On February 24, 2022, the ECJ issued its decision in the case C-605/20 (Suzlon Wind Energy Portugal) .
Context: Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/EC — Article 2(1)(c) — Applicability ratione temporis — Services subject to VAT — Services provided for consideration — Criteria – Intra-group relationship – Services consisting of repairing or replacing components of wind turbines under warranty and producing non-conformity reports – Debit notes issued by the service provider without mention of VAT – Deduction by the service provider of the VAT charged the goods and services invoiced to it by its subcontractors for the same services
Article in the EU VAT Directive
Article 2(1) of Sixth Council Directive 77/388/EEC (Article 2(1)(a) of the EU VAT Directive 2006/112/EC)
Article 2 (Taxable transaction)
1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
Facts
- The company appearing as applicant and appellant in the dispute in the main proceedings (‘the appellant’) has as the object of its business the manufacture, assembly, operation, marketing, installation, development, machining, running and maintenance [of products] and the supply of services in the energy sector, in particular in the wind energy sector, and the development of related activities.
- In 2009, the appellant was wholly owned by Suzlon Wind Energy A/S, a company having its registered office in Denmark and itself owned by the Indian company Suzlon Energy Limited.
- On 17 June 2006, the Indian company Suzlon Energy Limited concluded with the Danish company Suzlon Energy A/S a ‘Terms and Conditions of Sales Agreement’ which was to apply to its subsidiaries.
- That agreement provided, inter alia, that the delivery of wind turbine generator projects and all ancillary equipment (hereinafter referred to collectively as ‘wind turbines’) between the buyer and the supplier and between the buyer and its subsidiaries was to be governed by that agreement.
- Under Clause 11.0 of that agreement, ‘the supplier shall guarantee all parts manufactured by it against manufacturing defects for a warranty period of two (2) years as from the date of conclusion of the commercial transaction, during which period the supplier shall pay for all parts, repairs and transportation connected with the project and the buyer shall pay the labour costs connected with the replacement of parts. In the case of wind turbine parts which the supplier purchases from its own suppliers, the supplier shall forward the supply contracts to the buyer and grant the latter any authorisation necessary to enable it to make direct contact with those suppliers on all matters relating to the warranty, to repairs, or to the free replacement of parts bought from third parties. In all these cases, the cost of the warranty/associated cost shall be borne by the buyer, which may not pass this on to the supplier […]’.
- In the context of a number of works contracts for the supply and assembly of wind turbines intended for wind farms situated in various locations in mainland Portugal, identified in more detail in the documents in the main proceedings, and owned by third-party undertakings, the appellant, in 2007 and 2008, purchased from the Indian company Suzlon Energy Limited, by direct importation, a set of twenty-one wind turbines, made up of sixty-three blades, at a total cost of EUR 3 879 000.
- From September 2007, the S88 V2 turbines, by then in operation, began to show a crack, common in the blades of the wind turbines mentioned the previous paragraph, the location and geometry of which highlighted that this was not a oneoff anomaly but a general batch fault requiring repair or replacement.
- On 25 January 2008, the appellant (‘SWEP’) concluded with the Indian company Suzlon Energy Limited (‘SEL’) a ‘Services Agreement’.
- The relationship which the present contract establishes between SEL and SWEP is that between a customer and a service provider, not that between an employer and an employee, or between partners, or between the parties to a joint venture, inasmuch as SEL acts on its own account and not in the interests of SWEP, and does not have vested in it any power to enter into obligations, whether express or implicit, in the interests or on behalf of SWEP, or to bind SWEP in any way …’.
- Between September 2007 and March 2009, the appellant carried out repairs on, or provided replacements for, the blades mentioned in the aforementioned contract, as well as other wind turbine components exhibiting technical faults, in national territory. To that end, it purchased materials from, and subcontracted services to, third parties, which issued invoices for those materials and services on the appellant’s behalf, the appellant having entered those documents in the accounts as debit transactions in respect of which it exercised the right to deduct input VAT.
- On 27 February and 31 March 2009, the appellant issued to the Indian company Suzlon Energy Limited three debit notes, relating to the services provided by the appellant in Portugal, in the amounts of EUR 2 909 643, EUR 1 913 533.68 and EUR 3 263 454.84 respectively.
- In 2011, the Serviços de Inspeção Tributária (Tax Inspection Services) of the Direção de Finanças (Finance Directorate) in Lisbon carried out a partial tax audit on the appellant company in relation to the application of VAT in the 2009 tax year.
- The document drawn up following the tax audit of 31 May 2012 proposed a number of purely arithmetic corrections amounting in total to EUR 1 485 940.93, in relation to the VAT owed for the 2009 tax year, and arising in particular from irregularities in the aforementioned debit notes issued by the appellant to the Indian company Suzlon Energy Limited, which had not included a charge to VAT and had not specified the reason for that exemption, the taxable person having taken the view that those notes had originated from compensation for damage and were thus excluded from the taxable amount, in accordance with the provisions of Article 16(6) of the VAT Code.
- In the light of the facts set out in the tax audit document, the Tax Administration made additional assessments of charges to VAT, together with the corresponding interest, for the months of February, March and November, amounting in total to EUR 1 666 710.02
- The appellant brought an action challenging those additional assessments before the Tribunal Tributário de Lisboa (Tax Court, Lisbon), which, by judgment of 30 June 2017, declared the action inadmissible. An appeal against that judgment has been brought before the Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal), the referring court in this case.
Questions
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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AG Opinion
None
Decision
Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that transactions forming part of a contractual framework which identifies a supplier of services, the purchaser of those services and the nature of the services in question, duly accounted for by the taxable person, bearing a heading confirming the nature of the services and having given rise to remuneration received by the supplier constituting the actual value of those services in the form of debit notes, form a supply of services for consideration within the meaning of that provision, notwithstanding, first, any absence of profit for the taxable person and, second, the existence of a guarantee relating to the goods in respect of which those services were provided.
Summary
The Portuguese Suzlon Wind Energy Portugal – Energia Eólica Unipessoal, Lda is active in the energy sector. The shares of SWEP are owned by the Danish Suzlon Wind Energy A/S. In 2006 SWE concludes an agreement for the supply of wind turbines with the Indian Suzlon Energy Limited. SEL will supply wind turbines to SWEP in 2007 and 2008. However, the wind turbines have defects, which are subject to a warranty scheme. SWEP and SEL then conclude an agreement for the repair and replacement of 63 defective blades. SWEP then repairs and replaces the defective blades and various parts of the wind turbines and sends debit notes to SEL. However, no VAT is stated on the invoices. According to the Portuguese tax authorities, this is incorrect. The Portuguese court is asking questions for a preliminary ruling in this case.
The EU Court of Justice has ruled that the acts performed by SWEP constitute a service for consideration. It is immaterial that the compensation for the actual equivalent value of those services consists of debit notes. It is also irrelevant that the taxable person may not make a profit and that there is a guarantee on the goods in respect of which the service has been provided.
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