Double VAT identification number, double taxation?

Article 55 of Council Directive 2006/112/EC, must be interpreted as not applying when the recipient of the supplies of services was identified for VAT purposes both in the Member State in which the services were physically carried out and in another Member State, and later only in the other Member State, and 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.

This is the principle enunciated by the European Justice Court, in the Case C-97/14

The main proceedings concerned VAT subjectability, as may be seen from the order for reference, SMK kft, a member of the SMK group, is liable for VAT in Hungary and accordingly has a VAT identification number in the same State. The group also included SMK Ltd, a company established in United Kingdom, which was registered for VAT both in United Kingdom and in Hungary, and had both VAT identification number. There was also a member of the group, SMK Europe which was responsible for marketing the group’s products in Europe. From March 2002 SMK kft provided services in Hungay as a subcontractor to SMK Ltd, purchased the raw materials and parts necessary for assembly of the finished products. SMK kft did not have its own stocks of raw materials or finished products. After assembly the finished products remained on the premises of SMK kft, while the recipient of the services, SMK Ltd, sold them to SMK Europe, which then sold them on to purchasers in another Member states. SMK kft was entrusted by SMK UK Ltd with the delivery of the products to the puchasers. The finished products left Hungary and were never reached to the United Kingdom. SMK kft, invoiced the manufactoring price of the finished products to SMK UK without tax and with the words outside the territorial scope of VAT. After assembly the finished products remained in Hungary. SMK UK Ltd then sold them to SMK Europe, which resold them to purchasers established in another Member State or in a non-member country. It was thus only after being resold that the finished products were transported or dispatched out of Hungary.

On the basis of these facts, The Court recall a well-estabilished case law, the object of the provisions determining the point of reference for tax purposes is to avoid conflicts of jurisdiction and double taxation. Thus a provision like Article 55 of the VAT Directive determines the point of reference for tax purpose of a supply of services. This article aims to create a rational delimitation of the respective areas covered by national rules on VAT. It is apparent that the wording of Article 55 of the above Directive it is applicable when two cumulative conditions are satisfied. First, the recipient of the services must be identified for VAT purpose in a Member state State other than that in the territory of which the services are physically carried out, and, secondly, the goods must be dispatched or transported out of the Member State in which the services were physically carried out. Since the place of supply of services must be determined by reference solely to the facts of the taxable transaction concerned, the second condition laid down in Article 55 of the VAT Directive for the application of the derogation for which it provides must be assessed in relation to those facts alone and not by reference to any subsequent transactions. Consequently, for Article 55 of the VAT Directive to be applicable, the transport or dispatch of the goods must take place within the framework of the transaction relating to the work on those goods, before any other transaction subject to VAT takes place concerning those goods. Definitely the Court rules that the Article 55 of Council Directive 2006/112/EC of November 26, must be interpreted as not applying in circumstances such as those at issue in the main proceedings in which the recipient of the supplies of services was identified for VAT purposes both in the Member State in which the services were physically carried out and in another Member State, and later only in the other Member State, and 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.