e ta rt - microsoft · (commission v estonia) on 10 may 2012, the cj rendered its judgment in the...

● Top News● State Aid / WTO● Direct taxation● VAT● Customs Duties, Excises

and other Indirect Taxes

Edition 106 ● June 2012

EU Tax Alert

The EU Tax Alert is an e-mail newsletter to inform you of recent developments in the EU that are of interest for tax professionals. It includes recent case law of the European Court of Justice, (proposed) direct tax and VAT legislation, customs, state aid, developments in the Netherlands, Belgium and Luxembourg and more.To subscribe (free of charge) see: www.eutaxalert.com

CJ rules that not granting an income tax allowance by the Member State of source to non-resident pensioners earning less than 75% of their total income in that Member State infringes EU law (Commission v Estonia)On 10 May 2012, the CJ rendered its judgment in the Commission v Estonia case (C-39/10) holding that Estonian legislation that excludes non-resident pensioners earning less than 75% of their total income in Estonia from the benefit of an income tax allowance is contrary to EU law where, because of the low amount of their total income, the non-resident pensioners are not liable to tax in their Member State of residence.

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E U Ta x A l e r t Edition 106 ● June 2012 2

attorneys at law ● tax advisers ● civil law notaries

• Advocate General opines that the sale of goods under a customs suspension arrangement is in principle VAT taxable (Profitube)

• Advocate General considers that profit margin scheme is not applicable in case of second-hand vehicles acquired from a person with a (partial) right to deduct VAT (Bawaria Motors)

Customs Duties, Excises and other Indirect Taxes• Commission requests Cyprus to amend registration

tax rules on second-hand vehicles

ContentsTop News• CJ rules that not granting an income tax allowance

by the Member State of source to non-resident pensioners earning less than 75% of their total income in that Member State infringes EU law (Commission v Estonia)

State Aid / WTO• General Court rules on UK levy on aggregates (British

Aggregates)• EU State Aid Modernisation Communication adopted

Direct taxation• Council fails to grant mandate to Commission to

renegotiate Savings Tax Agreements with third countries

• European Parliament endorses the proposed Financial Transaction Tax

• CJ rules that Belgian tax rules regarding a share buy-back of foreign collective investment funds is in breach of the EEA Agreement (Commission v Belgium)

• Hungarian court refers preliminary question to the CJ regarding discriminatory taxation of dividends paid to non-residents (Franklin Templeton Investment Funds)

• Commission to examine tax measures for cross-border workers

• Commission starts broad public consultation on the rights of EU citizens

• 2012 edition of ‘Taxation trends in the European Union’ published

• Commission adopts 2012 country-specific recommendations also as regards taxation

VAT• Council authorizes derogating measure for Bulgaria • Commission proposal for VAT treatment of vouchers • Council conclusions on the future of VAT • CJ rules on VAT treatment of telecommunications

services (Lebara) • Advocate General opines that portfolio management

services are not VAT exempt (Deutsche Bank AG)



Estonia argued that it follows from the Schumacker case (C-279/93) that the situation of residents and non-residents are to be regarded as comparable only where the non-residents receive the most substantial part of their income in the source Member State. If it is not the case, non-residents do not have to be treated equally to residents. The Commission asserted that, contrary to the submission of Estonia, what follows from the Schumacker case law is that the Member State of source is required to take account of the personal situation of the taxpayer where the Member State of residence is unable to do so. This is the case where the taxpayer’s income is subject to very little or no tax at all in his Member State of residence.

The CJ first recalled the principles emerging from its case law. In particular, the fact that a Member State does not grant to a non-resident certain tax advantages which it grants to a resident is not, as a rule, discriminatory, having regard to the objective differences between the situations of residents and non-residents from the point of view both of the source of their income and of their personal ability to pay tax or their personal and family circumstances. Discrimination can only arise where the two categories of taxpayers are in a comparable situation having regard to the purpose and content of the national legislation. That is the case in a Schumacker-like situation where a non-resident has no significant income in his Member State of residence earning most of his income in the Member State of source where, therefore, the Member State of residence cannot take into account his personal circumstances. In contrast, where nearly 50% of the total income of the taxpayer is received in his Member State of residence the latter is normally able to take into account his personal circumstances. However, in a case such as that of the complainant, who because of the modest amount of worldwide income is not taxable in the Member State of residence, that State is not in a position to take into account the ability to pay tax and the personal and family circumstances of the person concerned, in particular, the consequences for that person of taxation of the income received in another Member State. In those circumstances, the refusal of the Member State of source to grant an allowance provided for under its tax legislation constitutes discrimination which cannot be justified.

