On August 7, 2018, the ECJ issued its decision in the Case C‑16/17 (TGE Gas Engineering GmbH).
Context: Reference for a preliminary ruling — Value added tax (VAT) — Deduction of input tax — Origin and scope of the right to deduct
Article in the EU VAT Directive
Articles 44, 45, 132(1)(f), 167, 168, 169, 178, 179 and 192a, 193, 194, 196 of the EU VAT Directive 2006/112/EC. Articles 10 and 11 of the Implementing Regulation 282/2011
Article 132 (Exemption)
1. Member States shall exempt the following transactions:
(f) the supply of services by independent groups of persons, who are carrying on an activity which is exempt from VAT or in relation to which they are not
taxable persons, for the purpose of rendering their members the services directly necessary for the exercise of that activity, where those groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to cause distortion of competition;
Article 167 (Right to deduct VAT)
A right of deduction shall arise at the time the deductible tax becomes chargeable.
Article 168 (Right to deduct VAT)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18 (a)and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.
- TGE Gas Engineering GmbH (“TGE Germany”), established in Germany, had presence in Portugal in two ways: (1) a Portuguese VAT registration as non-resident business without having a fixed establishment in Portugal; and (2) a Portuguese VAT registration for a fixed establishment in Portugal (“TGE Portugal”).
- TGE Germany, acting as non-resident business, established a group of cooperating companies (ACE) together with the Portuguese company Somague Engenharia SA (“Somague”). The ACE was VAT registered in Portugal as a separate taxable person with its own VAT registration.
- The ACE provided supplies for a project for expanding a terminal for liquefied natural gas. To this end, the ACE entered into a subcontracting agreement with TGE Portugal, whereby TGE Portugal supplying goods and services to the ACE and the latter charging the costs to TGE Portugal. Such a contract was also entered into between the ACE and Somague.
- The invoices issued by the ACE included Portuguese VAT. TGE Portugal deducted that VAT charged to it as input VAT in its Portuguese VAT Return.
- The Portuguese tax authorities the invoice issued by the ACE was issued to the wrong entity, and therefore the VAT could not be recovered. The ACE should have invoiced the costs to its member, being TGE Germany and not TGE Portugal.
Must Articles 44, 45, 132(1)(f), 167, 168, 169, 178, 179 and 192a, 193, 194 and 196 of the VAT Directive (Directive 2006/112), 1 Articles 10 and 11 of Implementing Regulation (EU) No 282/2011 2 and the principle of neutrality be interpreted as meaning that they preclude the Portuguese tax authorities from refusing the right to deduction of VAT by a branch of a German company, in circumstances where:
- the German company obtained a tax identification number in Portugal to carry out an isolated act, namely ‘acquisition of shares’, corresponding to a non-resident entity without a permanent establishment;
- subsequently, the branch of that German company was registered in Portugal and was assigned its own tax number, as a permanent establishment of that company;
- later, the German company, using the first identification number, entered into a contract with another company to establish an economic interest group (ACE) to carry out a works contract in Portugal;
- subsequently, the branch, using its own tax number, entered into a subcontract with the ACE, setting out the reciprocal services between the branch and the ACE and agreeing that the latter would invoice the subcontractors, in the agreed proportions, for the costs which it incurred;
- the ACE indicated the branch’s tax identification number in the debit notes it issued to invoice costs to that branch, and charged VAT;
- the branch deducted the VAT charged in the debit notes;
- the transactions of the ACE (by way of subcontracting) consist of the transactions of the branch and of the other company forming part of the ACE, these latter having invoiced to the ACE the entire revenue that the ACE invoiced to the developer?
Article 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that, in the absence of a taxable supply of goods or services, there is no right of deduction in the case where an Agrupamento Complementar de Empresas (Economic Interest Group) apportions the general costs of its business activity to a foreign company, which is a member, even though value added tax was wrongly paid on that sum and that sum was invoiced to the domestic branch of the member.
According to the ECJ, Portugal should have treated TGE German and TGE Portugal as the same legal entity, and it was not allowed to deny the recovery of input VAT.
“Articles 167 and 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, and the principle of neutrality must be interpreted as precluding the tax authority of a Member State from regarding a company which has its headquarters in another Member State and the branch which it has in the first of those States as constituting two separate taxable entities on the ground that each of those entities has a tax identification number, and, for that reason, from refusing that branch the right to deduct value added tax (VAT) on the debit notes issued by an economic interest group of which that company, and not its branch, is a member.”
- The German TGE Gas Engineering obtained a VAT number in Portugal as a non-resident company without a permanent establishment for the purpose of carrying out one transaction, namely the acquisition of company shares. Subsequently, TGE Portugal was registered as a non-resident company with a permanent establishment in the form of a branch and was assigned a VAT number.
- TGE Gas Engineering subsequently set up an economic partnership (ESV) with Somague Engenharia, for which it uses its own VAT number and not that of TGE Portugal. The ESV has been given its own VAT number. The aim of the EIG was to implement a project for the extension of the Sines liquefied natural gas terminal in Portugal for a Portuguese electricity company.
- In Portugal, EIGs are required to pass on to the founding parties profits or losses realized during the financial year, in the proportion agreed in the incorporation agreement. According to the agreement and the side letter concerning the EIG, 64.29% of the payment obligations and of the liabilities were borne by TGE Gas Engineering and the remaining 35.71 % by Somague Engenharia.
- TGE Portugal has concluded a subcontracting agreement with the EIG. This subcontracting agreement provides for reciprocal performance between TGE Portugal and the EIG, the latter having to pass on its costs to TGE Portugal.
- For allocating and passing on the costs, the EIG used the VAT number of TGE Portugal and not that of TGE Gas Engineering. The EIG therefore indicated the latter’s VAT number on the debit notes it sent to TGE Portugal and charged VAT on that basis. The EIG allocated 64.29 % of the costs to TGE Portugal. TGE Portugal subsequently deducted the VAT paid on the debit notes drawn up by the EIG.
- According to the Portuguese tax authorities, TGE Portugal was not a founding member of the EIG and the EIG could not allocate costs to TGE Portugal and therefore TGE Portugal could not deduct the VAT on those costs.
- According to the ECJ, a company with registered office in Member State A and a branch in Member State B should not be considered as two separate taxable persons because they each have a VAT number and therefore the branch should not be denied the right to draw up the VAT on the debit notes by deducting an EIG of which the parent company is a member, and not its branch.
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