ECJ C-461/21 (Cartrans Preda) – AG Opinion – Exemption for (transport) services to imported goods, evidence required?

On January 10, 2023, the ECJ issued the AG Opinion in the case C-461/21 (Cartrans Preda).

In accordance with the Court’s request, these Opinions will be limited to the analysis of the questions referred by the referring court with regard to the second part of the tax assessment challenged by Cartrans Preda, which raises questions relating to the freedom to provide services. these conclusions analyze the questions referred for a preliminary ruling relating to the interpretation of the provisions of EU law relating to the provisions on freedom to provide services, in particular Articles 56 and 57 TFEU.

The Romanian court has raised questions about the exemption of transport services for imported goods. Is it required that the transport company (who may not be involved with the clearance of the goods) can produce evidence that the value of the transport was included in the customs value?

Context: Reference for a preliminary ruling — Freedom to provide services — Articles 56 and 57 TFEU — Concept of “service” — Recovery of VAT carried out in several Member States by a non-resident service provider — Restrictions — Tax legislation — Withholding tax at source on remuneration, made by the resident beneficiary of a service, on remuneration due to a non-resident service provider – Grounds for justification

Article in the EU VAT Directive

Articles 86(1)(b) and (2) and 144 of Council Directive 2006/112/EC of 28 November 2006

Articles 86(1)(b) and (2)

Article 86 (Taxable amount)
1. The taxable amount shall include the following factors, in so far as they are not already included:
(a) taxes, duties, levies and other charges due outside the Member State of importation, and those due by reason of importation, excluding the VAT to be levied;
(b) incidental expenses, such as commission, packing, transport and insurance costs, incurred up to the first place of destination within the territory of the Member State of importation as well as those resulting from transport to another place of destination within the Community, if that other place is known when the chargeable event occurs.
2. For the purposes of point (b) of paragraph 1, “first place of destination” shall mean the place mentioned on the consignment note or on any other document under which the goods
are imported into the Member State of importation. If no such mention is made, the first place of destination shall be deemed to be the place of the first transfer of cargo in the Member State of importation.

Article 144 (Exemption on importation)
Member States shall exempt the supply of services relating to the importation of goods where the value of such services is included in the taxable amount in accordance with Article
86(1)(b).

Facts

Following an inspection carried out by the Romanian tax authorities between 18 November 2019 and 7 February 2020 at the applicant company, SC Cartrans Preda SRL, a road haulage services operator with registered offices in Romania, a tax assessment was issued which required the applicant to pay the sum of RON 1 529 by way of additional VAT and the sum of RON 79 478 by way of tax on income earned by non-residents.
The tax assessment stated that, in respect of road haulage services carried out between the port of Rotterdam (Netherlands), the place where the goods entered the European Union, and Cluj-Napoca (Romania), the place of destination of the goods, the applicant had failed to produce documents certifying that the haulage services were directly related to the importation of the goods, as is required by the national tax legislation.
The assessment also stated that the applicant had concluded a contract with the Danish company FDE Holding A/S assigning to that company the right to claim on its behalf the refund of VAT on intra-Community acquisitions of goods. Under that contract, FDE Holding, acting in its capacity as the applicant’s legal representative, attended to all the requisite formalities for the refund of VAT. The fees for those services were calculated as a percentage of the amount of VAT refunded in each country.
According to the Romanian tax authorities, the fees charged by FDE Holding constituted commissions in relation to which the applicant had failed to calculate, withhold, declare and pay tax on income earned by non-residents, by applying to the gross income the rate of 4% stipulated in the double taxation convention between Romania and Denmark.
The applicant has challenged that assessment before the referring court, arguing, first, that it should be exempted from paying the VAT, since the transport costs are necessarily included in the customs value on entry into the country of destination. The applicant states that, in accordance with Article 144 of Directive 2006/112, read in conjunction with Article 86(1)(b) thereof, the cost of transport to the first place of destination in the Member State of importation is necessarily included in the calculation of the taxable amount for VAT purposes of the imported goods, that first place of destination being, in accordance with Article 86(2) of the directive, the place mentioned in the document under which the goods are imported into the Member State of importation. In the present case, the first place of destination in the European Union, Cluj-Napoca, is mentioned in the consignment note and in the transit declaration which the applicant produced during the tax inspection.
Secondly, concerning the assessment of the tax on the income earned in Romania by the non-resident company FDE Holding, the applicant submits that that income is not commission but is the consideration for the provision of services which, in accordance with the double taxation convention between Romania and Denmark, is taxable only in Denmark.

