Case C-227/21:

A Lithuanian company could not repay a loan it obtained to carry out a real estate development. As only a partial settlement had been done by the date of default, the property was transferred to The Creditor by issuing an invoice with a base and VAT amount. The output VAT was declared in the company’s return which was never paid to the Tax Authorities. The creditor deducted the VAT amount in their return. The Lithuanian Tax Authorities refused to allow the VAT deduction as the supplier had not paid the output VAT to the Authorities, owing to their financial difficulties. The Lithuanian Tax Authorities took the view that because The Creditor was aware that the Vendor would not remit the VAT arising from the sale of the immovable property in question, that the attempt to reclaim the VAT in question constituted an abuse of rights.

The CJEU did not agree with the stance of the Lithuanian Tax Authorities. As per the CJEU the right to deduct VAT can only be refused if the party had evaded tax or there was an abuse of the rights. Here, The Creditor did not attempt to abuse any rights. The CJEU expressed that EU rules allows, where implemented, the reverse charge procedure for similar types of transactions, which if enacted, would have prevented the above situation. Also, it is not illegal not to pay VAT due to financial difficulties.

Case C-98/21:

The case involved a holding company (“W”) which was supplying accounting and management services to two of its subsidiaries (“X and Y”) for which W received consideration. W was considered to be an “active” holding company and therefore, was entitled to recover input VAT on its purchases. Separately, W purchased services in connection with real estate projects of X and Y. W contributed those services to X and Y for no consideration. Instead, W would receive a share in the profits of X and Y.

The German Tax Authorities were uncertain whether W was entitled to deduct input VAT incurred on the services purchased and then contributed to X and Y. Although W qualified as a taxable person in respect of the accounting and management services provided, it was unclear whether there was a “direct and immediate” link between the real estate services contributed and W’s taxable activity.

The CJEU ruled that input VAT on services contributed was not deductible by W, as the Court did not find a “direct and immediate” link between the items contributed and any specific VAT-taxable supplies of W or as being part of W’s overheads, being cost components of the VAT-taxable activity of W. The Court rather applied a “look-through” to the destination of services routed through W before they were used by X and Y, concluding that the contributed services were linked to the VAT-exempt activity of X and Y.

Case C-267/21:

“U”, a Romanian company offered its customers motor vehicle insurance and travel insurance. U had various partners in different countries that provided cover for accidents outside Romania. U paid handling fees to its partners in different companies for the claims settlement services they had provided to clients on behalf of U. U also offers its clients health insurance for travel abroad.

On 1 April 2004, U entered into an agreement with a supplier for the provision of services including all organisational, technical and legal services for the handling and settlement of cases involving clients of U. Following a tax audit, a tax audit report and a tax assessment were raised whereby the Romanian Tax Authorities asserted that the place of supply for these services was were U is established, and by extension, U should have accounted for VAT on these services in Romania. U was assessed for additional VAT in relation to the services mentioned above on this basis.

U had not accounted for the VAT due on these services on the basis that the place of supply was where the supplier was located (i.e. a country outside of Romania). U did not agree with the view of the Romanian Tax Authorities.

The Romanian courts upheld part of the tax assessment but also annulled part of the tax assessment, on the basis that the applicant company had suffered damage as a result of unjustified duration of the tax audit. The decision was appealed to the CJEU, who concluded that claims settlement services provided by third-party partners, in the name and on behalf of an insurance company (such as U), do not come within the scope of the ‘services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, as well as data processing and the provision of information’. Consequently, it was ruled that U should have accounted for VAT on these services in Romania.

Case C-294/21:

A Luxembourg company (“N”) provides tourist navigation services between Germany and Luxembourg over which the Federal Republic of Germany and the Grand Duchy of Luxembourg exercise their joint sovereignty under Article 1 of the Treaty of 19 December 1984 (‘the German-Luxembourg Condominium’). On account of that situation, N had been regarded as falling outside the scope of VAT in Luxembourg. Consequently, the Luxembourg Tax Authority had not sought the payment of VAT on the sale of passenger transport tickets by N.

On 5 August 2015, that Luxembourg tax authority issued tax notices relating to N’s turnover for the years 2004 and 2005. The tax notices stated that the transport services carried out by N were considered to be subject to VAT in Luxembourg. The tax notices followed a judgment of the Court of Appeal, Luxembourg, in 2014 which concluded that VAT on passenger transport services in the German-Luxembourg Condominium may be collected either by the Grand Duchy of Luxembourg or by the Federal Republic of Germany. In the absence of taxation by the German tax authorities, there is no risk of double taxation.

After various appeals in Luxembourg, the question was then referred to the CJEU. The question posed centred around whether a Member State may tax passenger transport services carried out in a joint territory under the joint sovereignty of those Member States. The CJEU found that the Luxembourg Tax Authority could tax the transport services in question, on the basis that German Tax Authority has not exercised this right and double taxation is therefore avoided.

Case C-368/21:

In January 2019, “RT”, a Germany company, purchased, and registered a vehicle in Georgia. RT transported the same vehicle from Georgia to Germany. The vehicle was not declared at a customs office of importation. The German Tax Authorities raised an assessment for customs duties and import VAT.

RT has appealed against this assessment. The question was referred to the CJEU. The question is which country did import VAT have to be paid. More specifically, is the place of importation the Member State where the vehicle first entered the EU (Bulgaria), or in the Member State where the vehicle is destined to be used (Germany)?

The Court pointed out that, where imported goods are subject to customs duties, the Member States may link the chargeable event and the chargeability of the import VAT to that of the customs duties. Therefore, a VAT debt may arise from a customs debt where, on the basis of the conduct which gave rise to the customs debt, it can be presumed that the goods concerned have entered the economic circuit of the EU and could have been the subject of consumption.

Referring to previous case law, the Court of Justice ruled that it must be assumed that this vehicle, notwithstanding its first use and physical entry into the territory of the EU via Bulgaria, was actually intended for use in Germany. On this basis, it is deemed that the import took place into Germany.

This case makes it once again very clear that the customs and VAT rules cannot be applied on 'one-to-one' basis.

If you have any queries on Customs Duties, please reach out to Donna Hemphill or Goker Yuruk.