Do not miss the CJEU path

Lithuania: On 2 October 2014, the Court of Justice of the European Union handed down a ruling relevant to companies engaged in intra-EU supply of goods.

A dispute arose between the French tax authority and an Italian company (Company) which produced iron fences and sold these to a customer in France. However, before that the Company ordered finishing services (painting) from a French sub-contractor. In the Company’s opinion, the transaction had to be treated as an intra-EU supply of goods (from Italy to France). However, the tax authority took the opposite view – that the supply of goods took place in France when the goods were finally finished.

The CJEU stated that the subject of the contract between the Company and the purchaser were the finished goods, i. e. painted iron fences. A Company dispatching iron fences to a French sub-contractor to carry out finishing works did not transfer the right to dispose of the goods to the purchaser but only ensured that the goods would comply with contractual obligations. Under these circumstances, the CJEU concluded that the place of supply of goods was the place where the goods were finished, i.e. France.

Consequently, the Company had an obligation to register as a VAT payer and fulfill other VAT related obligations in France. In our opinion, this CJEU ruling is important in a number of aspects:

  • First of all, it can be an additional argument to a tax authority assessing the obligations of companies engaged in intra-EU supply of goods to register as VAT payers in the Member State in which the finishing works were performed and the goods continue delivery to the end-customer. Entities delivering goods to other Member States (not necessarily the Member State of final destination) and adjusting the goods to a particular market (e .g. placing goods in packages with the destination state language) are especially “sensitive” to this ruling;

  • This CJEU ruling can be of use in permanent establishment evaluation and raises the risk that in case of an obligation to register as a VAT payer, the tax authority will require the entity concerned to register as a permanent establishment, creating additional tax obligations, administrative burdens and involving additional costs.

Conclusion: in order to identify the correct VAT regime and VAT obligations arising, it is vital to evaluate all substantial circumstances of the supply of goods (supply contract, delivery organization and services related to finalizing goods). This should especially be done when goods are finalized in a Member State other than those where the supplier or recipient of goods are located. We are always glad to support you herein.

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