Top NewsCJ rules that not granting an income tax allowance by the Member State of source to non-resident pensioners earning less than 75% of their total income in that Member State infringes EU law (Commission v Estonia)On 10 May 2012, the Court of Justice of the European Union (‘CJ’) rendered its judgment in the Commission v Estonia case (C-39/10) holding that Estonian legislation that excludes non-resident pensioners earning less than 75% of their total income in Estonia from the benefit of an income tax allowance is contrary to EU law where, because of the low amount of their total income, the non-resident pensioners are not liable to tax in their Member State of residence. Such legislation infringes the freedom of movement for workers under Article 45 of the Treaty on the Functioning of the European Union (‘TFEU’) and Article 28 of the Agreement on the European Economic Area (‘EEA’).

The Commission started an infringement procedure against Estonia on the basis of a complaint made by an Estonian national residing in Finland and receiving retirement pension from Estonia. The complainant challenged the refusal by the Estonian tax authorities to apply a tax allowance to his pension received from Estonia, the amount of which was below the exempt threshold applicable to the income of resident taxpayers. The complainant also received a pension from Finland which was approximately of the same amount as the Estonian pension. Estonian legislation grants the allowance at issue to non-resident taxpayers only where they receive the majority of their income, that is, at least 75% of the total income, in Estonia. This is in line with Recommendation 94/79/EC which sets out that a Member State must treat residents and non-residents equally only if non-residents receive at least 75% of their income from that Member State. As the complainant received only 50% of his aggregate pension from Estonia, he was denied the allowance by the Estonia authorities. At the same time, the complainant was not liable to tax in his Member State of residence, Finland, on account of the very low level of his total income.



treatment in respect of the exploitation of taxed materials. In addition, the GC ruled that the difference in treatment could not be justified in light of the nature of the tax, as the exemption resulted in an even greater demand for primary aggregates of exempt materials instead of secondary aggregates of any material (either taxed or exempted). Intensifying the extraction of other primary aggregates was considered contrary to the environmental objective of the levy.The GC did uphold an exemption for exported materials, as it would be impossible for the UK to check whether materials would be used as aggregates abroad or not. In the absence of such exemption, exported materials would otherwise be subject to a levy without the possibility to exempt them from taxation if such materials should not be exploited as aggregates.

Accordingly, the Commission’s decision not to object to the UK levy was annulled and the Commission must now either take a new decision, or again appeal this decision of the GC.

EU State Aid Modernisation Communication adoptedOn 8 May 2012, the Commission announced its State Aid Modernisation (SAM) initiative, a major overhaul of its State aid framework. This project aims at ensuring better targeted State aid and faster decision-making and on focusing enforcement efforts on cases with the biggest impact on the internal market. In order to ensure a better quality of spending, a number of guidelines will be revised and streamlined, such as in the area of environmental benefits, regional aid, risk capital, broadband, as well as rescue and restructuring aid to firms. The Commission will identify common principles to assess compatibility of aid.

As to enforcement, the Commission will provide for stronger scrutiny of larger and potentially distortive aid. In so doing, it will also initiate enquiries both by sector and across Member States. From this perspective, it is most likely that also in the area of taxation, a number of comparable high-impact tax regimes will be selected for an EU-wide review of their State aid compatibility.

Both the General Block Exemption Regulation (Commission Regulation (EC) No 800/2008 of 6 August 2008) and, potentially, the De Minimis Regulation

In response to Estonia’s argument that Recommendation 94/79/EC precludes a finding that Estonia failed to fulfil its obligations under the TFEU, given that it only requires to treat residents and non-resident equally where non-residents earn at least 75% of their income in the source Member State, the CJ pointed out that a recommendation has no binding force. Moreover, the procedure for a declaration of failure to fulfil obligations is based on the objective finding that a Member State has failed to fulfil its obligations under EU law, so that the principle of the protection of legitimate expectations cannot be relied on by Estonia against such finding.

