ECJ resolution on the place of performance of works on movable property
This resolution, dated April 30, 2015 as a result of questions referred by the Administrative and Labour Court of Hungary to the ECJ.
Please find below the description of the transactions involved.
SMK kft, a member of the SMK group of companies, is liable for VAT in Hungary and accordingly has a VAT identification number in Hungary. The group of companies also includes SMK UK Ltd, a company established in the United Kingdom which, until 30 July 2007, was registered for VAT both in the United Kingdom and in Hungary and had British and Hungarian VAT identification numbers. SMK Europe NV (‘SMK Europe’), a company established in Belgium and registered for VAT in Hungary, is also a member of the group and is responsible for marketing the group’s products in Europe.
From March 2002 SMK kft provided services in Hungary as a subcontractor to SMK UK Ltd. SMK UK Ltd purchased the raw materials and parts necessary for assembly of the finished products, which were remote controls for electronic apparatus. The machinery, equipment and tools were the property of SMK UK Ltd. SMK kft did not have its own stocks of raw materials or finished products, and confined itself to assembly of the remote controls.
After assembly, the finished products remained on the premises of SMK kft, while the recipient of the services, SMK UK Ltd, sold them to SMK Europe, which then sold them on to purchasers established in another Member State or a non-member country. SMK kft was entrusted by SMK UK Ltd with the delivery of the products to the purchasers. The invoices drawn up for those sales, which functioned as transport documents, were issued by SMK UK Ltd in the name of the purchaser of the finished products, SMK Europe, but the products were sent directly to the end purchasers within the European Union or in non-member countries to whom SMK Europe had resold the products. In all cases the finished products left Hungarian territory and were never transported to the United Kingdom.
SMK kft, as consideration for the services provided, invoiced the manufacturing price of the finished products to SMK UK Ltd without tax and with the words ‘outside the territorial scope of VAT’. In the invoices it mentioned the British VAT identification number of SMK UK Ltd.
At this point we must refer to the EU directive on VAT in force on the date of completion of the transactions, Article 52 stated:
“The place of supply of the following services shall be the place where the services are physically carried out:
(c) Valuations of movable tangible property or work on such property.”
Furthermore, Article 55 stated:
“By way of derogation from Article 52(c), the place of supply of services involving the valuation of movable tangible property or work on such property, supplied to customers identified for VAT purposes in a Member State other than that in the territory of which the services are physically carried out, shall be deemed to be within the territory of the Member State which issued the customer with the VAT identification number under which the service was rendered to him.
The derogation referred to in the first paragraph shall apply only where the goods are dispatched or transported out of the Member State in which the services were physically carried out.”
The Hungarian Authorities understood that the finished products had been sold by SMK UK Ltd to SMK Europe before being transported, while they were still in Hungarian territory. In those circumstances, it considered that the transport of those goods was a consequence of their sale, not of the supply of contractual services. Then the works over moveable goods rendered by SMK kft to SMK UK should be located in Hungary and SMK kft must charge the corresponding Hungarian VAT.
The ECJ agrees with the criteria of the Hungarian administration as it understands that the requirement of the transportation out of the Member State is not met according to article 55 of the EU Directive but the tangible movable property to which those services related was dispatched or transported out of the Member State in which the services were physically carried out not following the supplies of services but following the later sale of the goods.