VAT Newsletter Q3 2023

Guidelines for the VAT treatment of Health Care Services – 05/09/2023

The guidelines set out to clarify the VAT treatment of health care services, as interpreted by the Commissioner for Tax and Customs (“CfTC”), in the context of the exemption provided in sub-items (1) and (2) of item 11 of Part Two of the Fifth Schedule to the VAT Act. Whilst certain elements must cumulatively be met for the exemption to apply, such as the medical care being provided by a registered health care professional in the case of sub-item (1) and a supply of care or medical or surgical treatment supplied in a government hospital or in any other hospital or institution as approved by the Minister in the case of sub-item (2), it is not the case that the exemption covers all types of health care services. For example, the exemption shall not apply where the services are deemed to be of an aesthetic or cosmetic nature unless the registered health care professional carrying out the treatment certifies that it is for the purpose of maintaining and/or restoring the health of a person. In such cases, the CfTC reserves the right to request the health care professional to furnish certain information including medical records necessary to justify the application of the exemption within six years from the end of the year to which the records relate.

For further information visit: https://cfr.gov.mt/en/vat/guidelines_to_certain_VAT_Procedures/Documents/Guidelines%20-%20Healthcare%20(2023.09.05).pdf

No VAT appeals decisions were published during this calendar quarter.

Case 364/2023 RGM – Steward Malta Management Ltd vs Kummissarju tat-Taxxi – 05/07/2023

Steward Malta Management Ltd filed an application requesting the Court to declare the demand note raised to it by the Commissioner in terms of Article 59(1) of the VAT Act for the amount of EUR 36.8 M as invalid and thus not constituting an executive title since the amount being claimed was contested and court proceedings in another Court were still pending. Furthermore, the applicant requested the Court to nullify the garnishee order in force relating to the recovery of the said amount. After hearing the evidence and the legal arguments by both parties as well as by reference to settled case law, the Court found that the executive title held by the Commissioner for the contested amount was valid at law notwithstanding that the amount was being challenged in another Court under separate proceedings. Accordingly, the application by Steward Malta Management Ltd was rejected with expenses to be borne in full by the applicant.

No meetings were held during this calendar quarter, but on 22/09/2023 the VAT Committee published Working Paper 1067 clarifying the VAT treatment of supplies of fuel in the context of fuel card schemes following the European Court of Justice decision in case C-235/18 Vega International. Taking stock of the key points emerging during the discussion on the Vega International decision held during the 121^st meeting of the VAT Committee, the Commission Legal Services concluded that:

• the character of a supply made in the context of a fuel cards scheme varies depending on the person to whom the right to dispose of the fuel as owner is transferred;
• where it can be established that the right to dispose of the fuel as owner is transferred to the fuel card issuer, the latter may be considered as buying and then supplying the fuel;
• in a number of situations, despite the absence of such a transfer of the right to dispose of the fuel as owner to the fuel card issuer, the latter may nonetheless be considered as supplying the fuel.

WP 1067 can be viewed here: https://circabc.europa.eu/ui/group/cb1eaff7-eedd-413d-ab88-94f761f9773b/library/98625827-1472-4984-ac09-6bd508011d26/details

No meetings were held during this calendar quarter.

The group on the future of VAT is a Commission informal group composed of representatives of national tax administrations. It provides the Commission a forum for consulting VAT experts from Member States mainly on pre-legislative initiatives. In its 42^nd meeting held on 08/09/2023 the following items were on the agenda:

• Presentations on “Existing national Digital Reporting Requirements” by the Spanish, Italian, French, Hungarian and Polish tax administrations in the context of the VIDA proposal;
• Update on the Travel and Tourism package which focuses on the special scheme for travel agents, VAT rules on passenger transport and the exemption on supplies of goods to non-EU travellers;
• Presentation by the Commission outlining the VAT revenue collected in 2022 via the application of the three e-commerce special schemes – the non-Union OSS, the Union OSS and the Import OSS.

Case C-344/22 – Gemeinde A vs Finanzamt – 13/07/2023

(RE: Art. 2(1)(c) of VAT Directive – Supply of services for consideration – Bodies covered by public law – Municipality collecting a spa tax for the provision of spa facilities accessible to everyone)

Municipality A (“A”) was a state-recognised thermal spa town located in the German State of Baden-Württemberg. Its spa administration was managed as a government-operated business under municipal law and qualified as a commercial business for the purposes of corporation tax laws. In order to cover the costs of erecting and maintaining the facilities provided for spa and leisure purposes, A collected a “spa tax” that was charged to certain categories of persons such as non-locals on a per-day basis for the duration of their stay whilst locals that were subject to it paid an annual flat rate. On the other hand, day visitors, non-local persons or residents working or undertaking training in the municipality were exempt and could use the spa facilities free of charge. Taking the view that the “spa tax” constituted remuneration for an activity subject to VAT, in the VAT returns for the years 2009 to 2012, A claimed a deduction of the input VAT connected with the spa tourism activities in general. However, pursuant to a tax audit, the tax authority issued tax notices to A to recover the alleged overclaimed input VAT on grounds that in their view the input VAT deduction should have been strictly limited to the spa activity.

