Geneva International VAT Breakfast – New Year and new challenges in Indirect Taxes

International VAT Breakfast

In the fever of December’s last moment, many VAT topics such as the GST implementation in India or the change of the Swiss VAT rates across systems before New Year could have gone unspotted. For those who manage indirect taxes, it is clear that unnoticed changes can have significant consequences.

As a New Year’s resolution, during our next VAT Breakfast, we will look into recent topics that enable strategic development as well as those that are less game-changing but nevertheless require your attention in the start of 2018.

From a strategic perspective, we will address the latest progress in Brexit negotiations, the implementation of GST in India and the introduction of VAT in the GCC. We will also discuss the latest updates about the EU Commission initiatives and the upcoming end of the Cross Boarder Ruling pilot. Sharing feedback from various European countries, we will focus on reporting developments in 2017/2018 in Poland, Hungary and Serbia; the introduction of anti-fraud measures such as split payment in Romania, Poland and Italy; the reporting of imported e-services in Turkey as well as the Polish transport package.

Finally, we want to share with you the lessons learned and the biggest challenges faced in the first months after the Swiss VAT reform and the recent Swiss / EU case law. We hope to receive your views in return.

To register for this event: Click Here

Contact Us

Patricia More
Tel.+41 58 792 95 07
patricia.more@ch.pwc.com

EU Commission publishes a proposal for the Definitive VAT System for Cross Border EU Trade

As part of the VAT action plan introduced on 7 April 2016, the EU Commission announced a legislative Proposal for the Definitive VAT System for Cross Border EU Trade.

This proposal was published on October 4th, 2017 (hereafter referred to as the “Proposal”) and introduces the cornerstones of the Definitive VAT System for Cross Border B2B EU trade[1]. This will be followed by a second proposal which is expected to be published in 2018 which will provide detailed technical provisions and guidelines on the application of the Definitive VAT System and the use of the transitional measure (two-step approach: quick wins in 2019 and definitive VAT regime in 2022).

The current VAT system characterizes each EU B2B cross border supply of goods in (1) an exempt intra-Community supply in the Member State of departure and (2) a taxable intra-Community acquisition in the Member State of arrival of the goods. The Proposal foresees in the introduction of one taxable supply in the Member State of destination of the goods, the so-called intra-Union supply. As a first step of the Definitive VAT System, the Proposal introduces the concept of a Certified Taxable Person or CTP. This concept allows for an attestation that a business can globally be considered as a reliable taxpayer. Only when the intra-Union supply is performed for a CTP, the supplier can apply the reverse charge mechanism. This means that when the buyer is not a CTP, the supplier will be liable for the payment of VAT in the destination country through a one stop shop mechanism.

To meet the request of the Council, as stated in the Council Conclusions of November 2016, the Proposal also foresees further amendments to the VAT Directive (so-called quick wins) in regards to VAT Identification Numbers, Chain Transactions and Call Off Stocks. The Council also requested the Commission to draft a common framework with respect to the documentation required to claim an exemption for intra-Community supplies, the latter is included in the proposal amending the VAT Implementing Regulation.

In respect to Call off Stocks (i.e. the situation where a vendor transfers goods to a warehouse for the disposal of a known acquirer to another Member State and that acquirer becomes the owner of the goods upon withdrawing the goods from the warehouse), the proposed solution considers the Call Off Stock as giving rise to one single transaction i.e. intra-community supply in the Member State of departure and an intra-Community acquisition in the Member State of arrival provided this is performed between two CTPs. In addition the application of the VAT exemption for intra-Community supplies is made conditional upon the valid EU VAT registration of the acquirer.

That said, in the case where one party in the transaction to Call Off Stocks is not a CTP, it is likely that the vendor will have to obtain a VAT registration in the country where the warehouse is located and to account for the VAT in the destination country. Given this added complication introduced as part of the Proposal, it is unlikely that the Member States will be able to maintain their existing specific regimes in their respective territories.

Last but not least, the Proposal foresees that in cases involving Chain Transactions the transport is to be assigned to the first leg of the chain transactions if (i) the intermediate supplier has a VAT registration in another Member State than the Member State of departure, (ii) this intermediate supplier communicates to the initial supplier that the name of the Member State of arrival and (iii) both the intermediate supplier and the initial supplier are CTPs. When one of the conditions (i) or (ii) is not met the transport is allocated to the second leg of the chain transactions.

