ECJ Case No. C-596/20 (DuoDecad Kft.): VAT is levied to the party that agreed to pay for services regardless of its relationship with a third party
The ECJ published an advocate general opinion in Case No. 596/20 on February 10, clarifying Hungarian VAT determination rules for cross-border IT services. Both the Hungarian and Portuguese tax authorities claim VAT is payable on IT support services in their respective member states. The Hungarian tax authorities seems to imply an intention of abuse. Unusual, as the service user, whether in Hungary or Portugal, would seem to be entitled to VAT recovery.
BACKGROUND FOR CASE NO. C-596/20:
The present preliminary ruling request stems from the divergent decisions of the Portuguese and Hungarian tax authorities regarding the place of supply of IT support services provided by a Hungarian company, DuoDecad Kft., to a Portuguese company. Hungary claimed that because of the parties’ relationship, the VAT place of supply should be Hungary. Portugal asserted that since the Portuguese enterprise received the services, Portugal was the location of supply for VAT purposes.
This preliminary-ruling procedure highlights the limitations of the EU’s legal harmonisation. Even though all Member States have properly transposed the underlying directive, its application to a cross-border provision of services has different results. Both the Portuguese Republic and Hungary regard the site of supply of a service to be inside their respective borders and claim the right to impose VAT on it. Despite complete legal harmonisation, this results in genuine double taxation of the same transaction.
ADVOCATE-GENERAL’S OPINION
Advocate-General Kokott has gone back to the fundamentals, stating that the provider must consider the legal connection and who is responsible for the cost of the supply in order to decide who is due for VAT, and that any indication of misuse will have no effect on this determination.
Following the appeal, the AG concluded that:
- The place of supply is determined based on the receiver of the supply, independent of the participation of a third party.
- Regardless of its relationship with a third party, VAT is levied to the party that agreed to pay for the services.
- The member states involved should work together to resolve concerns of double taxation.
Source: eur-lex.europa.eu