State Aid/WTOGeneral Court rules on UK levy on aggregates (British Aggregates)On 7 March 2012, the General Court gave its second ruling in the British Aggregates case (T-210/02 RENV). The case concerns a levy introduced by the UK on the commercial exploitation of certain materials as aggregates in construction. In its 2002 decision, the Commission did not raise objections against the introduction of the levy on the ground that its scope was justified by the nature and general scheme of the system. The General Court (‘GC’) upheld that decision in 2006, however, the CJ overturned the latter judgment in 2008 and sent the case back to the GC. In the present judgment, the GC held that, in accordance with the position taken by the CJ, the environmental objective of a particular tax is not sufficient to exclude such a measure from the State aid scrutiny from the outset. In the case at hand, the UK intended to promote the use of ‘secondary’ aggregates which are by-products or waste materials. This in order to reduce the use of virgin (‘primary’) aggregates which are non-renewable natural resources.

The GC found that certain materials, which are factually and legally comparable to those materials subjected to the levy, had been exempt. In its view, both the UK and the Commission had failed to explain why the extraction of exempted materials was not as harmful to the environment as the extraction of those materials subject to the levy. The GC also found that by exempting comparable materials there would be an economic incentive to extract those exempted primary materials, reinforcing the unequal



changes that the EP’s Committee on Economic and Monetary Affairs suggested with a view to strengthen the Proposal (see EU Tax Alert edition no. 105, May 2012). The Proposal for an FTT is to be adopted by way of a special legislative procedure in which the EP plays only a consultative role. Accordingly, the EP’s opinion is not binding on the Council.

CJ rules that Belgian tax rules regarding a share buy-back of foreign collective investment funds is in breach of the EEA Agreement (Commission v Belgium)On 10 May 2012, the CJ issued its judgment in the Commission v. Belgium case (C-370/11). The CJ ruled that the Belgian tax rules regarding a share buy-back of foreign collective investment vehicles are in breach of the free movement of capital as set out in Article 40 of the EEA Agreement.

According to the Belgian rules at stake, capital gains realized by a Belgian resident upon a buy-back of shares of collective investment funds, which do not qualify as UCITS under the Directive 85/611/EEC and which invest more than 40% of their portfolio in debt claims, are tax exempt only if these investment funds are resident in Belgium, but are taxed if the investment funds are resident in Norway or Iceland. The CJ first noted, by invoking settled case law, that Article 40 of the EEA Agreement had the same legal scope as Article 63 TFEU and that measures prohibited by Article 63 TFEU, as restrictions on the free movement of capital, include those which are likely to discourage non-residents from making investments in a Member State or to discourage that Member State’s residents to do so in other States. The CJ considered that the difference in treatment made it less attractive for Belgian investors to invest through a collective investment fund established in Norway or Iceland. In its argumentation, the Belgian government had acknowledged its failure to amend the rules at stake and had indicated that a Royal Decree was to be adopted at short notice to terminate the difference in treatment. Based on the foregoing, the CJ concluded that the Belgian rules constituted a restriction to the free movement of capital under Article 40 of the EEA Agreement for which no justification ground was present.

(Commission Regulation (EC) No 1998/2006 of 15 December 2006) may be simplified. Also, the notion of State aid will be clarified – that is to say, the notion as understood by the Commission – and the Procedural Regulation (Council Regulation No 659/1999 of 22 March 1999) will be modernized and streamlined in order to ‘deliver decisions within business-relevant timelines’.

Direct TaxationCouncil fails to grant mandate to Commission to renegotiate Savings Tax Agreements with third countries In its meeting on 15 May 2012, the Economic and Financial Affairs (‘ECOFIN’) Council failed to adopt a decision aimed at giving a mandate to the Commission to negotiate amendments to agreements signed in 2004 with Switzerland, Liechtenstein, Monaco, Andorra and San Marino on the taxation of savings income. The negotiations would aim to update the agreements so as to ensure that the five countries apply measures that are equivalent to those included in the proposed amendments to the Savings Directive (Council Directive 2003/48/EC on the taxation of savings income in the form of interest payments). The amendments to the Directive (see EU Tax Alert edition no. 90, March 2011) and to the agreements are intended to improve their efficiency whilst reflecting changes to savings products and developments in investor behaviour since they were first applied in 2005.

As two delegations in the Council expressed reservations, the decision could not be adopted. The Presidency suggested that the issue be included in a report to the European Council on tax issues that is scheduled for June. The report will cover ways to step up the fight against tax fraud and tax evasion, including in relation to third countries.

