On June 13, 2024, the ECJ issued the judgment in the case C-696/22 (C SPRL).
Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 64(1) and (2) – Applicability – Services provided by court-appointed administrators and liquidators – Continuous services – Article 168(a) – Deduction of input VAT – Expenditure relating to the right to use a trade name – Rights of the defence – Right to be heard
Article in the EU VAT Directive
Article 63, 64, 66, 168 in the EU VAT Directive 2006/112/EC.
Article 63 (Chargeable event – Supply of goods and services)
The chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.
Article 64
1. Where it gives rise to successive statements of account or successive payments, the supply of goods, other than that consisting in the hire of goods for a certain period or the sale of goods on deferred terms, as referred to in point (b) of Article 14(2), or the supply of services shall be regarded as being completed on expiry of the periods to which such statements of account or payments relate.
2. Continuous supplies of goods over a period of more than one calendar month which are dispatched or transported to a Member State other than that in which the dispatch or transport of those goods begins and which are supplied VAT-exempt or which are transferred VAT-exempt to another Member State by a taxable person for the purposes of his business, in accordance with the conditions laid down in Article 138, shall be regarded as being completed on expiry of each calendar month until such time as the supply comes to an end.
Supplies of services for which VAT is payable by the customer pursuant to Article 196, which are supplied continuously over a period of more than one year and which do not give rise to statements of account or payments during that period, shall be regarded as being completed on expiry of each calendar year until such time as the supply of services comes to an end.
Member States may provide that, in certain cases other than those referred to in the first and second subparagraphs, the continuous supply of goods or services over a period of time is to be regarded as being completed at least at intervals of one year.
Article 66
By way of derogation from Articles 63, 64 and 65, Member States may provide that VAT is to become chargeable, in respect of certain transactions or certain categories of taxable person at one of the following times:
(a) no later than the time the invoice is issued;
(b) no later than the time the payment is received;
(c) where an invoice is not issued, or is issued late, within a specified time no later than on expiry of the time-limit for issue of invoices imposed by Member States pursuant to the second paragraph of Article 222 or where no such time-limit has been imposed by the Member State, within a specified period from the date of the chargeable event.
The derogation provided for in the first paragraph shall not, however, apply to supplies of services in respect of which VAT is payable by the customer pursuant to Article 196 and to supplies or transfers of goods referred to in Article 67.
Article 168 (Origin and scope of right of deduction)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18(a) and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State
Facts
Summary
- Appellant and Insolvency Proceedings:
- The appellant, a professional limited liability company (SPRL), participates in insolvency proceedings as judicial administrators or judicial liquidators.
- These proceedings occur during observation periods, restructuring proceedings, or general/simplified insolvency proceedings.
- VAT Assessment and Complaint:
- AJFP Cluj assessed the appellant for additional VAT and ancillary tax obligations.
- The assessment was based on the appellant collecting VAT only upon receipt of consideration, not when services were provided.
- The complaint resulted in partial annulment and rejection of certain amounts.
- Continuous Services and VAT Chargeability:
- Expert reports consider services by insolvency administrators as continuous.
- The 2003 Tax Code doesn’t distinguish VAT chargeability based on receipt of fees.
- Administrators provide services regardless of liquid assets in debtors’ accounts.
- Cooperation Agreement and Right to Deduct:
-
- A cooperation agreement with law firm DDKK allowed the appellant to use their name and logo.
- The right to deduct was denied due to lack of supporting documentation for taxable transactions.
- The appellant’s purpose was to attract clients and support its business.
Detailed
- The appellant, C, is a professional limited liability company (SPRL) in which administrators of insolvency proceedings may work or participate, as judicial administrators or judicial liquidators, in insolvency proceedings, either during the observation period and for the duration of the restructuring proceedings (judicial administrators), or in the context of the insolvency proceedings, either in the general proceedings or in the simplified proceedings (judicial liquidators).
- By notice of assessment of 13 August 2015 issued by the AJFP Cluj, the appellant was assessed as being liable to pay additional VAT of 2,937,084 Romanian lei (RON) for the tax period from 1 January 2010 to 31 July 2014, as well as ancillary tax obligations of RON 1,900,705, totalling RON 4 837 789. The tax audit report on which the notice of assessment was based indicated, in essence, that, for certain supplies of services performed during the period covered by the tax audit, the appellant company had collected VAT only when the consideration for the services was received, and not when the services were actually provided.