In the event that a non-CTP is involved, the automatic allocation of the transport will not apply and, thus, the parties will still have to document and demonstrate to which transaction the transport is allocated and apply the related VAT regime to the said transaction (domestic supply, intracommunity supply, etc.).

The Proposal for implementing regulations requires the Member States to apply the provisions as of 1 January 2019. Although there is still more than a year to go, companies should already be planning and evaluating what implications this can have on their supply chains.

In addition if these provisions focus primarily on the cross border EU trade of goods, one cannot exclude that the concept of Certified Tax Person will be extend to the B2B supply of services taking into account the existing background and the fact that such concept was discussed and considered during the implementation of the VAT package in 2010.

Within the next three months, companies should take the following actions:

  • Map Intra-Union Flows

    Detailed mapping of intra-Union flows will allow you to measure potential impacts of the change on your business and adopt an action plan (e.g., update IT systems, adjust invoice templates, manage VAT registration requirements, train your staff, review offers, contracts and agreements, etc.)

  • Assess Applying for Certified Tax Person Status

    Depending on your business flows and organisation, obtaining Certified Tax Person status could be required.

Download full newsletter

We look forward to supporting you in enabling your employees, IT systems and processes to deal with the new intra-Union VAT regime and managing your VAT position.

Contacts

Patricia More
Partner VAT, PwC Geneva
Tel. +41 58 792 95 07
patricia.more@ch.pwc.com

 

 

 

Partial revision of the Swiss VAT law: at least 30’000 foreign established businesses will have, in principle, to register for VAT in Switzerland

Swiss VAT Law imposes new obligation on foreign companies

As of January 1st, 2018 / January 1st, 2019, the partial revision of Swiss VAT Law will directly impact the foreign established companies operating in Switzerland

Please check out our technical flyer on the subject to find out more about these changes:

 

Do you want to know more about the new Swiss VAT obligations impacting foreign business or e-commerce business?

Please do not hesitate to contact us to discuss about your situation, your projects and more particularly the related VAT consequences in Switzerland or abroad.

We would be more than happy to discuss with you about the potential impacts, benefits, risks, costs, optimizations and obligations resulting from such changes.

Patricia More, Associée TVA, PwC Genève
+41 58 792 95 07 / patricia.more@ch.pwc.com

Olivier Comment, Directeur TVA, PwC Lausanne
+41 58 792 81 74 / olivier.comment@ch.pwc.com

Legal certainty concerning import value in Switzerland reestablished – Assessment of 100 million swiftly overruled by the Federal Supreme Court

In understanding of the business impacts, the Federal Supreme Court clarified the uncertainty on determination of the import VAT value for foreign companies involved in supplies of goods to Switzerland resulting from the recent decision of the Federal Administrative Court.
Click here to download the PDF

Background

A., a purchasing company of C. group established outside of Switzerland, however registered for Swiss VAT purposes, was acquiring goods from foreign third party suppliers. The goods were shipped to a Swiss warehouse of A. from where those were subsequently sold to C. (a Swiss established and VAT registered distribution company of the C. group), or other third party customers.

For customs clearance, the import value of the goods declared by A. was based on the price invoiced by the foreign suppliers to A. (i.e. on the purchase price). Further to their investigation, the Swiss Federal Customs Authorities (“SFCA”) claimed that A. underestimated the import VAT base, which should have been the sales price to C. minus 10%.
Click here to download the PDF
In the first instance, the Federal Administrative Court (“FAC”) also denied determination of the import VAT value of the goods based on the price paid by the (foreign) importer to its foreign suppliers and supported the post-assessment of the SFCA of 100 mio CHF import VAT and almost 1 mio late interests. The position of the Court was held on slightly different grounds than the one of SFCA. The FAC ruled that (i) the transaction with foreign suppliers occurred already abroad as the importer had the power to dispose of the goods abroad since he was in charge of the transport of goods to Switzerland and therefore the purchase price paid by A. should not have been determinant for the import value, and (ii) it should have then been the market value, which however in the view of FAC corresponded to the value paid by the final Swiss customer to third party suppliers minus 10%. Thus in practice, FAC actually accepted for the case at hand that the value should have been the sales price to C. minus 10%, which was the original position of SFCA.

