ECJ’s Decision of June 11, 2015, Lisboagas. Local taxes to be part of the VAT taxable base
It is discussed in the judgment of the ECJ whether considered or not as part of the VAT base the local taxes paid by a company which holds the concession for the operation of the distribution network of gas and then passes the cost of these taxes to the gas marketing company.
In this regard, the article 73 of the VAT Directive establishes as the tax base concerns:
“In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.”
Furthermore, the article 78 includes, as part of the tax base, taxes, duties, and levies charges, excluding the VAT itself.
In this case Lisboagás is the concessionaire entity for the operation, maintenance and development of the gas distribution network in Lisbon. Since the network goes through the urban underground, the company pays a local tax for such use to the relevant municipalities. Subsequently, the entity passes the amount to the gas distributor when billing for the use of the network infrastructure of gas, which in turn passes these taxes to the final consumer of gas.
It questions to the EU Court if the amount of the tax that Lisboagás passes to the distributor must be understood in consideration of the service and as such form part of the taxable base for VAT or not. The company claims that these local taxes have no direct relationship with taxable transactions carried out by it or are linked to the exercise of the activity under the concession contract, so that charge is not a consideration for a taxable transaction.
In resolving that question, the Court, first, recall the Case-Law of the ECJ to point out that for a levy to be part of the VAT base this should be directly related to the delivery of goods or services. In this case, the local tax that Lisboagás pays to the municipality are paid before the completion of the transaction subject to VAT between the company and the trading company, and regardless of the subsequent transaction, so these taxes do not constitute a payment of a transaction between the concessionaire and the distributor, so these taxes are not directly related to the transaction, and therefore these rates cannot be understood as taxes which are part of the tax base.
However, the Court clarifies that when these local taxes are charged to the distributor the company is not charging the tax itself, but the price for the use of public domain, which is part of the costs to be borne by the company for its services and that must pay the distributor, so the amount of the local taxes are a part of the consideration and as such should be included in the VAT base.
In conclusion, the Court considers that while these taxes are not a tax that is part of the tax base as such, if they are a necessary price to be paid by the concessionaire, it is an element of the corresponding consideration to the economic transaction between the company and the trading company, so must be included in the VAT base.
Attached is a copy of the Judgment with number C-256/14.
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