European Parliament endorses the proposed Financial Transaction TaxOn 23 May 2012, the European Parliament (EP) in its plenary session adopted a Resolution on the Commission’s Proposal for a Council Directive on a common system of a financial transaction tax (‘Proposal for an FTT’) with 487 votes in favour, 152 against and 46 abstentions. It endorsed the Proposal for an FTT together with the



percentage permanently for at least two consecutive years, or, in the event that the permanent holding of 20% has been maintained for less than two consecutive years, if payment of the tax was not guaranteed by any third party or by the party distributing the dividends;

Would the answer to question 1(b) be different, that is to say, would there be any effect on the answer, if:

while a resident recipient of dividends is exempt from tax on dividends under the Hungarian legislation, the tax burden of a non-resident recipient of dividends depends on the applicability to it of [Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States] or the [Convention between the Republic of Hungary and the Grand Duchy of Luxembourg for the avoidance of double taxation with respect to taxes on income and on capital, done at Budapest on 15 January 1990],

while a resident recipient of dividends is exempt from tax on dividends under the Hungarian legislation, a non-resident recipient of dividends may either offset such tax against its national tax or bear the final burden, depending on the provisions of its national law.

May the national tax authority invoke Article 65(1) TFEU (formerly Article 58(1) EC) and the former Article 220 EC in order to disapply Community law of its own motion?’

Commission to examine tax measures for cross-border workersOn 2 April 2012, the Commission launched a targeted initiative to scrutinize Member States’ direct tax legislation in order to ensure that they do not discriminate against cross-border workers. The Commission promises to carry out a thorough assessment of national direct taxes throughout 2012 to determine whether they create unfair disadvantages for workers who live in one Member State and work in another. Where discrimination or breaches of the EU fundamental freedoms are found, the Commission will notify the national authorities and request that the necessary amendments be made. If no changes are made in order to eliminate the breaches of EU law, the Commission will start infringement procedures against the Member States in question.

Hungarian court refers preliminary question to the CJ regarding discriminatory taxation of dividends paid to non-residents (Franklin Templeton Investment Funds)On 1 March 2012, the Hungarian Supreme Court referred a question to the CJ for a preliminary ruling in the case of Franklin Templeton Investment Funds (C-112/12) regarding the compatibility with EU law of Hungarian tax rules which unconditionally exempt dividends paid to resident companies while granting such exemption to non-resident companies only upon meeting the conditions set out under the Parent-Subsidiary Directive or those under an applicable bilateral tax treaty. In particular, the Hungarian court asks:

‘Is the exemption from tax on dividends granted by the Hungarian legislation to a recipient of dividends resident in Hungary compatible with the provisions of the EU Treaties on the principle of freedom of establishment (Article 49 TFEU), the principle of equal treatment (Article 54 TFEU) and the principle of free movement of capital (Article 56 TFEU (sic)), given that

a non-resident recipient of dividends is exempt from tax on dividends only if it meets certain legal requirements, namely that its holding (in the case of shares, the proportion of its registered shares) in the company capital of the resident company at the time of distribution (allocation) of dividends amounted permanently to at least 20% for at least two consecutive years, taking account of the fact that, in the event that the permanent holding of 20% is maintained for less than two consecutive years, the company distributing the dividends is not obliged to withhold the tax on the dividends and the company which receives the dividends or, in the event of non-monetary allocations, the company which distributes them are not obliged to pay that tax on submission of their tax return if another person or the party distributing the dividends has guaranteed the payment of the tax;

further, a non-resident recipient of dividends does not meet the requirements of the national legislation for exemption from tax when its holding (in the case of shares the proportion of its registered shares) in the company capital of a resident company at the time of distribution (allocation) of dividends is below the minimum level of 20% required by law, or when it has not maintained that



2012 edition of ‘Taxation trends in the European Union’ published On 21 May 2012, the new edition of the publication ‘Taxation trends in the European Union’ was issued by Eurostat, the statistical office of the European Union and the Commission’s DG for Taxation and Customs Union. The data included in the publication show further increase in VAT rates in 2012 and a catch up of corporate and top personal income tax rates after a long period of decline.

The average standard VAT rate in the EU27 has risen strongly since 2008. In 2012, the standard VAT rate varies from 15.0% in Luxembourg and 17.0% in Cyprus to 27.0% in Hungary and 25.0% in Denmark and Sweden.

The average top personal income tax rate in the EU27 has increased in 2012. The highest top rates on 2012 personal income are observed in Sweden (56.6%), Denmark (55.4%), Belgium (53.7%), the Netherlands and Spain (both 52.0%), Austria and the United Kingdom (both 50.0%), and the lowest in Bulgaria (10.0%), the Czech Republic and Lithuania (both 15.0%), Romania (16.0%) and Slovakia (19.0%).

