(April 23, 2015)
On April 23, 2015 the European Court of Justice (CJEU) ruled in Case C‑111/14 GST — Sarviz AG Germania versus Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ Plovdiv pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite (ECLI:EU:C:2015:267).
· Must Article 193 of [the VAT Directive] be interpreted as meaning that either the taxable person who makes taxable supplies of goods or services, or the person who purchases the goods or receives the services, is exclusively liable for the VAT, where the taxable supply of goods or services is carried out by a taxable person who is not established in the Member State in which the VAT is payable, in so far as that is provided for by the Member State concerned, but not that both persons are simultaneously liable for that tax?
· In so far as it is to be assumed that only one of the two persons is liable for the VAT — either the supplier/service provider or the purchaser/recipient — where that is provided for by the Member State concerned, is the rule in Article 194 of the [VAT Directive] also applicable to cases in which the recipient of the services wrongly applied the reverse charge procedure because it assumed that the service provider had not created a fixed establishment for the purposes of VAT in the territory of the Republic of Bulgaria, although the service provider had in fact created a fixed establishment in relation to the services supplied?
· Must the principle of fiscal neutrality, which is of fundamental importance for the establishment and functioning of the common system of VAT, be interpreted as meaning that it permits a tax audit practice, such as that in the main proceedings, in accordance with which the VAT was also payable by the service provider despite the reverse charge procedure applied by the recipient of the supply of services, where account is taken of the fact that the recipient had already calculated the tax for the supply of services, that there is no risk of any loss of tax revenue and that the system for correction of tax documents provided for under national law is not applicable?
· Must the principle of VAT neutrality be interpreted as meaning that it does not permit the tax authorities, on the basis of a national provision, to refuse to grant the provider of a service, in respect of which the recipient has calculated the VAT in accordance with Article 82(2) of the ZDDS, a refund of the VAT that has been paid twice, where the tax authorities have refused to grant the recipient the right to deduct the VAT paid twice on account of the absence of the corresponding tax document, but the system for correction provided for under national law on the basis of the present binding tax adjustment notice is no longer applicable?
The dispute in the main proceedings and the questions referred for a preliminary ruling
· In the period from 15 February to 29 December 2010, GST-Sarviz, established in Germany, provided technical and consultancy services to GST Skafolding Bulgaria EOOD (‘GST Skafolding’), which is established in Bulgaria. Proceeding on the basis that GST-Sarviz did not have a fixed establishment in Bulgaria when it supplied its services during the period at issue, GST Skafolding paid the VAT due on the supply of those services under the reverse charge procedure provided for in Article 82(2) of the ZDDS. In that respect, in accordance with Article 117(1) of the ZDDS, GST Skafolding issued protocols relating to the invoices issued by GST-Sarviz, and those protocols were entered in the sales ledger.
· By a tax adjustment notice of 12 March 2012, the Bulgarian tax authorities found that GST-Sarviz had a fixed establishment within the meaning of paragraph 1(10) of the additional provisions of the ZDDS throughout the period during which it supplied its services to GST Skafolding, and that GST-Sarviz was liable for payment of the VAT in respect of those services. It concluded that GST-Sarviz should have applied to be registered for VAT by 15 February 2010 at the latest. Consequently, the tax authorities considered that GST-Sarviz was liable for the payment of VAT of BGN 224 914.89, together with interest on late payment, for the services supplied from 15 February to 29 December 2010.
· GST-Sarviz paid the sum claimed by the tax authorities on 26 March 2012 and, on 5 September 2012, submitted an application for the tax paid to be offset or refunded on the basis of Article 129(1) of the Code of Tax and Social Security Procedures.
· In their decision concerning offsets or refunds of 1 October 2012, the tax authorities refused the refund on the ground that the legal conditions for a refund of the VAT were not satisfied in the present case. According to them, since the tax adjustment notice is a valid administrative act, and in the absence of an enforceable court order or relevant administrative decision for the purposes of Article 129(5) of the Code of Tax and Social Security Procedures, the tax paid could not be regarded as being not due and be repaid.
· GST-Sarviz challenged that decision before the Director. By decision of 21 December 2012, the Director dismissed that challenge, finding that the contested act was lawful on the grounds on which it had been adopted. An action against that decision was brought before the Administrativen sad Plovdiv (Administrative Court, Plovdiv). It too was dismissed for the same reasons as those relied on by the tax authorities. GST-Sarviz lodged an appeal on a point of law with the Varhoven administrativen sad (Supreme Administrative Court).
