ECJ C-605/20 (Suzlon Wind Energy Portugal) – Question – VAT treatment of “free” warranty repairs

On 17 November 2020, the Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal) raised questions to the ECJ about whether the services supplied by appellant to a company which has its registered office in India and is a member of the same group [as the appellant], as part of the supply of material to repair or replace, during the warranty period, wind turbine blades manufactured and supplied by the latter company to the former, are subject to VAT.  Whether the interpretation of subjection to VAT adopted by the Portuguese Tax Administration in Circular No 49424 of 4 May 1989 of the Direção de Serviços do IVA (Directorate for VAT Services) complies with EU law, more specifically with Article 2(1) of the VAT Directive (Directive 77/388/EEC)).

Article in the EU VAT Directive

Article 2(1) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1) and judgment of the Court of Justice of 29 April 2004, EDM (C-77/01)


I Is an interpretation to the effect that repairs carried out during the ‘warranty period’ are regarded as exempt transactions only where they are made free of
charge and in so far as they are tacitly included in the sale price of the product covered by the warranty, with the result that supplies of services which are made during the warranty period (whether or not they involve the use of materials) and which form the subject of invoices are to be regarded as subject to VAT, on the ground that they must necessarily be classified as supplies of services for consideration, compliant with EU law?

II Must the issuing of a debit note to a supplier of wind turbine components with a view to obtaining reimbursement of the costs which the purchaser of those
products has incurred during the warranty period in replacing components (new imports of products from the supplier to which VAT was applied and which gave rise to a right to deduct input tax) and repairing them (by purchasing from third parties services on which VAT was charged), in the context of the supply to third parties of services in connection with the installation of a wind farm by that purchaser (a member of the same group [of companies] as the vendor, which is established in a third country), be classified as a mere transaction for passing on costs and, as such, exempt from VAT, or as a supply of services for consideration which must give rise to a charge to tax?






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