On Sept 3, 2015, the ECJ issued its decision in the case C-463/14 (Asparuhovo Lake Investment Company).
Context: Directive 2006/112/EC — Articles 24(1), 25(b), 62(2), 63 and 64(1) — Meaning of ‘supply of services’ — Subscription contract for the supply of consulting services — Chargeable event — Need for proof of the actual supply of services — Chargeability of the tax
Article in the EU VAT Directive
Articles 24(1), 25(b), 62(2), 63 and 64(1) of the EU VAT Directive 2006/112/EC
Article 24 (Taxable transaction)
1. “Supply of services” shall mean any transaction which does not constitute a supply of goods.
Article 25 (Taxable transaction)
A supply of services may consist, inter alia, in one of the following transactions:
(b) the obligation to refrain from an act, or to tolerate an act or situation;
Article 62 (Chargeable event)
For the purposes of this Directive:
(1) “chargeable event” shall mean the occurrence by virtue of which the legal conditions necessary for VAT to become chargeable are fulfilled;
(2) VAT shall become “chargeable” when the tax authority becomes entitled under the law, at a given moment, to claim the tax from the person liable to pay, even though the time of payment may be deferred.
Article 63 (Chargeable event – Supply of services)
The chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.
Article 64 (Chargeable event – Supply of services)
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.
Facts
- ALIC is a Bulgarian company whose business is mainly concerned with agriculture, horticulture, livestock rearing and related activities.
- On 1 August 2011, ALIC entered into subscription contracts for consulting services with four other companies, namely ‘Krestan Bulmar — Korporativni finansi’ EOOD, ‘Krestan Bulmar — Biznes razvitie’ EOOD, ‘Krestan Bulmar — Legakonsult’ EOOD and ‘Biznes Ekspres’ EOOD, (together the ‘service providers’), in the areas of corporate finance, commercial development, legal advice and information security, respectively. Those consulting companies were all represented by the same person. The parties terminated those contracts from 5 March 2012.
- Under those contracts, the service providers undertook to:
- make themselves available to ALIC for consultation, meetings and commitments, on each working day from 9 a.m. to 6 p.m. and, when needed, outside office hours, including on Sundays and public holidays;
- where appropriate, ensure, during such time as necessary, the presence of a competent person at ALIC’s offices and/or those of a third party associated with ALIC, including outside office hours and on Sundays and public holidays;
- obtain documents and necessary information and exchange them between the parties in order to guarantee the fullest and most efficient protection possible of ALIC’s interests, and
- transmit, in good time, to the customer, for consultation, negotiation and signature, all the necessary documents relating to the protection of the customer’s interests.
- The service providers declared that they had not entered into similar contracts with third parties whose interests were contrary to those of ALIC and/or which were competing directly with ALIC. They also undertook to refrain from entering into such contracts.
- In exchange, ALIC undertook to pay them weekly remuneration, disbursed every Monday following the week for which it was due. ALIC deducted the VAT stated on the invoices issued by the service providers.
- ALIC was the subject of a tax inspection covering the period from August to October 2011. During the inspection, the tax authorities found that the invoices had been issued within the period stated in the contracts, had been duly accounted for in the accounts both of the service providers and of ALIC and had been the subject of a VAT declaration. The tax authorities also noted that the invoices established by the service providers had been honoured by way of payments made by bank transfer. It was also established that the service providers had sufficiently qualified staff to provide the agreed services.
- As regards the way in which those services were to be supplied, the service providers declared that the parties had not envisaged a formal documentary record being made of requests for those services and the provision thereof. The existing tasks and problems were examined at meetings, by telephone or by e-mail. The staff actually entrusted with performing those services stated that the customer communication manager assigned to them, via electronic communications, the various tasks to be carried out for ALIC.
- The tax authorities took the view that no proof had been provided as to the type, quantity and nature of the services actually provided — in particular there was no first-hand document relating to the number of hours performed — and that no information had been given on how service prices had been set. On 1 August 2013, the tax authorities issued an adjusted tax notice refusing ALIC the right to deduct the VAT invoiced by the service providers, concerning the sum of Bulgarian leva (BGN) 33 349, about EUR 17 000.
