Judicial Training on EU Taxation Law

1. Value Added Tax (VAT): Main Principles Judicial Training on EU Taxation Law Prof. Dr. David Hummel

2. Value Added Tax (VAT): Main Principles Agenda • Overview • Principle 1: consumption tax • Principle 2: undertaker as a tax collector • Principle 3: Neutrality • Principle 4: Proportionality • Excurs: Proportionality in case of fraud? Barcelona Prof. Dr. David Hummel

3. Value Added Tax (VAT): Main Principles I. Overview tax office I (190) tax office I + II tax office II (95) = 285 285 190 190 1785 1190 U C S VAT burden: 285 of 1785 Burden for Seller: first 190, then 0 Burden for Undertaker: first 190, then 95, then 0 VAT as an indirecttaxis a consumptiontaxthatchargestheexpensesofthereceiverofgoods (orservices) forconsumablegoods and services. Barcelona Prof. Dr. David Hummel

4. Value Added Tax (VAT): Main Principles • Forcomparison: • Australien: 10% • Brasilien: 18-25% • China: 5 - 17% • Japan: 10 % • Kanada: 5-15% • Russland: 18% • Türkei: 18% • USA: 0% + SalesTax Barcelona Prof. Dr. David Hummel

5. Value Added Tax (VAT): Main Principles II. Consumption Tax • Character of the VAT is not to tax each payment of money or to tax contracts between two parties • It has to be a payment for a delivery of goods or a service of an undertaker (see Art. 2 and Art. 9 VAT-directive) • The investment of a person for a consumption good shows the financial ability, which is taxed with the VAT • That explains why there are rules for transactions of an undertaker free of cost (Art. 16 and 26 VAT-directive) and only an undertaker can be a taxable person Barcelona Prof. Dr. David Hummel

6. Value Added Tax (VAT): Main Principles II. Consumption Tax Main taxable transactions within VAT-Law: • Supply of goods for consideration and the supply of services for consideration (Art. 2 Nr. 1 lit. a and c) • The national civil law is not important for the VAT • But: the ECJ sais: „It follows that a supply of services is effected 'for consideration' within the meaning of Article 2, and hence is taxable, only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied.” (C-16/93 – Tolsma) Barcelona Prof. Dr. David Hummel

7. Value Added Tax (VAT): Main Principles II. Consumption Tax The aim of VAT: • The aim of VAT as a general tax on the consumption of goods is to impose a tax on consumer capacity, which is demonstrated by consumers’ expenditure of assets to procure a consumable benefit (supply or service) • So you have to distinguish from non-consumable benefits • The expenditure of money for money is the archetype of payment for a non-transaction  (‘we cannot eat money’ ). From the point of view of VAT law, money is only the means of procuring a consumable benefit (consumer good), not a consumable benefit as such. Barcelona Prof. Dr. David Hummel

8. Value Added Tax (VAT): Main Principles II. Consumption Tax The aim of VAT: • Important: not any payment is a payment for a service or a supply. It has to be a payment for a consumable benefit • Compensation for pecuniary damage (such as compensation for lost profit or damage caused by delay) amounts to the same thing since, in that case, too, no consumable benefit is obtained, only adequate compensation for prevention of the possibility of earning money. Barcelona Prof. Dr. David Hummel

9. Value Added Tax (VAT): Main Principles III. Undertaker as a tax collector • VAT must indeed be paid in any event by the trader as the tax debtor. However it is settled case-law of the Court of Justice that VAT is an indirect tax on consumption to be borne by the consumer.  The taxable trader is ‘simply’ acting as tax collector on behalf of the State.  • Article 73 of the VAT Directive: the taxable amount consists of everything constituting consideration which is obtained by the supplier. Barcelona Prof. Dr. David Hummel

10. Value Added Tax (VAT): Main Principles III. Undertaker as a tax collector (!) Problems of an indirect consumption-tax: Undertaker (collector) (Taxpayer) Financial-Court Civil-Court VAT ??? Consumer (charged with VAT) Financial administration (tax creditor) Barcelona Prof. Dr. David Hummel

