EU Tax Alert. To subscribe (free of charge) see: Please click here to unsubscribe from this mailing. July edition 157

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1 EU Tax Alert July edition 157 The EU Tax Alert is an newsletter to inform you of recent developments in the EU that are of interest for tax professionals. It includes recent case law of the European Court of Justice, (proposed) direct tax and VAT legislation, customs, state aid, developments in the Netherlands, Belgium and Luxembourg and more. To subscribe (free of charge) see: Please click here to unsubscribe from this mailing.

2 Highlights in this edition Preliminary questions to the CJ about the consequences of the Groupe Steria case for the Netherlands tax consolidation regime (fiscal unity) On 8 July 2016, the Netherlands Supreme Court referred preliminary questions to the CJ of the European Union (CJ) about the consequences of the Groupe Steria case for the Netherlands tax consolidation regime (fiscal unity) in cases concerning (i) the Netherlands interest deduction limitation rule to prevent base erosion and (ii) the nondeductibility of currency losses on a participation in a non-netherlands/eu subsidiary (under the Netherlands participation exemption). In essence, the Netherlands Supreme Court is requesting the CJ to clarify whether the per-element approach adopted by the CJ in the Groupe Steria case is also applicable to the Netherlands tax consolidation regime. The final judgments of the CJ, which are expected in 1-2 years, could have a major impact on tax regimes in the EU. Commission orders Spanish football clubs to pay back fiscal aid On 4 July 2016, the Commission found that four Spanish football clubs (Real Madrid, FC Barcelona, Athletic Bilbao and Atlético Osasuna) had unlawfully received a 5% reduction of their corporate tax rate for about 20 years. CJ rules that Portuguese withholding taxes on interest paid to non-resident creditors is in breach of the freedom to provide services (Brisal) On 13 July 2016, the CJ issued its judgment in case Brisal - Auto Estradas do Litoral SA, KBC Finance Ireland v Fazenda Publica (C-18/15). The case concerns the Portuguese legislation concerning deduction of tax on interest at source whereas interest paid to non-resident creditors are subject to withholding tax and the tax is calculated differently when compared to interest paid to resident creditors. Loyens & Loeff publication: The European Commission s 2016 Approach towards State Aid in Tax Matters Loyens & Loeff has published a paper providing some highlights of the most recent State aid developments, including the Commission s Notice on the notion of State aid, published in May 2016, as well as the most relevant issues the Commission has singled out in respect of tax measures and which it discusses in more detail in such Notice. 2

3 Contents Highlights in this edition Preliminary questions to the CJ about the consequences of the Groupe Steria case for the Netherlands tax consolidation regime (fiscal unity) Commission orders Spanish football clubs to pay back fiscal aid CJ rules that Portuguese withholding taxes on interest paid to non-resident creditors is in breach of the freedom to provide services (Brisal) Loyens & Loeff publication: The European Commission s 2016 Approach towards State Aid in Tax Matters State Aid / WTO Commission investigates corporate tax exemptions for Belgian and French ports Direct taxation CJ rules that Belgian double taxation relief on dividends is not in breach of the free movement of capital (Timmermans) CJ rules that that German legislation on inheritance tax are not in breach of the free movement of capital (Feilen) VAT CJ rules that constructing and later operating engineering agricultural works is an economic activity for VAT purposes (Lajvér) CJ approves VAT deduction on basis of floor area when method guarantees a more precise determination of deductible proportion (Wolfgang und Dr. Wilfried Rey) CJ rules that expired VAT adjustment period does not restrict taxation of private use at cessation of economic activity (Jan Mateusiak) CJ rules on application rounding-up rule for pro rata deduction right in the event of adjustment (Kreissparkasse Wiedenbrück) CJ rules on application rounding-up rule for pro rata deduction right in the event of adjustment Financed public broadcasting activity does not constitute a supply of services for consideration according to CJ (Český rozhlas) CJ rules that Municipality is entitled to deduct all VAT paid in respect of construction buildings despite of considerable low supply price (Gemeente Woerden) AG Wahl Opines that VAT exemption for the supply of blood encompasses human blood plasma also if it is intended to be used for manufacturing medicinal products (TMD) AG Opines that award of prizes for best-performing horses gives rise to VAT taxable transactions (Baštová) Directive on minimum standard VAT rate ECOFIN discussed generalizing reverse charge mechanism in Austria and the Czech Republic VAT rules on vouchers approved by Council of the EU Customs Duties, Excises and other Indirect Taxes CJ rules on the chargeability of excises upon removal from warehouse (Polihim SS EOOD) CJ rules on the conditions for the application of the excise rate for heating fuels (case ROZ- ŚWIT) CJ rules on the tariff classification of anti-radiation protective coats (MIS) CJ rules on the determination of the customs value (EURO 2004) Commission proposes signature and conclusion of EU-Canada trade deal EU removes customs duties on IT equipment Latest EU Trade Defence Report confirms increase in third country measures against EU exports 3

