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Flashback on ECJ cases C-33/03 (Commission v United Kingdom) – No right to deduct VAT on certain supplies of motor fuel to non-taxable persons

On March 10, 2005, the ECJ issued its decision in the case C-33/03 (Commission v United Kingdom).

Context: Failure of a Member State to fulfil its obligations – Articles 17 and 18 of the Sixth VAT Directive – Provision of national law under which an employer may deduct VAT on supplies of fuel to his employees when reimbursing their fuel costs.


Article in the EU VAT Directive

Articles 17 and 18 of the Sixth VAT Directive (Articles 167, 168 and 178 of the EC VAT Directive 2006/112/EC).

Article 167
A right of deduction shall arise at the time the deductible tax becomes chargeable.

Article 168
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 178
In order to exercise the right of deduction, a taxable person must meet the following conditions:
(a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI;
(b) for the purposes of deductions pursuant to Article 168(b), in respect of transactions treated as the supply of goods or services, he must comply with the formalities as laid down by each Member State;
(c) for the purposes of deductions pursuant to Article 168(c), in respect of the intra-Community acquisition of goods, he must set out in the VAT return provided for in Article 250 all the information needed for the amount of VAT due on his intra-Community acquisitions of goods to be calculated and he must hold an invoice drawn up in accordance with Sections 3 to 5 of Chapter 3 of Title XI;
(d) for the purposes of deductions pursuant to Article 168(d), in respect of transactions treated as intra-Community acquisitions of goods, he must complete the formalities as laid down by each Member State;
(e) for the purposes of deductions pursuant to Article 168(e), in respect of the importation of goods, he must hold an import document specifying him as consignee or importer, and stating the amount of VAT due or enabling that amount to be calculated;
(f) when required to pay VAT as a customer where Articles 194 to 197 or Article 199 apply, he must comply with the formalities as laid down by each Member State.


Facts & Questions

  • The Commission initiated the infringement proceedings under Article 226 EC by a letter of formal notice sent to the United Kingdom Government on 10 May 1995 in which it at first did no more than allege infringement of Article 18(1)(a) of the Sixth Directive. It considered that the grant of the right to deduction under articles 2 and 3 of the U.K. Order, without any obligation to produce an invoice, was not in accordance with the requirements of Article 18.
  • After further examination of the matter, the Commission concluded that the grant of a right to deduction in the circumstances envisaged by articles 2 and 3 of the U.K. Order was contrary to Article 17(2)(a) of the Sixth Directive also. It sent the United Kingdom an additional letter of formal notice on 17 October 1996. In order to dispel any doubt about the fact that it considered the employer’s right to deduct VAT at the time of reimbursement to the employee of the cost of fuel under articles 2(a) and (b) of the U.K. Order to be contrary to Article 17(2)(a) of the Sixth Directive, the Commission sent the United Kingdom a second additional letter of formal notice on 3 December 1997.

AG Opinion

(1) declare that, by granting taxable persons the right to deduct value added tax in respect of certain supplies of road fuel to non-taxable persons, contrary to Articles 17 and 18 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, the United Kingdom of Great Britain and Northern Ireland has failed to fulfil its obligations under the EC Treaty;

(2) order the United Kingdom to pay the costs.


Decision 

1. Declares that, by granting taxable persons the right to deduct value added tax on certain supplies of fuel to non-taxable persons, contrary to the provisions of Articles 17(2)(a) and 18(1)(a) 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, the United Kingdom of Great Britain and Northern Ireland has failed to fulfil its obligations under that directive;
2. Orders the United Kingdom of Great Britain and Northern Ireland to pay the costs.

Summary

By giving taxable persons the right to deduct VAT on certain supplies of motor fuel to non-taxable persons, contrary to Articles 17(2)(a) and 18(1)(a) of the Sixth Directive, the United Kingdom has failed to fulfill its obligations under this Directive.


Source


Similar ECJ cases


Reference to the case in the other EU MS (+ UK)


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