Flashback on ECJ Cases – Joined Cases C-618/11, C-637/11, C-659/11 (TVI – Televisão Independente SA) – Taxable amount of VAT on commercial advertising broadcasting services includes a broadcasting tax

On December 5, 2013, the ECJ issued his decision in the Joined Cases C-618/11, C-637/11, C-659/11 (TVI – Televisão Independente SA)

Context: Taxation – VAT – Sixth Directive 77/388/EEC – Article 11(A)(1)(a), (2)(a) and (3)(c) – Directive 2006/112/EC – Article 73, point (a) of the first paragraph of Article 78 and point (c) of the first paragraph of Article 79 – Taxable amount for the VAT payable on commercial advertising screening services – Commercial advertising screening tax

Article in the EU VAT Directive

Article 11(A)(1)(a), (2)(a) and (3)(c) (Now Article 73, 78(a), 79(c) of the EU VAT Directive 2006/112/EC)

Article 73, 78, 79 in the EU VAT Directive

Article 73

In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Article 78

The taxable amount shall include the following factors:

(a) taxes, duties, levies and charges, excluding the VAT itself;

Article 79

The taxable amount shall not include the following factors:

(c) amounts received by a taxable person from the customer, as repayment of expenditure incurred in the name and on behalf of the customer, and entered in his books in a suspense account.

Facts

In the course of its audiovisual activities on the television market, TVI screened commercial advertising for various advertisers in the months of February 2004, October 2004 and January 2007.
TVI invoiced its clients for the supply of those services, adding 4% by way of screening tax to the price charged for the screening of the commercial advertising. In order to calculate the VAT payable, TVI applied the specified rate to the full amount invoiced – that is to say, inclusive of the screening tax – and paid the VAT assessed in respect of the periods concerned, entering it in the corresponding periodic VAT returns. TVI also entered the revenue accruing by way of screening tax in suspense accounts for the benefit of ICAM and CP-MC.
On the view that the taxable amount for VAT should not have included the amount payable by way of screening tax, TVI applied to the Portuguese tax authorities for a review of the VAT assessment notices relating to the months of February and October 2004 and January 2007. Those applications were refused.
The Tribunal Administrativo e Fiscal de Sintra (Administrative and Tax Court of Sintra) dismissed the actions by which TVI contested the decisions refusing the applications, on the ground that, pursuant to Article 16(1) and (5)(a) of the CIVA, the amount charged by TVI to advertisers as screening tax fell to be included in the taxable amount for VAT. That court found that the amounts paid by way of screening tax could not be regarded as amounts paid in the name and on behalf of the customers of the commercial advertising screening services. It also found that, in accordance with Article 28 of Law No 42/2004, there was a direct link between the screening tax and that supply of services because, as the screening tax covered those services, it was inherent in the services supplied.
TVI brought appeals against the judgments of the Tribunal Administrativo e Fiscal de Sintra before the Supremo Tribunal Administrativo (Supreme Administrative Court). Before the latter court, TVI raised the question whether the interpretation of Article 16(1) and (6)(c) of the CIVA adopted by the Portuguese tax authorities and confirmed by the judgments under appeal was consistent with Article 11(A)(1)(a) and (3)(c) of the Sixth Directive and the case-law of the Court of Justice. According to that interpretation, the screening tax is to be included in the taxable amount for the purposes of VAT, because it is inherent in the supply of those services and is not paid in the name and on behalf of the customers of the commercial advertising screening services, even though the amounts collected are entered in suspense accounts and are intended for public bodies.
TVI claimed before the Supremo Tribunal Administrativo, first, that the screening tax does not have a direct link with the supply of the commercial advertising screening service and should not be included in the amount of the consideration, because that tax does not constitute consideration for the service provided by TVI and is not directly linked to the supply of that service; and, secondly, that the screening tax falls within the Union law concept of ‘acting in the name and on behalf of another’ and accordingly the amount payable by way of screening tax has to be excluded from the taxable amount for the purposes of VAT.

Questions

Is Article 16(1) of the CIVA [VAT Code], as interpreted in the judgment under appeal (to the effect that the commercial advertising screening tax is inherent in the supply of advertising services, so that it should be included in the taxable amount of the supply of services for the purposes of VAT), compatible with Article 11(A)(1)(a) of Directive 77/388/EC (now Article 73 of Council Directive 2006/112/EC of 28 November 2006) and, in particular, with the concept of ‘consideration which has been or is to be obtained by the supplier … for such supplies’?

Is Article 16(6)(c) of the CIVA, as interpreted in the judgment under appeal (to the effect that the commercial advertising screening tax does not constitute an amount paid in the name and on behalf of the customer of the services, even though it is accounted for in third party suspense accounts and is intended to be paid to public bodies, so that it is not excluded from the taxable amount for the purposes of VAT) compatible with Article 11(A)(3)(c) of Directive 77/388/EC (now Article 79(c) of Council Directive 2006/112/EC of 28 November 2006) and, in particular, with the concept of ‘amounts received by a taxable person from his purchaser or customer as repayment for expenses paid out in the name and for the account of the latter and which are entered in his books in a suspense account‘?

AG Opinion

– Article 11(A)(1)(a), (2)(a) and (3)(c) 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 well as Articles 73, 78(a), 79(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax have to be read to impose, for purposes of the calculation of the VAT on advertising services, the inclusion in the taxable amount of a tax such as the Portuguese screening tax benefiting the arts, which is due by the advertisers, but paid by the television operators by way of fiscal substitution and entered in third party suspense accounts if the decisive fiscal relationship of public law character is between the tax authorities and the television operators.

– If, with regard to said tax, the decisive fiscal relationship of public law character runs between the advertisers and the tax authorities, Article 11(A)(1)(a), (2)(a) and (3)(c) of Directive 77/388 as well as Articles 73, 78(a) and 79(c) of Directive 2006/112 must be interpreted as prohibiting the inclusion of said tax in the taxable amount.

– It is for the national judge to determine which of these two understandings of the nature of fiscal substitution in the precise context of the screening tax is the correct one according to national law.

Decision

On a proper construction of Article 11(A)(1)(a), (2)(a) and (3)(c) 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 and Article 73, point (a) of the first paragraph of Article 78 and point (c) of the first paragraph of Article 79 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, a tax such as the ‘screening tax’ provided for under Portuguese legislation for the benefit of the cinematographic and audiovisual arts must be included in the taxable amount for the purposes of the VAT payable on services consisting in the screening of commercial advertising.

Summary

Taxable amount of VAT on commercial advertising broadcasting services

A broadcasting tax, which benefits the cinematographic and audiovisual arts, should be included in the taxable amount of VAT on services related to the broadcasting of commercial advertising.

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