Decision of the Federal Supreme Court

The Federal Supreme Court (“FSC”) overruled in its decision 2C_1079/2016 issued on 7. March 2017, the decision of the FAC. In this surprisingly short period after the first instance decision, FSC held that the transaction relevant for the determination of the import VAT value is the transaction which led to the import, i.e. the price paid by A. to its foreign suppliers and clearly not the market value related to the subsequent transaction with C, as at the moment of the import the contract with the final customer was not yet in place.

Click here to download the PDF

The FSC ruled that the fact who is the person in charge of the transport (i.e. supplier v. importer) has no impact on identifying the transaction relevant to determine the import VAT value of goods. Indeed, the FSC considered that the import value should be based on the agreement which gave rise to the transaction leading to import and that the transport is only a modality of the execution of the agreement.

The Court also considered that the characteristic feature of the purchase was the acquisition of goods abroad intended for sale in Switzerland and therefore the final destination was already known at the time of purchase from A to their suppliers. Consequently, based on article 54, al.1, let. a of the Swiss VAT law which provides that import value is the consideration where goods are imported under sales or commission agreement (and not the market value), the Court ruled that such consideration is the purchase price paid by A. to its foreign suppliers.

This decision removes the uncertainty resulting from the previous position of Customs Authorities in this case and following decision of the FAC, and confirms our standpoint on this subject matter. Fortunately, the Federal Supreme Court brought back the clarity into operations of many businesses, which is not only in line with the Swiss VAT law but also with the international standards. The FSC decision removes a certain inequality between foreign and Swiss based importers and gives necessary comfort to (foreign) companies involved in similar supply chain scenarios for the purpose of their customs reporting obligations. Companies importing goods in Switzerland for further sale via their local stock should ensure that their reporting is in line with this final decision of the FSC. The federal customs, as well as tax authorities will now need to review their practice and amend written guidelines in order to align with the legal grounds.

Download the PDF by clicking the image below:
Click here to download the PDF

 

Please contact our team for more details:
Patricia More, Partner, Indirect Tax, PwC Geneva
patricia.more@ch.pwc.com / +41 58 792 95 07

Christina Haas Bruni, Senior Manager Customs & VAT, PwC Basel
christina.haas.bruni@ch.pwc.com / +41 58 792 51 24

Kristyna Kaniova, Manager, Indirect Tax, PwC Geneva
kristyna.kaniova@ch.pwc.com / +41 58 792 92 34

Hans-Frederic Andersen, Senior Consultant, Indirect Tax, PwC Geneva
andersen.hans-frederic@ch.pwc.com / +41 58 792 91 97

Fixed establishment: Welmory – A never ending story

The Supreme Administrative Court in Poland ruled yesterday on the Welmory case. Even though the case went through Court of Justice of the European Union (CJEU, C-605/12) back to the final instance in Poland – nothing seems certain whatsoever. Many would have expected the court following CJEU argumentation and probably confirming existence of fixed establishment in Poland. This, however, turned out not to be the case.

Click here to download the PDF

Based on oral announcement of the court, both District Administrative Court’s judgement (previous instance) and tax authorities’ decision have been repealed. According to the Supreme Administrative Court the tax authorities must supplement the decision by factual evidences as to whether the technical infrastructure in Poland is actually allowing to claim creation of fixed establishment (FE). The dossier of the case does not include evidences proving existence of FE in Poland, as it seems the tax authorities did not bring forward sufficient investigation in this area. Therefore, in order to preserve the two-instance separation rule, the Supreme Administrative Court cannot judge upon it. In turn, the court decided to return the case back to tax authorities for further investigation.

Such outcome means for Welmory that the proceedings are not over yet. It raises a question of taxpayer’s rights in light of extensive timing of proceedings. As the original decision reaches as far as 2011 and the ultimate conclusion still being remote, one can question the quality of protection of taxpayer’s right to certainty of law.

Even though at first glance it may feel disappointing that the verdict was not rendered as per the principles of when a fixed establishment is being created, but focused on procedural deficiencies – it actually brings new perspective into the whole area. The aspect of evidences and proving existence of sufficient infrastructure.