- The appellant lodged an administrative complaint against the notice of assessment of 13 August 2015. By decision on the complaint of 10 May 2016, the DGRFP Cluj-Napoca rejected as unfounded the complaint lodged in respect of the sum of RON 2 375 480 in VAT, partially upheld the complaint and annulled the contested notice of assessment in respect of the sum of RON 123 266 in VAT, partially annulled the notice of assessment in respect of the sum of RON 2 112 926 (RON 212 221 in VAT as originally assessed and RON 1 457 894 in late payment interest in respect of VAT, as well as RON 432 811 in late payment penalties in respect of VAT), and, lastly, rejected the complaint as unfounded in respect of the sum of RON 226 117 in VAT.
- In the expert report drawn up in the case, the services provided by administrators of insolvency proceedings are considered to constitute supplies of services performed continuously, for which payment may be made within one year. The decision on the complaint states that C issued invoices to its clients and collected VAT only on the date of receipt of the consideration for the services rendered to those clients, by virtue of the fact that the remuneration was approved subject to the condition precedent of the availability of liquid assets in the debtor’s account. The complaints body took the view that the 2003 Tax Code makes no distinction, as regards the chargeable event and the chargeability of VAT, according to the condition precedent of the receipt of the fee (availability of liquid assets in the debtor’s accounts), it being specified that, from the date of his or her appointment until the date on which the insolvency court relieves him or her of his or her duties and responsibilities, the judicial administrator/liquidator is to provide services relating to the management of insolvency/restructuring/bankruptcy proceedings, regardless of whether there are liquid assets in the debtors’ accounts.
- As regards the cooperation agreement between the law firm DDKK and the appellant, which was entered into in 2009, on the basis of which DDKK grants the appellant financing and the right to use its name and logo on all professional and communications materials through a co-branding formula (‘the cooperation agreement’), the right to deduct was refused on the ground that the invoices for the services rendered were not based on supporting documentation showing that the services were for the purposes of the appellant’s taxable transactions, as required by Article 145(2)(a) of the 2003 Tax Code. The appellant maintained that the purpose of entering into that agreement was to promote and support each other in order to attract clients, that is to say, to support its current business and set up its subsidiary in Bucharest. Moreover, the referring court notes that the same complaints body considers that the addition of the DDKK logo is a marketing strategy to diversify and increase the client base. Under the cooperation agreement, the appellant is required to pay the law firm DDKK a certain percentage of the revenue from its professional activity. According to the financial statement, the amount of revenue in 2011 increased by RON 2 556 702 compared to 2010 (from RON 21 893 741 to RON 24 450 443).
- On 11 March 2016, the appellant brought an administrative tax appeal before the referring court, seeking (i) partial annulment of the decision of 10 May 2016 issued by the DGRFP Cluj-Napoca as regards points 1 and 3 of its operative part, (ii) partial annulment of the notice of assessment of 13 August 2015 issued by the AJFP Cluj, regarding the additional tax claim of RON 4 488 406 in VAT and incidental expenses, (iii) suspension of the implementation of the decision of 10 May 2016 issued by the DGRFP Cluj-Napoca as regards point 3 of its operative part, and (iv) an order for the respondents to pay the costs.
Questions
- (1) Do Articles 63, 64 and 66 of Council Directive 2006/112/EC on the common system of value added tax preclude an administrative practice of a tax authority – such as the one in the present case, which imposed additional payment obligations on the taxable person, a professional limited liability company (SPRL) through which administrators of insolvency proceedings may exercise their profession – consisting in defining the chargeable event and the chargeability as being at the time at which the services were provided in the context of insolvency proceedings, where the insolvency administrator’s fee was determined by the insolvency court or the assembly of creditors, with the result that the taxable person is obliged to issue invoices no later than the fifteenth day of the month following the month in which the chargeable event occurred?
- (2) Do Articles 63, 64 and 66 of Council Directive 2006/112/EC on the common system of value added tax preclude an administrative practice of a tax authority, such as the one in the present case, consisting in imposing additional payment obligations on the taxable person – a professional limited liability company (SPRL) through which administrators of insolvency proceedings may exercise their profession – in so far as that taxable person issued invoices and collected VAT only on the date on which payments were received for services provided in the context of insolvency proceedings, even though the general assembly of creditors established that the payment of the insolvency administrator’s fee is subject to the availability of liquid assets in the debtors’ accounts?