Corporate tax rates in the EU27 have risen slightly in 2012, ending a long declining trend. The highest statutory tax rates on 2012 corporate income are recorded in France (36.1%), Malta (35.0%) and Belgium (34.0%), and the lowest in Bulgaria and Cyprus (both 10.0%) and Ireland (12.5%).

The overall tax-to-GDP ratio in the EU27 stood at 38.4% in 2010, unchanged from the year before. After the marked drop in 2009, consolidation measures and a modest recovery of the economy led to a stabilisation of tax revenues in 2010. The overall tax ratio in the euro area fell slightly to 38.9% in 2010, compared to 39.0% in 2009.

Commission adopts 2012 country-specific recommendations also as regards taxationOn 30 May 2012, the Commission adopted – in conclusion of the second European Semester of economic policy coordination which was launched by the Commission’s Annual Growth Survey in November 2011 (see EU Tax Alert edition no. 99, December 2011) – a package of recommendations for budgetary measures and economic reforms to be enacted by the Member States over the

Worker mobility has been identified as one of the key potentials for increasing growth and employment in Europe. However, tax obstacles remain one of the principal deterrents to citizens looking for work in another Member State. The main principles to be applied to the taxation of cross border workers were established in some landmark CJ judgments, such as Schumacker (C-279/93), Wielockx (C-80/94), Turpeinen (C-520/04) and Gerritse (C-234/01).

The Commission has already addressed the problem of barriers to cross-border employment via other initiatives, for example, its Communication to tackle double taxation (see EU Tax Alert edition no. 99, December 2011) and its proposal for an Enforcement Directive aimed at boosting the protection of posted workers issued on 21 March 2012.

In this latest initiative, the Commission plans to scrutinize: • whether citizens who earn most of their income in

another Member State are taxed more heavily than the citizens of that same Member State. In this context, the Commission will check that all the personal and family deductions available to residents are, in practice, also available to these non-residents

• whether Member States differentiate between their own citizens and citizens from other Member States who occasionally work in their territory, particularly as regards the right to deduct expenses and the application of different tax rates.

The Commission will not only look at the situation for employed and dependent workers but also self-employed individuals and pensioners.

Commission starts broad public consultation on the rights of EU citizens The Commission has started the broadest ever EU public consultation on citizens’ rights calling on citizens to help set the policy agenda for the next years and shape the future of Europe. The consultation is open for four months, from 9 May until 9 September 2012. The public is asked about the obstacles they face in exercising their rights as EU citizens, including obstacles created by taxation. The input received from the public will feed directly into the Commission’s policy agenda and form the basis for the 2013 EU Citizenship Report, to be presented on 9 May 2013, which is designated as the European Year of Citizens.



Commission proposal for VAT treatment of vouchers On 10 May 2012, the Commission published a proposal for a Council Directive regarding the VAT treatment of vouchers. According to the Commission, the EU VAT Directive does not provide for rules on this matter. As a result, Member States have developed their own solutions. Due to the fact that these solutions have not been coordinated, it may result in mismatches. Moreover, the Commission indicates that the way vouchers are used has changed since the common VAT rules were adopted in 1977. The objective of the proposal is to clarify and harmonize the rules on the VAT treatment of vouchers.

Council conclusions on the future of VAT In its meeting of 15 May 2012, the ECOFIN Council adopted Conclusions on the future of VAT as a follow-up to the Commission’s Green Paper and recent Communication on the future of VAT (see EU Tax Alert editions no. 88, January 2011 and no. 101, January 2012). The Council acknowledged the need to simplify the current VAT system, to make the VAT system more efficient, robust and fraud-proof, and to tailor it to the single market. The Council adopted separate Conclusions on the priorities for further work highlighting what it considers the most urgent steps in carrying out the reform of the VAT system.

CJ rules on VAT treatment of telecommunications services (Lebara) On 3 May 2012, the CJ delivered a judgment concerning the VAT treatment of transactions in new technology sectors, namely telecommunication services, in the Lebara case (C-520/10). Lebara, a UK company, provided telecommunications services. In this regard, the company sold telephone cards through a network of distributors in various Member States, who in turn, sold those cards to end users in those Member States. The end users were able to use the telephone cards to make calls to third countries at cheap rates.

