(April 30, 2015) 

On April 30, 2015 the European Court of Justice (CJEU) ruled in Case C‑97/14 SMK kft versus Nemzeti Adó- és Vámhivatal Dél-alföldi Regionális Adó Főigazgatósága and Nemzeti Adó- és Vámhivatal (ECLI:EU:C:2015:290).

 

·        May Article 55 of the VAT Directive in force until 1 January 2010 be interpreted as referring only to those taxable persons receiving a supply of services who do not have, or are not required to have, an identification number for VAT purposes in the Member State of the place where the services are physically carried out?

 

·        If the first question is answered in the affirmative, is Article 52 of the VAT Directive exclusively applicable for determination of the place of supply of the services?

 

·        If the first question is answered in the negative, must Article 55 of the VAT Directive in force until 1 January 2010 be interpreted as meaning that, when the taxable person receiving the services covered by a contract has, or ought to have, a VAT identification number in more than one Member State, the decision of that recipient of the services exclusively determines the fiscal identification number under which he receives the supply of services (including cases in which the taxable person receiving the supply is deemed to be established in the Member State of the place of physical performance of the services, but also has a VAT identification number in another Member State)?

 

·        If the answer to the third question should be that the right to decide of the recipient of the supply of services is unlimited, must Article 55 of the VAT Directive be interpreted as meaning that:

 

       until 31 December 2009, it may be considered that the supply of services was performed under the VAT identification number indicated by the recipient of that supply, if the recipient also has the status of taxable person registered (established) in another Member State and the goods are dispatched or transported out of the Member State in which the supply has been physically carried out?

 

       the determination of the place of performance of the services is influenced by the fact that the recipient of the supply is a taxable person established in another Member State who delivers the finished goods by dispatching or transporting them out of the Member State in which the services have been supplied to an intermediate purchaser, who in turn resells the goods in a third Member State without the recipient of the contractual services transporting the goods back to his establishment?

 

·        If the recipient of the supply of services does not have an unlimited right to decide, do the following factors influence the applicability of Article 55 of the VAT Directive, in force until 1 January 2010:

 

       the circumstances in which the recipient of certain works carried out on goods acquires the appropriate raw materials and places them at the disposal of the person carrying them out;

 

       the Member State from which and the fiscal identification number under which the taxable person receiving the services effects delivery of the finished goods resulting from such works;

 

       the fact that — as occurs in the main proceedings — the finished goods resulting from such works are the subject of various deliveries as part of a chain of operations, still within the country in which the works are carried out, and that they are transported directly from that country to the final purchaser?

 

The dispute in the main proceedings and the questions referred for a preliminary ruling

 

·        As may be seen from the order for reference, SMK kft, a member of the SMK group of companies, is liable for VAT in Hungary and accordingly has a VAT identification number in Hungary. The group of companies also includes SMK UK Ltd, a company established in the United Kingdom which, until 30 July 2007, was registered for VAT both in the United Kingdom and in Hungary and had British and Hungarian VAT identification numbers. SMK Europe NV (‘SMK Europe’), a company established in Belgium and registered for VAT in Hungary, is also a member of the group and is responsible for marketing the group’s products in Europe.

 

·        From March 2002 SMK kft provided services in Hungary as a subcontractor to SMK UK Ltd. SMK UK Ltd purchased the raw materials and parts necessary for assembly of the finished products, which were remote controls for electronic apparatus. The machinery, equipment and tools were the property of SMK UK Ltd. SMK kft did not have its own stocks of raw materials or finished products, and confined itself to assembly of the remote controls.

 

·        After assembly, the finished products remained on the premises of SMK kft, while the recipient of the services, SMK UK Ltd, sold them to SMK Europe, which then sold them on to purchasers established in another Member State or a non-member country. SMK kft was entrusted by SMK UK Ltd with the delivery of the products to the purchasers. The invoices drawn up for those sales, which functioned as transport documents, were issued by SMK UK Ltd in the name of the purchaser of the finished products, SMK Europe, but the products were sent directly to the end purchasers within the European Union or in non-member countries to whom SMK Europe had resold the products. In all cases the finished products left Hungarian territory and were never transported to the United Kingdom.

