Flashback on ECJ Cases – C-222/09 (Kronospan Mielec) – Research and development activities in the field of environment and technology carried out by engineers are to be regarded as ‘services performed by engineers’.

On October 7, 2010, the ECJ issued its decision in the case C-222/09 (Kronospan Mielec).

Context: Sixth VAT Directive – Article 9(2)(c) and (e) – Research and development work carried out by engineers – Determination of the place where services are supplied

Article in the EU VAT Directive

Article 9(2)(c) and (e) in the EU VAT Directive (Article 53, 59(c) of the EU VAT Directive 2006/112/EC). This relates to the place of supply of services.

Article 9(2)(c) and (e) of the Sixth Directive is worded as follows:

‘However:

– cultural, artistic, sporting, scientific, educational, entertainment or similar activities, including the activities of the organisers of such activities, and where appropriate, the supply of ancillary services,

shall be the place where those services are physically carried out;

(e) 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:

– services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, as well as data processing and the supplying of information,

Facts

Kronospan, which has its registered office in Poland, provided, for a customer established in Cyprus, services in the field of technical investigations and analyses and carried out research and development work in the fields of natural sciences and technology.
Those supplies of services relate more specifically to work that encompasses the investigation and measurement of emissions, including the conduct of investigations relating to emissions of carbon dioxide (CO₂) and trading in CO₂ emissions, the preparation and checking of documentation in relation to such work and the analysis of potential sources of pollution linked to the manufacture of goods consisting mainly of wood. That work is carried out with the objective of acquiring new knowledge and new technological know-how aimed at the production of new substances, products and systems and the application of new technological procedures to production processes.
By letter of 8 December 2006, Kronospan requested from the tax authorities in Rzeszów a written interpretation concerning the application of certain provisions of Polish tax legislation in order to determine to what extent the services in question were to be regarded as having been carried out in Poland and not in the Member State in which the taxable person to which the services were supplied had its registered office, namely the Republic of Cyprus.
Kronospan took the view that those services had, in their entirety, to be classified as engineering work, with the result that the place of the supply of the services, as provided by Article 9(2)(e) of the Sixth Directive, had to be the place where the recipient of those services was established, namely Cyprus. By a ruling of 9 March 2007, however, the tax authorities in Rzeszów expressed the view that some of the transactions at issue in the main proceedings were scientific activities and that, consequently, the place of the supply of services was, pursuant to Article 9(2)(c) of the Sixth Directive, situated in Poland.
As the administrative appeal lodged by Kronospan against that ruling was dismissed by the Dyrektor Izby Skarbowej w Rzeszowie, Kronospan brought an action before the Wojewódzki Sąd Administracyjny w Rzeszowie (Provincial Administrative Court, Rzeszów). That court dismissed the action on the ground that the services at issue were scientific activities and were not services of engineers.
The Naczelny Sąd Administracyjny (Polish Supreme Administrative Court), before which the case has been brought, is unsure whether Article 9(2)(e) of the Sixth Directive is to be interpreted as meaning that the services of engineers referred to in that provision include research and development work carried out by those engineers. In so far as it is apparent from the case-law of the Court, and in particular from the judgment in Case C‑41/04 Levob Verzekeringen and OV Bank [2005] ECR I-9433, that the provisions of Article 9(2) do not refer to the professions mentioned in that article in themselves, but to the services normally supplied by those professionals, it could, in the view of the Naczelny Sąd Administracyjny, be argued that all types of service regularly carried out by engineers are covered by Article 9(2)(e) of the Sixth Directive.
However, it points out, some of the services at issue in the main proceedings are ‘creative’ and ‘innovative’ in nature and have elements of scientific work which may be covered by Article 9(2)(c) of the Sixth Directive, notwithstanding the fact that those services are effected in the course of business and for a single recipient. The commercial nature of the scientific research cannot affect either the general nature of the results of those activities or their general future application. The services in question could therefore be regarded as being provided to a number of different recipients, with the result that one of the conditions for the application of that provision laid down by the Court, inter alia in Case C-114/05 Gillan Beach [2006] ECR I-2427, is satisfied in the present case.
Furthermore, the national court states that the costs of the services at issue in the present case are not included directly in the ‘price of the goods’, contrary to what is set out in the seventh recital in the preamble to the Sixth Directive. The price of acquiring those services is an element of the indirect costs incorporated in the selling price of all the goods and services offered by the recipient of those services.

Questions

(a) Is the third indent of Article 9(2)(e) of [the] Sixth Council Directive … – now corresponding to Article 56(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1 …) – to be interpreted as meaning that the services of engineers referred to therein, when provided to a person subject to VAT who is carrying out commissioned work encompassing those services for a recipient of services established in another Member State of the Community, are to be taxed at the place where the recipient of the services (the customer) has established its business or has a fixed establishment;

(b) or should it be concluded that such services, being services relating to scientific activities pursuant to the first indent of Article 9(2)(c) of the Sixth Directive (now corresponding to Article 52(a) of Directive 2006/112), must be taxed at the place where they are physically carried out,

on the basis that those services take the form of work that encompasses the investigation and measurement of emissions under legislation on environmental protection, including the conduct of investigations in connection with carbon dioxide (CO₂) emissions and trading in CO₂ emissions, the preparation and checking of documentation relating to that work and the analysis of potential sources of pollution, and that is carried out with the objective of acquiring new knowledge and new technological know-how directed at the production of new substances, products and systems and the application of new technological procedures within the production process?

AG Opinion

None

Decision

Services consisting of research and development work relating to the environment and technology, carried out by engineers established in one Member State on a contract basis for the benefit of a recipient established in another Member State, must be classified as ‘services of engineers’ within the meaning of 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.

Summary

Research and development activities in the field of environment and technology carried out by engineers established in one Member State on behalf of a service recipient established in another Member State are to be regarded as ‘services performed by engineers’.

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