VAT Newsletter | Q. 2 – 2023

By means of an amendment to Article 38(2) of the VAT Act, with effect from 4th April 2023 the administrative penalty for ‘late’ filing of a recapitulative declaration has been increased to EUR 50 per month or part thereof that elapses from the date the declaration should have been furnished and the date when it is furnished, capped to EUR 600 per declaration. For recapitulative declarations that were due to be furnished before 4th April 2023, the old rates apply, namely EUR 10 capped to EUR 120 per declaration. The CfR reminded taxable persons that the obligation to file a recapitulative statement in a timely manner is key to ensuring the proper functioning of the EU VAT system and assist the tax authorities in the Member States to effectively tackle VAT evasion and fraud.

The document outlines the strategy as well as the implementation plan that the Malta’s Tax and Customs Administration will be embarking on in the next three years. According to Mr. Joseph Caruana, the Commissioner for Revenue, “the MTCA aims to transform itself in the years to come supporting the Maltese economy by delivering on its mission and vision. As the protectors of Malta’s tax base, it must be ensured that every Maltese, individual or body corporate, pays their fair share of taxes. This is especially significant given the current economic context. Our transformation is going to be primarily technology-led. We need to have an organisation that is using the latest technology in tax and customs administration using advanced data analytics, business intelligence and artificial intelligence.”. The document also contains a forward message by the Hon. Minister for Finance and Employment, Clyde Caruana.

For further reading: https://cfr.gov.mt/en/cfr/Documents/MTCA%20Strategic%20Plan%202023_2025.pdf

The printing of the VAT Certificate and VAT information sheet is now available as one service under the VAT e-Services facility accessible via the web portal of the Commissioner for Revenue.

This reference in terms of Art. 44(k) of the VAT Act was in connection with a demand note in the form of a periodical ledger statement for an amount of EUR 244,530 served on the company by the Commissioner for tax periods from September 2004 to October 2010. Given that the amounts contested were intrinsically linked to assessments raised by the Commissioner that were concurrently under appeal the Tribunal decided that the amount contained in the ledger statement should not constitute an executive title, pending the definitive decision arising as a result of the VAT appeal (below).

The company filed twelve separate appeals (per tax period) requesting the cancellation of all the assessments raised to it by the Commissioner pursuant to an investigation by the Tax Compliance unit. Upon examining the business records of the company, which traded mainly in a specific imported foreign beer, a negative gross mark-up resulted leading the investigators to reasonably believe that sales were being grossly under-declared. Notwithstanding that the company argued that the introduction of a new beer on the local market necessitated a significant amount of for-free marketing, the assessments were issued based on the TCU’s projections. After examining the evidence and taking note of the submissions by the parties, the Tribunal rejected the appeal by concluding that the assessments being contested were fair and reasonable and as such were to stand in their totality.

Pursuant to this decision, ten Member States were being authorised to extend, up to 31 December 2023, the waiver not to apply Customs duties and VAT upon the importation of goods consisting in food, blankets, tents, electric generators and other life-saving equipment that were destined to be supplied in connection with the war in Ukraine. It is noted that Malta had not applied to be included in this extension and hence the waiver as regards Malta expired on 31 December 2022.

No meetings during this calendar quarter.

No meetings during this calendar quarter.

Case C-282/22 – P. in W.  – 20/04/2023

(RE: Art. 14, 15 and 24 of VAT Directive – Recharging points for electric vehicles – Provision of devices for recharging electric vehicles, provision of electricity, of technical support and IT services – classification as a ‘supply of goods’ or a ‘supply of services’.)

In W., a Polish company, enquired with the Polish tax authority whether the activities for the re-charging of electric vehicles it planned to carry out against the payment of a single price constituted a supply of services for VAT purposes. Essentially the activities consisted of the access to recharging devices, including integration of the charger with the vehicle operating system; the supply of electricity, within duly adjusted parameters, to the batteries of the vehicle; the necessary technical support and the creation of a special platform, such as a website or app that would enable the user to among other reserve a particular connector as well as to view the transactions and payment history. The Polish tax administration, however, took the view that given that the predominant activity was the supply of electricity, and that the other activities being ancillary for the better enjoyment of the supply of electricity, ruled that the complex supply at issue constituted a single supply of goods.

The Supreme Administrative Court of Poland, where the dispute ended up stayed proceedings and asked the ECJ (the “Court”) whether a complex supply made to electric vehicle users at recharging points comprising the elements referred to in the order of reference constituted a ‘supply of goods’ within the meaning of Art. 14(1) of the VAT Directive or a ‘supply of services’ within the meaning of Art. 24(1) thereof.