 

·        SMK kft, as consideration for the services provided, invoiced the manufacturing price of the finished products to SMK UK Ltd without tax and with the words ‘outside the territorial scope of VAT’. In the invoices it mentioned the British VAT identification number of SMK UK Ltd.

 

·        The Inspection Department for large taxpayers of the Békés Provincial Tax Directorate of the National Tax and Customs Administration (‘the first-tier tax authority’) carried out an investigation of the VAT returns made by SMK kft for the period from 1 January to 31 December 2007.

 

·        Following that investigation, the first-tier tax authority found that the place of supply of the contractual services in question was the place where the services were physically carried out, namely Hungary. More precisely, it found that SMK kft had not shown that the finished products had been dispatched out of Hungary, so that it was not possible to regard the United Kingdom as the place of supply of services. The tax authority therefore found that there was a tax debt of 27 712 000 Hungarian forints (HUF) and ordered SMK kft to pay it.

 

·        SMK kft contested the first-tier tax authority’s decision before the Főigazgatóság, arguing that the conditions laid down by Article 15/A(12) and (13) of the VAT Law were satisfied, so that the contractual services at issue in the main proceedings could be invoiced without VAT as legal transactions outside the territorial scope of the VAT Law. It submitted that there was no obligation to transport the finished products to the Member State of the recipient of the services.

 

·        By its decision of 10 December 2012, the Főigazgatóság as second-tier tax authority confirmed the decision of the first-tier tax authority. It found that the finished products had been sold by SMK UK Ltd to SMK Europe before being transported, while they were still in Hungarian territory. In those circumstances, it considered that the transport of those goods was a consequence of their sale, not of the supply of contractual services.

 

·        In addition, the first-tier tax authority investigated the VAT and corporation tax returns for 2008 and 2009 and January to March 2010. During that period SMK kft likewise performed contractual services for SMK UK Ltd, for which it did not invoice VAT.

 

·        Following a review of that investigation, the Director General of the Főigazgatóság found that SMK kft owed a tax debt of HUF 107 616 000 and imposed a tax fine of HUF 21 523 000 and a penalty for delay of HUF 38 208 000. It considered that, pursuant to Articles 42(1)(b) and 45 of the new VAT Law, the place of performance of the contractual services supplied by that company during that period was situated in Hungary.

 

·        SMK kft contested the first-tier tax authority’s decision before the NAV, which, by decision of 8 January 2013, confirmed that decision, taking the view that the place of performance of the contractual services was in Hungary.

 

·        SMK kft brought administrative law proceedings against the decision of the Főigazgatóság of 10 December 2012 and the decision of the NAV of 8 January 2013 before the referring court. As regards, first, the decision of the Főigazgatóság, SMK kft submitted in particular that, for determining the place of performance of the services consisting of work carried out on goods, Article 55 of the VAT Directive does not require those goods to be delivered in the Member State of the recipient of the services. In its view it suffices that they have been transported or dispatched out of the Member State in which their manufacture has been completed.

 

·        SMK kft stressed that, after it had supplied the services, the finished products, which were sold to purchasers in Member States other than Hungary, necessarily left Hungarian territory. The fact that the recipient of the services, SMK UK Ltd, was also registered in the Hungarian VAT register in 2007 did not mean that it received the services under a Hungarian VAT identification number, since its principal activity was linked to an establishment in another Member State. SMK kft considered that Article 15/A(14) of the VAT Law was contrary to the VAT Directive.

