fact that under Hungarian law, PORR was entitled to bring a civil action against the supplier to recover the amount incorrectly paid. In these circumstances the Court held that Hungary was not precluded from denying the right to deduct VAT incorrectly paid.

However, the Court further elaborated that in instances where it can be shown that recovery of the VAT paid to the supplier would be excessively difficult or impossible (for example in cases where the supplier has gone insolvent) that the taxpayer must be allowed to address its application for reimbursement to the tax authority.

This case highlights the importance for taxpayers to ensure that VAT invoiced by suppliers is correctly due. In Ireland this would be of particular relevance for Principal Contractors receiving services which fall within the RCT regime as generally the VAT due on these services is to be accounted for by the Principal Contractor as opposed to being charged by the Subcontractor.

C-224/18 - Budimex S.A. v Minister Finansów - 2 May 2019

 

Budimex, a Polish company, sought a ruling from the Minister for Finance, as to the date of chargeability of VAT on the supply of construction and installation work. The Minister replied that VAT was due when the invoice for that work is issued or if not issued within 30 days following the actual performance of the work. The Minister concluded that the fact that the contract for the supply stipulated that the customer must formally accept the work undertaken had no bearing on the date that VAT became due.

Budimex contended that the services would only be regarded as having been supplied upon formal acceptance of the work by the client as opposed to when the work is actually completed. Furthermore, Budimex argued that it was impossible for it to ascertain the taxable amount and the VAT due on the basis that the customer, once the work was complete, was entitled to inspect the work and request necessary modifications, to ensure that the work carried out conformed to that specified in the contract.

The CJEU in its judgement considered that while under normal practice, construction and installation services are supplied when they are completed, the economic and commercial realities are nonetheless a fundamental criterion which must be considered in determining if a transaction is a taxable transaction for VAT purposes. In this case, the Court considered that the contractual terms agreed between the parties constituted a relevant factor to be taken into account.

The Court highlighted that as it was not possible to determine the consideration due before the customer formally accepted the work undertaken, that the VAT could not be chargeable before the date of acceptance.

The CJEU ruled that insofar as the formal acceptance requirement was stipulated in the contract and that this reflected the conventional rules and standards in the industry concerned that the formal acceptance requirement was to be considered itself as part of the service supplied and was therefore decisive to determining when the service was supplied.

However, the Court did elaborate that requirements such as drawing up a breakdown of the expense incurred or production of a final payment certificate could not be relevant to determining the time when such services were supplied.

C-225/18 - Grupa Lotos S.A. v Minister Finansów – 2 May 2019

Grupa Lotos purchased accommodation and catering services partly for its own use and partly for resale to its subsidiaries. Grupa Lotos sought a ruling from the Polish tax authority to confirm its right to deduct VAT incurred on the acquisition of these services, which it re-invoiced to its subsidiaries.

Polish law included a provision which excluded the right to deduction of VAT incurred on accommodation and catering services, by taxable persons who did not provide tourism services, even in the case where those services were re-invoiced to other taxable persons. This provision existed prior to Poland’s accession to the EU in 2004 and was maintained thereafter as a standstill clause.

In 2008, Polish law was amended to extend to the scope of the exclusion of the right to deduct VAT, to also deny taxable persons who do provide tourism services from the right to deduct VAT incurred on accommodation and catering services purchased and to be re-sold.

The CJEU ruled, that the earlier provision, which only denied that right to deduct to taxable persons who did not provide tourism services and which existed prior to and was maintained following accession to the EU, was permissible. However, the Court held that the amendment introduced in 2008, to deny right of deduction of VAT for businesses providing tourism services was not in accordance with the EU VAT Directive.

C-127/18 – A-PACK CZ s.r.o. v Odvolaci financni reditelstvi – 8 May 2019

The CJEU ruled in this case that Czech law which provided that a taxpayer was not entitled to adjust the output VAT paid, in the case of total or partial non-payment of invoices by a debtor, if that debtor is no longer a taxable person for VAT purposes, was incompatible with the EU VAT Directive.

The Court considered that the fact that the debtor was no longer a taxable person, as a result of becoming insolvent, was actually definitive evidence that no payment would be received.

C-712/17 – EN.SA Srl v Agenzia delle Entrate – 8 May 2019

 

In this case, two companies which were part of the same group engaged in fictitious circular sales of electricity, i.e. those two companies sold and re-purchased electricity to each other at the same price but with no actual supply of said electricity. As the circular transactions were invoiced at the same price the overall effect was VAT neutral.

The Italian tax authority sought to deny the companies the right to deduct the VAT invoiced to them while still requiring those companies to pay the VAT that they had invoiced to each other. Additionally, Italy imposed a penalty which was equal to 100% of the VAT amount deducted. Italy sought a referral from the CJEU to confirm whether the national law at issue was compatible with EU law principles, in particular the principles of neutrality and proportionality.

The CJEU ruled that Italy was not precluded from denying the right to deduct input VAT while at the same time requiring VAT invoiced to be paid, provided that national law did allow for an adjustment of that VAT paid when the issuer has in sufficient time wholly eliminated the risk of any loss of tax revenue.

Furthermore, the Court found that a penalty of 100% of the input VAT claimed, in addition to the denial of such input VAT, constituted a penalty which was disproportionate as there had been no overall loss of VAT.

C-235/18 – Vega International Car Transport and Logistic Trading GmbH v Dyrektor Izby Skarbowej w Warszawie – 15 May 2019

Vega International engages in the transport of commercial vehicles from the manufacturing factory to the final customer. The service is provided by several subsidiaries of Vega International in different EU Member States, including Poland.

Vega International organises and manages the supply of fuel cards, issued by different fuel suppliers, to its subsidiaries. For organisational reasons, all transactions carried out by means of fuel cards are centralised by Vega International in Austria. As such, Vega International receives invoices from the fuel suppliers with VAT charged and at month end it passes these costs on, together with a surcharge of 2%, to the relevant subsidiary.

Vega International sought to reclaim VAT charged by fuel suppliers in Poland, which it had recharged to Vega Poland. The Polish tax authority sought to deny the right of Vega International to deduct the Polish VAT incurred on the basis that Vega International did not engage in a taxable supply of goods (fuel) but in fact engaged in a VAT exempt supply of financial services (being the granting of credit) to Vega Poland.

The CJEU in its judgement considered that Vega International, when it on charged the costs to its subsidiaries, was not disposing of the fuel as owner. The Court found that the fuel was purchased by Vega Poland directly from the suppliers, at its own discretion as Vega Poland had the power to choose the quality, quantity and type of fuel and how it would be used. Instead, the Court considered that Vega International provided its Polish subsidiary, by means of fuel cards, an instrument enabling that subsidiary to purchase fuel and was acting as an intermediary in the supply of that product. The Court found that as no supply of goods had taken place that that the supply must constitute a supply of services and that this supply of services was to be classified as a financial transaction, akin to the granting of credit, which was exempt from VAT.

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