ECJ C-641/21 (Climate Corporation Emissions Trading GmbH) – Judgment – Place of supply does not change if the recipient of the service committed VAT evasion

On October 27, 2022, the ECJ issued its decision in the case C-641/21 (Climate Corporation Emissions Trading GmbH).

Context: Reference for a preliminary ruling – Tax law – Common system of VAT – Directive 2006/112/EC – Art. 44 – Place of tax connection – Transfer of greenhouse gas emission allowances – Recipient involved in VAT evasion as part of a supply chain – Taxable person who knew about this fraud or should have known

Article in the EU VAT Directive 2006/112/EC

Article 44 and 196 of the EU VAT Directive 2006/112/EC

Article 44 (Place of supply of services)
The place of supply of services to a taxable person acting as such shall be the place where that person has established his business. However, if those services are provided to a fixed establishment of the taxable person located in a place other than the place where he has established his business, the place of supply of those services shall be the place where that fixed establishment is located. In the absence of such a place of establishment or fixed establishment, the place of supply of services is the place where the taxable person who receives such services has his permanent address or usually resides.

Article 196 (Liability to pay VAT)
VAT shall be payable by any taxable person, or non-taxable legal person identified for VAT purposes, to whom the services referred to in Article 44 are supplied, if the services are supplied by a taxable person not established within the territory of the Member State.

Council Regulation (EC) No 1777/2005 of 17 October 2005 laying down implementing measures for Directive 77/388/EEC on the common system of value added tax was ‘binding in its entirety and directly applicable in all Member States’, and it was not until 2011 that it was repealed, with effect from 1 July 2011, by Article 64 of Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax (‘the VAT Implementing Regulation’),
read in conjunction with Article 65 thereof. Consequently, Regulation (EC) No 1777/2005 is applicable to the transactions of April 2010 from a temporal point of view, even if, from a formal point of view, April 2010 is no longer covered by Directive 77/388/EEC, but by Directive 2006/112/EC on the common system of value added tax. Although Articles 4 to 12 of Regulation (EC) No 1777/2005 contain various detailed provisions on the place of a taxable transaction, they are not at all related to the matters at issue in the present case. The VAT Implementing Regulation is not applicable to the transactions in April 2010 ratione temporis, as it did not enter into force until 12 April 2011 and has only been applicable since 1 July 2011.

Facts

The registered office of Climate Corporation Emissions Trading GmbH (‘Climate GmbH’) is located in Austria. From 1 to 20 April 2010, Climate GmbH transferred greenhouse gas emission allowances, for consideration, to Bauduin Handelsgesellschaft mbH (‘Bauduin GmbH’), having its registered office in Germany (Hamburg), which was a ‘buffer company’, that is to say, a participant in a value added tax (VAT) carousel fraud. Climate GmbH should have known that those greenhouse gas emission allowances would subsequently be used to evade VAT in a Member State other than Austria. Climate GmbH would have been expected not to sell greenhouse gas emission allowances to Bauduin GmbH, in order to prevent such VAT evasion.
Bauduin GmbH – like Climate GmbH – was to be categorised as a taxable person within the meaning of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.
By the 2010 turnover tax assessment notice contested before the Federal Finance Court, The Tax Office, Baden Mödling, categorised the transfers, for consideration, of greenhouse gas emission allowances from Climate GmbH to Bauduin GmbH as taxable supplies of goods which do not fall under the tax exemption for intra-Community supplies because Bauduin GmbH, as a ‘missing trader’, was a component of a fraudulent VAT carousel and Climate GmbH knew or should have known that its supplies would be used for acts of VAT evasion.
Climate GmbH objects to the categorisation of the transfers of emission allowances as supplies of goods and disputes the assertion that it or its managing directors knew or should have known about the acts of VAT evasion. It submits that it took all necessary measures to prevent the greenhouse gas emission allowances that it sold to Bauduin GmbH from being involved in acts of VAT evasion.
The Federal Finance Court takes the view that that is not true: although Climate GmbH did not know that the allowances that it sold to Bauduin GmbH were involved in acts of VAT evasion, it should have known that that was the case. In accordance with the case-law of the Court of Justice of the European Union (judgment of 8 December 2016, C-453/15), transfers of greenhouse gas emission allowances are to be categorised as services. The Federal Finance Court can amend the contested assessment notice in any way, so it must take its decision on the premiss that the transfers of greenhouse gas emission allowances are to be categorised as services (‘other supplies’, according to the terminology used in Austrian national law) and not as supplies of goods.

Question

Is Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2008/8/EC of 12 February 2008, to be interpreted as meaning that the national authorities and courts must regard the place of supply of a service, which, under the written law, is formally located in the other Member State, in which the recipient of the supply is established, as being within the national territory if the domestic taxable person supplying the service should have known that, in supplying it, he or she was participating in value added tax evasion committed in the context of a chain of supplies?

AG Opinion

None

Decision

The provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2008/8/EC of 12 February 2008,

must be interpreted as precluding, in the case of a supply of services by a taxable person established in one Member State to a taxable person established in another Member State, the authorities of the former Member State from taking the view that the place of that supply – which, pursuant to Article 44 of Directive 2006/112, as amended by Directive 2008/8, is located in that other Member State – is nonetheless deemed to be located in the former Member State where the supplier knew, or should have known, that he or she was, by that supply, participating in VAT evasion committed by the recipient of that supply in a chain of transactions.

Source

Curia

Summary

According to the ECJ, the provisions of the VAT Directive preclude, in the case of a service provided by a taxable person established in one Member State to a taxable person established in another Member State, the authorities of the first Member State take the view that the place of that service, which is in that other Member State in accordance with Article 44 of the VAT Directive, is nevertheless deemed to be in the first Member State if the service provider knew or should have known that he was participating in that service VAT fraud in the context of a supply chain.

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