In light of the developments in Poland it may be sensible to anticipate any potential fixed establishment discussions, by for instance preparing so-called defense file. Comprehensive documentation outlining factually the existing setup, aligned with global tax policy and drafted outside of hectic tax audit, can prove helpful. Especially as yesterday’s Welmory judgement brings more emphasis on the need for tax authorities to actually prove sufficient levels of infrastructure to claim existence of a fixed establishment. Such exercise may be particularly valid in industries being more and more part of the Digital Economy, where the brick and mortar physical aspects are taken over by the importance of significant digital presence, remote management and IT infrastructure.

We are looking forward to deeper analysis of our colleagues from PwC Poland, together with whom we are closely monitoring the developments in Poland.

We will keep you updated on the subject matter.

In the meantime, you can contact us for more details and download the PDF here:
Click here to download the PDF

 

Patricia More, Partner, Indirect Tax, PwC Geneva
patricia.more@ch.pwc.com / +41 58 792 95 07

Bozena Turek, Manager, Indirect Tax, PwC Geneva
bozena.turek@ch.pwc.com /+41 79 742 54 81

Assessment of 100 million due to incorrect import value confirmed by the Swiss court

Companies involved in supplies of goods to Switzerland should check their Swiss customs reporting further to a recent case of the Federal Administrative Court on determination of the import VAT value.

Swiss Federal Court VAT Decision - March 2017

Background

A., a purchasing company of C. group established outside of Switzerland, however registered for Swiss VAT, was acquiring goods from foreign third party suppliers. The goods were shipped to a Swiss warehouse of A from where those were subsequently sold to C. (a Swiss established and VAT registereddistribution company of the C. group), or other third party customers.

Swiss Federal Court VAT Decision - March 2017

For customs clearance, the import value of the goods declared by A. was based on the price invoiced by the foreign suppliers to A. (i.e. on the purchase price). Further to their investigation, the Swiss Federal Customs Authorities (“SFCA”) claimed that A. underestimated the import VAT base, which should have been the sales price to C. minus 10%.

Position of the Federal Administrative Court

The Court held in its decision A-2675/2016 dated 25 October 2016, that the purchase price paid to the foreign suppliers by A. was not relevant to determine the import VAT value. This was due to the fact that the transport from abroad was partially supported by A., which means the latter already abroad had the power to dispose of the goods and therefore the transaction with the foreign suppliers should no longer be relevant to determine the import VAT value. The Court also held that the import value could not be the value of the sale from A. to C. since the transactions were occurring after the import, and storing the goods in the Swiss warehouse of A. The Court then, however concluded that the import value should be the market value that C. would pay.

According to article 54, al.1, let. g of the Swiss VAT law, the market value is the price to be paid to an independent supplier in the country of origin. A. was therefore convinced that the imported value declared was in line with the Swiss VAT law. However, the Court held that the price to be considered is not the one that A. paid to the supplier in the country of origin of the goods, but the price that C. would have paid to third-party suppliers in this country for similar goods. On this ground, and to the extent that the Court considered that it could not be determined which price would be paid by C. in the country of origin, it held that the SFCA were entitled to consider that indeed such price would be the price paid by C. to A. minus 10%, according to deductive method developed in the Swiss Federal Tax Authorities’ guidelines which however do not have binding character. Thus, the initial position of the SFCA was confirmed by the court even though based on different arguments.

This decision resulted in an adjustment of more than CHF 100 million and late payment interest of CHF 924,854 for A.

Swiss Federal Court VAT Decision - March 2017

Outcome

We are of the opinion that neither the position of the Court nor the deductive method developed by the Swiss Federal Tax Authorities in their guidelines are in line with the Swiss VAT law or with the Customs administrative guidelines which only refer to the price paid by the importer in such case.

It could also be inferred from the reasoning of the Court that the deductive method would not be applicable in case exclusively the foreign suppliers would be handling the transport of the goods up until the Swiss warehouse of the recipient.

As the company was fully entitled to deduct input VAT, and due to the fact that customs duties in Switzerland are calculated based on weight of the imported goods, the valuation of the VAT import value had no impact on A’s liability as such. The main impact of the decision is however the late payment interests arising from the adjustment performed by the SFCA which has been confirmed by the Court and do amount to a substansive cost for A.

An appeal has been lodged against the decision, and as the position held by the Federal Administrative Court could be considered as not in line with the Swiss VAT law, we can only hope that the Federal Supreme Court will not confirm this controversial judgement of the Federal Administrative Court.

