Flashback on ECJ Cases Joined Cases C-181/04, 182/04, 183/04(Elmeka) – Loading and unloading of seagoing vessels by a subcontractor is exempt from VAT

On September 14, 2006, the ECJ issued its decision in the case C-181/04 (Elmeka).

Context: Sixth VAT Directive – Exemptions – Article 15(4)(a), (5) and (8) – Exemption for the chartering of sea-going vessels – Scope.

Article in the EU VAT Directive

Article 15(4)(a), (5) and (8) of the Sixth VAT Directive (articles 148 and 150 of the EU VAT Directive 2006/112/EC).

Article 148 (Exemptions related to international transport)
Member States shall exempt the following transactions:
(a) the supply of goods for the fuelling and provisioning of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities, or for rescue or assistance at sea, or for inshore fishing, with the exception, in the case of vessels used for inshore fishing, of ships’ provisions;
(b) the supply of goods for the fuelling and provisioning of fighting ships, falling within the combined nomenclature (CN) code 8906 10 00, leaving their territory and bound for ports or anchorages outside the Member State concerned;
(c) the supply, modification, repair, maintenance, chartering and hiring of the vessels referred to in point (a), and the supply, hiring, repair and maintenance of equipment, including fishing equipment, incorporated or used therein;
(d) the supply of services other than those referred to in point (c), to meet the direct needs of the vessels referred to in point (a) or of their cargoes;
(e) the supply of goods for the fuelling and provisioning of aircraft used by airlines operating for reward chiefly on international routes;
(f) the supply, modification, repair, maintenance, chartering and hiring of the aircraft referred to in point (e), and the supply, hiring, repair and maintenance of equipment incorporated or used therein;
(g) the supply of services, other than those referred to in point (f), to meet the direct needs of the aircraft referred to in point (e) or of their cargoes.
Article 150
1. The Commission shall, where appropriate, as soon as possible, present to the Council proposals designed to delimit the scope of the exemptions provided for in Article 148 and to lay down the detailed rules for their implementation.
2. Pending the entry into force of the provisions referred to in paragraph 1, Member States may limit the scope of the exemptions provided for in points (a) and (b) of Article 148.

Facts

The company Elmeka operates a tanker which carries petroleum products within Greece on behalf of various charterers that trade in liquid fuel.
In the course of a fiscal audit of Elmeka’s books and accounting documents for the tax years 1994, 1995 and 1996, it was found that one of its charterers/suppliers was the Panamanian company Oceanic International Bunkering SA (‘Oceanic’), whose business is trading in petroleum products. It was also found that Elmeka had not charged VAT on the gross freightage it levied on each bill of lading issued for the carriage of petroleum products intended for the provisioning of vessels within Greece on behalf of Oceanic, on the ground that those transactions were exempted from VAT.
In a letter to Dimosia Ikonomiki Ipiresia Ploion Piraios (State Financial Service for Shipping, Piraeus, ‘the Piraeus tax authority’) of 21 June 1994, Elmeka asked whether, in relation to the provisioning by its tanker, on behalf of Oceanic, of vessels sailing on foreign voyages and transporting fuel from refineries located along the roadstead of the port of Piraeus, it had a legal obligation to charge VAT on the bill of lading issued to Oceanic, or if it was exempted – and, if so, under what procedure – on the basis of Law No 1642/1986. In response to this request, the Piraeus tax authority stated that the bills of lading in question were exempted from VAT.
Following the abolition, with effect from 1 January 1993, of the VAT exemption in respect of supplies of services for the transport of petroleum products, the services supplied by Elmeka became subject to VAT because they took place within Greece, irrespective of the fact that the recipient of those services was established outside the Community. In those circumstances, the competent tax authority charged Elmeka, by way of three decisions pertaining to the three tax years in issue, namely the years 1994 (Case C-183/04), 1995 (Case C-182/04) and 1996 (Case C-181/04), the difference in the main tax payable, together with an increase thereof for making a wrong declaration in respect of each of the years concerned and a fine.
Elmeka challenged those decisions before the Diikitiko Protodikio Piraios (Administrative Court of First Instance, Piraeus). Its action having been dismissed, the company then appealed to the Diikitiko Efetio Piraios (Administrative Appeal Court, Piraeus) which, having set aside the judgment delivered at first instance, accepted that in the circumstances, where the active conduct of the tax authorities of Piraeus had given the taxable person the long-standing and legitimate conviction that he was not subject to VAT, with the consequence that he did not pass this tax on to the consumer, he was not liable to pay the tax if the subsequent charging of the tax threatened the financial stability of his business. However, this ground of annulment was rejected because Elmeka had not provided concrete evidence in relation to its financial situation and, consequently, had failed to fulfil one of the conditions necessary for the application of the rule relating to the existence of a long-standing and legitimate conviction. The Diikitiko Efetio Piraios also ruled that the transport of fuel by Elmeka was not covered by Article 22(1)(c) of Law No 1642/1986, and that Decision No 6 of the competent tax authority of 5 June 1997 had rightly required Elmeka to pay the VAT. The appeal was thus rejected on this point.

