VATupdate

Flashback on ECJ cases C-438/01 (Design Concept) – Place of supply rules also applicable if indirectly invoiced to advertiser

On June 5, 2003, the ECJ issued its decision in the case C-438/01 (Design Concept).

Context: Sixth VAT Directive – Article 9(2)(e) – Place of taxable transactions – Fiscal connection – Advertising services


Article in the EU VAT Directive

Article 9(2)(e) of the Sixth VAT Directive.

The place where the following services are supplied when performed for customers established outside the Community or for taxable persons established in the Community but not in the same country as the supplier, shall be the place where the customer has established his business or has a fixed establishment to which the service is supplied or, in the absence of such a place, the place where he has his permanent address or usually resides:

–    advertising services,


Facts

  • In connection with a trade fair known as ”Horeca”, organised in Ghent for professionals in the hotel and catering business, Design Concept, acting for the Luxembourg Ministry of Economic Affairs, commissioned from Flanders Expo various services including the construction of two stands, the cleaning of those stands during the exhibition and the provision of staff to transport equipment.
  • Flanders Expo submitted an invoice to Design Concept for the price of its services, including in it the amount of VAT. However, Design Concept excluded the amount of VAT from its payment on the ground that since the services supplied were advertising services and the recipient of those services, Design Concept, was not situated in the same Member State as the supplier, Flanders Expo, the place where the services were supplied was where the customer was established, that is to say Luxembourg, in accordance with the rule laid down in Article 9(2)(e) of the Sixth Directive. Design Concept therefore took the view that it was not obliged to pay the VAT claimed from it by Flanders Expo in Belgium.
  • Flanders Expo brought an action before the Tribunal de paix (Magistrates’ Court) (Luxembourg) which upheld its claim for payment of VAT. On appeal the Tribunal d’arrondissement (District Court) (Luxembourg) confirmed the decision at first instance, holding, contrary to the interpretation put forward by Design Concept, that the services supplied by Flanders Expo are not advertising services and that the general rule on the place of taxation laid down in Article 9(1) of the Sixth Directive is applicable. According to that rule the place where a service is supplied is the place from which the service is performed, in this case Belgium.
  • The Cour de cassation, to which Design Concept appealed, takes the view that the lower courts were probably wrong to refuse to treat the services supplied by Flanders Expo as advertising services. However, it is uncertain whether their decision is justified on another ground based on the interpretation of Article 9(2)(e) of the Sixth Directive, read in the light of the seventh recital in the preamble thereto.
  • After having recalled the terms of the seventh recital, the Cour de cassation states that if incorporation in the price of the goods of the cost of advertising services were an essential condition for the transfer of taxation to the customer’s country, the decision of the lower courts would then be justified, given that in the present case the cost of those services is borne ultimately not by a trader, but by the Luxembourg State which, as the advertiser, commissioned those services from the intermediate customer.

Questions

Is Article 9(2)(e) 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 concerning “advertising services” applicable to services supplied indirectly to the advertiser and invoiced to a third party who in turn invoices them to the advertiser, if the advertiser does not produce goods in the price of which the cost of the services is going to be included?


AG Opinion

The second indent of Article 9(2)(e) of the 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, concerning ”advertising services”, is applicable in circumstances where the services in question are supplied indirectly to the advertiser and invoiced to a third party who in turn invoices them to the advertiser; it also applies regardless of whether the advertiser to whom the services are supplied produces goods in the price of which the cost of the advertising services will be included.


Decision 

Article 9(2)(e) 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 applying to advertising services supplied indirectly to the advertiser and invoiced to an intermediate customer who in turn invoices them to the advertiser. The fact that the advertiser does not produce goods or services in the price of which the cost of the advertising services may be included is not relevant for the purpose of determining the place where the services are supplied to the intermediate customer.


Summary

The second indent of Article 9(2)(e) of the 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, concerning ”advertising services”, is applicable in circumstances where the services in question are supplied indirectly to the advertiser and invoiced to a third party who in turn invoices them to the advertiser; it also applies regardless of whether the advertiser to whom the services are supplied produces goods in the price of which the cost of the advertising services will be included.


Source


Similar ECJ cases


Reference to the case in the other EU MS


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