On May 2, 2019, the ECJ issued its decision in the case C-224/18 (Budimex) related to the tax point (chargeable event) of the payment for construction/installation works under ‘formal record of acceptance’
Article in the EU VAT Directive
Article 66 of the EU VAT Directive 2006/112/EC
Article 66
By way of derogation from Articles 63, 64 and 65, Member States may provide that VAT is to become chargeable, in respect of certain transactions or certain categories of taxable person at one of the following times:
(a) no later than the time the invoice is issued;
(b) no later than the time the payment is received;
(c) where an invoice is not issued, or is issued late, within a specified time no later than on expiry of the time-limit for issue of invoices imposed by Member States pursuant to the second paragraph of Article 222 or where no such time-limit has been imposed by the Member State, within a specified period from the date of the chargeable event.
The derogation provided for in the first paragraph shall not, however, apply to supplies of services in respect of which VAT is payable by the customer pursuant to Article 196 and to supplies or transfers of goods referred to in Article 67.
Facts
The dispute arose following a request from the company Budimex (hereinafter: the applicant) for a ruling with regard to the time of chargeability of the VAT for services in the field of construction and construction assembly. At the heart of the dispute is the question of when the tax on the service in question actually becomes chargeable: when the work in question is actually performed, or when the work performed is accepted by the contracting authority in the certificate of completion? The scope, timeframe and remuneration of the construction works have been agreed by the investor and the contractor under the FIDIC terms. In his ruling of 15.10.2014, the Minister of Finance partly confirmed the applicant’s position regarding the time of chargeability. For the rest, the Minister of Finance has determined that provisions of an agreement on the basis of which a company undertakes to carry out construction work are not relevant for determining when tax is due. The time of chargeability for the work performed in the field of construction and construction assembly would be the moment when the company issues the invoice and documents the work therein, or the moment when the invoice for partial work is issued. By decision of 30.07.2015, the administrative judge, in line with the position of the Minister of Finance in the contested interpretation, dismissed the applicant’s appeal. The court has indicated that since the national legislature has linked the chargeability of tax for construction and construction erection services to the issue of the invoice and it has linked the time of issue of the invoice to the operation of the service, the actual provision of the service will be decisive for the answer to the question when the construction and construction-erection services are provided. In doing so, the court addressed the fact that it is difficult to define what this “actual provision of the services” actually consists of. In determining this, consideration should be given to the concrete scope of the work ordered. In her appeal against this decision, the applicant requested that it be annulled in its entirety. To that end, it alleged a breach of substantive law, since it was allegedly wrongly assumed that in the specific situation in which the applicant finds itself, the ‘supply’ of the service concerned – as a result of which VAT becomes chargeable – could only relate to the time on which this service is “actually” provided.
Recital:
In view of the doubts arising under the provisions of the VAT Directive with regard to the taxation of services in the field of construction and construction assembly, the referring court has ruled that it will proceed to submit of preliminary questions.
Questions
In a situation where the parties to a transaction have agreed that payment for construction works or construction/installation works requires express acceptance by the client of their performance in the formal record of acceptance for the works, does the performance of services, for the purposes of Article 63 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, 1 in respect of such a transaction occur at the time of actual performance of the construction or construction/installation works, or at the time of acceptance of the performance of the works by the client, expressed in the formal record of acceptance?
AG Opinion
None
Decision
Point (c) of the first paragraph of Article 66 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, must be interpreted as not precluding, if an invoice relating to the performance of the service supplied is not issued or is issued late, the formal acceptance of that service from being regarded as the time when that service was supplied, where, as in the case in the main proceedings, the Member State provides that VAT is to become chargeable on expiry of a time limit running from the day when the service was supplied, provided, first, that the formality of acceptance was stipulated by the parties in the contract that binds them according to contractual terms reflecting the economic and commercial realities in the field in which the service is supplied and, second, that that formality constitutes the actual completion of the service and determines the amount of consideration due, which is for the referring court to ascertain.
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