Recalling settled case-law the Court noted that where a transaction comprised a bundle of elements and acts, regard must be had to all the circumstances in which that transaction took place in order to determine, first, whether the transaction gave rise, for the purposes of VAT, to two or more distinct supplies or to one single supply, and, second, whether, in the latter case, that single supply is to be regarded as a supply of goods or a supply of service. Whilst normally each transaction must be regarded as distinct and independent, a transaction that comprises a single supply from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system. In that regard, it must be held that there is a single supply where two or more elements or acts supplied by the taxable persons to the customer are so closely linked that they form, objectively, a single, indivisible economic supply that would be artificial to split. Moreover, in certain circumstances, severally formally distinct supplies, which could be provided separately and thus give rise, in turn, to taxation or exemption, must be considered to be a single transaction when they are not independent. That would be the case where, inter alia, one or more elements are to be regarded as constituting the principal supply, while other elements are to be regarded, by contrast, as one or more ancillary supplies which share the tax treatment of the principal supply. In particular, a supply must be regarded as ancillary to a principal supply if it does not constitute for customers an end in itself but a means of better enjoying the principal supply.

By application of these concepts to the independent elements constituting the single transaction at issue the Court took the view that the supply of electricity constituted the principal supply with the other elements being ancillary, merely not an end in themselves but a better means of enjoying the principal supply.

In the light of the foregoing the Court ruled that the single complex supply made to electric vehicle users at recharging points comprising the elements referred to in the order of reference constituted a ‘supply of goods’ within the meaning of Art. 14(1) of the VAT Directive.

Case C-232/22 – Cabot Plastics Belgium SA – 29/06/2023

(RE: Art. 44 of Council Directive 2006/112/EC – Place of supply of services – Art. 11(1) of Council Implementing Regulation (EU) No. 282/2011 – Point of reference for tax purposes – Concept of ‘fixed establishment’ – Provision of tolling services and ancillary services – Exclusive contractual undertaking between a company providing services in a Member State and the recipient of those services established in a Third country – Legally independent companies)

Cabot Switzerland, GmbH, a company established in Switzerland concluded a tolling contract[1], with amongst other, Cabot Plastics Belgium SA, a company established in Belgium, wholly owned by Cabot Holding I Gmbh, which also held the entirety of the shares in Cabot Switzerland GmbH. Cabot Plastics invoiced the tolling and other services rendered to/for Cabot Switzerland under Art. 44 of the VAT Directive, shifting the place of supply to Switzerland with Cabot Switzerland liable to pay the VAT. A dispute arose, where following a tax inspection, the Belgian tax authority took the view that for VAT purposes Cabot Switzerland maintained a fixed establishment in Belgium and that accordingly, the services supplied to it by Cabot Plastics were deemed to take place in Belgium and hence subject to VAT in Belgium. An assessment covering years 2014 to 2016 amounting to EUR 10.6M, plus EUR 1.06M in fines together with interest was issued to Cabot Plastics.

The Court of Appeal (Liege), as referring court, asked the ECJ (the “Court”) whether Article 44 of the VAT Directive should be interpreted as meaning that a taxable person receiving services, whose business is established outside of the European Union, had a fixed establishment in the Member State in which the provider of the service concerned (which is legally independent from that recipient) is established, where that taxable person providing services provides to that taxable person receiving services, pursuant to an exclusive contractual undertaking, those services and a series of ancillary/additional services contributing to the business of the taxable person receiving services in that Member State, and the human and technical resources of that possible fixed establishment belong to the provider of the services.

The Court reminded that the scope of Art. 44 of the VAT Directive is for determining the place where the provisions of services are taxed by designating in a uniform manner the point of reference for tax purposes having the objective of avoiding conflicts of jurisdiction that may result in double taxation or non-taxation. Thus, as a primary point of reference, the place where the recipient has established his business constitutes a simple and practical objective criterion. On the other hand, the connection to a taxable person’s fixed establishment is a secondary point of reference which is an exception to the general rule and can only be taken into consideration provided certain conditions, set out in Art. 11(1) of the Implementing Regulation, are met. It must also be noted that the matter of whether there is a fixed establishment must not be determined by reference to the person providing the services but by reference to the person receiving them. It was necessary, therefore to assess, whether in the circumstances such as those at issue in the main proceedings, the taxable person receiving the services (Cabot Switzerland) may be regarded as having, to a sufficient degree of permanence and suitability, human and technical resources in the Member State where the services were provided (Belgium) and if necessary, whether those resources actually enabled it to receive and use those services there.

After due consideration, the Court ruled that Art. 44 of the VAT Directive must be interpreted as meaning that a taxable person receiving services, whose business is established outside the European Union, does not have a fixed establishment in the Member State in which the provider of the services concerned is established, in the circumstances such as those at issue in the main proceedings.

[1] Toll manufacturing or tolling means outsourcing all the production or part of it to a third-party company with the raw materials and/or semi-finished products being supplied by the outsourcing company. The third-party company then processes the raw materials and/or the semi-finished products according to the outsourcing company’s specifications and standards.