VAT in the Digital Age Initiative

The European Economic and Social Committee has issued its opinion on the VAT in the Digital Age (“ViDA”) Initiative. Among other topics discussed, the committee has opined on the timeline for reporting intra-Community supplies, the abolishment of summary invoices, and the possibility of VAT deduction within the One Stop Shop (OSS).

European Court of Justice, Case C-677/21, “Fluvius Antwerpen v. MX”: Illegal Collection of Electricity Treated as a Supply of Goods for VAT Purposes

The European Court of Justice has ruled that Article 2(1)(a) of Council Directive 2006/112/EC, as amended by Council Directive 2009/162/EU, read in conjunction with Article 14(1) of that directive, must be interpreted as meaning that the supply of electricity by a distribution network operator, even if involuntary and the result of unlawful conduct on the part of a third party, constitutes a supply of goods for consideration entailing the transfer of the right to dispose of tangible property. Furthermore, Article 9(1) of the Directive must be interpreted as meaning that the supply of electricity by a distribution network operator, even if involuntary and the result of unlawful conduct on the part of a third party, constitutes an economic activity of that operator in as much as it gives rise to a risk inherent in its activity as an electricity distribution network operator. Where that economic activity is carried out by a body governed by public law acting as a public authority, such an activity, referred to in Annex I to that Directive, can be regarded as being carried out on such a small scale as to be negligible within the meaning of the third subparagraph of Article 13(1) of that Directive only if it is of such minimal scale in space or time and, consequently, of such a slight economic impact that the distortions of competition likely to result are liable to be, if not nil, at the very least insignificant.

European Court of Justice, Case C-516/21, “Finanzamt X v. Y”: VAT Exemption on Leasing of Permanently Installed Equipment and Machinery as an Ancillary Service of a Leasing of Real Estate

The European Court of Justice has ruled that Article 2(1)(a) of Council Directive 2006/112/EC must be interpreted as not applying to the letting of permanently installed equipment and machinery where that letting constitutes a supply ancillary to a principal supply of leasing a building, carried out under a leasing agreement concluded between the same parties and exempt under Article 135(1)(l) of that directive, and those supplies form a single economic supply.

European Court of Justice, Case C-127/22, “Balgarska telekomunikatsionna kompania EAD”: Adjustment of Input VAT Deductions on Destroyed or Scrapped Goods

The European Court of Justice has ruled that Article 185(1) of Council Directive 2006/112/EC must be interpreted as meaning that, writing off goods, which the taxable person considered to have become unusable in the course of his or her usual economic activities, followed by the sale of those goods as waste, which was subject to VAT, does not constitute a “change … in the factors used to determine the amount to be deducted” within the meaning of that provision.

It has also ruled that, Article 185 of the Directive must be interpreted as meaning that writing off goods, which the taxable person considered to have become unusable in the course of his or her usual economic activities, followed by the voluntary destruction of those goods, constitutes a “change … in the factors used to determine the amount to be deducted” within the meaning of paragraph 1 of that article. However, such a situation constitutes “destruction” within the meaning of the first subparagraph of paragraph 2 of that article, irrespective of its voluntary nature, with the result that that change does not give rise to an adjustment obligation, provided that that destruction is duly proved or confirmed and that the goods had objectively lost all usefulness in the taxable person’s economic activities. The duly proven disposal of goods must be treated in the same way as their destruction in so far as it actually entails the irreversible disappearance of those goods.

Furthermore, Article 185 of the Directive must be interpreted as meaning that it precludes provisions of national law that provide for the adjustment of input VAT deducted upon acquisition of goods where they have been written off, the taxable person having considered that they had become unusable in the course of his or her usual economic activities and where, subsequently, those goods were either sold subject to VAT or destroyed or disposed of in a way which effectively means that they have disappeared irreversibly, provided that such destruction is duly proved or confirmed and that the goods had objectively lost all usefulness in the taxable person’s economic activities.

EU Customs Reform Proposal

The European Commission has proposed reforming the EU customs regime in order to cope with the increase in e-commerce and the demand for European standards at the border. The following are the main pillars of the reform:

• Transferring the responsibility for ensuring compliance with EU customs rules to online marketplaces;
• Deeming online marketplaces as the importers to ensure that customs duties and VAT are paid at the time of purchase; and
• Abolishing the current exemption from customs duties for goods valued under €150.

European Court of Justice, Case C-365/22, “IT v. État Belge”: End-of-life Motor Vehicles Intended to be Sold “For Parts” Constitutes Second-hand Goods for VAT Purposes

The European Court of Justice has ruled that Article 311(1)(1) of Council Directive 2006/112/EC must be interpreted as meaning that end-of-life motor vehicles acquired by an undertaking from the persons referred to in Article 314 of that Directive, and intended to be sold "for parts,” without the parts having been removed, are second-hand goods within the meaning of Article 311(1)(1) where, first, they still include parts that maintain the functionalities that they possessed when new, so that they can be reused as such, or after repair, and, secondly, it is established that those vehicles remained in the same economic cycle because of that reuse of parts.

European Court of Justice, Case C-418/22, “SA CEZAM v. Belgian State”: Calculation of Penalties on Late Returns and Payment Without Consideration of the Input VAT

The European Court of Justice has ruled that Article 273 of Council Directive 2006/112/EC, as well as the principles of proportionality and fiscal neutrality, must be interpreted as not precluding national legislation pursuant to which the failure to comply with the obligation to declare and pay VAT to the Treasury is penalised by a flat-rate fine amounting to 20% of the amount of VAT that would have been due before subtracting deductible VAT, subject to the checks to be carried out by the referring court as regards the proportionate nature of the fine imposed in the case in the main proceedings.

European Court of Justice, Case C-114/22, “Dyrektor Izby Administracji Skarbowej w Warszawie v. W. Sp. z o.o.”: Right to Deduct Input VAT Charged on Null Transactions

The European Court of Justice has ruled that Articles 167, 168(a), 178(a), and 273 of Council Directive 2006/112/EC, as amended by Council Directive 2010/45/EU, read in the light of the principles of fiscal neutrality and proportionality, must be interpreted as precluding national legislation under which a taxable person is deprived of the right to deduct input VAT solely because a taxable economic transaction is regarded as fictitious and invalid under the provisions of national civil law, without it being necessary to establish that the criteria for classifying, under EU law, that transaction as fictitious are met or, where that transaction has actually been carried out, that it is the result of VAT evasion or abuse of rights.

Hungary Authorised to Increase the VAT Registration Threshold for Small Businesses

The European Union has authorised Hungary to exempt from VAT businesses with an annual turnover of up to the equivalent of EUR 71,500 in local currency (HUF) as from 25 May 2023. The previous threshold was the local currency equivalent of EUR 48,000.