Flashback on ECJ Cases – C-393/15 (ESET) – Branch with main activity performing internal transactions in the interest of a company in another Member State – Deduction of input VAT for VAT paid by the branch at an earlier stage

On June 21, 2016, the ECJ issued its Order in the case C-393/15 (ESET).

Context: Reference for a preliminary ruling — Article 99 of the Rules of Procedure of the Court — Taxation — Common system of value added tax — Directive 2006/112/EC — Article 168 — Article 169(a) — Company established in a Member State in which it carries out taxed transactions – Branch registered in another Member State for the payment of value added tax – Occasional performance of taxed transactions in that State – Main activity consisting of the performance of internal transactions for the benefit of the said company – Input value added tax paid by this branch – Deduction in the Member State of registration

Article in the EU VAT Directive

Articles 168, 169(1) of the EU VAT Directive 2006/112/EC.

Article 168 (Right to deduct VAT)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18(a) and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

Article 169
In addition to the deduction referred to in Article 168, the taxable person shall be entitled to deduct the VAT referred to therein in so far as the goods and services are used for the purposes of the following:
(a) transactions relating to the activities referred to in the second subparagraph of Article 9(1), carried out outside the Member State in which that tax is due or paid, in respect of which VAT would be deductible if they had been carried out within that Member State;
(b) transactions which are exempt pursuant to Articles 136a, 138, 142 or 144, Articles 146 to 149, Articles 151, 152, 153 or 156, Article 157(1)(b), Articles 158 to 161 or Article 164;
(c) transactions which are exempt pursuant to points (a) to (f) of Article 135(1), where the customer is established outside the Community or where those transactions relate directly to goods to be exported out of the Community.

Facts

The Polish branch, registered in Poland for the payment of VAT, produces on behalf of the Slovak company, as internal operations not subject to VAT, software components integrated into anti-virus programs which are sold by that company in Slovakia where it pays the VAT for which it is liable. In addition, this branch occasionally carries out intra-Community acquisitions of goods and services as well as supplies of goods and services in Poland subject to VAT, in particular by re-invoicing these goods and services to its employees.
The Polish branch requested, for the period from December 2008 to June 2010, the deduction of the amount of input VAT invoiced on its purchases of goods and services made on Polish territory for the purposes of its activity.
This deduction was refused by the Naczelnik Małopolskiego Urzędu Skarbowego w Krakowie (Director of the Lesser Poland Tax Office in Krakow, Poland). This decision was confirmed by the tax authority on the grounds that, in the absence of transactions taxed on Polish territory, the Polish branch could not deduct, under Article 86(8), point 1, VAT law, the amount of input VAT paid. That authority considered that it was, in that regard, irrelevant that that branch occasionally carried out intra-Community acquisitions and supplies of goods and services in Poland, subject to VAT.
The Wojewódzki Sąd Administracyjny w Krakowie (Administrative Court of Kraków Voivodeship, Poland) upheld the action brought by the Polish branch against that decision and annulled it. The tax authority appealed in cassation against the judgment of this court before the referring court.
The referring court observes, first, that the Slovak company could not claim reimbursement of the VAT paid by its Polish branch under Article 87(5) of the Law on VAT, from when the regulation of the Minister of Finance of 23 April 2004 relating to the reimbursement of VAT to certain entities, as amended, and the new regulation of the Minister of Finance of 24 December 2009 relating to the reimbursement of VAT to certain entities, as amended, excluded the possibility of such reimbursement for taxable persons registered in Poland for the payment of VAT.
On the other hand, the referring court states that the outcome of the dispute in the main proceedings depends on whether Article 169(a) of Directive 2006/112 is independent of Article 168 of that directive, in that it allows input VAT paid to be deducted in the territory of the Member State where the taxable person incurs expenditure, whether or not he carries out taxable transactions in that State, or if , on the contrary, the right of deduction which it establishes is ancillary to the right of deduction provided for in that Article 168, with the result that that Article 169(a) applies to a taxable person who exercises part but not all of his taxable activity outside the territory of that Member State.

Questions

Do not Articles 168 and 169(a) of Directive 2006/112 preclude a branch registered for VAT in a Member State, which mainly carries out internal transactions for the benefit of a parent company established in another Member State, but also, occasionally, transactions taxed in its State of registration, may deduct input VAT in the State in which it is registered, although this tax concerns operations carried out by the parent company in another Member State?

AG Opinion

None

Decision (Order)

Article 168 and Article 169 (a) of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that branch, registered in a Member State for the payment of value added tax, of a company established in another Member State and which mainly carries out internal operations, not subject to this tax, for the benefit of this company but also, occasionally, from transactions taxed in its Member State of registration, has the right to deduct the value added tax paid upstream in the latter State, on the goods and services used for the needs of the taxed transactions of said company, carried out in the other Member State where it is established.

Summary

A branch of a company registered for VAT purposes of a company established in another Member State, which mainly carries out internal transactions not subject to VAT in the interest of that company, but also, incidentally, carries out transactions taxed in the Member State of registration, shall be entitled in the latter Member State deduction of the VAT paid at an earlier stage on goods and services used for the taxable transactions of that company carried out in the other Member State where it is established.

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