The Federal Finance Court of Germany, where the dispute ended up, stayed the proceedings and asked the ECJ (the “Court”) whether, in circumstances such as those at issue in the main proceedings, a municipality that imposes a “spa tax” by providing spa facilities to certain persons in return for the payment of such a “spa tax” would be carrying out an economic activity for the purposes of Article 2(1)(c) of the VAT Directive and if yes, whether in the context of the size of the municipality in relation to the relevant geographical market, the treatment of the municipality as a non-taxable person would lead to significant distortions of competition within the meaning of the second subparagraph of Article 13(1) of the VAT Directive.

The Court recalled that according to its settled case-law, for an activity to be considered as an economic activity within the meaning of Article 9(1) of the VAT Directive, it had to correspond to one of the chargeable events set out in Article 2(1).  In other words, it had to be examined whether the transaction at issue in the main proceedings constituted a supply of a service carried out by a taxable person acting as such in return for a consideration. A supply of a service is deemed to be carried out for a consideration only if there is a legal relationship between the provider of the services and the recipient pursuant to which there is a reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration for an identifiable service supplied to the recipient. That would be the case where there is a direct link between the service supplied and the consideration received.

The Court noted that the “spa tax” received by A cannot be regarded as resulting from the provision of a service, namely the provision of spa facilities, of which it constitutes the direct consideration. This because in terms of the municipal laws governing the “spa tax” the liability for its payment is not linked to the use of the spa facilities but rather to the stay in the territory of the municipality whatever the reasons for the stay. Furthermore, although the persons liable to pay the “spa tax” have a right to use the spa facilities, persons who are exempt from paying it can still use those facilities free of charge. As such in the context of right of use of the spa facilities, the persons liable to pay the “spa tax” do not enjoy any advantages over the persons who are exempt from paying it.

Having regard to the above considerations, the Court ruled that Article 2(1)(c) of the VAT Directive must be interpreted as meaning that the provision of spa facilities by a municipality, in respect of which, based on a municipality law, a “spa tax” is imposed on certain persons for their stay in the municipal territory, does not constitute a supply of services for consideration.

As a result of the outcome of the ruling there was no need for the Court to address the second part of the referred question.

Case C-453/22 – Michael Schütte – 07/09/2023

(Council Directive 2006/112/EC – Principle of VAT neutrality – Principle of effectiveness – High set VAT rate on purchase invoice – Reimbursement of overpaid tax – Direct action against the tax authorities – Effect of the risk of a double reimbursement)

Michael Schütte (the “Applicant”), a German farmer and forester, purchased timber from various suppliers which he then resold to his customers as firewood. In the years from 2011 to 2013, whilst he was charged VAT at 19% on his purchases, he charged VAT at 7% on his sales. Pursuant to an audit the tax authorities took the view that he should have charged VAT at 19% on his sales. However, when this was contested the Finance Court ruled that VAT at 7% was the correct rate. In this regard, the tax authorities took steps to recover the excess input VAT claimed by applicant that was charged to him by the upstream suppliers. When the upstream suppliers refused to correct the invoices issued to the Applicant with the wrong VAT rate, invoking the defence of limitation provider for under German civil law, Applicant applied directly with the tax authorities requesting them to drop their claim to recover the excess input VAT claimed. However, the tax authorities refused on grounds that Applicant should bear the responsibility for his actions.

The Finance Court of Münster, the referring court, asked the ECJ (the “Court”) whether in the circumstances such as those of the main proceedings, the VAT Directive provisions, in particular the principles of fiscal neutrality and effectiveness, require that the applicant has a right to claim reimbursement of the overpaid VAT, including interest, directly from the tax authority, notwithstanding that there remains a possibility that the upstream suppliers may themselves at a later point in time correct the pertinent invoices and claim a reimbursement from the tax authority, thus placing the latter at risk of reimbursing the amounts twice.

The Court recalled that the principle of neutrality of VAT is a fundamental principle of the common system of VAT intended to relieve taxable persons entirely of the burden of the VAT payable or paid in the course of their economic activities and has the scope of ensuring neutrality of taxation of all economic activities whatever their purpose or results provided that those activities are in principle themselves subject to VAT. In this regard, claims for repayment of improperly overpaid VAT should give rise to a right to recover the sums paid but not due, thus neutralising the economic burden which the tax improperly imposed had placed on the trader which otherwise he shall be made to bear. That said however, the Court pointed out that in the absence of common EU rules on applications for repayment of overpaid taxes, it is up to the Member States to lay out the conditions under which such applications may be made, provided that those conditions observe the principles of equivalence and effectiveness. In other words, they must not be less favourable than those relating to similar claims founded on provisions of national law or framed in a way as to render virtually impossible the exercise of rights conferred by the EU legal order. It follows that where it becomes excessively difficult or even impossible for a trader to claim the reimbursement from the supplier, such as the case at issue, and to the extent that the VAT paid was unconnected with fraud or evasion, then the principle of effectiveness may require that an application for reimbursement be addressed directly to the tax authority. Regarding the risk of reimbursing twice the same amount the Court remarked that any potential claim by the suppliers to claim a reimbursement would be deemed to be an abusive practice within the meaning of the Court’s settled case law, having no objective other than to obtain a tax advantage.

In the light of the foregoing, the Court ruled that the pertinent provisions of the VAT Directive, the principle of VAT neutrality and the principle of effectiveness must be interpreted as meaning that in the circumstances such as those at issue in the main proceedings the Applicant had a right to claim directly from the tax authority a reimbursement of the VAT paid to his suppliers which VAT had been improperly invoiced at a higher rate. The reimbursement should include interest, if the case.