11. Value Added Tax (VAT): Main Principles III. Undertaker as a tax collector The Court of Justice  has explicitly ruled on several occasions that ‘the taxable amount serving as a basis for the VAT to be collected by the tax authorities cannot exceed the consideration actually paid by the final consumer which is the basis for calculating the VAT ultimately borne by him.’ If the final consumer does not pay the trader, the trader therefore does not substantively owe any VAT. The basis for charging VAT is not applicable because the trader has not ultimately provided any goods or services for consideration within the meaning of Article 2 of the VAT Directive. Barcelona Prof. Dr. David Hummel

12. Value Added Tax (VAT): Main Principles IV. Neutrality • Furthermore, the principle of neutrality of tax law must also be taken into account in the interpretation of Article 90(2) of the VAT Directive. The principle of neutrality represents a fundamental principle of VAT derived from its nature as a tax on consumption  and comprises two main elements. • First, it requires that economic operators who effect the same transactions must not be treated differently in respect of the levying of VAT. Barcelona Prof. Dr. David Hummel

13. Value Added Tax (VAT): Main Principles IV. Neutrality • Second, the principle of neutrality in VAT law therefore requires that the trader, as tax collector on behalf of the State, is in principle to be relieved of the final VAT burden,  inasmuch as the purpose of the economic activity itself is to achieve sales revenue that is (in principle) subject to tax. Barcelona Prof. Dr. David Hummel

14. Value Added Tax (VAT): Main Principles V. Proportionality • However, the measures adopted by the Member States must not go beyond what is necessary to achieve the objectives pursued. Therefore, they cannot be used in such a way that they would have the effect of systematically undermining the right to deduct VAT and, consequently, the neutrality of VAT. • On several occasions, the Court has held that the authorities may not oblige a taxable person to undertake complex and far-reaching checks as to that person’s supplier, thereby de facto transferring their own investigative tasks to that person. Barcelona Prof. Dr. David Hummel

15. Value Added Tax (VAT): Main Principles VI. Exkurs: Proportionality in case of fraud? • Consequence 1: No right of deduction • Consequence 2: No exemption for the intra- community delivery • Consequence 3: Punishment via criminal law (under certain circumstances) Barcelona Prof. Dr. David Hummel

16. Value Added Tax (VAT): Main Principles (!) Overcompensating of the damage in case of fraud Switzerland Austria Bulgaria Product delivered through Y 120 100 X Y Z i.-c. supply V ded. 20 i.-c.t. 0 i.-c.a. 20 20 FA FA Customs declared in the customs proceedings 42 EU import tax: 0 (Art. 143) FA In case of fraud: Y does not pay VAT -> Loss in the amount of 20 in Bulgaria Bulgaria: Y owes 20 und has no right of deduction (in total: 40) Austria: Y gets no intra-community transfer (20) and the EU import tax gets fixed at V (20) Tax revenue in total: 80 because of a fraud over 20 Barcelona Prof. Dr. David Hummel

17. Value Added Tax (VAT): Main Principles The ECJ and the fight against fraud Two lines in the jurisprudence of the ECJ are recognisable: 1. Protection of the undertaker who is in good faith ECJ of 18.5.2017 – C-624/15 – Litdana, ECJ of 14.6.2017 – C-26/16 – Santogal, ECJ of 20.6.2018 – C 108/17 – Enteco Baltic 2. No protection of the fraudster ECJ of 18.12.2014 – C 131/13 – Italmoda, ECJ of 5.10.2016 – C 576/15 – Maya Marinova, 3. Exciting: Dealing with the link of one exemption with another exemption for a delivery through a third party (pending case: C-531/17 - Vetsch). Barcelona Prof. Dr. David Hummel

18. Value Added Tax (VAT): Main Principles Thank you for your attention david.hummel@curia.europa.eu Prof. Dr. David Hummel