Recommended action

Companies importing goods from abroad to their Swiss warehouses, from where subsequent sales to Swiss customers are carried out should review their practice in order to assess the potential risk and monitor further developments. Provided that the Federal Supreme Court confirms the position of the SFCA, such businesses would notably be impacted if they are involved in the transport of the goods.

Download the PDF by clicking the image below:

Swiss Federal Court VAT Decision - March 2017

Please contact our team for more details:

Patricia More
Partner, Indirect Tax, PwC Geneva
patricia.more@ch.pwc.com
+41 58 792 95 07

Kristyna Kaniova
Manager, Indirect Tax, PwC Geneva
kristyna.kaniova@ch.pwc.com
+41 58 792 92 34

Hans-Frederic Andersen
Senior Consultant, Indirect Tax, PwC Geneva
andersen.hans-frederic@ch.pwc.com
+41 58 792 91 97

Are your supplies of blood plasma VAT exempt?

FinanzForum_2015_v2Recent developments related to blood plasma supplies in the EU and a comparison to the Swiss VAT treatment

Does human blood plasma fall within the scope of the VAT exemption applicable to blood?

  • In the European Union (EU)

On 5 October 2016, the Court of Justice of the European Union (CJEU) issued its decision to a German case (C-412/12, TMD) 1, in regards to whether the supply of blood plasma used for manufacturing of medicinal products should be VAT exempt or not.

With its decision CJEU, confirmed that although not explicitly listed in the EU VAT Directive’s 2 article, which provides for the VAT exemption of supplies of blood and human organs 3, the supply of plasma derived from human blood falls under the exemption, but only when the plasma is actually intended for direct therapeutic use.

Additionally, CJEU ruled that where the human blood plasma is intended to be used for the manufacture of medicinal products (i.e. plasma intended for industrial use) it should be subject to VAT. In this latter case, the question remains “Which VAT rate applies – the standard rate or the reduced rate?” The answer to this question depends on the national VAT rules of the country where the blood plasma sale, intra-community acquisition or import takes place.

  • In Switzerland

Swiss VAT law provides for a VAT exemption of supplies of blood and human organs 4; however, only the supplies of whole blood by persons possessing the required license are eligible to the VAT exemption.

Therefore, the supply of blood plasma, which is a component of human blood, but does not qualify as whole blood itself, is subject to Swiss VAT. Such an interpretation has been confirmed by the Federal Tax Authority (FTA) in their written guidelines.

The FTA has also confirmed that if the human blood plasma can qualify as “medication” 5, then the reduced VAT rate of 2.5% applies.

zentralschweizer_spitalapero

Implications your business should consider

As the CJEU’s decision becomes directly applicable legislation in all EU member states, it is expected that the CJEU’s decision would trigger changes to the current tax authorities’ practices in some countries, particularly with respect to the VAT treatment of blood plasma for industrial use.  This new EU legislation would mainly affect the specialized laboratories selling blood plasma, the pharmaceutical companies using plasma for the manufacture of medicinal products, as well as the intermediaries involved in the supply chain.

In view of the above, if you are involved in transactions with blood plasma (as either a supplier or a purchaser) it is recommended that you continue to monitor for local country developments triggered by the TMD case (C-412/12), and assess the impact of the CJEU’s decision in the light of both the EU and local legislation applying to your current supply chain.

We have provided a list of impacts/actions to consider, depending on your role in the plasma transaction (supplier/customer/intermediary), in the detailed PDF below:

PlasmaNews_Thumbnail_28.11.16

 

Download the PDF here: Are your supplies of blood plasma VAT exempt?

 

 

If you would like to discuss the above in more detail and assess the implications for your business, please do not hesitate to contact us.

Patricia More
Partner, Indirect Tax
PwC Geneva
patriciat@ch.pwc.com
+41 58 792 95 07

Sandra Ragaz
Indirect Tax Leader for Pharma & Life Science in Switzerland
PwC Zurich
sandra.ragaz@ch.pwc.com
+41 58 792 44 69

Gergana Chalakova
Manager, Indirect Tax
PwC Geneva
gergana.chalakova@ch.pwc.com
+41 58 792 92 02

1 C-412/15 (TMD Gesellschaft für transfusionsmedizinische Dienste mbH v Finanzamt Kassel II – Hofgeismar)
2 Directive 2006/112/EC
3 The VAT exemption on blood is laid down in Article 132(1)(d) of Directive 2006/112/EC.
4 The VAT exemption on blood is laid down in Article 21(2)(5) of Swiss VAT Law of 12 June 2009.
5 Definition of “Medication” is provided with Article 49 of the Ordinance to the Swiss VAT Law

Digitalization of the Tax Environment

Digitalization thumbnailIt is no surprise that the whole world is getting more and more digital, but it is important to acknowledge that so are also the tax authorities in requirements they now set forth towards taxpayers.

