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Flashback on ECJ Cases – C-136/99 (Monteei Paschi Di Siena) – Refund of VAT to non-domestic taxable persons

On July 13, 2000, the ECJ issued its decision in the case C-136/99 (Monteei Paschi Di Siena).

Context: Turnover tax – Common system of value added tax – Refund of the tax to taxable persons not established in the country – Article 17 of the Sixth Directive 77/388/EEC and Articles 2 and 5 of the Eighth Directive 79/1072/EEC


Article in the EU VAT Directive

Articles 17, 19(1) of the Sixth VAT Directive (Articles 167, 168, 174(1), 175(1) of the EU VAT Directive 2006/112/EC)

Articles 2 and 5 of the Eighth Council Directive 79/1072/EEC

Article 167 (Right to deduct VAT)
A right of deduction shall arise at the time the deductible tax becomes chargeable.

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;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18(a) and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

Article 174 (Proportional deduction)
1. The deductible proportion shall be made up of a fraction comprising the following amounts:
(a) as numerator, the total amount, exclusive of VAT, of turnover per year attributable to transactions in respect of which VAT is deductible pursuant to Articles 168 and 169;
(b) as denominator, the total amount, exclusive of VAT, of turnover per year attributable to transactions included in the numerator and to transactions in respect of which VAT is not deductible.
Member States may include in the denominator the amount of subsidies, other than those directly linked to the price of supplies of goods or services referred to in Article 73.

Article 175
1. The deductible proportion shall be determined on an annual basis, fixed as a percentage and rounded up to a figure not exceeding the next whole number.


Facts

  •  Monte dei Paschi di Siena is a banking and financial establishment whose business headquarters is in Italy and which has a representative office in France. On the basis of Article 271 of the French General Tax Code and Article 242 0M of Annex II to that code, which transposed the Eighth Directive into French law, it applied for refund of the VAT charged on the expenditure incurred by it in France in connection with the setting up of that office during 1988 and 1989.
  • The tax authorities refused to grant that application, whereupon the defendant in the main proceedings brought an action seeking the same relief before the Tribunal Administratif de Paris (Administrative Court, Paris), which was dismissed by judgment of 24 November 1992.
  • By judgment of 13 March 1995 setting aside the previous judgment, the Cour Administratif d’Appel de Paris (Administrative Appeal Court, Paris) held that Monte dei Paschi di Siena was entitled to refund of VAT in France in the sum of FRF 125 244.60. That sum was arrived at by applying to the amount of VAT paid by thecompany in France a percentage corresponding to the proportion of its turnover in Italy which was taxed.
  • In its decision the Cour Administratif d’Appel took account of the fact that, in France, the representative office of Monte dei Paschi di Siena did not constitute a permanent establishment and that no banking or financial transactions capable of excluding the refund provided for in Article 242 0M of Annex II to the General Tax Code were carried out there. It also took into consideration the fact that, in Italy, Monte dei Paschi di Siena carried out at the same time both transactions that were subject to VAT and exempt transactions and that the activities of its representative office in France contributed to both categories without distinction.
  • The Ministre de l’Economie et des Finances then the appealed in cassation against the judgment of the Cour Administratif d’Appel on the ground that it had erred in law in its application of Article 271 of the General Tax Code and Articles 242 0M and 242 ON of Annex II to that code, considered in the light of the Eighth Directive. The Minister contended that those provisions are intended to transpose correctly into domestic French law the rules laid down by the Eighth Directive and that the latter does not contain detailed arrangements for partial refund of VAT which has been charged on goods or services used, in another Member State, for transactions which are not all subject to VAT there.

Questions

1.    Do [Articles 2 and 5] of the Eighth Directive have the effect of granting to taxable persons established in a Member State of the Community where they are taxed only on a part of their turnover a right to a partial refund of the tax charged in another Member State in respect of goods or services which they have used in order to carry out, in the State in which they are established, transactions of which some are not taxed.

2.    If they do, to what method of determining the portion of refundable tax do those provisions refer, and, in particular, is that portion to be determined according to the rules applicable in the State where the taxable person is established, or according to the rules in force in the State required to make the refund?


AG Opinion

Articles 2 and 5 of the Eighth Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in the territory of the country must be interpreted as meaning that:

–    a taxable person who carries out in the Member State of establishment transactions which are partially exempt has a right to a refund of value added tax for expenses incurred in a Member State other than that of establishment, but only in respect of the percentage of expenses deductible in so far as they are not incurred for carrying out transactions exempt under the law in force in the Member State of establishment;

–    this percentage must be determined on the basis of the proportion of transactions in respect of which value added tax is deductible in theMember State of establishment; within this percentage, expenditure exempt under the provisions of the Member State in which refund is requested are not, however, refunded.


Decision 

Articles 2 and 5 of the Eighth Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in the territory of the country must be interpreted as meaning that:

–    they grant taxable persons established in a Member State where only part of their transactions are taxed a right to partial refund of the VAT whichhas been charged in a Member State where they are not established on goods or services used for the purposes of their transactions in the Member State of establishment;

–    the amount of VAT refundable is calculated, first, by determining which transactions give rise to a right to deduction in the Member State of establishment and, second, by taking account solely of the transactions which would also give rise to a right of deduction in the Member State of refund if they were carried out there and of the expenses giving rise to a right to deduction in the latter State.


Summary


Source


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