Exemptions from tax liability for warships and the right to a refund

1 Summary

The Swedish Tax Agency considers that the exemption from tax liability for the supply of goods to warships contained in Council Directive 2006/112 / EC on a common system of value added tax, the VAT Directive, has direct effect. The exception in the directive can therefore be applied by a company despite the fact that a corresponding provision is missing in the VAT Act (1994: 200), ML.

The exception refers to the delivery of goods for bunkering, refueling and provisioning of warships, which may be considered to include goods for consumption or sale on board.

The exception is applicable provided that the delivery of goods takes place to warships that are to leave the country and have a port or anchorage outside Sweden as their destination. Deliveries to Swedish warships are also covered by the exemption from tax when these are destined for ports or anchorages outside Swedish territory.

The exemption can only be applied to deliveries of goods that take place directly to the person using the warship. The exemption cannot be applied to deliveries that take place at an earlier stage in a transaction chain. However, there is no requirement for the goods to be loaded directly on board the ship, but the exception applies even if the goods are placed in a warehouse before boarding.

Since the current exemption according to the VAT Directive is a so-called qualified exemption, the Tax Agency considers that the right to a refund for input tax for those who sell goods covered by the current exemption also applies with direct effect when a corresponding provision is missing in ML.

The position replaces the position “Exemption from tax liability for warships; VAT ”, 3 December 2018, no. 202 463042-18 / 111 . The position has only been supplemented with an assessment for the purpose of clarification that the right to a refund for input tax also applies with direct effect for those who sell goods covered by the current exemption.

2 Question

On 1 January 2018, the provisions in ML on exemptions from tax liability for ships were changed. The changes were implemented in order to harmonize the Swedish regulations with EU law. In the VAT Directive, however, there is an exemption from tax liability for bunkering, refueling and provisioning of warships, which still has no equivalent in ML.

The question is whether the directive’s exemption can be applied in Sweden, either through EU-compliant interpretation or through the directive’s regulation having direct effect.

The question is also whether the directive’s right to a refund of input tax for those who sell goods covered by the exemption from taxation for bunkering, refueling and provisioning of warships can be applied in Sweden, either through EU-compliant interpretation or by the directive’s regulation having direct effect.

3 Applicable law etc.

Taxation of goods for consumption and sale on board ships used on the high seas and carrying passengers for payment or used for commercial, industrial or fishing activities is exempt from tax (Chapter 3, Section 21 a, first paragraphs 4 and 5 and the second and third paragraphs). ML, compare Article 148 (a) of the VAT Directive).

Member States shall exempt from taxation the supply of goods for the bunkering, refueling and provisioning of warships of CN code (Combined Nomenclature) 8906 10 00 which leave the territory of the Member State and are destined for ports or anchorages outside that Member State (Article 148 (b) of the VAT Directive).

Until its provisions specifying the scope of the derogations in Article 148 enter into force, Member States may limit the scope of the derogations in Article 148 (a) and (b) (Article 150 of the VAT Directive).

To the extent that goods and services are used for the taxable transactions of a taxable person, he is entitled, in the Member State in which he carries out those transactions, from the VAT which he is liable to pay, inter alia: deduct VAT payable or payable in the Member State for goods supplied, or to be supplied, to him or for services supplied, or to be supplied to him by another taxable person (Article 168 of the VAT Directive).

A taxable person shall be entitled to a deduction or refund of the value added tax referred to in Article 168 in so far as the goods or services are used for transactions exempt from tax in accordance with Article 148 (b) (Article 169 (b) of the VAT Directive).

Provisions of the VAT Directive that are sufficiently clear, precise and unconditional have a direct effect. A rule of Union law that has direct effect always takes precedence over national law and must be applied regardless of what is stipulated in the national legal system. A directive is always addressed to the Member States and obliges them to achieve a certain objective in an appropriate way. Direct effect can therefore not be invoked by an authority for aggravating purposes against an individual (see, inter alia, 148/78 Ratti paragraphs 20-24, 8/81 Becker paragraphs 17, 18 and 25, 152/84 Marshall paragraph 48 and C-397 / 01 Pfeiffer and Others, paragraphs 103 and 108).

Although Member States have considerable room for maneuver in implementing certain provisions of the VAT Directive, individuals can successfully invoke those provisions of the Directive that are sufficiently clear, precise and unconditional (C-150/99, Stockholm Lindöpark, paragraph 31).