- ALIC challenged the adjusted tax notice before the Direktor. Since the latter upheld that notice by decision of 4 November 2013, ALIC brought an action before the referring court.
- The referring court notes that the contracts entered into by ALIC defined only the scope of the consulting services and did not indicate any specific result to be achieved as regards the subject-matter, performance deadline, manner of receipt or unit price of those services. The court adds that the decision of the parties to pay for the services supplied by the service providers by means of a fixed sum paid at regular intervals shows that those parties had not connected the right to require payment of the remuneration to the achievement of a specific result; consequently, the referring court does not consider it appropriate to examine whether such results were actually achieved.
- The referring court states that the tax authorities have never claimed that the supplies of services, in respect of which ALIC claims a right to deduct the input VAT, were fraudulent; nor have those authorities provided any evidence to that effect.
- The referring court states that it nevertheless has doubts as to whether a subscription contract, such as that at issue in the main proceedings, may constitute a ‘supply of services’ within the meaning of Article 24(1) and Article 25(b) of the VAT Directive, or whether only the supply of specific consulting services may constitute such a supply and give rise to the right to deduct VAT. In the first case, it also asks whether the chargeable event and the chargeability of the tax occur upon the expiry of the period in respect of which the payment has been agreed.
Questions
Should Article 24(1) and point (b) of Article 25 of Directive 2006/112/EC 1 be interpreted as meaning that the term ‘supply of services’ also covers cases involving subscription contracts for the supply of consulting services such as those at issue in the main proceedings, namely where a supplier, having qualified personnel available for supplying the services, has agreed to be on call for the customer during the term of the contract and has undertaken to refrain from entering into similar contracts with the customer’s competitors?
Should Articles 64(1) and 63 of Directive 2006/112/EC be interpreted as meaning that, for subscribed consulting services, the chargeable event occurs on expiry of the period for which the payment was agreed, irrespective of whether and how often the customer makes use of the supplier’s on-call services?
Should Article 62(2) of Directive 2006/112/EC be interpreted as meaning that a person supplying services in connection with a subscription consulting contract is obligated to charge value added tax for the services on expiry of the period for which the subscription fee was agreed, or does this obligation arise only if the customer has made use of the consultant’s services?
AG Opinion
None
Decision
1. Article 24(1) 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 term ‘supply of services’ includes subscription contracts for the supply of consulting services to an undertaking, in particular those of a legal, commercial or financial nature, under which a supplier has agreed to be available to the customer during the term of the contract.
2. As regards subscription contracts for consulting services, such as those at issue in the main proceedings, Articles 62(2), 63 and 64(1) of Directive 2006/112 must be interpreted as meaning that the chargeable event and the chargeability of the tax occur upon the expiry of the period in respect of which the payment has been agreed, irrespective of whether and how often the customer has actually made use of the supplier’s services.
Summary
The Bulgarian Asparuhovo Lake Investment Company OOD (ALIC) concludes subscription agreements for consultancy services with four other companies in the fields of corporate finance, commercial development, legal advice and information security. The service providers hereby make themselves available to ALIC to make personnel or information available to ALIC on demand. ALIC pays a fixed amount every week for this. ALIK deducts the VAT charged by the four companies. However, the Bulgarian tax authorities do not allow deduction of VAT. According to the tax authorities, no evidence has been provided as to the type, scope and nature of the services actually provided by the four companies. The Bulgarian judge doubts whether there is a ‘service’ is performed as referred to in art. 24 EC Directive 2006/112. The Bulgarian court has therefore referred questions for a preliminary ruling in this case.
The European Court of Justice (CJEU) has ruled that subscription agreements for the provision of advisory services to a company, whereby the service provider makes himself available to the client during the term of the agreement, constitute services as referred to in art. 24 EC Directive 2006/112. The CJEU also considers that it is immaterial that the services are not determined in advance or individualised, and that the compensation is paid in the form of a lump sum.
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The term ‘service’ also extends to subscription contracts for the provision of consultancy services to an undertaking, in particular in the legal, commercial and financial fields, under which the service provider has made himself available to the client during the term of the contract .
In respect of such subscription contracts for consultancy services, the chargeable event arises and becomes payable upon expiry of the period for which payment was agreed, irrespective of whether and how often the client has used the service provider’s services.
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