OECD’s model of SAF-T files (followed by Polish JPK or Lithuanian i.SAF), French FEC, Lux FAIA and many other forms of more or less standardized types of electronic files are currently being required all over Europe. In the other corner, a huge amount of businesses struggle to make their ERP capture all transactions in a VAT compliant manner.

Our PwC Geneva VAT team organised a very successful breakfast event last week to discuss these challenges. Participants also had the chance to discover “Taxmarc”, an integrated tool created by PwC Netherlands and primarily designed for SAP systems, that significantly increases the level of ERP’s VAT compliance capabilities (e.g. that is able to automate VAT determination for triangulations or drop shipments transactions – just to name a few features). The tax control framework built in Taxmarc is an impressive enhancement of the VAT features, compared to the standard SAP logic.

If you are interested in this topic, please feel free to dowload the presentations below or to contact us directly to discuss your challenges.

Digitalization thumbnailDigitalization of the Tax Environment

 

DataIgnition thumbnailData Ignition for Indirect Tax

Taxmarc thumbnailTaxmarc

 

Patricia More
Partner, Indirect Tax Services
PwC Switzerland
Tel. +41 58 792 95 07
Email:
patricia.more@ch.pwc.com

Bozena Turek
Manager, Indirect Tax Services
PwC Switzerland
Tel. +41 58 792 91 25
Email:
bozena.turek@ch.pwc.com

Gergana Chalakova
Assitant Manager, Indirect Tax Services
PwC Switzerland
Tel. +41 58 792 92 02
Email:
gergana.chalakova@ch.pwc.com

KSA CUSTOMS ALERT – New electronic export Certificate of Origin

In brief

The Saudi Ministry of Commerce and Investment (“MoCI”) has recently launched a new electronic service that allows exporters to issue and print export certificates of origin (“CoO”) online. This initiative is expected to facilitate the issuance of export CoO’s and help exporters to reduce costs.

In detail

The MoCI has recently announced a new online service which aims at facilitating the issuance of export CoO’s for local manufacturers, traders and individuals exporting goods from the Kingdom of Saudi Arabia (“KSA”).

The new system replaces the previous lengthy paper-based process with a new online tool that allows businesses to apply and obtain a certified electronic print out of the export CoO through a completely online web based process.

Link with Customs

The new system is electronically linked with the Saudi Customs, which can ensure the validity and accuracy of the data listed in the CoO before starting the export formalities at the border. This is expected to reduce the export clearance time and facilitate the export formalities for Saudi exporters.

Registration

In order to benefit from the new electronic service, exporters are required to register and/or update their account information on the MoCI web portal.

The takeaway

The CoO is one of the main export documents required by the Customs authorities of both the exporting and the importing countries. The new online system is expected to reduce the export clearance time and associated exports costs for exporters in KSA.

We recommend businesses with significant export volumes and frequent need of obtaining CoO’s to register with the MoCI to reduce the costs associated with the exports of goods from KSA.

Let’s talk

For a deeper discussion of how this new service can benefit your business, please do not hesitate to contact our specialists in Switzerland.

Visuel KSA VAT News

Renewed definition of supplies of goods in chain transactions which involve intermediaries

The Commission Services (a working council of the European Commission) has recently published a working paper in which they provide their reasoning as to what makes up a supply of goods as a result of a judgment of the Court of Justice of the European Union (‘CJ EU’). The items discussed in this working paper are relevant for chain transactions in which intermediaries are involved who trade goods they do not actually dispose of as an owner.

Graphic

The working paper is issued in response to the questions raised by Lithuania on how the Fast Bunkering Klaipėda case of the CJ EU should be explained and applied in practice. Delegates of the EU Member States (who together form the VAT Committee) are now requested to give their opinion on the issues raised by the Commission Services.