The telephone cards sold by Lebara displayed the Lebara brand name, the face value of the card, a local access number and a PIN code for making a telephone call. When a user dialled the local access number, the call would be picked up by a local telecommunications services operator

coming twelve months. The package consists of a Communication outlining the main findings and concrete measures to boost economic growth and job creation, as well as of 28 Council recommendations, one for each Member State with country-specific guidance on economic policy and one for the euro area as a whole. The recommendations cover a wide range of issues including public finances and structural reforms in areas such as taxation, pensions, public administration, services, and labour market issues, especially youth unemployment. The analysis underpinning the recommendations is presented in 28 staff working documents. For twelve Member States, the recommendations also include guidance on how to address macroeconomic imbalances, according to the new mechanism implemented as part of the so-called 6-Pack legislation.

The overall assessment of the Commission is that Member States are taking the necessary action to correct their public finances and to ensure sound future fiscal policies, but not always in the most growth-friendly way. Action is also being taken to ensure the soundness of the financial sector. Unemployment, particularly among young people, is a severe problem that can only be resolved over time, but immediate action is needed to provide stronger jobs- and skills-matching and training to help people get back to work. More generally, the negative social impact of the crisis, including its effect on poverty levels, must be addressed.

The recommendations should be endorsed by the European Council on 28 - 29 June 2012, and formally adopted by the Council in July 2012.

VAT Council authorizes derogating measure for Bulgaria On 26 April 2012, the Council authorized Bulgaria, by way of derogation from Article 168 of the EU VAT Directive, to limit to 50% the right to deduct VAT on the purchase, intra-Community acquisition, importation, hire or leasing of certain types of motorized road vehicles as well as the VAT charged on expenditure related to those vehicles, where the vehicle is not exclusively used for business purposes. The derogation will, in principle, expire on 31 December 2014.



the distributors, and that Lebara transferred the right to make use of the infrastructure for making international telephone calls to those distributors. As a result, the CJ ruled that Lebara supplied services to the distributors, which services qualified as telecommunications services, given that article 9(2)(e) of the Sixth EU VAT Directive also covered services relating to the transmission.

Moreover, the CJ ruled that the payments made by the distributors to Lebara could not be considered a payment by the end user to Lebara. This because the distributor sold the telephone cards in its own name and on its own behalf, and because the amount that the end user actually paid was not necessarily the same as the amount paid by the distributor to Lebara. Moreover, the identity of the end user was not necessarily known when the payment by the distributor to Lebara was made. As a result, the CJ ruled that the payment to Lebara by the distributor could not be regarded as a transfer of the remuneration paid by the end user, thereby creating a direct link between Lebara and the end user.

Advocate General opines that portfolio management services are not VAT exempt (Deutsche Bank AG) On 8 May 2012, Advocate General Sharpston delivered her Opinion in the Deutsche Bank AG case (C-44/11). Deutsche Bank provided portfolio management services whereby investors instructed the bank to manage security holdings for them at its own discretion and without prior instruction, but in accordance with a strategy chosen by the investor, and to take all appropriate measures in managing those holdings. The services were rendered for an annual fee of 1.8% of the assets managed, which consisted of a management fee (1.2%) and a fee for the buying and selling of the securities (0.6%). The fee also covered account and portfolio administration and a commission on the acquisition of investment fund units.

Deutsche Bank took the view that the portfolio management services were VAT exempt when rendered to investors in the EU, and outside the scope of EU VAT when rendered to non-EU investors. However, the German tax authorities disagreed. Eventually the matter ended up before the Federal Finance Court, which decided to refer preliminary questions to the CJ regarding the VAT treatment of the portfolio management services.

with whom Lebara had entered into an agreement. The local telecommunications services operator routed the telephone call to the telephone switchboard of Lebara in the UK. After entering the PIN code, the user would then be able to dial the international number he wished to call. The call was subsequently routed to its final destination by international telecommunications service providers with whom Lebara had also entered into agreements.

The distributors bought the telephone cards from Lebara below their face value, and resold those cards to the end users. When doing so, the distributors acted in their own name and, therefore, not as agents of Lebara. The resale price was neither known nor controlled by Lebara. Lebara did not account for VAT on the sale of the telephone cards to distributors taking the view that it concerned a supply of telecommunications services that took place in the Member State in which the distributor was established, and that the distributor had to account for the VAT on the services in accordance with the reverse charge mechanism. According to Lebara, the actual use by the telephone cards by the end users did not entail a supply by Lebara to those end users.

