Recent Irish and Court of Justice of the European Union Cases

Indirect Tax Matters November 2020

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

Ireland – Appeal Commissioners’ Cases

149TACD2020 – Name Redacted v Revenue Commissioners – 12 June 2020

In this case, the Appellant and another person jointly owned an undeveloped site that was developed into residential units between 2007 and 2010 by a construction company that was owned by the joint owners. This work was financed by way of a loan from a bank. The developed units were subsequently sold by the joint owners on 1 February 2013 for a consideration of €80,000.

Revenue raised an assessment in respect of the Appellant’s tax affairs for the years 2013 to 2016 and found that the Appellant should have accounted for VAT of €4,758 in respect of the sale of property, under Section 94(8) VATCA. The Appellant sought to argue that he was not liable for same, stating that the bank had called in the loan and had forced the joint owners to sell the property under duress, such that the bank is the entity that should account for this VAT, in line with Section 22(3) VATCA.

The commissioner upheld the assessment for VAT. The commissioner identified that the burden of proof in TAC cases lies with the Appellant, who must show that, on the balance of probabilities, the relevant tax is not payable. Accordingly, it was found that the Appellant had not provided sufficient evidence to suggest that the bank or a receiver had been appointed over the property by way of a deed of appointment. On that basis, the commissioner held that the Appellant was the entity liable for the VAT due in respect of the sale of this property.

Europe – CJEU cases

C-312/19 - XT v Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos – Judgement - 16 September 2020

This Lithuanian case concerned two parties concluding a joint activity arrangement in January 2010 with a view to developing five residential properties on a site. It was agreed that the applicant (i.e. “XT”) to the main proceedings would contribute 30% to the overall cost of the project, while his silent partner would contribute the remainder and XT was empowered by the agreement to act in the name of the partnership as a whole. The applicant outwardly acted in his own name and it was the entity who purchased the site, acquired planning permission and contractually engaged with the developers to develop the sites.

The partnership was dissolved in early 2011 - the five properties that had been developed were sold at various points from 2010 to 2013 to third parties by the applicant and VAT had not been charged. The Lithuanian tax authorities who carried out a tax inspection of XT, for the years 2010 to 2013, considered that XT was acting as “a taxable person” in respect of those supplies and raised an assessment for him to pay the VAT due on these sales.

On referral, the CJEU found that “XT acted in his own name and on his own behalf, assuming by himself the economic risk associated with the taxable transactions at issue”, such that XT was acting as a taxable person in his own right and was the entity that was liable for VAT arising on the sales of the residential properties.

C-405/19 - Vos Aannemingen BVBA v Belgische Staat – 1 October 2020

This case relates to a common practice in Belgium where developers are engaged to develop land on behalf of an owner, from whom they obtain a building right, such that when the property is sold, the developer sells the ‘building right’ subject to VAT, while the owner of the property sells their remaining interest in the property (known as “land shares”) which are exempt from VAT.

Vos Aannemingen is a Belgian entity that was solely involved in the development and sale of apartment buildings. As part of the costs of sale, the developer commonly incurs significant advertising, administrative and brokerage fees and generally recovers the VAT incurred on these costs in full on the basis that the building right portion of the sale is subject to VAT. However, in this case, the Belgian tax authorities sought to reduce Vos Aannemingen’s entitlement to VAT recovery on the basis that these costs were also to the benefit of the owner of the land shares.

The question brought to the Court was whether Article 17 of the VAT Directive provided for VAT recovery of such costs by Vos Aannemingen, where the landowner also benefits from the services provided to the developer.

The Court found that where costs are incurred by a property developer and there is a direct and immediate link between these costs and the developer’s economic activities (e.g. the development and sale of apartment buildings), and where these costs result in a benefit to the landowner that is secondary to the developer’s needs, then these costs should still be recoverable in full by the developer. In this regard, the CJEU held that, based on the principle of fiscal neutrality, VAT recovery cannot be restricted solely because a third party also derived a benefit from the service received (making reference to C-124/12, AES-3C Maritza East 1).

Additionally, the Court found that where the expenses can be attributed to actions performed by both the landowner and the developer, a limit should be placed on the developer’s deductibility and that the developer is entitled to full recovery where the costs can be specifically attributed to a particular action undertaken by the developer.

The CJEU held that it was up to the referring court to determine to what extent the services had been provided to enable the developer to undertake its taxable activities in order to conclude on whether such costs are wholly deductible.

C-621/19 - Weindel Logistik Service – Order – 8 October 2020 (currently not available in English)

Weindel is a company established in Slovakia that imports goods from Switzerland, Hong Kong and China to repackage these goods on behalf of its Swiss customer. The Swiss customer is the entity that owns the goods and the invoices raised by Weindel to the Swiss entity solely relates to the repackaging services provided (i.e. it does not recharge its Swiss customer for the cost of the import VAT incurred). However, Weindel has, to date, been incurring the cost of the associated import VAT.

The question referred to the Court was whether Weindel, as the entity that incurred the cost of the import VAT, had an entitlement to recover it.

However, on referral, the Court held that the entitlement to recover the import VAT could only arise to the extent that the imported goods are used for the purposes of the taxable person’s taxable transactions, in line with Article 168 of the EU VAT Directive and settled case law. In particular, the Court held that persons who import goods without being the owners of the goods are not entitled to deduct the VAT, unless it can be established that the cost of the importation of the goods into the EU is incorporated in the price of a specific output transaction or in the price of the goods or services supplied by the taxable person in the course of his economic activities. On that basis, the Court left it to the national court to ascertain whether Weindel fulfils these requirements.

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