4 Highlights in this edition Currency losses on participations in EU subsidiary Preliminary questions to the CJ about the consequences of the Groupe Steria case for the Netherlands tax consolidation regime (fiscal unity) On 8 July 2016, the Netherlands Supreme Court referred preliminary questions to the CJ on the consequences of the Groupe Steria case for the Netherlands tax consolidation regime (fiscal unity) in cases concerning (i) the Netherlands interest deduction limitation rule to prevent base erosion and (ii) the non-deductibility of currency losses on a participation in a non-netherlands/ EU subsidiary (under the Netherlands participation exemption). In essence, the Netherlands Supreme Court is requesting the CJ to clarify whether the per-element approach adopted by the CJ in the Groupe Steria case is also applicable to the Netherlands tax consolidation regime. The final judgments of the CJ, which are expected in 1-2 years, could have major impact on tax regimes in the EU. Interest deduction limitation to prevent base erosion The Netherlands interest deduction limitation rule to prevent base erosion (art. 10a of the Netherlands Corporate Tax Act) disallows deduction of interest paid by a Netherlands corporate taxpayer to a related party where the relevant debt is connected with, inter alia, a capital contribution in a subsidiary. If the taxpayer had formed a prior fiscal unity (tax consolidation) with the subsidiary, the capital contribution would not have been recognized for tax purposes as a result of the consolidation. Therefore, the interest deduction limitation rule would not have applied. Since the fiscal unity regime is generally restricted to Netherlands resident subsidiaries, the effect of the interest deduction limitation rule at issue can only be avoided in domestic situations. The Supreme Court requests the CJ to clarify whether the application of the interest deduction limitation, in light of the beneficial effect of a fiscal unity in purely domestic situations, infringes the EU freedom of establishment. The second case concerns a currency loss suffered on a Netherlands resident corporate taxpayer s participation in a subsidiary residing in another EU Member State. Such a loss is not deductible (whereas a profit is exempt) at the level of a Netherlands parent company under the Netherlands participation exemption, which exempts all profits and losses with regard to a participation in a qualifying subsidiary. Had the taxpayer and the subsidiary been included in a fiscal unity, a currency loss related to the assets of the consolidated subsidiary would have been deductible. However, since the fiscal unity regime generally only extends to Netherlands resident subsidiaries, the non-deductible currency loss in this case could not be avoided by including the subsidiary in a fiscal unity. The Supreme Court asks the CJ to clarify whether the non-deductibility of a currency loss in relation to a shareholding in an EU subsidiary, in view of the deductibility of currency losses within a fiscal unity, is contrary to the EU freedom of establishment. Practical implications These cases are expected to provide more clarity on the question of what specific elements of domestic consolidation regimes also have to be available in crossborder situations. This is the so-called per-element approach that was adopted by the CJ in the Groupe Steria case. The Netherlands Supreme Court will take the final decisions in these cases after the CJ has delivered its judgments. Loyens & Loeff is to plead before the CJ in both cases and will keep you updated on further developments. These cases emphasize that taxpayers should examine whether any tax advantage has been unavailable to them because they cannot form a cross-border fiscal unity and, where necessary, file an objection to preserve rights. Commission orders Spanish football clubs to pay back fiscal aid On 4 July 2016 the Commission found that four Spanish football clubs (Real Madrid, FC Barcelona, Athletic Bilbao 4

