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Flashback on ECJ Cases – C-589/12 (GMAC UK) – Reduction of the taxable amount. Two transactions concerning the same goods. Abuse of rights.

On September 3, 2014, the ECJ issued its decision in the case C-589/12 (GMAC UK).

This is a very important case with regard to the interaction between the Sixth VAT Directive and National Legislation, see HERE

Point 29 of the Decision:

 It should be recalled that, according to settled case-law of the Court, whenever the provisions of a directive appear, so far as their subject-matter is concerned, to be unconditional and sufficiently precise, they may be relied upon before the national courts by individuals against the State where the latter has failed to implement the directive in domestic law by the end of the period prescribed or where it has failed to implement the directive correctly (judgment in Almos Agrárkülkereskedelmi, C‑337/13, EU:C:2014:328, paragraph 31 and the case-law cited).

Context: Reference for a preliminary ruling — VAT — Sixth Directive 77/388/EEC — Article 11C(1), first subparagraph — Direct effect — Reduction of the taxable amount — Two transactions concerning the same goods — Supply of goods — Cars, sold on a hire purchase basis, repossessed and sold at auction — Abuse of rights


Article in the EU VAT Directive

Article 11(C)(1) of the Sixth VAT Directive (equivalent to Art. 90 of the EU VAT Directive 2006/112/EC

 Article 11A of the Sixth Directive, which concerned the taxable amount within the territory of the country, provided:

1.      The taxable amount shall be:

(a)      in respect of supplies of goods and services …, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;

Article 11C of the Sixth Directive, which contained miscellaneous provisions, provided, in paragraph 1:

In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.

Article 90 (2006/112/EC) (Taxable amount)
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.
2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.


Facts

  • GMAC is a company registered for VAT which carries on a business of, amongst other things, selling motor cars on deferred payment terms.
  • When sales are made in that way a consumer chooses a vehicle from a dealer and requests an individual financing arrangement. He is then directed to hire purchase companies, such as GMAC. When there is agreement between the three parties, the dealer sells the car to the hire purchase company and that company then supplies the car, under a hire purchase contract, to the final consumer.
  • The sale of the cars by the car dealers to GMAC was subject to VAT at the standard rate. The provision of the cars by GMAC to the final customers under hire purchase contracts was also subject to VAT at the standard rate. If the hire purchase customer defaulted, GMAC would repossess the vehicle and sell it at auction. The auction proceeds were deducted from the balance of the customer’s outstanding monthly payments.
  • The supply of a motor car under a hire purchase contract was regarded for VAT purposes as a supply of goods. VAT became payable on the supply of the car by GMAC to the final customers in respect of the total amount due (excluding the finance charge). If the car was subsequently repossessed and sold at auction, then, by virtue inter alia of Article 4 of the Cars Order, the auction sale was treated as neither a supply of goods nor a supply of services.
  • It had always been accepted by the Commissioners that, if there was a consensual termination of a hire purchase contract relating to a motor car following which the car was sold, Regulation 38 of the VAT Regulations 1995 applied, with the result that GMAC was to be treated as having made the hire purchase supply in return for a consideration reduced by the amount of the sale proceeds. However, until the decision of the High Court of Justice of England and Wales, Chancery Division, in C&E Commissioners v GMAC [2004] STC 577 (‘C&E Commissioners v GMAC’), the Commissioners had not accepted that the same rule applied when the hire purchase customer defaulted and the car was repossessed and sold at auction by GMAC.
  • However, since that decision, Regulation 38 of the VAT Regulations 1995 has also applied where the hire purchase customer defaults and the car is sold at auction by GMAC. The High Court of Justice also considered that the Cars Order applied as well, with the result that GMAC does not have to pay VAT on the auction proceeds. The referring court points out in that regard that the application of those provisions, taken together, produces a ‘windfall’ in that the VAT ultimately payable is less than it would have been if the Sixth Directive had been correctly implemented.
  • GMAC then brought a further set of proceedings, which also covers the period from 1978 to 1997 and is based wholly on the direct effect of the Sixth Directive. The claim now made concerns that part of the consideration for the supply of the motor car to the customer that has remained unpaid because of that customer’s default. That amount does not represent a reduction in price for the purposes of the first subparagraph of Article 11C(1) of the Sixth Directive. What is in issue is partial non-payment within the meaning of that provision, namely a bad debt.
  • By letter of 20 February 2006, GMAC thus made a claim for bad debt relief for the period from 1978 to 1997, the basis for which was the fact that hire purchase contracts concluded with customers in relation to motor cars had been terminated as a result of non-payment of the agreed sale price. The Commissioners rejected that claim by a decision of 18 July 2006.
  • The First-tier Tribunal (Tax Chamber) allowed GMAC’s appeal against that decision, holding that the statutory eligibility requirements were incompatible with EU law and that GMAC’s claims for bad debt relief did not entail any distortion or lack of fiscal neutrality contrary to EU law.
  • Hearing the case on appeal, the Upper Tribunal (Tax and Chancery Chamber) considers by contrast that Regulation 38, as interpreted by C&E Commissioners v GMAC, in conjunction with the Cars Order, does not constitute an effective implementation of the Sixth Directive, since it results in a relief from VAT which is incompatible with the objective of that directive and thus not compliant with EU law.

Questions

  • To what extent is a taxable person, in relation to two transactions concerning the same goods, entitled both (i) to invoke the direct effect of one provision of EC Council Directive 77/388 (“the Sixth VAT Directive”) in respect of one transaction and (ii) to rely on the provisions of national law in relation to the other transaction, when to do so would produce an overall fiscal result in relation to the two transactions which neither national law nor the Sixth VAT Directive applied separately to those two transactions produces or is intended to produce?
  • If the answer to Question 1 is that there are circumstances in which the taxable person would not be entitled to do so (or would not be entitled to do so to a particular extent), what are the circumstances in which this would be so and in particular what is the relationship between the two transactions which would give rise to such circumstances?
  • Do the answers to Questions 1 and 2 differ according to whether or not the national treatment of one transaction is in conformity with the Sixth VAT Directive?

AG Opinion

None


Decision

The first subparagraph of Article 11(C)(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 must be interpreted as meaning that, in circumstances such as those of the case in the main proceedings, a Member State may not prevent a taxable person from invoking the direct effect of that provision in respect of one transaction by arguing that that person may rely on the provisions of national law in relation to another transaction concerning the same goods and that the cumulative application of those provisions would produce an overall fiscal result which neither national law nor Sixth Directive 77/388, applied separately to those transactions, produces or is intended to produce.


Summary

Cars sold, repossessed and publicly resold under a hire-purchase agreement – ​​Reduction of the taxable amount – Direct effect

A Member State cannot prohibit a taxable person from relying on the direct effect of the Directive for one transaction on the ground that he can rely on provisions of national law for another transaction concerning the same goods and, when those provisions are applied jointly, a general tax result that neither national law nor the Sixth Directive, when applied separately to those acts, produces or intends to produce.


Source:


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