 

·        The Főigazgatóság argued that SMK kft had been required to account for the services under its Hungarian VAT identification number, as the sales of the finished products resulting from the work done by SMK kft had taken place in Hungary. It followed, in its view, that the place of supply of the services was deemed to be within Hungarian territory, and the supplies were not therefore outside the territorial scope of the VAT Law. The transport of the finished products had no effect on the fact that, once the services had been carried out, SMK kft was liable to pay VAT.

 

·        As regards, secondly, the decision of the NAV of 8 January 2013, SMK kft argued that the obligation to pay VAT could not be deduced from the VAT Directive without adopting an interpretation contrary to the directive. It was for the recipient of the services to decide who should bear the tax obligation. Finally, the refusal to apply the fiscal exception to the services in question breached the principles of the territoriality and neutrality of VAT.

 

·        The NAV argued that, in order to apply the exception laid down in Article 55 of the VAT Directive, it had to be examined whether the recipient of the contractual services had or should have had a VAT identification number in Hungary. It stated in this respect that the finished products assembled by SMK kft were not dispatched to the Member State in whose territory SMK UK Ltd is established, but were sold in Hungary, so that Hungary was to be regarded as the place where the sale by SMK UK Ltd took place.

 

·        In those circumstances, the Gyulai Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, Gyula) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

1.      May Article 55 of the VAT Directive in force until 1 January 2010 be interpreted as referring only to those taxable persons receiving a supply of services who do not have, or are not required to have, an identification number for VAT purposes in the Member State of the place where the services are physically carried out?

2.      If the first question is answered in the affirmative, is Article 52 of the VAT Directive exclusively applicable for determination of the place of supply of the services?

3.      If the first question is answered in the negative, must Article 55 of the VAT Directive in force until 1 January 2010 be interpreted as meaning that, when the taxable person receiving the services covered by a contract has, or ought to have, a VAT identification number in more than one Member State, the decision of that recipient of the services exclusively determines the fiscal identification number under which he receives the supply of services (including cases in which the taxable person receiving the supply is deemed to be established in the Member State of the place of physical performance of the services, but also has a VAT identification number in another Member State)?

4.      If the answer to the third question should be that the right to decide of the recipient of the supply of services is unlimited, must Article 55 of the VAT Directive be interpreted as meaning that:

       until 31 December 2009, it may be considered that the supply of services was performed under the VAT identification number indicated by the recipient of that supply, if the recipient also has the status of taxable person registered (established) in another Member State and the goods are dispatched or transported out of the Member State in which the supply has been physically carried out?

       the determination of the place of performance of the services is influenced by the fact that the recipient of the supply is a taxable person established in another Member State who delivers the finished goods by dispatching or transporting them out of the Member State in which the services have been supplied to an intermediate purchaser, who in turn resells the goods in a third Member State without the recipient of the contractual services transporting the goods back to his establishment?

5.      If the recipient of the supply of services does not have an unlimited right to decide, do the following factors influence the applicability of Article 55 of the VAT Directive, in force until 1 January 2010:

       the circumstances in which the recipient of certain works carried out on goods acquires the appropriate raw materials and places them at the disposal of the person carrying them out;

       the Member State from which and the fiscal identification number under which the taxable person receiving the services effects delivery of the finished goods resulting from such works;

       the fact that — as occurs in the main proceedings — the finished goods resulting from such works are the subject of various deliveries as part of a chain of operations, still within the country in which the works are carried out, and that they are transported directly from that country to the final purchaser?

 

The CJEU ruled as follows:

 

Article 55 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, in the version in force until 1 January 2010, must be interpreted as not applying in circumstances such as those at issue in the main proceedings in which the recipient of the supplies of services was identified for VAT purposes both in the Member State in which the services were physically carried out and in another Member State, and later only in the other Member State, and the tangible movable property to which those services related was dispatched or transported out of the Member State in which the services were physically carried out not following the supplies of services but following the later sale of the goods.

 

For further information click here to be forwarded to the text of the ruling as published on the website of the CJEU, which will open in a new window.

 

Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).

 

 

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