On December 19, 2023, the ECJ issued the AG Opinion in the case C-427/23 (Határ Diszkont).
Context: Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/EC – Article 1(2), Article 2(1)(c) and Article 78 – Refund of amounts paid as a VAT advance to customers not resident in the European Union – Administration fees – Independent supply subject to VAT – Concepts of ‘single complex supply’, ‘supply ancillary to the principal supply’ and ‘independence of supplies’ – Exemptions under Article 135(1)(d) and Article 146(1)(e) – Protection of legitimate expectations – Taxable amount)
Summary
- Legal Question: The case addresses whether the administration of VAT refunds for foreign customers (not residing in the EU) constitutes a separate taxable supply of services or is an ancillary service to the exempt supply of goods, thus sharing the same VAT exemption status.
- VAT Exemption Context: The Hungarian company, Határ Diszkont, sold goods to non-EU customers, applying a VAT exemption for exports. It subsequently refunded VAT advances to these customers while charging a 15% administration fee for processing these refunds.
- Opinion on Supply Classification: The Advocate General opines that the administrative procedure for refunding VAT advances does not constitute a distinct taxable supply. Instead, it is viewed as an integral part of the exempt supply of goods, aimed at ensuring compliance with the VAT exemption.
- Principle of Legitimate Expectations: The opinion discusses the principle of legitimate expectations, suggesting that previous tax authority audits accepting the VAT treatment of the administration fees do not necessarily provide a basis for claims of tax exemption, as these do not constitute precise assurances.
- Conclusion: The Advocate General concludes that the administrative procedure for refunding VAT advances does not give rise to a specific and independent supply of services subject to VAT, as it merely functions to apply the VAT exemption for the sale of goods.
Articles in EU VAT Directive 2006/112/EC
Article 78, 135(1)(d), 146(1)(e)
Article 78
The taxable amount shall include the following factors:
(a) taxes, duties, levies and charges, excluding the VAT itself;
(b) incidental expenses, such as commission, packing, transport and insurance costs, charged by the supplier to the customer.
For the purposes of point (b) of the first paragraph, Member States may regard expenses covered by a separate agreement as incidental expenses.
Article 135
1. Member States shall exempt the following transactions:
(d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;
Article 146
1. Member States shall exempt the following transactions:
(e) the supply of services, including transport and ancillary transactions, but excluding the supply of services exempted in accordance with Articles 132 and 135, where these are directly connected with the exportation or importation of goods covered by Article 61 and Article 157(1)(a).
Background
- VAT Refund and Administration Fees: In 2020, the applicant, a business near the Hungary-Serbia border, sold goods to Serbian residents and refunded VAT totaling HUF 298,328,000. The business charged a 15% administration fee on the refunded VAT, which it included in its VAT returns as an exempt service.
- Export and Documentation: Foreign travelers took the goods out of Hungary on the purchase date, marked “VAT paid” on invoices. The applicant refunded the VAT and issued invoices for the 15% administration fee, documented by till receipts.
- Tax Authority Inspection: During a VAT inspection for 2020, the tax authority repeatedly asked the applicant to clarify the invoices for the administration fee. The applicant maintained that the service was tax-exempt but gave inconsistent reasons for the exemption.
- Classification and Tax Authority Decision: The applicant misclassified the service statistically. The tax authority ruled that the administration service was not exempt from VAT, resulting in a tax shortfall of HUF 12,040,000. The authority noted that the service was treated separately from the supply of goods.
- Administrative and Judicial Actions: The applicant appealed the decision, which was upheld by the higher tax authority. The applicant then sought judicial review, arguing that the VAT amount should not be based on the net invoiced amount and that administration fees included VAT. The case is now before the referring court.
Questions
Is the practice of a Member State according to which the administration of VAT refunds to foreign travellers – which includes the administrative procedures from the time the standard forms for applying for the refund of VAT are submitted up to the refund of the tax – is considered to be a separate supply of services distinct from the tax-exempt supply of goods, on which VAT must be charged and paid in accordance with the general rules, compliant with Article 1(2), Article 2(1)(c), Article 78 and Article 146(1)(e) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax 1 (‘the VAT Directive’) in a situation in which the administration fee, which is a percentage of the VAT to be refunded, is received and invoiced simultaneously with the VAT refund, at a time different from the supply and invoicing of the goods and after the customer has paid the consideration for the goods and those goods have exited for a third country?
In the event that the answer to the first question is in the affirmative, is Article 135(1)(d) of the VAT Directive infringed by the practice of a Member State whereby the fee charged for administering refunds of the VAT arising on the supply of goods to foreign travellers is not considered to be exempt from VAT as a ‘transaction concerning payments or debts’?
In the event that the answers to the first and second questions are in the affirmative, is the practice of a Member State compliant with the principle of the protection of legitimate expectations as one of the fundamental principles of the common VAT system where, according to that practice, the issuer of the invoices for the administration fee must also pay VAT retroactively even though the tax authority had already audited that person on various occasions in the years prior to the inspection and during those audits had examined the issuer’s practice of considering the administration fee to be exempt from VAT and had not raised any objection or informed the issuer of any change in the Member State legislation in force until 31 December 2007, which expressly included ‘refunds of the tax to foreign travellers processed by the trader under specific legislation’ as services exempt from tax?
In the event that the answers to the first to third questions are in the affirmative, is the practice of a Member State tax authority compliant with Articles 73 and 78 of the VAT Directive where it consists of using as the taxable amount for VAT the consideration shown as exempt on the invoices issued for the administration fee and where, according to the tax authority’s decision, the issuer of the invoices must pay VAT on that taxable amount in accordance with the general rules, even though the consideration paid by the foreign travellers does not include that amount?
AG Opinion
Article 1(2) and Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax
must be interpreted as meaning that the seller’s administrative procedure for refunding amounts paid as a value added tax (VAT) advance by customers not resident in the European Union in the context of VAT-exempt transactions involving supplies of goods they subsequently export does not give rise to a specific and independent supply of service relating to the supply of such goods. As a consequence, that procedure is not taxable under the directive, since it is simply a means of applying the exemption, rather than a specific economic activity separate from the one relating to the supply of the goods.
Source
ECJ Cases referred to
- My Travel (C-291/03)
- Elmeka (C-181/04 to C-183/04)
- Everything Everywhere (C-276/09)
- Tulică and Plavoşin (C-249/12 and C-250/12)
- Almos Agrárkülkereskedelmi (C-337/13)
- Baštová (C-432/15)
- Cartrans Spedition (C-495/17)
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