VAT Newsletter 6/2012

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The European Court of Justice („ECJ”) has ruled on the case Vogtländische Straßen-, Tief- und Rohrleitungsbau GmbH Rodewisch (C-587/10).

The dispute in this case consists in granting the right to exempt from VAT an intra-Community supply of goods performed by the branch of VSTR, when the VAT code of the buyer was not communicated.

Thus, for issuing the sale invoice to Atlantic (an USA company), the VSTR branch requested from the buyer the VAT identification number. As Atlantic was not registered for VAT purposes in any Member State, it communicated to VSTR the VAT code of the final beneficiary from Finland. Thus, VSTR issued to Atlantic an invoice without VAT on which it was inserted the VAT code indicated by the latter.

The tax authorities considered that the intra-Community supply of goods between VSTR and Atlantic is not VAT exempt as the VAT identification number shown on invoice does not belong to Atlantic.

The ECJ considers that the granting of such VAT exemption should not be refused on the sole ground that the requirement of providing the VAT identification number of the person acquiring the goods was not fulfilled, where the supplier, acting in good faith and having taken all the measures which can reasonably be required of him, is unable to provide that identification number, but provides other information which could demonstrate sufficiently that the person acquiring the goods is a taxable person acting as such in the transaction at stake.

The ECJ has ruled on the case Field Fisher Waterhouse LLP (C-392/11).

FFW, a solicitors firm, leased office space in London. According to the provisions of the lease agreement, FFW pays to the landlord an amount consisting of the value of the rent, as well as a pro-rata of the building insurance costs and provision of the services (service charges such as supply of water, cleaning, security, etc.) afferent to the premises occupied by FFW; failure to pay such amount triggers the possibility of terminating the lease agreement.

As the landlord has not exercised his right to opt for taxation of the leasing operation, on the invoice issued to FFW no VAT was applied. However, FFW considered that the supplies of services mentioned above are deemed as taxable operations from a VAT point of view and therefore it requested for refund the VAT related to such services. The tax authorities refused such request based on the fact that the supplies of services invoiced by the landlord are part of a single transaction, namely the leasing of immovable property, VAT exempt in the case at issue.

The ECJ considers that the leasing of immovable property and the supplies of services linked to that lease may represent a single supply from a VAT point of view. Moreover, the contractual provisions according to which the landlord may terminate the lease agreement if the tenant fails to pay the service charges supports the view that there is a single supply, but does not constitute the decisive element for the purpose of assessing whether there is such a supply. On the other hand, the fact that these services could be supplied by a third party does not allow the conclusion that they cannot constitute a single supply.

Therefore, it is for the referring court to determine whether the transactions in the case at stake are closely linked to each other so that they must be regarded as constituting a single supply represented by the leasing of immovable property.

The ECJ has ruled on the case PIGI (C-550/11).

This dispute refers to the adjustment of VAT deduction in case of theft of goods.

PIGI, a sole trader established under Bulgaria law, operates inter alia the manufacturing, purchase and marketing of agricultural products, the manufacturing and sale of alcoholic and non- alcoholic drinks and trade of food products. Further to a tax audit covering the period 1 August 2005 – 30 September 2010, it was determined that the company should pay an additional VAT amount related to certain goods declared by PIGI as stolen.

Based on Bulgarian law, the adjustment of the VAT initially deducted in relation to goods that were destroyed, which were found missing or which were classified as scrap must be performed, unless such circumstances are caused by force majeure.

Therefore, even though PIGI presented proof as to the complaint being lodged before the police in order for the theft to be acknowledged and claimed that the shortfall of goods is due to a force majeure event, the tax authorities considered that the company is liable to adjust VAT equal to the amount initially deducted when the respective goods were acquired.

The ECJ considers that the provisions of art. 185 (2) of Directive 2006/112/EC are not in conflict with the national tax provisions as in the case at issue, based on which where a shortfall of goods subject to VAT is established due to theft and the perpetrator has not been identified, an adjustment of the VAT initially deducted upon acquisition should be performed.

The ECJ has ruled on the case TETS Haskovo AD(C-234/11).

The dispute in this case refers to the adjustment of the VAT related to demolition of immovable property for the purpose of erecting new ones.

TETS, a company established in Bulgaria, owns a thermal power station in Haskovo.

Finans acquired from the Municipality of Haskovo a set of buildings including, inter alia, three buildings destined for energy production and deducted the input VAT related to such acquisition. Subsequently, Finans contributed those buildings to the share capital of TETS, transaction which was not considered by the tax authorities to be a supply of goods.

Subsequently, TETS obtained a building permit with a view of modernising the Haskovo thermal power station, which also involved the demolition, among others, of three of the buildings contributed by Finans to TETS share capital.

Further to a tax inspection, the tax authorities considered that TETS was liable to adjust the VAT related to the buildings received from Finans and deducted by the latter at the time of their acquisition.

The ECJ considers that art. 185 (1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the destruction, such as the one issue in the main proceedings, of several buildings destined for energy production and their replacement by modern buildings fulfilling the same purpose as those demolished does not constitute a change, occurred after the VAT return was drawn, of the elements based on which the amount of VAT to be deducted as input tax was determined, and, therefore, does not lead to an obligation to adjust the said deduction.

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