VAT in the European Union Recent Developments in Legislation and Case Law Christian Widhalm Dubrovnik,

2 Overview Legislation recently adopted –Directive regarding the place of supply of services –Directive regarding the VAT-refund procedure Legislation Proposals –VAT-treatment of insurance and financial services –Reduced VAT-rates Recent Case Law of the ECJ

3 Place of supply of services Council Directive (2008/8/EC) amending the VAT-Directive (2006/112/EC) as regards the place of supply of services General rules –Supplies of services to taxable persons (business to business): place where the recipient is established –Supplies of services to non-taxable persons (business to consumer): place where the supplier is established Specified exclusions –Services connected with immovable property, supply of transport, hiring of means of transport, services by intermediaries, etc. –largely based on existing criteria

4 Place of supply of services Taxable persons for the purposes of determining the place of supply –Taxable persons who also have non-taxable activities are treated as taxable for all services rendered to them –Non-taxable legal persons who are identified for VAT-purposes are treated as taxable persons Recapitulative statement of the services supplied to taxable persons Extention of the reverse charge mechanism –Abolition of „force of attraction“ of fxed establishments Coming into effect: 1 January 2010

5 Place of supply of services Hiring of means of transport –Short-term hiring (not more than 30 days, not more than 90 days in the case of vessels) to a taxable or a non-taxable person: place where the means of transport is actually put at the disposal of the customer –Long-term hiring to a taxable person: place where the recipient is established –Long-term hiring to a non-taxable person: place where the supplier is established –From 1 January 2013: Long-term hiring to a non-taxable person: place where the customer is established Long-term hiring of pleasure boats to an non-taxable person: place where the boat is put at disposal of the customer

6 Place of supply of services Supplies of telecommunications services, radio and television broadcasting services and electronically supplied services –Introduction of new rules delayed until 1 January 2015 –Place of supply to a non-taxable person where the customer is established (permanent adress, usual residence) –Fulfillment of VAT obligations for services provided in other member states in the supplier´s home member state („one stop“ scheme) –Transfer of VAT revenues between member states

7 VAT refund procedure Council Directive (2008/9/EC) laying down detailed rules for the refund of VAT to taxable persons not established in the Member State of refund but established in another Member State Substantial modifications: –Fully electronic procedure –Submission of a copy of the invoice where the taxable amount is EUR or more (threshold of EUR 250 where the invoice concerns fuel) –9-month application period (30 September of the calendar year following the refund period) –Processing of applications within 4 months (extension of the period if additional information is requested) –Interest payable if the refund member state is late making refunds –Applicable to refund applications submitted after 31 December 2009

8 Insurance and Financial Services Proposal for a Council Directive regarding the treatment of insurance and financial services Redefinition of the scope of VAT-exempt insurance and financial services –Definitions of the services on the basis of objective economic criteria Possibility for banking and insurance companies to opt to tax their services if they wish Introduction of an industry-specific exemption from VAT on cost sharing arrangements

9 Reduced VAT-rates Proposal for a Council Directive regarding reduced rates of VAT Permanent inclusion of labour-intensive services in the list of services eligible for reduced rates –Personal care services, domestic care services, minor repair of certain tangible movable goods, gardening services etc. Extension of the Member States´ option to apply reduced rates –Supply and construction of housing, supply of services consisting in the renovation, repair, alteration, maintenance and cleaning of housing –Restaurant and catering services

10 ECJ-Case Law Reverse charge procedure and denial of the right to deduct input-VAT (ECJ 8 May 2008; C-95/07 and C-96/07, Ecotrade) –the principle of fiscal neutrality requires deduction of input tax to be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements –Articles Art 18 (1) and 22 of the Sixth Directive do preclude a practice whereby the misapprehension of formal obligations is penalised by denying the right to deduct input VAT in case of the reverse charge procedure

11 ECJ-Case Law VAT-exemption on intra-Community supplies (ECJ 27 September 2007, C-146/05, Colleé) –a national measure which makes the right of VAT-exemption on an intra-Community supply subject to compliance with formal obligations, without any consideration being given as to whether the substantive requirements have been satisfied, goes further than is necessary to ensure the correct levying and collection of the tax VAT-Exemption on the supply of goods for export to a destination outside the Community (ECJ 21 February 2008, C-271/06, Netto Supermarkt) –a supplier must be able to rely on the lawfulness of the transaction that he carries out without risking the loss of his right to exemption from VAT, if he is in no position to recognise - even by exercising due commercial care - that the conditions for the exemption were in fact not met, because the export proofs provided by the purchaser had been forged