ECJ VAT Case C-622/23 (RHTB) – Questions – VAT Implications in Work Contract Cancellations

Fact and questions have been released in the case C-622/23 (RHTB).

Summary

The case involves a work contract agreement between rhtb: projekt gmbh and Parkring 14-16 Immobilienverwertung GmbH.
After the applicant started work, the defendant informed them of their decision to no longer use their services.
The applicant claimed unjustified cancellation of the work and sought a final settlement.
The first-instance court granted the claim, but the appellate court amended the judgment and rejected an additional claim.
The highest federal court dismissed the defendant’s appeal but has yet to rule on the applicant’s appeal.
The referring court has doubts about the compatibility of similar situations with EU law.
The court questions whether the amount that a client must pay to the contractor in cases of work cancellation, attributable to the client, should be subject to VAT according to Directive 2006/112/EC.
The court seeks interpretation of Article 2(1)(c) of the directive and its compatibility with the circumstances of the present case.

Articles in the EU VAT Directive

Articles 2, 9, 24, 73 of the EU VAT Directive 2006/112/EC.

Article 2(1)(c)

Article 2
1. The following transactions shall be subject to VAT:
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;

Article 73 (Taxable amount – Supply of goods or services)

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

The parties entered into a work contract agreement in 2018, in which it was agreed that the applicant, rhtb: projekt gmbh, would carry out work as a contractor for the defendant, Parkring 14-16 Immobilienverwertung GmbH. After the applicant had started work, the defendant informed the applicant that it no longer wished to use the applicant’s services. The reason for the termination was that the director of the defendant had, among other things, requested a quote from the other company that was more advantageous. The applicant has drawn up a final settlement due to unjustified cancellation of the work. The judge at first instance granted the claim. The appellate court amended the first judgment and rejected an additional claim. The highest federal court has dismissed the defendant’s appeal on Revision, but has yet to rule on the applicant’s appeal on Revision.

Consideration:

According to the Austrian view, the claim submitted would not be subject to VAT and therefore the applicant’s appeal on Revision – only with regard to the VAT included in the claim – would not be well-founded. In the light of the recent case law of the Court, the referring court has doubts as to the compatibility with EU law of situations similar to the present one. The Court has held, inter alia, that Article 2(1)(c) of Directive 2006/112/EC must be interpreted as meaning that consideration for a service provided for consideration within the meaning of that provision must be regarded as the amounts received by an economic operator when a service contract requiring a customer to comply with a minimum contractual term in return for favorable commercial conditions is terminated prematurely for reasons attributable to that customer. According to the referring court, the facts of the cited judgments of the Court differ from those of the present case.

Questions

Must Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Article 73 of that directive, be interpreted as meaning that the amount that a client must also pay to the contractor if the work is not (completely) carried out, but the contractor was prepared to carry out the work and due to circumstances attributable to the client (for example the cancellation of the work) ) is prevented from doing so, is subject to VAT?

Source