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Flashback on ECJ Cases – C-377/08 (EGN) – Input VAT deduction if supplies are made to other Member States

On July 2, 2009, the ECJ issued its decision in the case C-377/08 (EGN).

Context: Sixth VAT Directive – Article 17(3)(a) – Deductibility and refunding of input VAT – Provision of telecommunications services – Supply of services for a customer established in another Member State – Article 9(2)(e) – Determination of the place where the service is provided

Article in the EU VAT Directive

Article 17(3)(a) of the Sixth VAT Directive (Articles 169 and 170 of the EU VAT Directive 2006/112/EC).

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.

Article 170
All taxable persons who, within the meaning of Article 1 of Directive 86/560/EEC ( 1 ), Article 2(1) and Article 3 of Directive 2008/9/EC ( 2 ) and Article 171 of this Directive, are not established in the Member State in which they purchase goods and services or import goods subject to VAT shall be entitled to obtain a refund of that VAT insofar as the goods and services are used for the purposes of the following:
(a) transactions referred to in Article 169;
(b) transactions for which the tax is solely payable by the customer in accordance with Articles 194 to 197 or Article 199.


  • EGN is the Italian subsidiary of EGN – Equant Global Network BV, a company constituted under Netherlands law, controlled by the Société Internationale de Télécommunictions Aéronautiques, a cooperative society constituted under Belgian law which was founded in 1949 by 11 airline companies for the purpose of establishing a dedicated telecommunications system for air transport.
  • During 1999, EGN supplied telecommunications services to Ensys Ltd, a company which is established in Ireland, where it is subject to VAT, and which is also controlled by the Société Internationale de Télécommunictions Aéronautiques.
  • As those services were not subject to VAT in Italy since the condition of being established in that Member State laid down in Article 7(4)(d) of Decree No 633/1972 was not met, EGN, which was perennially a VAT creditor as regards tax inputs in respect of its suppliers who were also established in Italy, applied to the Agenzia, on 7 February 2000, for a refund of ITL 9 400 000 000 in respect of VAT for 1999, and a refund of the outstanding credit of ITL 101 968 000 for preceding years.
  • That application for a refund was refused, by decision of the Agenzia of 23 March 2001, on the ground that the conditions for deduction or refund of the input VAT paid by EGN were not met.
  • Ruling on the appeal lodged by EGN against that refusal, the Commissione tributaria provinciale di Roma (Provincial Tax Court, Rome) held, by a decision of 10 September 2001, that under Article 7 of Decree No 633/1972 the appellant was entitled to deduct VAT in the case of transactions not subject to that tax which, were they effected in Italy, would otherwise have been taxable under Article 19(3)(b) of that decree.
  • After the Agenzia had appealed against that decision, the Commissione tributaria regionale del Lazio (Regional Tax Office, Lazio) set the decision aside by a judgment of 19 September 2003 and refused EGN’s applications for the deduction and refund of input VAT. That court held that Article 19(3)(b) of Decree No 633/1972 was not applicable on the ground that ‘transactions effected outside Italy which, if they were effected within Italy, would give rise to the right to deduct’ refers solely to transactions that have actually been effected abroad. The legal fiction of extraterritoriality provided for in Article 7(4)(e) of that decree cannot be taken into account since there is no rule which places fictitious extraterritoriality based on a legal provision on the same footing as actual extraterritoriality. Thus, as the telecommunications services at issue were not subject to VAT in Italy, Article 19(2) of that decree precluded them from giving rise to the right to deduction or refund of input VAT.
  • In the appeal in cassation brought by EGN, the referring court, finding that the relevant provisions of the Sixth Directive had been the subject of differing interpretations by the lower national courts, could not be sure that the interpretation adopted by the Commissione tributaria regionale del Lazio would not lead to distortion of competition. Since in the case of telecommunications services being supplied to another Member State the place where the VAT is payable is the place where the person to whom the service is to be supplied is established, a provider of such services finds himself in a less favourable situation as compared with a provider supplying the same services within one and the same Member State.


Is it permissible under Article 17(3)(a) of Council Directive 77/388/EEC 1 of 17 May 1977, in cases involving the supply of telecommunications services between taxable persons resident in different Member States of the Community and where the recipient is liable to value added tax, for the supplier to deduct the tax payable on the acquisition or importation of goods connected with such transactions which that supplier would be entitled to deduct if he provided the same services within his own country?

AG Opinion



Article 17(3)(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, as amended by Council Directive 95/7/EC of 10 April 1995, must be interpreted as meaning that a supplier of telecommunications services such as the one at issue in the main proceedings, which is established in the territory of a Member State, is entitled under that provision to deduct or obtain a refund in that Member State of input value added tax on telecommunications services that have been supplied to an undertaking having its principal place of business in another Member State, since such a supplier would have had that right if the services at issue had been supplied in the territory of the former Member State.

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