Flashback on ECJ Cases – C-453/15 (A and B) – Place of supply of greenhouse gas emission allowances is where the customer is established

On December 8, 2016, the ECJ issued its decision in the case C-453/15 (A and B).

Context: Reference for a preliminary ruling — Taxation — VAT — Directive 2006/112/EC — Article 56 — Place where services are supplied — Concept of ‘similar rights’ — Transfer of greenhouse gas emission allowances

Article in the EU VAT Directive

Article 56(1)(a) of the EU VAT Directive 2006/112/EC. Note that this article as referred to in this ECJ case was only valid till Jan 1, 2010.

Article 56(1) – Place of supply of services

The place of supply of the following services to customers established outside the Community, or to taxable persons established in the Community but not in the same country as the supplier, shall be the place where the customer has established his business or has a fixed establishment for which the service is supplied, or, in the absence of such a place, the place where he has his permanent address or usually resides:

(a) transfers and assignments of copyrights, patents, licences, trade marks and similar rights;

Facts

A and B, who work for a tax advice firm, were convicted by the Landgericht Hamburg (Regional Court, Hamburg, Germany) and fined for being accessories to tax evasion in a case concerning a value added tax (VAT) evasion scheme run by another defendant, G, from April 2009 to March 2010, which was aimed at evading VAT on trading in greenhouse gas emission allowances.
Several companies were involved in the tax evasion scheme. Company E, which was resident in Germany and controlled in practice by G, acquired greenhouse gas emission allowances abroad, exempt from VAT, and resold them to Company I, which was resident in Luxembourg and also controlled by G. Company I issued invoices in the form of credit notes to Company E showing the VAT applicable in Germany, and sold the allowances on to Company C, which was resident in Germany, the credit notes issued in that connection also mentioning the VAT applicable in Germany.
In its provisional VAT returns for the second, third and fourth quarters of 2009, Company E declared the turnover from the sale of the allowances to Company I, claiming an input VAT deduction on the basis of false invoices from fictitious domestic suppliers. For January and March 2010 it did not submit provisional returns. It thereby evaded payment of a total of EUR 11 484 179.12. Company I declared the supplies to Company C for the periods April to July 2009, September 2009 to January 2010 and March 2010 as transactions subject to VAT, and incorrectly deducted as input tax the VAT shown in the credit notes issued to Company E, thereby evading payment of EUR 10 667 491.10.
From the end of May 2009, A and B provided tax advice to Company I and were instructed by G to produce a short report on that company’s VAT position. In that report it was stated that Company I could invoice VAT applicable in Germany and deduct it as input tax only if it had a place of business in Germany carrying out the relevant transactions, and that the invoices issued before the establishment of a place of business in Germany should be corrected.
On the basis of a backdated contract for the lease of office space in Germany from 1 April 2009, A and B, who had no knowledge of the part played by Company I in the tax evasion scheme, completed corrected provisional VAT returns for Company I for April and May 2009, which they sent to the German tax authorities on 12 August 2009. In those returns they showed the VAT mentioned in the credit notes issued to Company E as input tax, amounting to EUR 147 519.80 for April 2009 and EUR 1 146 788.70 for May 2009, even though they considered it ‘highly probable’ that company I did not have a place of business in Germany.
The referring court, the Bundesgerichtshof (Federal Court of Justice, Germany), hearing appeals on a point of law brought against the judgment of the Landgericht Hamburg (Regional Court, Hamburg) by A and B and by the State Prosecutor’s Office, states that whether A and B are guilty of being accessories to tax evasion under German criminal law depends on whether they intentionally submitted incorrect provisional VAT returns to the tax authorities in which input tax on the basis of the credit notes for supplies by Company E was wrongly deducted. Since A and B did not have any knowledge of the involvement of companies E and I in the VAT evasion scheme run by G, that would be the case, continues the referring court, only if input tax could not be deducted on the basis of the credit notes issued to Company E because the credit notes could not mention VAT. That was the case, however, it says, as regards the invoices issued to Company I, which was resident in Luxembourg, only if the place of the supply consisting in the transfer of allowances was not in Germany. However, for Company E to mention VAT in an invoice to Company I was unlawful only if, pursuant to Article 56(1)(a) of the VAT Directive, the place of supply was not at the supplier’s, Company E, but at the customer’s, Company I, so that the supply was not taxable in Germany.
The referring court observes that that latter condition is satisfied if in 2009 the place of supply of transfers of greenhouse gas emission allowances was, in accordance with Paragraph 3a(4) of the UStG, in the version applicable to the main proceedings, which transposes Article 56(1)(a) of the VAT Directive into German law, the place where the customer had established his business or had a fixed establishment, which means that it must be determined whether trading in such allowances is a ‘similar right’ within the meaning of those provisions.
The referring court considers that the interpretation of the concept of ‘similar rights’ within the meaning of Article 56(1)(a) of the VAT Directive is not so obvious that there is no room left for reasonable doubt. It is, however, inclined to think that those allowances are ‘similar’ within the meaning of that provision, the term ‘similar’ meaning ‘corresponding in certain characteristics’ or ‘comparable’, in so far as the rights mentioned in that provision are characterised by the fact that the legislature grants the holder an absolute right, gives him exclusive authority to use and exploit it, and excludes others from doing so. Emission allowances are thus comparable to intellectual property rights

Questions

Is Article 56(1)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax to be interpreted as meaning that an allowance under Article 3(a) of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC which confers a right to emit one tonne of carbon dioxide equivalent during a specified period is a ‘similar right’ within the meaning of that provision?

AG Opinion

The term ‘similar rights’ in Article 56(1)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as also covering allowances as defined in Article 3(a) of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC.

Decision

Article 56(1)(a) 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 ‘similar rights’ mentioned in that provision include the greenhouse gas emission allowances defined in Article 3(a) of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC.

Personal comments/VATupdate

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