Updates of judgements of the European Union Court of Justice

Indirect Tax Alert, May 2017, Issue 2

Exemption on IC supply

• If VAT number of recipient is missing

In the European Union Court of Justice (“CJEU”) case Josef Plöckl (C-24/15), a German businessman took his car, assigned to his undertaking, to Spain to sell it. He sold it to a Spanish business nine months later. He issued a VAT-free invoice to the Spanish buyer for an intra-community supply of goods from Germany at the time of sale when the car had already been in Spain for some time. The German tax office considered the move to Spain and the later sale as two separate transactions and refused exemption of intra-community supply from German VAT as Mr Plöckl failed to provide a valid Spanish VAT registration number for the customer.

CJEU argued that in this case a transfer of own goods to another Member State had occurred which would normally be an exempt transfer if the substantive conditions were satisfied. It therefore concluded that application of VAT exemption to intra-community transfer of goods could not be refused on the ground that the taxable person did not provide a VAT identification number issued by the Member State of destination, where there is no specific evidence of tax evasion, the goods were moved to another Member State and the other conditions of exemption from VAT were also met.

The takeaways

This case can be used to protect VAT exemption in the absence of foreign VAT number of the recipient of goods in other EU Member State if the transport of the goods to another EU Member State is well documented and there is no evidence of tax evasion.

• If VAT number of customer is not on VIES

In case No C-21/16 (Euro Tyre BV), during 2010 and 2012 Euro Tyre BV supplied goods from Portugal to a customer to Spain. At the time of these sales, the customer was registered as a taxable person for VAT in Spain, but was not registered in the Spanish system of taxation on intra-community acquisitions of goods or in the VAT Information Exchange System (“VIES system”). The supplier declared these sales as VAT exempt intra-community supplies. This approach was challenged by the Portuguese tax authorities who argued that the conditions for exemption were not met.

The CJEU was asked whether the intra-community supply of goods could be VAT exempted in a case, where a customer in the Member State of arrival of goods was not registered in the VIES system, nor in the Spanish system of taxation on intra-community acquisitions of goods at the time of the supply, but had a valid identification number for the purposes of Spanish VAT.

The CJEU held that the failure to satisfy Spanish procedures did not prevent the VAT exemption if the formal conditions of the EU VAT Directive were met and if the taxable person did not intentionally participate in tax evasion.

The takeaways

This is another case in which the CJEU has held that, provided the substantive conditions for a VAT relief are satisfied (VAT exemption), the Member States must not refuse relief on the basis that some of the Member States formal requirements have not been satisfied, except where there is tax evasion. The CJEU also stresses that domestic legislation aimed at ensuring compliance or preventing evasion must not go further than is necessary to achieve those objectives.

The fees charged by rightholders

The reference to the court case No C-37/16 Stowarzyszenie Artystów Wykonawców Utworów Muszcznych i Słowno-Muzycznych SAWP (hereafter “SAWP”) concerns VAT liability on fees charged by SAWP on producers and importers of audio records, video records and similar devices, photocopiers, scanners and similar reprographic devices, and blank media for recording or reproducing for personal use. SAWP is a Polish association of artists interpreting musical works, i.e. a society which represents performance of musical works in Poland. SAWP collected the above stated fees from those producers and importers and distributed them to “rightholders”, i.e. the performers, authors, etc.

SAWP sought guidance from the Polish tax office, which decided that the fees collected by SAWP were paid for the use of copyright or related rights connected with the sale of equipment for copying and recording works, and thus held that these fees are services for considerations subject to VAT.

However, the CJEU decided that these fees do not constitute consideration for any supply by either SAWP or the rightholders, as there is no supply for consideration for VAT purposes. This decision is based on the fact there is no legal relationship between the supplier of the service and the recipient pursuant to which there was reciprocal performance and there was no direct link between the service supplied and the consideration received, as the consideration for rightholders is linked to the harm resulting to these rightholders from the possible reproduction of their protected works without their authorization.

The takeaways

This recent case could impact the VAT treatment of fees charged by the equivalent Slovak national association protecting copyright in Slovakia to producers and importers of equipment under Slovak legislation. Since the CJEU held that such fees do not constitute services for consideration, the supplier should not charge VAT on its invoices and the customer would not have the right for a VAT deduction, even if VAT is stated on the invoice. There is, however, uncertainty on how this CJ EU decision will be implemented and applied by the Slovak tax authorities as current practice in Slovakia is different. 

Outsourced settlement of insurance claim

Case No C-40/15 concerns whether the services provided by the Polish taxpayer, Aspiro SA, which performs all the functions to deal with insurance claims in relation to damage repair following accidents or disasters (e.g. receiving insurance claims, registering claims in an IT system, conducting necessary correspondence, making technical assessments, etc.) fall within the VAT exemption for insurance services.

Aspiro SA carried out these services in its own name on behalf of an insurance company on the basis of a contract concluded with an insurance company. Aspiro SA is not an insurance company, an insurance broker or an insurance agency and it does not have any liability or contractual relationship with the insured persons.

On the basis of the circumstances of the case, CJEU held that such activity does not constitute insurance activity or the activity of an insurance broker or an intermediary, thus its activity does not fall within the scope of VAT exemption for insurance services.

The takeaways

Any business that supply or receive claim handling services should review its position from the VAT perspective as to whether such services fall under any VAT exemptions (e.g. insurance services), to consider the potential impacts.