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Flashback on ECJ cases – C-35/05 (Reemtsma Cigarettenfabriken) – No refund of VAT via 8th VAT Directive if not legally due, but ….

On March 15, 2007, the ECJ issued its decision in the case C-35/05 (Reemtsma Cigarettenfabriken).

Context: Eighth VAT Directive – Articles 2 and 5 – Taxable persons not established in the territory of the country – Tax paid in error – Arrangements for reimbursement


Article in the EU VAT Directive

 Article 2 of the Eighth Directive states:

‘Each Member State shall refund to any taxable person who is not established in the territory of the country but who is established in another Member State, subject to the conditions laid down below, any value added tax charged in respect of services or movable property supplied to him by other taxable persons in the territory of the country or charged in respect of the importation of goods into the country, in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of Directive 77/388/EEC and of the provision of services referred to in Article 1(b).’

The first paragraph of Article 5 of the Eighth Directive provides:

‘For the purposes of this Directive, goods and services in respect of which tax may be refundable shall satisfy the conditions laid down in Article 17 of Directive 77/388/EEC as applicable in the Member State of refund.’


Facts

  • Reemtsma is a company whose principal place of business is in Germany and which has no permanent establishment in Italy. In 1994 an Italian firm provided Reemtsma with advertising and marketing services on which it charged VAT amounting to a total of LIT 175 022 025.
  • The VAT was charged to Reemtsma and paid to the Italian tax authorities.
  • Reemtsma thus sought partial reimbursement of the two sums of VAT paid for the year 1994 which it considered it had paid unduly, since the services at issue had been supplied to a taxable person established in a Member State other than the Italian Republic, namely Germany. Therefore, the VAT was payable in that latter Member State.
  • The national tax authorities refused that reimbursement. Reemtsma then challenged that refusal before the Italian courts. Both at first instance and on appeal, the action was dismissed on the ground that the invoices issued related to advertising and marketing services which are not subject to VAT since they concern advertising and marketing services that were not subject to VAT because the condition as to territory was not fulfilled inasmuch as those services were supplied to a person taxable in another Member State.

Questions

1)    Must Articles 2 and 5 of the Eighth Council Directive 79/1072/EEC of 6 December 1979, in so far as they make reimbursement to a non-resident recipient of goods or services conditional on use of the goods and services for the purposes of taxable transactions, be interpreted as meaning that even VAT that is not due, has been charged incorrectly as output tax and paid to the revenue authorities is refundable? If the answer is in the affirmative, is a national provision which precludes reimbursement to a non-resident recipient of goods or services on the ground that the tax charged and paid although not due is not deductible contrary to the abovementioned provisions?
2)    In general, is it possible to infer from the uniform Community rules that the recipient of goods or services is the person liable for payment of tax to the revenue authorities? Is it compatible with those rules and in particular with the principles of neutrality of VAT, effectiveness and non-discrimination, not to grant under domestic law to a recipient of goods or services who is subject to VAT and who is treated under national law as being subject to the obligations of invoicing and payment of the tax, a right against the revenue authorities to claim reimbursement in cases where tax that is not due is charged and paid? Are national rules – as interpreted by the national courts – under which a recipient of goods or services may bring an action only against the transferor or provider of the service and not against the revenue authorities, despite the existence of a case of substitution of that kind under domestic law in relation to direct taxes where both parties (the withholding agent and the taxpayer) are entitled to apply to the revenue authorities for reimbursement, contrary to the principles of effectiveness and non-discrimination in the matter of reimbursement of VAT collected in breach of Community law?

AG Opinion

(1)      Articles 2 and 5 of Eighth Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in the territory of the country are to be interpreted as meaning that VAT which is due solely because it is mentioned on the invoice does not meet the requirements for a refund under the provisions of that directive.

(2)      In principle only the supplier is to be regarded as liable to the tax authorities for VAT on a transaction, and consequently as entitled to seek reimbursement of tax paid in error. Where, exceptionally, another person is liable by virtue of Community or authorised national provisions, that person may seek reimbursement, from the tax authorities to which he was liable, of any tax paid in error by him.

(3)      Where VAT which was not due in a transaction has been invoiced and paid to the tax authorities by a supplier, who would have been liable to pay that tax if it had been due, it is in principle sufficient, in compliance with the principles of the neutrality of VAT and the effectiveness of national rules on the reimbursement of taxes collected contrary to Community law, for national procedures to allow that supplier to seek reimbursement of the amount from those authorities, and to allow the customer in the same transaction to recover that amount from the supplier in a civil action. Where however success in such a civil action is precluded by material circumstances unrelated to the merits of the claim, national law must provide, in compliance with the principle of neutrality of VAT, the principle of effectiveness and the prohibition of unjust enrichment on the part of the tax authorities, for a means whereby the customer who has borne the burden of the amount invoiced in error may recover that amount from the tax authorities. In any event, if a claim is available to a customer in such a transaction who is established within the Member State in question, it must also be available to a customer established in another Member State.

(4)      The fact that under national law a claim against the tax authorities for reimbursement of an amount of direct tax withheld and paid in error is available to both the withholding party and the party from whom the amount is withheld is not in principle relevant when assessing the compatibility with the principle of equivalence of a situation in which only the supplier and not the customer in a transaction may seek reimbursement from the tax authorities of an amount of VAT invoiced and paid in error.


Decision

1.      Articles 2 and 5 of Eighth Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in the territory of the country, must be interpreted as meaning that value added tax that is not due and has been invoiced in error to the beneficiary of the services and paid to the tax authorities of the Member State where those services were supplied, is not refundable under those provisions.

2.      Except in the cases expressly provided for in Article 21(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, as amended by Council Directive 92/111/EEC of 14 December, only the supplier must be considered to be liable for payment of value added tax for the purposes of the tax authorities of the Member State where the services were supplied.

3.      The principles of neutrality, effectiveness and non-discrimination do not preclude national legislation, such as that at issue in the main proceedings, according to which only the supplier may seek reimbursement of the sums unduly paid as value added tax to the tax authorities and the recipient of the services may bring a civil law action against that supplier for recovery of the sums paid but not due. However, where reimbursement of the value added tax would become impossible or excessively difficult, the Member States must provide for the instruments necessary to enable that recipient to recover the unduly invoiced tax in order to respect the principle of effectiveness.

This ruling shall not be affected by national legislation on direct taxation.


Personal comments/VATupdate 

Articles 2 and 5 of the Eighth Directive must be interpreted as meaning that undue VAT, incorrectly charged to the recipient of services, and subsequently paid to the treasury of the Member State where those services were provided, is not recoverable under those provisions.

Save in the cases expressly provided for in Article 21(1) of the Sixth Directive  , only the supplier of services must be regarded as liable to pay the VAT to the tax authorities of the Member State where the services are provided.

The principle of neutrality, the principle of effectiveness and the principle of non-discrimination do not preclude national legislation such as that at issue in the main proceedings, according to which only the supplier of the services may apply to the tax authorities for a refund of sums unduly paid by way of VAT and the service recipient can reclaim the unduly paid amount from the service provider through civil law. However, if VAT refund becomes impossible or excessively difficult, Member States should provide the means for the recipient of services to recover the incorrectly invoiced VAT, in order to comply with the principle of effectiveness.

The national legislation in the field of direct taxation does not affect this answer.


Source


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