Issues raised

The Commission Services are of the view that the outcome of the CJ EU judgment Fast Bunkering Klaipėda court case could not be said to be particular to that specific case, but may also be relevant to other scenarios such as chain transactions.
As explained by the Commission Services, the CJ EU judgment has made clear that a supply of goods for VAT purposes is recognised in case someone is empowered actually to dispose of goods as if he/she were their owner. The (subsequent) transfer of legal ownership to anyone else (if applicable) would therefore, in principle, have to be disregarded. This was apparently the case for Fast Bunkering Klaipėda who supplied goods on a ‘free on board’ basis to an intermediary (who was acting in his own name) but directly loaded the fuel itself into the vessel’s fuel tank of the final recipient. In this situation the intermediary could not actually dispose of the goods as an owner, since at the moment he obtained legal title to the goods, the fuel oil was already loaded into the vessel and put at the disposal of the final recipient.
According to the CJ EU, in such case a direct supply of goods takes place from the first supplier to the final recipient (ignoring the involvement of the intermediary). In the working document the EC now raises the issue that the transaction performed by the intermediary should consequently be regarded as a supply of services, as he is not in the position to supply goods that are already supplied for VAT purposes to the final recipient.

It is noted by Commission Services that in as far as the intermediary acts on behalf of another party, the intermediary is still deemed to have purchased and onward supply the goods. Hence, where a commissionaire is involved, the above should not be applicable.

Impact on businesses

If the above position would be true, the impact on businesses would potentially be significant. In supply chains similar to the one of Fast Bunkering Klaipėda, the first supplier would from a VAT perspective no longer be supplying goods to his direct counterparty, but to the final recipient instead. At the same time, it should be determined to which party the intermediary is rendering its services. Obviously this would have an enormous impact on the invoice flows in the supply chain. Moreover, the intermediary would be forced to disclose his margin (i.e. the fee for his services), which might be an issue in practice.
In our view, the impact on businesses of the Fast Bunkering Klaipėda case and this working paper from Commission Services is limited to those supply chains whereby the transfer of legal ownership takes place at the same time as or after the disposal of the actual ownership takes place. In this respect, it could be questioned whether a transfer of goods to someone empowered actually to dispose of those goods as if he were their owner necessarily takes place at the same time that the goods are physically put at the disposal of a buyer or final recipient.
Particularly in commodity trade vessels might already have left the harbour, whereas the documents that represent ownership of the goods loaded in the vessels (e.g. bills of lading) are distributed throughout the supply chain thereafter. It could be that the Fast Bunkering Klaipėda case and this working paper from Commission Services therefore do not necessarily have an impact, as all parties in the supply chain normally receive (and onward distribute) the documents representing ownership of the goods loaded in the vessel (unless economic reality proves otherwise). This might be different for the situation whereby parties involved in the supply chain establish a so-called ‘string’, based on which a document by-pass takes place from the first supplier to the last recipient in the supply chain. In those circumstances the other parties involved do not receive the documents that represent ownership of the commodities and consequently are not empowered actually to dispose of those goods as if they were their owner. In such case, in principle the other parties necessarily render services to each other. However, we feel that there are situations in which the settlements by the other parties (of the differences between their sales prices and the ‘by pass’ price) could possibly qualify as cash settlements not subject to VAT. This is to be further established on a case by case basis.

Way forward

In order to assess the potential impact of the Fast Bunkering Klaipėda case and the working paper from the Commission Services, we recommend companies to investigate whether they are involved in supply chains whereby the transfer of legal ownership of the underlying goods takes place at the same time as or after the disposal of the actual ownership. If so, a more detailed analysis is required to identify possible issues and establish possible work-arounds. We are happy to assist you in this respect.
Further guidance is to be expected when the delegates of the EU Member States / VAT Committee have given their opinion on the issues raised.

Legal status

Although this working paper and the expected guidelines of the VAT Committee on the basis thereof are no legally binding decisions, they provide guidance on the application of the VAT Directive. It is our experience that EU Member States use such guidance as a starting point for taking their individual position. We will of course inform you accordingly once the view of the VAT Committee has been published.

Renewed definition of supplies of goods in chain transactions which involve intermediaries

Patricia More
Partner, Indirect Tax
+41 58 792 95 07
patricia.more@ch.pwc.com

Julia Sailer
Director, Indirect Tax
+41 58 792 44 57
julia.sailer@ch.pwc.com