ECJ VAT Cases MAY/JUNE 2007 - empcom.gov.in

ECJ VAT Cases
(2) Art. 8(1)(a) of Sixth Directive 77/388 must be interpreted
as meaning that the right to tax the supply
and laying of a fibre-optic cable linking two Member
States and sited in part outside the territory of the
Community is held by each Member State pro rata
according to the length of cable in its territory with
regard both to the price of the cable itself and the
rest of the materials and to the cost of the services
relating to the laying of the cable.
(3) Art. 8(1)(a) of Sixth Directive 77/388, read in conjunction
with Arts. 2(1) and 3 of that Directive, must
be interpreted as meaning that the supply and laying
of a fibre-optic cable linking two Member States is
not subject to VAT for that part of the transaction
which is carried out in the exclusive economic zone,
on the continental shelf and at sea.”
Judgment of 19 April 2007: Case C-455/05 Velvet &
Steel Immobilien und Handels GmbH v. Finanzamt
Hamburg-Eimsbüttel
In September 1998, Burmeister Immobilien GmbH sold
a plot of land with a rented apartment building. In July
1999, two individuals together undertook a similar
transaction. In the two sale contracts, the suppliers
undertook to carry out the renovation work needed on
the buildings concerned. The two individuals also
assumed a rent guarantee.
After the sales, the suppliers concluded, on 25 September
1998 and 12 July 1999 respectively, contracts with
Velvet & Steel entitled “assignment of a part of the purchase
price in return for assumption of obligations”. By
those contracts, Velvet & Steel assumed responsibility
for the suppliers’ obligation to renovate the buildings as
well as for the rent guarantee in return for a part of the
purchase price of those buildings. The two purchasers of
the buildings subsequently agreed to release Velvet &
Steel from its obligations in return for payment to them
of part of that fraction of the purchase price ceded to it.
The profit resulting from that transaction, with regard to
the contracts concluded with Burmeister and with the
two individuals concerned, remained with Velvet & Steel
as “payment or lump-sum compensation/indemnity in
respect of any loss of profit”. Velvet & Steel declared only
that profit as consideration for the services rendered, for
VAT purposes.
The tax administration took the view that the assumption
by Velvet & Steel of the obligation to renovate the
buildings was a service, which was subject to VAT. Velvet
& Steel appealed against that decision arguing that neither
of the two obligations which it had assumed had
actually been carried out.
In response to the question of the Finanzgericht Hamburg
(Germany) of whether the concept of the assumption
of obligations includes only pecuniary obligations
or also the assumption of other obligations, such as service
obligations, the ECJ (Third Chamber) declared on 19
April 2007 that:
“Art. 13(B)(d)(2) of Sixth Council Directive 77/388/EEC
of 17 May 1977 on the harmonization of the laws of the
Member States relating to turnover taxes – Common
system of value added tax: uniform basis of assessment
must be interpreted as meaning that the concept of
assumption of obligations excludes from the scope of
that provision obligations which are non-pecuniary,
such as the obligation to renovate a property.”
Court’s Orders
Court’s Order of 6 March 2007: Case C-168/06
Ceramika Paradyż sp. z oo v. Dyrektor Izby Skarbowej
w Łodzi
In its monthly VAT return for September 2003,
Ceramika Paradyż had reported the sale of a building for
a net price of PLN 168,578 and PLN 36,427 in VAT. Due
to a mistake in its VAT reporting system, the company
declared the same transaction again in its VAT return for
October 2003. After discovery of that mistake, the company
decreased the turnover reported in its VAT return
for November 2003 by PLN 168,578 and – as a result –
increased its excess input tax claim by PLN 36,427.
On discovery of the company’s mistake, the tax authorities
reversed its corrections and imposed an additional
tax liability of PLN 10,928 (30% of PLN 36,427). The tax
authorities did not deny that Ceramika Paradyż was
entitled to reclaim the amount paid through its return
for October but took the view that it should have corrected
its VAT return for October, not decreased its VAT
liability for November. Under the Polish VAT Law, the
30% additional tax liability is imposed on taxable persons
who have understated their output VAT liability or
overstated their input VAT claim in their VAT return.
For a description of the legal background of the case, see
the case note at pp. 227 of this issue.
Ceramika Paradyż disputed the imposition of the additional
tax liability and, in the course of the subsequent
proceedings before the Wojewódzki Sąd Administracyjny
(the Regional Administrative Court) in Łódź, that
regional court referred two questions to the ECJ on the
conformity of the national provision with Community
law.
Under Art. 104(3) of the ECJ’s Rules of Procedure, where
the answer to a question referred to the ECJ for a preliminary
ruling may be clearly deduced from existing case
law, the ECJ may, after hearing the Advocate General, at
any time give its decision by reasoned order in which
reference is made to its previous judgment or to the relevant
case law.
In this context, the ECJ observed that, according to the
order for reference, the national court wished to know
how the provisions of the First and Sixth Directives
must be interpreted for the purposes of its assessment of
whether or not the provision of national law under
which the additional tax liability is imposed is compatible
with Community law. In the case at hand, that liability
had been imposed by reason of an alleged incorrect
VAT return for a period (October 2003) prior to Poland’s
accession to the European Union (1 May 2004). Since
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