Flashback on ECJ Cases – C-111/14 (GST) – Fixed Establishment and the liability to pay VAT

On April 23, 2015, the ECJ issued its decision in the case C-111/14 (GST).

Context: Common system of value added tax — Directive 2006/112/EC — Principle of fiscal neutrality — Person liable for payment of VAT — Erroneous payment of VAT by the person to whom the supply is made — Liability to VAT of the supplier of services — Refusal to grant the supplier of services a refund of the VAT

Article in the EU VAT Directive

Articles 193, 194 in the EU VAT Directive 2006/112/EC.

Article 193 (Liability to pay VAT)
VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199b and Article 202.

Article 194
1. Where the taxable supply of goods or services is carried out by a taxable person who is not established in the Member State in which the VAT is due, Member States may provide that the person liable for payment of VAT is the person to whom the goods or services are supplied.
2. Member States shall lay down the conditions for implementation of paragraph 1.

Facts

In the period from 15 February to 29 December 2010, GST-Sarviz, established in Germany, provided technical and consultancy services to GST Skafolding Bulgaria EOOD (‘GST Skafolding’), which is established in Bulgaria. Proceeding on the basis that GST-Sarviz did not have a fixed establishment in Bulgaria when it supplied its services during the period at issue, GST Skafolding paid the VAT due on the supply of those services under the reverse charge procedure provided for in Article 82(2) of the ZDDS. In that respect, in accordance with Article 117(1) of the ZDDS, GST Skafolding issued protocols relating to the invoices issued by GST-Sarviz, and those protocols were entered in the sales ledger.
By a tax adjustment notice of 12 March 2012, the Bulgarian tax authorities found that GST-Sarviz had a fixed establishment within the meaning of paragraph 1(10) of the additional provisions of the ZDDS throughout the period during which it supplied its services to GST Skafolding, and that GST-Sarviz was liable for payment of the VAT in respect of those services. It concluded that GST-Sarviz should have applied to be registered for VAT by 15 February 2010 at the latest. Consequently, the tax authorities considered that GST-Sarviz was liable for the payment of VAT of BGN 224 914.89, together with interest on late payment, for the services supplied from 15 February to 29 December 2010.
GST-Sarviz paid the sum claimed by the tax authorities on 26 March 2012 and, on 5 September 2012, submitted an application for the tax paid to be offset or refunded on the basis of Article 129(1) of the Code of Tax and Social Security Procedures.
In their decision concerning offsets or refunds of 1 October 2012, the tax authorities refused the refund on the ground that the legal conditions for a refund of the VAT were not satisfied in the present case. According to them, since the tax adjustment notice is a valid administrative act, and in the absence of an enforceable court order or relevant administrative decision for the purposes of Article 129(5) of the Code of Tax and Social Security Procedures, the tax paid could not be regarded as being not due and be repaid.
GST-Sarviz challenged that decision before the Director. By decision of 21 December 2012, the Director dismissed that challenge, finding that the contested act was lawful on the grounds on which it had been adopted. An action against that decision was brought before the Administrativen sad Plovdiv (Administrative Court, Plovdiv). It too was dismissed for the same reasons as those relied on by the tax authorities. GST-Sarviz lodged an appeal on a point of law with the Varhoven administrativen sad (Supreme Administrative Court).
The referring court points out that the tax authorities refused GST Skafolding the right of deduction in respect of the VAT which it had paid, because it did not have the corresponding tax document required by Article 71(1)(1) of the ZDDS. Under Bulgarian legislation, the existence of a tax adjustment notice such as that at issue, dated 12 March 2012, makes any adjustment of tax documents impossible. GST Skafolding thus found itself without the valid tax document that would confer the right of deduction.
The referring court also notes that the fact that the VAT was paid twice, once by the supplier and once by the recipient, and that the supplier was denied a refund, and the recipient, a deduction of that tax, is contrary to the principle of the neutrality of VAT. According to the referring court, the refusal of a refund has the effect of transferring the fiscal burden to the supplier.
Although it notes that there has been no interpretation of Articles 193 and 194 of the VAT Directive that might be useful in the circumstances of the present case, the referring court refers to the judgment in ADV Allround (C‑218/10, EU:C:2012:35), according to which, in the absence of procedural rules in the national legal order, the right of the supplier of a service and that of the recipient in a transaction to be treated identically with regard to taxability of that service and to liability to VAT in respect of it would in practice be rendered totally ineffective. As regards the principle of fiscal neutrality, the referring court refers to the interpretation given by the Court of Justice in its judgment in Rusedespred (C‑138/12, EU:C:2013:233).

