ECJ Case C‑475/17 (Viking Motors) – Judgment – Local sales tax to be regarded ‘turnover tax’

Judgment of 7 August 2018 in Case C‑475/17 – Viking Motors and Others

Simplified Facts:

  • Estonian law allows local authorities to introduce a tax on sales as a local tax. Viking Motors had paid this tax, but had requested for repayment of the amounts already paid for that tax, believing that they had unduly paid the sales tax. According to Viking Motors, the local sales tax was an infringement of Article 401 of the VAT Directive.
  • The Estonian Supreme Court considered that, even though, from a formal point of view, the sales tax at issue did not have the third and fourth characteristics of VAT for the purposes of the case-law of the Court (since it is not charged at each stage of the production and distribution process and it does not give rise to a deduction of the tax paid at an earlier stage), the application of that sales tax, in essence, achieved the same objective as that which would have been achieved by virtue of the third and fourth characteristics. Thus, the fiscal burden of that sales tax was ultimately borne by the consumer.
  • The questions asked to the ECJ concern, in essence, whether Article 401 of the VAT Directive must be interpreted to the effect that it precludes the maintenance or introduction of a local sales tax such as the one at issue in the main proceedings.


The ECJ considers that Article 401 of the VAT Directive does not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties or, more generally, any taxes, duties or charges, which cannot be characterised as turnover taxes, provided that the collecting of those taxes, duties or charges does not give rise, in trade between Member States, to formalities connected with the crossing of frontiers.

In order for a tax to be regarded a ‘turnover tax’, it appears from case-law that there are four characteristics that must be met.

  • It must generally apply to transactions relating to goods or services;
  • It is proportional to the price charged by the taxable person in return for the goods and services which he has supplied;
  • It is charged at each stage of the production and distribution process, including that of retail sale, irrespective of the number of transactions which have previously taken place; and
  • The amounts paid during the preceding stages of the production and distribution process are deducted from the VAT payable by a taxable person, with the result that the tax applies, at any given stage, only to the value added at that stage and the final burden of that tax rests ultimately on the consumer.

In this case, a tax such as the sales tax at issue in the main proceedings cannot be characterised as a turnover tax within the meaning of Article 401 of the VAT Directive.

Source: Curia