ECJ’s Judgment of September 3rd, 2015. Meaning of supply of services for VAT purposes of consulting services supplied on a regular basis. Chargeability of the tax
The EU Court has ruled on reality, for the purposes of VAT, of the services rendered under subscription, very common between advisory or consulting companies, which sometimes do not require a specific and defined service provision, but rather continuous availability from the supplier to the customer, which may require advice on a matter at any time during the duration of the contract.
This formula of compensation is usual among the law firms, consultancies and advisory, which raise the customer a regular fee (usually on a monthly basis) covering a wide range of services in a particular area and during the period of duration of the contract, in such a way that the supplier undertakes to provide consultancy service when it arises , but without specifying the service from the beginning or even, sometimes, any particular service of advice is provided during the period of the contract if it does not arise.
In this “absence” of service a priori, it is questioned to the Court if the regular payment in exchange for being continuously available to the customer can be considered a provision of services within the scope of VAT and, where appropriate, the moment of the tax point.
The case is due to a company that contracted advisory services (financial, commercial and legal) to a group of companies, which are represented by the same person, in such a way that the service providers committed to be at the customer’s disposal to resolve doubts or needs that may arise to the client within these fields, during the working days and even in non-labour days, in exchange for a fee on a monthly basis. Also included within the compensation commitment of the service providers to do not provide these services to competitors of the customer.
In the course of a tax inspection the Tax Administration found that these services had not a fraudulent aim and that they were real, but in the absence of any provision specifically during the inspection period, the administration denied the deductibility of the VAT paid by the customer given that it understood that there has been no provision of services defined in advance in terms of specific service description, number of hours worked, price for each service, etc. Therefore, it could not be treated as a supply of services for VAT purposes.
However, the opinion of the Court is contrary to the administration’s. In this sense, the Court refers to the VAT directive, which excludes from tax certain activities, but that the legal, commercial and financial advice are not within these exemptions, so they are included within the scope of VAT. On the other hand, the case-law of the Court establishes that the provision of services is taxable if there is a direct link between the service provided and the consideration received, i.e., in this case, if the disbursement rate lump sum for the provision of advisory services is the counterpart of the services provided, including the commitment to be permanently at the disposal of the client.
The primary element of this type of continued services lies in the continued availability of the advisory to its customer, which, according to the idea of the Court, is not necessary to prove that a payment refers to a single delivery carried out at the request of the customer to confirm the direct relationship between the provision and the counterpart. In addition, confirms the Court that “The fact that the services provided are neither defined in advance nor personalized and that the payment is made in the form of a lump sum is also not such as to affect the direct link between the supply of services made and the consideration criteria”.
With respect to the question raised regarding the tax point of the VAT, the Court makes reference to the rule of VAT for ongoing supply of services, whereby tax is accrued as each payment becomes payable.
Attached is a copy of the Judgment with case C-463/14.