Questions

For the purposes of granting a VAT exemption for transport operations and services relating to the importation of goods, in accordance with Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, are the provisions of Article 86(1)(b) and (2) to be interpreted as meaning that the recording of an import operation (for
example, the raising of an entry summary declaration by the customs authority by means of the allocation of a number referred to as the MRN or Master Reference Number) always entails the inclusion, in the basis of calculation of the customs value, of the transport costs up to the first place of destination of the goods in the territory of the Member State of importation.
Does the existence of an MRN, in relation to which there is no valid evidence of fraud, implicitly substantiate the fact that all the expenses provided for in Article 86(1)(a) and (b) have been included in the customs taxable basis?
Do the provisions of Articles 144 and 86(1)(b) and (2) of Directive [2006/112] preclude the Member State’s taxation practice by which the VAT exemption for transport services relating to the importation of goods into the [European Union] is refused on the ground that no strictly formal proof of the inclusion of transport costs in the customs value has been provided, even where, first, other relevant documents accompanying the import – the summary declaration and the CMR consignment note showing delivery to the recipient ‒ have been produced and, second, there is no evidence to cast doubt on the authenticity and reliability of the summary declaration or CMR consignment note?
With reference to the provisions of Article 57 TFEU, does the recovery of VAT and excise duties from the tax authorities of more than one Member State constitute an intra-Community supply of services or the activity of a general commission agent acting as an intermediary in a commercial transaction?
Is Article 56 TFEU to be interpreted as meaning that there is a restriction on the free movement of services where the recipient of a service supplied by a service provider established in a different Member State is required, under the legislation of the Member State in which the recipient is established, to withhold tax on the remuneration due for the service supplied, while there is no such requirement where the same service is provided under a contract with a service provider established in the same Member State as that in
which the recipient is established?
Is the tax treatment in the State in which the payer of the income is resident a factor which renders the freedom to provide services less attractive or more difficult where, in order to avoid the levying of a 4% withholding tax, the resident must confine itself to cooperation in the recovery of VAT and excise duties with entities which are also resident, to the exclusion of entities established in other Member States?
Can the fact that a tax of 4% (or 16% in some cases) of the gross amount is levied on the income received by a non-resident, while the corporation tax for a service provider resident in the same Member State is (if it makes a profit) levied at the rate of 16% of the net amount, also be regarded as an infringement of Article 56 TFEU, since it constitutes another factor which renders the freedom of non-residents to provide the services in question less attractive or more difficult?

AG Opinion

1) Article 57 TFEU must be interpreted as meaning that:

a contract for pecuniary interest whose main service consists in recovering VAT and excise duties from the financial authorities of several Member States implies the provision of a ‘service’ within the meaning of this provision.

2) Article 56 TFEU must be interpreted as meaning that:

the obligation imposed on the recipient of services, under the rules of a Member State, to withhold tax at source from the remuneration paid to service providers established in another Member State who supply services actually carried out in different Member States, when there is no such obligation as regards remuneration paid to service providers established in the Member State in question, constitutes a restriction on the freedom to provide services, within the meaning of this provision, in that it involves an additional administrative burden as well as the related liability risks.

In so far as the restriction on the freedom to provide services resulting from that national legislation stems from the obligation to deduct at source, in that it entails an additional administrative burden and the related risks in terms of liability, this restriction may be justified by the need to ensure the effective collection of tax and does not go beyond what is necessary to achieve this objective.

3) Article 56 TFEU must be interpreted as meaning that:

it opposes national legislation under which, as a general rule, non-resident service providers are taxed on the income derived from remuneration for the services provided, without being granted the possibility of deducting business expenses directly linked to these activities, whereas such a possibility is granted to resident service providers.

It is for the national court to assess, on the basis of its national law, which professional expenses can be considered to be directly linked to the activity in question.

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