5 and Atlético Osasuna) had unlawfully received a 5% reduction of their corporate tax rate for about 20 years. They claimed non-profit status which allowed them to be taxed at 25%, instead of the 30% other football clubs, as limited liability companies, would be subject to. This difference in treatment has ended as of It is now up to Spain to calculate the additional tax due that is to be recovered from those clubs over the last ten years (by approximation), which is estimated at EUR 0 to 5 Million per club. CJ rules that Portuguese withholding taxes on interest paid to non-resident creditors is in breach of the freedom to provide services (Brisal) On 13 July 2016, the CJ issued its judgment in case Brisal - Auto Estradas do Litoral SA, KBC Finance Ireland v Fazenda Publica (C-18/15). The case concerns the Portuguese legislation concerning deduction of tax on interest at source whereas interest paid to non-resident creditors are subject to withholding tax and the tax is calculated differently when compared to interest paid to resident creditors. According to the Portuguese Corporate Income Tax rules, interest paid to non-resident creditors is subject to a 20% withholding tax rate or the otherwise reduced rate provided in an applicable Double Tax Treaty. No deduction of operating costs is possible. Differently, in the case of identical income paid to resident companies, there is a taxation of 25% after deduction of operating costs. The Portuguese company Brisal and the Irish bank KBC were contract partners under a financing contract ( loans ). Within that framework, in certain months in the years 2005 to 2007, Brisal was obliged to pay interest to KBC. From the payments, Brisal withheld tax and paid it to the Portuguese tax authority on behalf of KBC. Both Brisal and KBC challenge this obligation to withhold part of the interest in order to pay Portuguese corporation tax, because, they claim, it discriminates against nonresident financial institutions in comparison with resident ones in a manner which is unlawful under EU law. In particular, KBC asked for its re-financing costs for the loan to be taken into account for tax purposes. The questions brought before the CJ asked, in essence, first, whether the freedom to provide services must be interpreted as precluding national legislation such as that at issue in the main proceedings, which taxes nonresident financial institutions by means of withholding tax on income from interest received inside the country with no possibility of deducting business expenses, whereas resident financial institutions are not subject to such withholding tax and may deduct business expenses directly related to the financial activity pursued, and secondly, how those expenses should be determined. In order to address those questions, the CJ considered that, first of all, it was necessary to examine whether the freedom to provide services precludes national legislation under which withholding tax is applied to the income of non-resident financial institutions, whereas the income received by resident financial institutions is not subject to such tax. Next, it is necessary to determine whether the fact that non-residents, unlike residents, cannot deduct business expenses directly related to the financial activity in question constitutes a restriction for the purposes of that provision, and, if so, whether such a restriction can be justified. Finally, it is necessary to determine whether average interest rates such as those referred to in the request for a preliminary ruling can be regarded as constituting business expenses directly related to the financial activity in question. As regards the first question, the CJ considered that it is clear from its case law that the application of withholding tax, as a method of taxation, to non-resident service providers, when resident service providers are not subject to such tax, whilst constituting a restriction on the freedom to provide services, may be justified by overriding reasons in the general interest, such as the need to ensure the effective collection of tax As regards the second aspect of the request for a preliminary ruling, it must be recalled that the Court has already held, in relation to the deduction of business expenses which have a direct connection to the activity pursued, that resident providers and non-resident providers are in a comparable situation. Therefore, the Portuguese legislation, under which non-resident financial institutions are taxed on the interest income received within the Member State concerned, without giving them the opportunity to deduct business expenses directly related to the activity in question, whereas such 5

6 an opportunity is given to resident financial institutions, constitutes a restriction on the freedom to provide services unless justified by overriding reasons of public interest. In this regard, the CJ stated that business expenses directly related to the income received in the Member State in which the activity is pursued must be understood as expenses occasioned by the activity in question, and therefore necessary for pursuing that activity. With regard to the granting of a loan, the CJ considered that the performance of that service necessarily gives rise to business expenses such as, for example, travel and accommodation expenses, and legal or tax advice, for which it is relatively easy both to establish the direct link with the loan in question and to prove the actual amount involved. Since taxpayers with limited liability must be able to enjoy the same treatment as taxpayers with unlimited liability, they must be granted, as regards those expenses, the same opportunities to make deductions, whilst being subject to the same requirements as regards, in particular, the burden of proof. Loyens & Loeff publication: The European Commission s 2016 Approach towards State Aid in Tax Matters The current Commission has the objective to close loopholes that enable multinationals to shift profits for tax avoidance purposes. To bring tax reform forward the Commission aims to use all tools at its disposal, including enforcement of State aid rules, aiming at establishing fair tax competition within the EU.1 The ultimate example of this is the Commission s ongoing effort to assess the tax ruling practices of EU Member States, which led to the investigation of over 1,000 individual tax rulings. Some of these investigations led the Commission to conclude that tax rulings issued had been unlawful, which ended up in a recovery order which obliges the relevant EU Member States to redress any special tax benefits enjoyed by a company retroactively. Loyens & Loeff has published a paper providing some highlights of the most recent State aid developments, including the Commission s Notice on the notion of State aid, published in May 2016, as well as the most relevant issues the Commission has singled out in respect of tax measures and which it discusses in more detail in such Notice. These are (i) tax rulings, including advance pricing agreements (APAs), (ii) cooperatives (coops), (iii) collective investment vehicles (CIVs), (iv) tax settlements, (v) depreciation and amortization rules, (vi) fixed basis regimes, such as tonnage tax regimes, (vii) anti-abuse rules, (viii) excise duties and (ix) tax amnesties. This publication (Quoted 107) can be found here. State Aid/WTO Commission investigates corporate tax exemptions for Belgian and French ports In Belgium, a number of sea ports and inland waterway ports are exempt from normal corporate taxation and instead, are subject to a different tax regime. As a result, the tax for those ports on their commercial activities would be lower than the tax levied from other companies. In France, most ports are fully exempt from corporate income tax. On 8 July 2016, the European Commission opened formal State aid investigations into these regimes, as Belgium and France have refused to bring these exemptions to an end as per the Commission s request. Recovery is not at stake if the Commission s final finding is one of incompatible State aid, as those regimes qualify as existing aid in the Commission s preliminary view. Direct Taxation CJ rules that Belgian double taxation relief on dividends is not in breach of the free movement of capital (Timmermans) On 30 June 2016, the CJ delivered its judgment in case Guy Riskin, Geneviève Timmermans v État belge, (C- 176/15). The case concerns the Belgian legislation concerning the taxation, in Belgium, of dividends received from a company established in Poland which were subject to withholding tax in Poland. Mr Riskin and Ms Timmermans, Belgian residents, hold shares in a company established in Poland. In 2009, they received dividends in respect of that shareholding, on which a tax of 15% was deducted at source by Poland. In 2012, Belgian tax authority sent 6