Questions

Must Article 193 of Directive 2006/112/EC be interpreted as meaning that either the taxable person who makes taxable supplies of goods or services, or the person who purchases the goods or receives the services, is exclusively liable for the value added tax, where the taxable supply of goods or services is carried out by a taxable person who is not established in the Member State in which the value added tax is payable, in so far as that is provided for by the Member State concerned, and not that both persons share liability for that tax?

In so far as it is to be assumed that only one of the two persons is liable for the value added tax — either the supplier/service provider or the purchaser/recipient, where that is provided for by the Member State concerned, is the rule in Article 194 of the directive also applicable to cases in which the recipient of the services wrongly applied the reverse-charge procedure because it assumed that the service provider had not created a fixed establishment for the purposes of value added tax in the territory of the Republic of Bulgaria, although the service provider had in fact created a fixed establishment in relation to the services supplied?

Must the principle of fiscal neutrality, which is of fundamental importance for the establishment and functioning of the common system of value added tax, be interpreted as meaning that it permits a tax assessment practice, such as that in the main proceedings, in accordance with which the value added tax is also invoiced to the service provider despite the reverse-charge procedure applied by the recipient of the supply of services, where account is taken of the fact that the recipient has already invoiced the tax for the supply of services, that there is no risk of any loss of tax revenue and that the system for correction of tax documents provided for under national law is not applicable?

Must the principle of value added tax neutrality be interpreted as meaning that it does not permit the tax authorities, on the basis of a national provision, to refuse to grant a refund of the value added tax invoiced several times to the provider of a service, in respect of which the recipient invoiced the value added tax in accordance with Article 82(2) of the ZDDS, where the tax authorities refused to grant the recipient the right to deduct the value added tax invoiced several times on account of the absence of the corresponding tax document, but the system for correction provided for under national law on the basis of the present binding tax adjustment notice is no longer applicable?

AG Opinion

None

Decision

1. Article 193 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/88/EU of 7 December 2010, must be interpreted as meaning that the only person liable to pay the value added tax is the taxable person supplying services, where those services were supplied from a fixed establishment located in the Member State in which the value added tax is payable.

2. Article 194 of Directive 2006/112, as amended by Directive 2010/88, must be interpreted as not permitting the tax authorities of a Member State to regard as liable for the payment of value added tax the recipient of services supplied from a fixed establishment of the supplier, where both the latter and the recipient of those services are established in the territory of the same Member State, even if that recipient has already paid that tax on the mistaken assumption that the supplier did not have a fixed establishment in that State.

3. The principle of the neutrality of value added tax must be interpreted as precluding a national provision which permits the tax authorities to refuse to grant the supplier of services a refund of the value added tax which the supplier has paid, when the recipient of those services, who has also paid the value added tax in respect of the same services, is refused the right of deduction on the ground that that recipient did not have the corresponding tax document, any adjustment of tax documents being precluded under national law where a definitive tax adjustment notice exists.

Summary

ECJ held that the tax authorities of a Member State are not permitted to regard as liable for the payment of VAT
the recipient of services supplied from a fixed establishment of the supplier,
where both the latter and the recipient of those services are established in the territory of the same Member State,
even if that recipient has already paid that tax on the mistaken assumption that the supplier did not have a fixed establishment in that State

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