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Case Study: WebMindLicenses -case C-419/14 „substance over form”

Case Study: WebMindLicenses -case C-419/14 „substance over form”. 0 1 /10/2016 Madrid. Relevant facts. WLM is a Hungarian software company WLM provided services to Lalib, Portugal Where is the place of supply?. Portugal VAT 13%. Hungary VAT 27%. Tax authority’s decision.

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Case Study: WebMindLicenses -case C-419/14 „substance over form”

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  1. Case Study: WebMindLicenses-case C-419/14„substance over form” 01/10/2016 Madrid

  2. Relevant facts • WLM is a Hungarian software company • WLM provided services to Lalib, Portugal • Where is the place of supply? Portugal VAT 13% Hungary VAT 27%

  3. Tax authority’s decision • After the inspection of Hun. Authorities68 M. € penalties due to abuse of rights • Lalib has no capacity to operate the site • Supplies were made by Hun. WML • Illegally obtained evidence

  4. Advocate General Opinion • Using the Halifax abuse test licensing agreement is fictitious?created for tax evasion? • AG view: • Commercial reasons: • Hun. Bank system • Personal network • Appropriate expertise to operate the system • Acquired evidence: • w/o judicial authorization • w/o knowledge of the nature of evidence Deficiencies

  5. Judgment • Substance over form approach • Arrangements would be abusive only if: • wholly artificial • Concealed that the services were supplied in Hungary • Relevant factors: • Where Lalib was physically based in terms of premises, staff, equipment • Economic activities in its own name, on its own behalf, own risk

  6. Judgment • What is not decisive: • the place of creation of the know-how, even if the creator had significant control • Location of back office function • Location of subcontractors

  7. Evidence obtained in criminal investigation • Have criminal proceedings been established yet? • Can that evidence be used in tax proceedings? NO NO

  8. Hungarian Court Decision • Quashed the first and second instance decision  ordered the 1st tax auth. to reopen the proceeding • Tax auth. didn’t examine: • Lalib’s place of business • Its structure, human & technical resources • Economic activity in its own name, own responsibility • Court excluded the evidence obtained in criminal proceedings

  9. Conclusion • Carrying on a business from a member state with a lower VAT rate is not abusive • Provided there are genuine commercial reasons for doing so

  10. Thank you for your kind attention! Any Questions?

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