7 Mr Riskin and Ms Timmermans a correction notice in respect of their personal income tax return for the 2010 tax year. According to the tax authority, in accordance with Article 10 of the Belgium-Poland Convention and Articles 5, 6 and 17(1) of the CIR 1992, dividends derived from the company established in Poland were taxable in Belgium at a rate of 25%. Mr Riskin and Ms Timmermans challenged that correction, arguing that, in accordance with Article 23 of the Belgium-Poland Convention, the tax paid in Poland should be allowed as a credit against the tax payable in Belgium. The tax authority replied that Article 23 of that convention provided for Polish tax to be allowed as a credit against Belgian tax subject to the application of Belgian law, namely Article 285 of the CIR 1992, under which such a set-off could be made only if the capital and property that had generated the dividends concerned were applied in Belgium in the conduct of a professional activity. The Belgian tax authority took the view that that was not the case here, refused to allow the Polish tax deducted at source as a credit against Belgian tax and accordingly, rejected their claim. Mr Riskin and Ms Timmermans brought an action before the referring court against the tax authority s decision, claiming that, unlike the Belgium-Poland Convention, other double taxation conventions concluded between Belgium and certain third States that are not Members of the European Union do not provide for reference to be made to Belgian law and thus allow tax paid in those third States to be allowed as a credit against Belgian tax, without any account being taken of the conditions laid down by Belgian law. They submit that it cannot reasonably be accepted that Belgium can accord more favourable fiscal treatment to a third State than that which it accords to Member States. As a preliminary point, the CJ highlighted that it has not been claimed that the difference in treatment alleged concerns dividends derived from a company established in Poland and dividends derived from a company established in Belgium. By contrast, it has been argued that that difference in treatment concerns dividends derived from a company established in Poland and dividends derived from a company established in a third State. Unlike the Belgium-Poland Convention, which refers back to Belgian law for the purpose of laying down the conditions subject to which tax deducted at source in Poland may be allowed as a credit against tax payable in Belgium, other double taxation conventions concluded between the Kingdom of Belgium and certain third States do not provide for such reference and thus, allow tax deducted at source in those third States to be allowed as a credit against tax payable in Belgium, without any account being taken of the conditions laid down by Belgian law. The effect of the reference to Belgian law is that the tax on dividends deducted at source in Poland cannot be allowed as a credit against tax payable in Belgium, because the condition laid down in Article 285 of the CIR 1992 that is the condition that the capital and property from which the dividends concerned are derived be applied in the conduct of a professional activity in Belgium is not satisfied, whereas that set-off would have been granted, without any need for that condition to be fulfilled, if the dividends had been derived from a third State with which the Kingdom of Belgium had concluded a double taxation convention providing an unconditional right to such set-off. The CJ considered that it is undisputed that the situation of Belgian residents who receive dividends derived from Member States, is less favourable than that of Belgian residents who receive dividends from a third State with which the Kingdom of Belgium has concluded a bilateral convention providing for an unconditional right to such a set-off. The CJ recalled that under Article 65(1)(a) TFEU, the provisions of Article 63 [TFEU] shall be without prejudice to the right of Member States... to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested. According to the Court s case law, for a national tax provision which distinguishes between taxpayers depending on the place where their capital is invested to be capable of being regarded as compatible with the Treaty provisions on the free movement of capital, the difference in treatment must apply to situations which are not objectively comparable or be justified by overriding reasons in the public interest. In this case, the difference in treatment arises from a double tax convention. The fact that the benefit in question is granted only to Belgian residents falling 7