Questions

(1) Does Article 15(4)(a) of the Sixth Directive … , to which Article 15(5) of that directive refers, concern the chartering of both vessels used on the high seas which carry passengers for reward and vessels used for the purpose of commercial, industrial or fishing activities, or does it concern the chartering of vessels used on the high seas alone, when, in the latter case, Article 22(1)(d) of Law No 1642/1986 appears wider than the directive as regards the category of vessels to which the chartering relates?

(2) For the exemption from tax in accordance with Article 15(8) of the Sixth Directive, is the service required to be supplied to the vessel owner himself, or is the exemption granted also in respect of a service supplied to a third party, subject only to the condition that it meets the direct needs of the vessels referred to in Article 15(5), that is to say of the vessels covered by Article 15(4)(a) and (b)?

(3) Under the Community rules and principles which govern [VAT], is it permitted, and subject to what conditions, for tax to be charged for a past period where the person liable did not pass tax on to the other contracting party during that period, and, therefore, tax was not paid to the State, because of the conviction of the person liable, brought about by conduct of the tax authorities, that he did not have to pass on the tax?

AG Opinion

(1) Article 15(4)(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 (‘the Sixth Directive’), to which Article 15(5) of the directive refers, only covers vessels used on the high seas, whether for the carriage of passengers for reward, for commercial or industrial activities or for fishing.

(2) For the exemption from tax in accordance with Article 15(8) of the Sixth Directive to apply, the service is required to be supplied to the vessel owner himself.

(3) The Sixth Directive, interpreted in the light of the principle of protection of legitimate expectations, precludes the charging of tax for a past period if information supplied by the national tax authority justifies a legitimate expectation that a transaction, such as that in the main proceedings, is exempt from tax. It is for the national court, with reference to the specific circumstances of the initial case, to decide whether such a legitimate expectation is present, which presupposes that the person liable has acted in good faith. The good faith of the person liable may be called into question on grounds of the lack of competence of the department of the tax authority that provided the incorrect information only to the extent that this lack of competence, in the opinion of the national court, ought to have been discernible by a trader exercising ordinary care. A rebuttal of the good faith of the taxable person may also be based on circumstances such as the prompt correction of the mistake or clarification of the lack of competence of the department providing the information on the part of the tax authority.

Decision

1. Article 15(4)(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, to which Article 15(5) of that directive refers, as amended by Council Directive 92/111/EEC of 14 December 1992, applies not only to vessels used on the high seas for the carriage of passengers for reward, but also to vessels used on the high seas for the purpose of commercial, industrial or fishing activity.

2. Article 15(8) of the Sixth Directive (77/388) is to be interpreted as meaning that the exemption provided for therein applies to the supply of services directly to the shipowner for the direct needs of sea-going vessels.

3. In the framework of the common system of value added tax, national tax authorities are obliged to respect the principle of protection of legitimate expectations. It falls to the referring court to decide whether, in the circumstances of the main proceedings, the taxable person could reasonably have believed that the decision in question had been taken by a competent authority.

Summary

The Court of Justice made it clear in a this judgment that services provided for the direct needs of the cargo of sea-going vessels (loading and unloading) are exempt from VAT, even at an earlier stage, such as a service provided by a subcontractor for a entrepreneur who then passes this on to a transit or transport company.

Source