On Sept 17, 2020, the ECJ issued its Order in the case C-837/19 (Super Bock Bebidas).
Context: Reference for a preliminary ruling – Taxation – Value added tax (VAT) – Deduction of input tax – Sixth Directive 77/388 / EEC – Article 17 (6) – Directive 2006/112 / EC – Articles 168 and 176 – Exclusion the right to deduct – Acquisition of accommodation, food, drink, car rental, fuel and toll services – Standstill clause – Membership of the European Union
Article in the EU VAT Directive
Article 17 (6) of Sixth Council Directive 77/388/EEC (Articles 168(a) and 176 of the EU VAT Directive 2006/112/EC)
Article 168
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries
out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
Article 176
The Council, acting unanimously on a proposal from the Commission, shall determine the expenditure in respect of which VAT shall not be deductible. VAT shall in no circumstances
be deductible in respect of expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment.
Pending the entry into force of the provisions referred to in the first paragraph, Member States may retain all the exclusions provided for under their national laws at 1 January 1979
or, in the case of the Member States which acceded to the Community after that date, on the date of their accession.
Facts
- Super Bock Bebidas is a company established in Portugal, active in particular in the production of beer and other non-alcoholic drinks.
- As part of this activity, the employees of this company, during the period corresponding to the months of September 2016 to December 2017, incurred expenses relating to accommodation, food and transport (rental of vehicles , fuel and tolls).
- As the VAT paid on these expenses was not fully deducted, Super Bock Bebidas lodged a free appeal with the tax and customs authority with a view to the partial cancellation of the reverse charge arguing that there was a direct and immediate link between the said expenditure and its taxed transactions.
- Since that action was dismissed, Super Bock Bebidas brought an application to the referring court for the partial annulment of those reverse charges. In support of its application, that company claims, in essence, that the limitations on the right to deduct VAT relating to expenditure such as those at issue in the main proceedings, provided for in Article 21 of the VAT Code, violate the standstill clause in the second subparagraph of Article 17 (6) of the Sixth Directive and in the second subparagraph of Article 176 of the VAT Directive. Indeed, this code having entered into force on the date of the Portuguese Republic’s accession to the European Union, i.e. on the 1st January 1986, these limitations would not have existed before that date, contrary to what would be required by those articles.
- In any event, if those limitations were valid, they should not be interpreted restrictively. Thus, when there is an effective link between the expenditure concerned and the taxed transactions, the presumption of non-use for the purposes of the taxed transactions, which underlies the limitations on the right to deduct expenses provided for in Article 21 of the VAT code, should be reversed, so that the VAT on these expenses should be fully deducted.
- In defense, the tax and customs authority argues that those limitations are authorized under the standstill clauses in the Sixth Directive and the VAT Directive. It adds that, even if it can be envisaged that the expenditure referred to in Article 21 (1) of the VAT Code actually contributes to the performance of taxable transactions, those limitations aim to avoid situations of fraud due to the impossibility of controlling the actual allocation of such expenditure.
- The referring court observes, first of all, that, while it is true that the VAT Code entered into force on the date of the Portuguese Republic’s accession to the Union, namely on 1 st January 1986, the sixth Directive came into force in that member State until 1 st January 1989 in accordance with the act concerning the conditions of accession of the Kingdom of Spain and the Portuguese Republic and the adjustments to the treaties ( OJ 1985, L 302, p. 23). It therefore considers that the exclusions from the right to deduct provided for by this code were covered by the standstill clause.set out in the second subparagraph of Article 17 (6) of the Sixth Directive. However, having regard to the case-law of the Court resulting in particular from the judgment of 22 December 2008, Magoora (C ‑ 414/07, EU: C: 2008: 766), according to which this clause was not intended to allow for a new Member State to amend its domestic legislation on the occasion of its accession to the Union in a way which would distance that legislation from the objectives of that directive, the referring court wonders as to the date until which it was the Portuguese Republic is free to adopt exclusions from the right to deduct VAT.
- Next, the referring court wonders whether, because of the amendment to the standstill clause made by the VAT Directive, that date was brought forward to the date of that Member State’s accession to the Union, instead of of the date of entry into force of the Sixth Directive therein, which would have the effect of exempting from this clause any exclusion from the right to deduct which was not provided for by national law before the date of accession from said Member State to the Union. If that were the case, since the VAT Code was approved by a Decree of 26 December 1984 and that its entry into force, initially scheduled for 1 st July 1985 was postponed to 1 stJanuary 1986, the question would also arise whether, in order to fulfill the condition that exclusions from the right of deduction must be provided for by national law on the date of accession of the Member State concerned, it is sufficient that these exclusions are published before that date in a legislative text or if such national legislation must have already been in force by that date.
- Finally, the referring court seeks to ascertain whether the second paragraph of Article 168 (a) and the second paragraph of Article 176 of the VAT Directive and the principle of neutrality preclude exclusions from the right to deduction, such as those at issue in the main proceedings, in that they are based on a presumption that at least part of the expenditure excluded from this duty does not relate to taxed transactions, also apply when the taxable person establishes that these expenses were incurred for the acquisition of goods and services used for the needs of his taxed transactions.
Question
1) Is it appropriate to interpret the second subparagraph of Article 17 (6) of [Sixth Directive] (in so far as it indicates that Member States” may maintain all the exclusions provided for by their national law at the time of the entry into force of this Directive ”) in the sense that it authorized a new Member State to introduce exclusions from the right to deduct VAT in its domestic legislation on the date of its accession?
2) Should it be considered that the second subparagraph of Article 17 (6) of the Sixth Directive has the same scope as the second subparagraph of Article 176 of the [VAT] Directive (which indicates that the Member States which acceded to the Community after 1 st January 1979 may retain all the exclusions provided for by national law on the date of accession), with regard to the relevant date for determining which “exclusions in their national legislation” which can be maintained?
AG Opinion
None
Order (decision) – Unofficial translation
Article 17 (6) of Sixth Council Directive 77/388 / EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of tax on turnover added value: uniform base, as well as Article 168 (a) and Article 176 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax, must be interpreted as meaning that they do not conflict with the legislation of a Member State which entered into force on the date of its accession to the European Union, according to which exclusions from the right to deduct value added tax on expenses relating, in particular, to accommodation, food, drinks, car rental, fuel and tolls,also apply in the event that it is established that these expenses were incurred for the acquisition of goods and services used for the purposes of taxed transactions.
Source
For our other posts, including the questions that were raised, about this case, please see HERE.
