In this issue of our News Flash, we would like to inform you about the latest interesting judgements of the European Court of Justice (hereinafter „ECJ“) regarding the VAT exemption of services connected with international transport of goods and exportation of goods.
Exemption from VAT on services of loading and unloading of cargo provided by a subcontractor
In accordance with the Article 148(d) of Council Directive 2006/112/EC, the supply of services required for direct needs of the sea-going vessels and their cargo shall be exempted from VAT.
In the latest judgment C-33/16 A Oy from 4 May 2017, the ECJ dealt with the question whether services of loading and unloading of cargo onto and off an international sea-going vessel are services to meet the direct needs of the cargo of the vessels and thus, whether these services can be exempted from VAT if they are carried out by a subcontractor who physically supplied the services.
In this case, the company A carried out loading and unloading of the cargo onto and off the vessel used for navigation on the high seas and for the purposes of a commercial activity. In practice, the loading and unloading activities were carried out by a subcontractor which invoiced those services to the company A, which re-invoiced them to its customers – which, depending on the circumstances – may be the holder of the goods, the loader, the forwarding company or the vessel owner. The ECJ dealt with the question whether loading and unloading activities performed by the subcontractor on behalf of its clients are eligible for exemption from VAT.
The ECJ decided, that these services are substantial services for operation of vessels transporting a cargo and, thus meet the direct needs of vessels. Based on that, these services are exempted from VAT.
In connection with appliance of exemption from VAT of these services – if these services are provided by a subcontractor, the ECJ decided that tax exemption on supply of loading and unloading services of a vessel at an early stage of the commercial chain of those services will apply in the case, when the purpose of the services is clear at the moment when the supply of services is agreed and services cannot be abused for another than the initial purpose.
Exemption from VAT on transport services connected with the exportation of goods
In accordance with the Article 146(1)(e) of Council Directive 2006/112/EC, supply of services, including transport and ancillary transactions, but excluding the supply of services exempted in accordance with Articles 132 and 135, are exempted from VAT, if these services are directly connected with the exportation or importation of goods covered by Articles 61 and Article 157(1)(a).
In the case C 288/16 „L.Č.“ IK decided on 29 June 2017, the ECJ dealt with the question whether in accordance with the above-mentioned Article, it is possible to exempt from tax the supply of services of transport of goods to a third country, if these services are not directly provided to a consigner or consignee of the goods.
In this case, the company Atek, as a carrier, concluded a contract on transport of goods from Latvian port of Riga to Belarus. The effective performance of that transport was assigned by Atek to the company “L.Č.”, which carried out transport with Atek´s vehicles. The company “L.Č.” ensured driving the vehicle, its refuelling, customs formalities obligations, surveillance of the goods and its transferring to the consignee. As the company “L.Č.” regarded the supplied services as services connected with transit of goods, it applied a VAT rate of 0% to those services.
A tax inspection was carried out on the company “L.Č.” by the Latvian tax administration and following the inspection the tax administration calculated an additional VAT assessment, a penalty and late payment interest. The tax administration decided on the ground that the company “L.Č.” was not entitled to apply a VAT rate of 0% to the services, which were carried out in the contexts of its contract concluded with Atek, since (1) in the absence of a legal connection with the consignor or the consignee of the transported goods, these services cannot be regarded as services of a carrier or a freight forwarder and (2) since the company “L.Č.” did not hold the license required under Latvian law, “L.Č.” could not be regarded as a carrier, and was therefore not authorized to carry out the transport of goods.
The company “L.Č.” brought an appeal against this decision, and the local national court decided to stay the proceedings and to refer question to the ECJ for a ruling. The ECJ dealt with the question whether a supply of services consisting in the transport of goods to a third country, where those services are not supplied directly to the consigner or the consignee of the goods, can be treated as exempted from tax under the provision, which requires an existence of direct connection between the supply of services and the exportation or importation of the goods.
The ECJ decided that Article 146(1)(e) of Council Directive 2006/112/EC should be interpreted in the sense, that the exemption laid down in that provision does not apply to a supply of services consisting in the transport of goods to a third country, where these services are not supplied directly to the consigner or the consignee of the goods.