- (3) In the case of a co-branding agreement between a law firm and the taxable person, is it sufficient, for the purpose of granting the right to deduct, that the taxable person, when proving the existence of a direct and immediate link between the purchases made by the upstream taxable person and the downstream transactions, demonstrate, after the agreement, an increase in the turnover/value of the taxable transactions, without further supporting documentation? If so, what are the criteria to be taken into account in order to determine the actual scope of the
right to deduct? - (4) Is the general EU-law principle of respect for the rights of the defence to be interpreted as meaning that, where, in the course of a national administrative procedure for ruling on a complaint against a notice of assessment that has established the payment of additional VAT, new factual and legal arguments are accepted as compared with those contained in the tax audit report on the basis of which the notice of assessment was issued, and the taxable person has been granted interim judicial protection measures, pending the decision of the court dealing with the substance of the case, by suspending the debt, the court hearing the action may take the view that there has been no breach of that principle without examining whether the outcome of that procedure might have been different, had it not been for such an irregularity?
AG Opinion
None
Decision
1. Article 64 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2008/117/EC of 16 December 2008,
must be interpreted as meaning that:
The scope of paragraph 1 of that article covers the supply of services on a continuous basis for a certain period of time, such as those carried out, under Romanian law, by court-appointed administrators and liquidators for the benefit of undertakings which are the subject of insolvency proceedings, in so far as, subject to the verifications to be carried out by the referring court, These benefits give rise to successive statements or payments.
(2) Article 64(1) of Directive 2006/112, as amended by Directive 2008/117,
must be interpreted as meaning that:
In the event that the payment of remuneration for services falling within the scope of that provision cannot take place because of the lack of liquidity in the debtor’s accounts, that provision does not permit the inference that value added tax becomes chargeable only when the remuneration is actually received.
(3) Article 168(a) of Directive 2006/112, as amended by Directive 2008/117,
must be interpreted as meaning that:
In order to establish the existence of a direct and immediate link between, on the one hand, a particular input transaction and, on the other, output transactions in respect of which VAT is deductible, it is necessary to determine the objective content of those transactions, which entails taking into consideration all the circumstances in which those transactions took place, namely, in particular, the actual use of the goods and services acquired by the input taxable person and the sole cause of that acquisition, without the increase in turnover or the increase in the volume of taxable transactions being relevant factors in that regard.
(4) The general principle of EU law of respect for the rights of the defence
must be interpreted as meaning that:
In the context of an administrative procedure for lodging a complaint against a tax assessment determining value added tax, where the competent authority adopts a decision based on new matters of fact and of law, on which the person concerned has not been able to comment on it, it is required that the decision adopted at the end of that procedure be annulled if, In the absence of that irregularity, that procedure could have led to a different outcome, even though, at the request of the person concerned, the enforcement of that tax assessment was suspended in parallel with the judicial action brought against that decision.
Summary
- Article 64 of Council Directive 2006/112/EC, as amended, covers the supply of services on a continuous basis for a certain period, such as those provided by court-appointed administrators and liquidators in insolvency proceedings, if they result in successive statements or payments.
- Article 64(1) of Directive 2006/112, as amended, does not require the actual receipt of remuneration for services to trigger VAT liability if payment cannot be made due to lack of liquidity in the debtor’s accounts.
- Article 168(a) of Directive 2006/112, as amended, requires the establishment of a direct and immediate link between input transactions and output transactions for VAT deduction, considering the objective circumstances of the transactions, including the actual use of acquired goods and services and the sole cause of acquisition.
- The principle of respect for the rights of the defence in EU law necessitates that, in administrative procedures regarding VAT assessments, if the competent authority makes a decision based on new facts and laws without allowing the person concerned to comment, the decision should be annulled if it could have resulted in a different outcome and the tax assessment enforcement was suspended during the legal action against the decision.
Source
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- Judgment of 29 November 2018, Finanzamt Goslar (C-548/17, paragraph 28);
- Judgment of 4 June 2020, C.F. (Tax inspection) (C-430/19, paragraphs 35 and 36);
- Judgment of 25 November 2021, Amper Metal (C-334/20).
Reference to the case in the other EU MS
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