Flashback on ECJ Cases – C-489/09 (Vandoorne) – No VAT deduction by intermediate if customer did not pay VAT at source

On January 27, 2011, the ECJ issued its decision in the case C-489/09 (Vandoorne).

Context: Sixth VAT Directive – Articles 11.C(1) and 27(1) and (5) – Taxable amount – Simplification measures – Manufactured tobacco – Tax labels – Single charge of VAT at source – Intermediate supplier – Total or partial non-payment of the price – Refusal to refund VAT

Article in the EU VAT Directive

Articles 11(C)(1). 27(1) and 27(5) of the Sixth VAT directive (Articles 90 and 395 of the EU VAT Directive 2006/112/EC).

Article 90
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.
2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.

Article 395
1. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.
Measures intended to simplify the procedure for collecting VAT may not, except to a negligible extent, affect the overall amount of the tax revenue of the Member State collected at the stage of final consumption.
2. A Member State wishing to introduce the measure referred to in paragraph 1 shall send an application to the Commission and provide it with all the necessary information. If the Commission considers that it does not have all the necessary information, it shall contact the Member State concerned within two months of receipt of the application and specify what additional information is required.
Once the Commission has all the information it considers necessary for appraisal of the request it shall within one month notify the requesting Member State accordingly and it shall transmit the request, in its original language, to the other Member States.
3. Within three months of giving the notification referred to in the second subparagraph of paragraph 2, the Commission shall present to the Council either an appropriate proposal or, should it object to the derogation requested, a communication setting out its objections.
4. The procedure laid down in paragraphs 2 and 3 shall, in any event, be completed within eight months of receipt of the application by the Commission.

Facts

Vandoorne is registered as liable for VAT in respect of the wholesale trade in manufactured tobacco. It acts on that basis as an intermediary in the supply chain for those products between manufacturers and/or importers, on the one hand, and re-sellers and/or retailers, on the other.
It is clear in this regard from the case-file submitted to the Court that the manufactured tobacco products supplied to Vandoorne for the purpose of carrying on its activities already bear tax labels, affixed to them by its suppliers in their capacity as manufacturers or importers of those products pursuant to Article 58(1) of the VAT Code and the provisions of Royal Decree No 13.
It is common ground that, in accordance with Article 2 of that Royal Decree, invoices relating to those supplies made to Vandoorne contain the statement ‘Manufactured tobacco products: Value added tax paid at source and not deductible’ and, consequently, do not indicate a separate amount of VAT. Supplies of those products made by Vandoorne to its own customers include the same statement and thus do not indicate a separate amount of VAT either.
In its VAT return for the first quarter of 2006, Vandoorne asked the tax authorities to refund the VAT relating to supplies of manufactured tobacco to Capitol BVBA (‘Capitol’) as a result of the definitive loss of the claim for payment relating to those supplies following the insolvency of Capitol on 14 March 2005.
That application was rejected by the tax authorities on the ground that no VAT had been charged on those supplies, since the VAT on the products at issue had been paid by the manufacturer, together with excise duty, in a single levy effected in accordance with Article 58(1) of the VAT Code.
By decision of 8 October 2008, the Rechtbank van Eerste Aanleg te Brugge (Court of First Instance, Bruges) also declared Vandoorne’s claim to be unfounded.
On appeal, the Hof van beroep te Gent (Court of Appeal, Ghent) found, in the same way as Belgische Staat, that, in the present case, pursuant to Article 58(1) of the VAT Code and the provisions of Royal Decree No 13, no amount had been charged in respect of VAT at the commercial stage at issue between Vandoorne and Capitol, as the manufacturer or importer had been charged VAT in full at source, together with excise duty, and the supplies made to Vandoorne had been accompanied by an invoice on which the VAT was not identified separately as part of the price, with the result that VAT had not been deducted by Vandoorne. Similarly, the invoice issued to Capitol by Vandoorne did not separately mention VAT and stated that VAT had been paid at source and was not deductible. Article 77(1) of the VAT Code, however, provides for the possibility of a ‘refund’ only in relation to VAT ‘charged on the supply of goods’.
The Hof van beroep is, however, unsure whether the application of the simplification measure provided for under Article 27 of the Sixth Directive may have the result of precluding a claim for a VAT refund by an intermediate supplier such as Vandoorne where the VAT is included in the price paid by that supplier. Although the effect of the tax regime is that the VAT ceases to be in the nature of a tax once the tax labels have been affixed by the manufacturer or importer, it cannot be denied that, at each subsequent commercial stage, the VAT liability is passed on in full without the possibility of deduction by the person liable to pay. However, where an intermediate supplier loses its claim for payment against the person to whom goods have been supplied, it cannot recover the corresponding amount of VAT, even though it has paid that actual amount of VAT to its own supplier.

Questions

Is Belgian law, in particular Article 58(1), in conjunction with Article 77(1)(7), of the VAT Code, compatible or incompatible with Article 27 of [the Sixth Directive], which allows the Member States to adopt simplification measures, and/or with Article 11.C(1) of that directive, which grants a right to a refund of VAT in the case of total or partial non-payment, by reason of the fact that such national law … lays down a simplified procedure for charging VAT on supplies of manufactured tobacco products by imposing a single charge at source; and … does not give persons liable to tax at the various intermediary stages of the chain of supply who have borne VAT on those products a right to a refund of VAT on account of the total or partial loss of the purchase price?

AG Opinion

None

Decision

Articles 11.C(1) and 27(1) and (5) 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, as amended by Council Directive 2004/7/EC of 20 January 2004, must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which, by providing, for the purposes of simplifying the procedure for charging value added tax and of combating tax evasion or avoidance in regard to manufactured tobacco, for the levying of that tax by means of tax labels, in a single charge and at source, from the manufacturer or importer of those products, excludes intermediate suppliers operating at a subsequent stage in the supply chain from the right to obtain reimbursement of value added tax in the event of non-payment by the purchaser of the price for those products.

Summary

Article 11C(1) and 27(1) and (5) of the Sixth Directive do not preclude national legislation under which, in order to simplify the collection of VAT and to prevent tax evasion and avoidance of tax evasion with regard to manufactured tobacco, this tax is to be levied by means of tax bands , is levied in one go and at source at the expense of the manufacturer or importer of these products, the suppliers who act as intermediaries in a subsequent stage of the chain of successive supplies, are denied the right to a refund of VAT in the event of non-payment of the price of these products by the customer.

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