ECJ Case C-16/17 (TGE Gas Engineering) – Judgment – Cost recharged via branch, deduction of input VAT

Judgment of 7 August 2018 in In Case C‑16/17 – TGE Gas Engineering GmbH

Simplified facts:

  • 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.

Judgment of the ECJ:

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.”

Source: Curia