· The referring court points out that the tax authorities refused GST Skafolding the right of deduction in respect of the VAT which it had paid, because it did not have the corresponding tax document required by Article 71(1)(1) of the ZDDS. Under Bulgarian legislation, the existence of a tax adjustment notice such as that at issue, dated 12 March 2012, makes any adjustment of tax documents impossible. GST Skafolding thus found itself without the valid tax document that would confer the right of deduction.
· The referring court also notes that the fact that the VAT was paid twice, once by the supplier and once by the recipient, and that the supplier was denied a refund, and the recipient, a deduction of that tax, is contrary to the principle of the neutrality of VAT. According to the referring court, the refusal of a refund has the effect of transferring the fiscal burden to the supplier.
· Although it notes that there has been no interpretation of Articles 193 and 194 of the VAT Directive that might be useful in the circumstances of the present case, the referring court refers to the judgment in ADV Allround (C‑218/10, EU:C:2012:35), according to which, in the absence of procedural rules in the national legal order, the right of the supplier of a service and that of the recipient in a transaction to be treated identically with regard to taxability of that service and to liability to VAT in respect of it would in practice be rendered totally ineffective. As regards the principle of fiscal neutrality, the referring court refers to the interpretation given by the Court of Justice in its judgment in Rusedespred (C‑138/12, EU:C:2013:233).
· In those circumstances, the Varhoven administrativen sad decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
1) Must Article 193 of [the VAT Directive] be interpreted as meaning that either the taxable person who makes taxable supplies of goods or services, or the person who purchases the goods or receives the services, is exclusively liable for the VAT, where the taxable supply of goods or services is carried out by a taxable person who is not established in the Member State in which the VAT is payable, in so far as that is provided for by the Member State concerned, but not that both persons are simultaneously liable for that tax?
2) In so far as it is to be assumed that only one of the two persons is liable for the VAT — either the supplier/service provider or the purchaser/recipient — where that is provided for by the Member State concerned, is the rule in Article 194 of the [VAT Directive] also applicable to cases in which the recipient of the services wrongly applied the reverse charge procedure because it assumed that the service provider had not created a fixed establishment for the purposes of VAT in the territory of the Republic of Bulgaria, although the service provider had in fact created a fixed establishment in relation to the services supplied?
3) Must the principle of fiscal neutrality, which is of fundamental importance for the establishment and functioning of the common system of VAT, be interpreted as meaning that it permits a tax audit practice, such as that in the main proceedings, in accordance with which the VAT was also payable by the service provider despite the reverse charge procedure applied by the recipient of the supply of services, where account is taken of the fact that the recipient had already calculated the tax for the supply of services, that there is no risk of any loss of tax revenue and that the system for correction of tax documents provided for under national law is not applicable?
4) Must the principle of VAT neutrality be interpreted as meaning that it does not permit the tax authorities, on the basis of a national provision, to refuse to grant the provider of a service, in respect of which the recipient has calculated the VAT in accordance with Article 82(2) of the ZDDS, a refund of the VAT that has been paid twice, where the tax authorities have refused to grant the recipient the right to deduct the VAT paid twice on account of the absence of the corresponding tax document, but the system for correction provided for under national law on the basis of the present binding tax adjustment notice is no longer applicable?
The CJEU ruled as follows:
1. Article 193 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/88/EU of 7 December 2010, must be interpreted as meaning that the only person liable to pay the value added tax is the taxable person supplying services, where those services were supplied from a fixed establishment located in the Member State in which the value added tax is payable.
2. Article 194 of Directive 2006/112, as amended by Directive 2010/88, must be interpreted as not permitting the tax authorities of a Member State to regard as liable for the payment of value added tax the recipient of services supplied from a fixed establishment of the supplier, where both the latter and the recipient of those services are established in the territory of the same Member State, even if that recipient has already paid that tax on the mistaken assumption that the supplier did not have a fixed establishment in that State.
3. The principle of the neutrality of value added tax must be interpreted as precluding a national provision which permits the tax authorities to refuse to grant the supplier of services a refund of the value added tax which the supplier has paid, when the recipient of those services, who has also paid the value added tax in respect of the same services, is refused the right of deduction on the ground that that recipient did not have the corresponding tax document, any adjustment of tax documents being precluded under national law where a definitive tax adjustment notice exists.
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.
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