The Commissioners for Her Majesty’s Revenue and Customs (HMRC) took the view, however, that Lebara rendered two services. The first being the sale of the cards to the distributors, and the second being the actual use by the telephone cards by the end users. Moreover, HMRC took the view that Member States were free to tax either of those services, and decided to tax the actual use by the end users. HMRC therefore imposed a VAT assessment on Lebara. The UK VAT due was calculated on the basis of the amounts paid by the distributors to Lebara. Lebara appealed against that VAT assessment before the First-Tier Tribunal, which Court considered that the correct VAT treatment was dependent on the interpretation of EU VAT law, and therefore, decided to refer preliminary questions to the CJ.

According to the CJ, it had to be borne in mind that Lebara received only one actual payment in the course of supplying its telecommunication services. As such, Lebara could not be regarded as having carried out two supplies of services for consideration, one being to the distributor and one being to the end user. Moreover, the CJ decided that the legal relationship existed between Lebara and



Advocate General opines that the sale of goods under a customs suspension arrangement is in principle VAT taxable (Profitube)On 22 May 2012, Advocate General Mengozzi delivered his Opinion in the Profitube case (C-165/11).Profitube, a company established in Slovakia, imported semi-finished steel products from Ukraine into Slovakia. The goods were placed under a customs warehousing arrangement at first, and subsequently under an inward processing arrangement in order to be processed into structural steel. Profitube sold the goods to another Slovakian company. The goods stayed in the customs warehouse and once again, were placed under the customs warehousing arrangement. The Slovakian tax authorities considered that the sale concerned a normal supply of goods subject to VAT, and therefore requested payment of that VAT. Profitube claimed, on the other hand, that due to the suspension arrangements, the goods in question were not considered to be Community goods under Customs Law, and therefore, that the supply was outside the scope of EU VAT. In the following proceedings, the Supreme Court of Slovakia decided to refer preliminary questions to the CJ.

The Advocate General indicated that a supply of goods is only VAT taxable if certain conditions are fulfilled, one of which is that the transaction is carried out within the territory of the EU. In this regard, the Advocate General indicated that both for customs and VAT purposes, a customs warehouse located within the EU is part of the territory of the EU. As a result, the sale of goods located within such a customs warehouse is, in principle, subject to VAT. According to the Advocate General, Article 16 of the Sixth EU VAT Directive does allow Member States to provide for a VAT exemption for the sale of goods under a customs suspension arrangement. However, in view of the fact that Slovakia has not granted that exemption, the Advocate General opined that VAT was due on the supply by Profitube.

Advocate General considers that profit margin scheme is not applicable in case of second-hand vehicles acquired from a person with a (partial) right to deduct VAT (Bawaria Motors)On 24 May 2012, Advocate General Mazák delivered his Opinion in the Bawaria Motors case (C-160/11).

As a preliminary remark, the Advocate General made clear that the services could not be qualified as the management of special investment funds within the meaning of Article 135(1)(g) of the EU VAT Directive, because that provision concerned the management of joint funds and not the management of the assets of a single person. According to the Advocate General, the question therefore was whether the portfolio management services were covered by the VAT exemption of Article 135(1)(f) of the EU VAT Directive relating to transactions in securities.

The Advocate General indicated that the portfolio management services consisted of the following different elements: the decision-making regarding the securities bought or sold, the implementation of those decisions by actually buying and selling of the securities, and administrative services connected with the holding of the securities. The Advocate General opined, however, that it would be artificial to split up the portfolio management services and to determine the VAT treatment based on the VAT treatment of each distinctive element. According to the Advocate General, the services were designed for those who sought to purchase a single service. Therefore, the Advocate General opined that the services as a whole formed a single, indivisible supply with its own VAT treatment.

Subsequently, the Advocate General opined that the services, which included aspects that, in isolation, would be VAT exempt, were predominantly characterized by the expertise to make informed decisions as to the management of the portfolio of securities. In view of the fact that the providing of the expertise as such would not fall under the VAT exemption of Article 135(1)(f) of the EU VAT Directive, the Advocate General concluded that the portfolio management services as a whole were not VAT exempt.

As regards the place of supply, the Advocate General opined that the place of supply had to be determined on the basis of Article 56(1)(e) of the EU VAT Directive (text 2008, which was the tax year in issue). According to the Advocate General, the banking, financial and insurance transactions as indicated in that provision also covered portfolio management services.



