Flashback on ECJ Cases – C-69/11 (Connoisseur Belgium) – No VAT due if contractually agreed costs are not charged

On December 9, 2011, the ECJ issued its Order in the Case C-69/11 (Connoisseur Belgium).

Context: Article 104(3), first subparagraph, of the Rules of Procedure — Sixth VAT Directive — Article 11(A)(1)(a) — Tax base — Costs not charged by the taxable person

Article in the EU VAT Directive

Article 11A(1)(a) of the Sixth VAT Directive (Article 73 of the EU VAT Directive 2006/112/EC).

Article 73 (Taxable amount)
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Facts

Connoisseur Belgium is registered in Belgium as subject to VAT for its pleasure boat rental activity.
That company hires pleasure boats from Porter & Haylett, established in the United Kingdom, and then hires those boats out to travelers either directly or through the Irish company Prestige Boating Holidays Ltd ( hereinafter “Prestige Boating Holidays”), belonging with the other two companies to the same group. In this case, Connoisseur Belgium makes the pleasure boats available to the intermediary company which rents them out to travellers; it is also involved in the sale of fuel, navigation guides, as well as the rental of bicycles and parking spaces.
In the first case, Connoisseur Belgium draws up an invoice for its customer including Belgian VAT. In the second case, it does not draw up an invoice for the client, but invoices Prestige Boating Holidays annually for the provision of the boats, including Belgian VAT.
On January 15, 2003, Connoisseur Belgium and Prestige Boating Holidays entered into a cost sharing agreement (“cost sharing agreement”, hereinafter the “agreement”). This agreement provides that the amount to be invoiced by Connoisseur Belgium to Prestige Boating Holidays is calculated on the basis of the costs that were incurred the previous year, in proportion to the number of weeks during which the boats were rented through Prestige Boating Holidays, corrected by an inflation rate agreed each year (between 1 and 3%) and by the rate of increase or decrease in the number of boats that Connoisseur Belgium actually operated compared to the previous year. The agreement also determines the costs to be included in the calculation of the amount to be invoiced (among others,
On 31 October 2006, Connoisseur Belgium issued an invoice to Prestige Boating Holidays for the amount of EUR 264,227.78, plus EUR 55,487.83 of VAT, for the provision of that these are pleasure boats.
In 2008, the Belgian tax authorities carried out an inspection of Connoisseur Belgium for the period from 1 ^January 2005 to 31 October 2006. On 25 November 2009, it drew up a report, noting that, first, Connoisseur Belgium had not claimed VAT on everything that the taxable person had to obtain from his co-contracting party as consideration for his services, secondly, Connoisseur Belgium had belatedly included part of the VAT due in his periodic declaration and, thirdly, Connoisseur Belgium had late paid part of the VAT due. It also indicated in these minutes the amounts for which Connoisseur Belgium was liable in respect of VAT, fines and interest.
According to the Belgian tax authorities, Connoisseur Belgium did not correctly apply the agreement by not taking into account a certain number of costs provided for by it (office costs, gas, laundry, computer costs, legal and planning, auditing and accounting, post, amortization) nor the rate of inflation.

Questions

Does Article 26 of the [Value Added Tax] Code infringe Article 11(A)(1)(a) of the Sixth Directive […], currently included in Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax [(OJ L 347, p. 1)], as well as the principle of neutrality of VAT, if this provision must be interpreted as meaning that VAT is due on costs or amounts which can contractually be charged to the other party, but which are not charged to him?

AG Opinion

None

Decision

Article 11.A(1)(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment must be interpreted as meaning that, in circumstances such as those in the main proceedings, value added tax is not due on costs or amounts which could contractually have been charged to the other contracting party but which were not so charged.

Summary

VAT is not chargeable on costs or amounts which could have been contractually charged by the taxable person to his co-contractor, but which were not charged.

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