Flashback on ECJ cases C-85/97 (Telefónica Móviles España) – Starting point for limitation period: VAT collection allowed after registration

On November 19, 1998, the ECJ issued its decision in the case C-85/97 (Telefónica Móviles España).

Context:

Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Recovery of the tax – Limitation period – National procedural rules – Conditions for application (Council Directive 77/388, Arts 4 and 10)

Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax – Application to benefits in kind granted by an undertaking to its employees irrespective of the State in which the supplier is established (Council Directives 67/227 and 77/388)

Summary

National practices that fix the starting-point of the limitation period for the recovery of value-added tax at the registration date of a company are not precluded by Articles 4 and 10 of Directive 77/388.
Member States have the authority to apply their own procedural rules for the limitation period, as long as they are not less favorable than domestic rules and do not excessively hinder the exercise of rights under EU law.
The principle of deducting input tax is of general application, and there is no distinction between supplies made by suppliers in the national territory or in other Member States. Therefore, the VAT on a benefit provided by an employer to an employee in the form of a vehicle for private use cannot include VAT paid by the employer in another Member State for renting the vehicle, when such VAT would not be included if the vehicle were rented in the Member State in question.

Article in the EU VAT Directive

Articles 4 and 10 of the Sixth Directive 77/388 (Article 9, 62, 63, 64 of the EU VAT Directive 2006/112/EC.

Article 4 of the Sixth Directive, as it applied before the amendments which took effect on 1 January 1993, defined `taxable person’ as follows:

1. “Taxable person” shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.

2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.

Article 10 of the Sixth Directive, under the heading `Chargeable event and chargeability of tax’ provides:

`1. (a) “Chargeable event” shall mean the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled.

(b) The tax becomes “chargeable” when the tax authority becomes entitled under the law at a given moment to claim the tax from the person liable to pay, notwithstanding that the time of payment may be deferred.

2. The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed. Deliveries of goods other than those referred to in Article 5(4)(b) and supplies of services which give rise to successive statements of account or payments shall be regarded as being completed at the time when the periods to which such statements of account or payments pertain expire.

Facts

SFI was incorporated by notarial act of 21 October 1981 under the name `SPRL Constructions et Investissements’ and was registered for VAT on that date in respect of `real property transactions’. That registration was cancelled on 1 January 1982 because no taxable transactions had been carried out.
After its name had been changed to `Société Financière d’Investissements’ and its objects had been widened on 8 September 1988, SFI applied on 26 April 1989 to be re-registered for VAT.
On 16 May 1989, when the application for re-registration was still being processed, SFI submitted a VAT return for the period from 1 January 1988 to 31 December 1988. SFI was re-registered for VAT on 1 June 1989.
Following a VAT inspection on 2 February 1993 relating to the period from 1 January 1988 to 31 December 1991, the VAT authorities noted various irregularities, which meant that SFI was obliged to pay back the principal sum of BFR 4 062 889 in VAT, and drew up a regularisation schedule.
On 12 January 1994, the Receveur (Tax Collector) of the Premier Bureau de Recettes TVA (First VAT Collection Office), Liège, issued a payment order for that sum, together with interest for late payment at 0.8% per month from 1 January 1992, and a fine of BFR 609 000. The order was made enforceable on 21 January 1994 and served on 26 January 1994.
On 14 March 1994, the Belgian State had served on SFI an order requiring payment of BFR 3 864 231 in VAT, BFR 203 000 in fines and BFR 309 120 in statutory interest for the period to 20 March 1994.
On 1 April 1994, SFI made an application to the Tribunal de Première Instance, Liège, for the payment order of 12 January 1994 to be set aside.
In its action, SFI maintains that the Belgian authorities’ position that the limitation period should run from the date on which, in view of its registration for VAT on 1 June 1989, the company should have submitted its first return, namely 20 July 1989, is incompatible with Articles 4 and 10 of the Sixth Directive. SFI argues that the action for recovery of VAT in respect of the period prior to 31 December 1988 was time-barred. In its submission, the limitation period runs from the date on which a sum becomes chargeable, which, under Article 17 of the VAT Code, is the date of the chargeable event constituted by delivery of the goods or performance of the services liable to VAT.
SFI and the Belgian State also disagree about the method of calculating the benefit in kind consisting of providing an employee with a car, for his private journeys, rented by SFI from a company established in Luxembourg. SFI complains that the Belgian tax authorities included the VAT which it paid in Luxembourg in the basis for calculating that benefit, whereas, if the vehicle had been rented in Belgium, the taxable amount would not have included VAT. In SFI’s submission, the method of calculation used by the Belgian authorities is contrary not only to Article 95 of the Treaty but also to the principle of fiscal neutrality laid down by the Sixth Directive.

Questions

1. Is the position taken by the VAT Authorities, that the limitation period for the collection of tax runs from the 20th of the month following the quarter in which registration for VAT took place, as regards taxable transactions carried out before that registration, compatible with Articles 4 and 10 of the Sixth VAT Directive?

2. Does a system under which VAT on a benefit in kind granted to an employee of an undertaking is calculated on a VAT inclusive basis when Belgian VAT is paid by the employer and on a VAT exclusive basis when VAT of another Member State is paid offend against Article 95 of the Treaty of Rome and the principle of “fiscal neutrality” laid down by the Sixth VAT Directive?

AG Opinion

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Decision

Articles 4 and 10 of the 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 do not preclude a national practice which, in the case of transactions subject to value added tax effected by a company before it was registered for value added tax, consists in fixing the starting-point of the limitation period for the recovery of that tax at the 20th of the month following the quarter in which that registration took place.
The First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes and the Sixth Directive 77/388 preclude the value added tax on a benefit granted by an employer to his employee in the form of the placing of a vehicle at his disposal for private use from being calculated by including in the taxable amount the value added tax paid by the employer in another Member State on the renting of that vehicle, whereas, if the vehicle had been rented in the Member State in question, the taxable amount would not have included the value added tax paid.

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