Customs Duties, Excises and other Indirect TaxesCommission requests Cyprus to amend registration tax rules on second-hand vehiclesOn 31 May 2012, the Commission sent a reasoned opinion (second step of the infringement procedure set out in Article 258 TFEU) to Cyprus requesting it to change the way in which it levies registration tax on second-hand motor vehicles transferred from other Member States.

Under Cypriot law, the full amount of registration tax on the transfer and registration of a second-hand motor vehicle from another Member State is applied, regardless of the age or the mileage of the vehicle. It is levied on the basis of the category of the vehicle, engine capacity and carbon dioxide emissions. Under EU law, Member States may levy a registration tax on vehicles transferred from another Member State provided that the non-discrimination principle in Article 110 TFEU is complied with. The CJ’s case law has clarified in this respect that the depreciated value of a motor vehicle must be taken into account when it is registered in a Member State to ensure that the tax due does not exceed the tax value of similar vehicles already registered in the national territory. The CJ has also stated that Member States are obliged to provide means of redress if the taxpayer wishes to challenge the specific assessment of the registration tax.Cypriot rules do not take into account the depreciation of the value of second-hand vehicles and do not allow taxpayers to challenge the specific assessment of the registration tax by the tax authorities, therefore, according to the Commission, they are contrary to EU law.

If Cyprus does not give a satisfactory response to the request within two months, the Commission may refer it to the CJ.

Bawaria Motors Spółka z o. o. (‘Bawaria’) acquired and sold new and second-hand passenger vehicles. In the course of its business, Bawaria sometimes acquired second-hand vehicles from economic operators that had (partially) deducted VAT on the acquisition of the vehicles. Those operators did not charge VAT on the supplies of the second-hand vehicles to Bawaria, because the supplies were VAT exempt on the basis of a national provision. It should be noted that the VAT exemption in the national provision was not provided for under EU VAT law. Bawaria took the view that it was also entitled to apply the profit margin scheme in the case it had acquired the second-hand vehicles from an economic operator which had (partially) deducted VAT on the acquisition of the vehicles, and asked the Polish Minister of Finance for a written interpretation on the relevant provisions. The Minister of Finance concluded, however, that the profit margin scheme is only applicable in situations where the second-hand vehicles had been acquired from a taxable person who did not have a right to deduct input VAT on the purchase of those vehicles and who, accordingly, incorporated the VAT in his sales price. Eventually, the matter ended up before the Supreme Administrative Court, which decided to refer preliminary questions to the CJ.

According to the Advocate General, Article 314 of the EU VAT Directive lists exhaustively the taxable persons carrying out supplies of goods to which the profit margin scheme may be applied by the taxable dealer in the next marketing stage. The Advocate General concluded that these cases have in common that the person supplying the vehicle to the taxable dealer has borne the total VAT burden, because that person had no right to deduction of input VAT on the purchase of the vehicle. Accordingly, the Advocate General opined that the profit margin scheme may not be applied to the resale of vehicles acquired from economic operators which (partially) deducted VAT on the acquisition of the vehicles.


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Editorial boardFor contact, mail: [email protected]:● René van der Paardt (Loyens & Loeff Rotterdam)● Thies Sanders (Loyens & Loeff Amsterdam)● Dennis Weber (Loyens & Loeff Amsterdam; University of Amsterdam)

Although great care has been taken when compiling this newsletter, Loyens & Loeff N.V. does not accept any responsibility whatsoever for any consequences arising from the information in this publication being used without its consent. The information provided in the publication is intended for general informational purposes and can not be considered as advice.

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Editors● Patricia van Zwet● Rita Szudoczky

Correspondents● Peter Adriaansen (Loyens & Loeff Luxembourg)● Séverine Baranger (Loyens & Loeff Paris)● Gerard Blokland (Loyens & Loeff Amsterdam)● Alexander Bosman (Loyens & Loeff Rotterdam)● Kees Bouwmeester (Loyens & Loeff Amsterdam)● Almut Breuer (Loyens & Loeff Amsterdam)● Alexander Fortuin (Loyens & Loeff Amsterdam)● Mark van den Honert (Loyens & Loeff Amsterdam)● Raymond Luja (Loyens & Loeff Amsterdam; Maastricht University)● Lodewijk Reijs (Loyens & Loeff Eindhoven)● Bruno da Silva (Loyens & Loeff Amsterdam)● Rita Szudoczky (Loyens & Loeff Amsterdam)● Patrick Vettenburg (Loyens & Loeff Eindhoven)

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