The activities covered by the exemption in Article 132 (1) (g) of the VAT Directive are set out in a sufficiently precise and unconditional manner (C-141/00, Kügler, paragraph 53).

The possibility provided for in Article 133 of the VAT Directive to impose one or more conditions for exemption from tax under Article 132 is only optional. A Member State which has failed to take the necessary measures in that regard may not rely on its failure to grant a taxable exemption if it is entitled to such an exemption under the VAT Directive (C-141/00, Kügler, paragraph 59). and 60).

The tax exemption for bunkering, refueling and provisioning of vessels is only applicable when the goods are provided to the operator of the vessel. However, the exemption can be applied even if storage takes place before loading on board, provided that the turnover takes place to the ship operator (C-185/89, Velker, paragraphs 22 and 30).

4 Assessment

4.1 EU-compliant interpretation and direct effect

Under Article 148 (b) of the VAT Directive, Member States are to exempt from tax the supply of goods for the bunkering, refueling and provisioning of warships. However, Member States may limit the scope of the derogation to the introduction of rules specifying the scope of the derogation. According to the Swedish Tax Agency’s assessment, the provisions of the directive mean that the exemption is mandatory for the Member States to introduce, but that the Member States may, if they so wish, restrict the scope, e.g. by limiting which goods may be covered.

ML lacks an exemption from tax liability that corresponds to the exemption for bunkering, refueling and provisioning of warships in the directive. In the opinion of the Swedish Tax Agency, it is not possible to achieve the result through an EU-compliant interpretation of ML that deliveries of goods relating to warships are covered by exemptions from tax liability. However, if the provision of the Directive is sufficiently clear, precise and unconditional, it can have direct effect. This means that the provision in the directive must be applied if the individual so requests, even though it has not been introduced in ML.

According to the Swedish Tax Agency’s assessment, the provision in the directive is clear and precise. The Swedish Tax Agency considers that the provision is also unconditional. Although there is a possibility for a Member State to restrict the derogation, this presupposes that the derogation as such has been introduced into national law. The case law of the European Court of Justice states that a provision of the Directive can have direct effect even if the Member States have a significant margin of maneuver in the implementation of the provision. This also applies if the Member States have the right to impose conditions on the application of the provision. The Swedish Tax Agency therefore considers that Article 148 (b) of the Directive has direct effect. The exception in the directive can therefore be applied by a company despite the fact that a corresponding provision is missing in ML.

4.2 Scope of the exemption

The exemption covers warships falling within CN code 8906 10 00. CN codes are the EU’s systematic list of goods in world trade.

The exception is applicable provided that the delivery of goods takes place to warships that are to leave the country and have a port or anchorage outside Sweden as their destination. There is no requirement for the warship to belong to a country other than Sweden. Deliveries to Swedish warships are also covered by the exemption from tax when these are destined for ports or anchorages outside Swedish territory.

The goods that can be covered are goods for bunkering, refueling and provisioning, which may be considered to include goods for consumption or sale on board.

The Swedish Tax Agency considers that the case law of the European Court of Justice, which refers to the exemption from tax liability for bunkering, refueling and provisioning of ships going on the high seas, also applies to corresponding deliveries to a warship. This means that the exemption can only be applied to deliveries of goods that take place directly to the person using the warship. The exemption cannot be applied to deliveries that take place at an earlier stage in a transaction chain. However, there is no requirement for the goods to be loaded directly on board the ship, but the exception applies even if the goods are placed in a warehouse before boarding.

4.3 Right to a refund of input tax

The exemption in Article 148 b of the VAT Directive is a so-called qualified exemption, which means that those who sell goods covered by the exemption in question have the right to a refund of input tax according to Article 169 b. The right to a refund of input tax applies to those within the country in an economic activity sells goods and services that are covered by the exemption provision. However, no provision on the possibility of refund of input tax relating to turnover exempted under Article 148 (b) of the Directive has been introduced in ML. The Swedish Tax Agency considers that the right to a refund cannot be achieved through an EU-compliant interpretation of ML. According to the Swedish Tax Agency’s assessment, however, the provision on the right to a refund in the directive is clear, precise and unconditional in the same way as the exemption provision.

4.4 Changes in the position

The position replaces the position “Exemption from tax liability for warships; VAT ”, 3 December 2018, no. 202 463042-18 / 111. The position has only been supplemented with an assessment for the purpose of clarification that the right to a refund for input tax also applies with direct effect for those who sell goods covered by the current exemption.

Source: skatteverket.se