Cross-border rulings (pilot project) – Update July 2019
7.1. EU Commission
Cross-border rulings (pilot project) – Update July 2019
The list of cross-border rulings maintained by the Commission was recently updated. The latest ruling is dated 12 March 2019 and concerns the VAT treatment (place of supply) of restoration, modification and customisation work on motor vehicles.
VAT on yachts – Commission Press release
Illegal tax breaks in the Italian and Cypriot yacht industries2
The Commission is taking further steps to end illegal tax breaks in the yacht industries of Italy and Cyprus, first brought to light in the Paradise Papers leaks. The legal proceedings also form part of the Commission’s ongoing efforts to stamp out unfair tax avoidance practices in the EU.
The Commission has decided to send reasoned opinions to Italy and Cyprus for not levying the correct amount of VAT on the leasing of yachts. Tax breaks of this type can lead to major distortions of competition.
Current EU VAT rules allow tax exemptions for services when the effective use and enjoyment of the product is outside the EU. However, the rules do not allow for a general flat-rate reduction without proof of where the service is actually used. Cyprus and Italy have established VAT rules according to which the larger the boat is, the less the lease is estimated to take place in EU waters. As a consequence, the applicable VAT base can be substantially reduced. If Cyprus and Italy do not act within the next two months on these reasoned opinions, the Commission may decide to bring the cases before the Court of Justice of the EU.
Due to the size of this sector, these illegal and favourable tax regimes also run counter to the fiscal consolidation processes of these Member States.
Since the beginning of its mandate, the Juncker Commission has been at the forefront of European and international efforts to combat tax avoidance and tax evasion. When it comes to VAT, recent Commission initiatives seek to put in place a single EU VAT area which is less prone to fraud and would enhance cooperation between Member States. The issue of VAT fraud transcends national borders and can only be solved effectively by a concerted, joint effort of Member States.
Commission requests Poland amend VAT rules for cash processing services
The Commission has decided to send a letter of formal notice to Poland for exempting various cash processing services from VAT, for example escorting of cash, preparing cash supplies for cash machines, storage of cash and extraction of excess cash. The VAT Directive does not allow VAT exemption for these services. If Poland does not act within the next two months, the Commission may send a reasoned opinion to the Polish authorities.
7.2. European Court of Auditors
E-commerce: many of the challenges of collecting VAT and customs duties remain to be resolved – report from the Court of Auditors published in July3.
About the report:
The EU encourages e-commerce to ensure that businesses and consumers can buy and sell internationally on the internet as they do on their local markets. Member States are responsible for the collection of VAT and customs duties due on e-commerce cross-border transactions. We carried out this audit because any shortfall in the collection of VAT and customs duties affects the budgets of the Member States and the EU, as they must compensate for it in proportion to their GNI. Our auditors examined whether the European Commission has established a sound regulatory and control framework for e-commerce with regard to the collection of VAT and customs duties, and whether Member States’ control measures help ensure the complete collection of VAT and customs duties on e-commerce. We found that despite recent positive developments the EU is not currently dealing adequately with these issues but have addressed some of the weaknesses identified with the “e-commerce package”.
We make a number of recommendations as to how the European Commission and the Member States should better address the challenges identified and establish a sound regulatory and control framework.
7.3. European Union Court of Justice.
Case C-388/18 – Margin scheme
On 29 July 2019, the Court of Justice delivered its judgment in this case.
Article 288, point 1, of the first sentence of Article 288 of Council Directive 2006/112/EC, must be interpreted as meaning that it precludes a national provision or a national administrative practice according to which the turnover used as the basis for applying the special scheme for small enterprises is calculated, in accordance with Article 315 of the Directive, by taking only the profit margin into account. The turnover must be determined taking into account all amounts without VAT received by or to be received by the taxable person regardless of the way in which these amounts are taxed.
Judgment in Case C-26/18 (Federal Express) – Place of importation – 10 July 2019
Translation from the French.
Article 2 (1) (d) and Article 30 of Council Directive 2006/112 / EC … must be interpreted as meaning whereas, when a good is introduced into the territory of the European Union, it is not sufficient for that good to be the subject of infringements of the customs rules in a given Member State, which have given rise in that State to a customs debt on importation, to consider that the said good has entered the economic circuit of the Union in that Member State, where it is established that the same good was conveyed to another Member State, its final destination, where it was consumed, the import value-added tax due on that good then only becomes due in that other Member State.
Judgment in Case C-273/18 (‘Kuršu zeme’) 10 July 2019 – Sham transactions – Deduction.
Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 …, as amended by Council Directive 2010/45/EU of 13 July 2010, must be interpreted as meaning that, for the purposes of refusing the right to deduct input value added tax (VAT), the fact that an acquisition of goods took place at the end of a chain of successive sale transactions between several persons and that the taxable person acquired possession of the goods concerned in the warehouse of a person forming part of that chain, other than the person mentioned as supplier on the invoice, is not in itself sufficient to find the existence of an abusive practice on the part of the taxable person or the other persons participating in that chain, the competent tax authority being required to establish the existence of an undue tax advantage obtained by that taxable person or those other persons.