8 within the scope of that convention cannot be classified as a benefit that is separable from that convention, given that, as has been mentioned in paragraph 31 of the present judgment, that benefit is an integral part of the convention rules and contributes to the overall balance of mutual relations between the two contracting States to that convention. In those circumstances, Belgian residents, who receive dividends from Member States, such as the Republic of Poland, are not in a situation that is objectively comparable to that of Belgian residents who receive dividends from a third State with which the Kingdom of Belgium has concluded a bilateral double taxation convention providing for an unconditional right to such a set-off. Therefore, the CJ concluded that the difference in treatment does not constitute a restriction prohibited by the Treaty provisions on the free movement of capital. CJ rules that that German legislation on inheritance tax are not in breach of the free movement of capital (Feilen) On 30 June 2016, the CJ delivered its judgment in case Max-Heinz Feilen v Finanzamt Fulda (C-123/15). The case concerns the German rules providing for a reduction in inheritance tax where the estate includes an asset that has already, in the previous ten years, formed part of an estate subject to inheritance tax in that same Member State, where such benefit is not available in the case of an asset inherited and taxed in another Member State. Mr Feilen, who is resident in Germany, is the sole heir of his mother, who died in 2007 in Germany, where she was last resident. His mother s estate consisted mainly of her share in the estate of her deceased daughter, who died in 2004 in Austria, where the mother had also lived until the daughter s death. The distribution of the daughter s estate did not take place in Austria until after the mother s death and so the inheritance tax on that succession was paid by Mr Feilen. In his tax return relating to his inheritance from his mother, which he prepared in Germany, Mr Feilen claimed the inheritance tax paid in Austria as a liability of the estate and applied for a reduction, in the amount of German inheritance tax due. In its assessment, the German tax authorities deducted the inheritance tax paid in Austria from the basis of assessment, but refused to allow any reduction in the inheritance tax. Mr Feilen appealed from this decision and the case ended up with a reference before the CJ. The CJ started by noting that the German legislation makes entitlement to the reduction in inheritance tax dependent on the location of the assets contained in the estate of the earlier inheritance and on the place of residence of the deceased or the beneficiary at the time of that earlier inheritance. As a consequence, an inheritance involving assets which were located in another Member State at the time of a previous inheritance in which none of the parties was resident in Germany is subject to higher inheritance tax than that levied in the case of an inheritance involving only assets which were situated in Germany at the time of an earlier inheritance or involving assets which were situated in another Member State at the time of a previous inheritance at least one of the parties to which was resident in Germany. The CJ considered that such legislation therefore has the effect of reducing the value of the inheritance and constitutes a restriction on the movement of capital within the meaning of Article 63(1) TFEU. The CJ went on to examine whether such legislation can be objectively justified by an overriding reason in the general interest, such as the need to preserve the coherence of the tax system. In this regard, it started by recalling that the need to maintain the coherence of a tax system may justify a restriction on the exercise of the freedoms of movement guaranteed by the Treaty. However, in order for such justification to be accepted, a direct link must be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy, the direct nature of that link falling to be examined in the light of the objective pursued by the legislation in question. In this case, the German legislation is based on the concept that an asset is transferred between close relatives of one generation to the next generation and that a new tax on the same asset, when it has already been imposed in the recent past, is to some extent unfair. The applicable provisions of German law, therefore, are intended to avoid in part double taxation of the same asset more than once within a short space of time by 8

9 foregoing the imposition of a portion of the inheritance tax when such tax was levied in Germany on a previous inheritance within the periods set out in that paragraph. Not granting a reduction of those taxes in the case of an earlier acquisition exclusively taxed outside Germany is, it is submitted, objectively linked to the fact that Germany was unable to tax that acquisition and collect the corresponding tax revenues. Therefore, by providing that only persons receiving assets by way of an inheritance which has given rise to the imposition of such taxes in Germany can benefit from the reduction in inheritance tax, the configuration of that tax advantage reflects a logical symmetry. That logic would be disturbed if that tax advantage were also to benefit persons inheriting assets which did not give rise to the imposition of inheritance tax in that Member State. The CJ further added that admittedly, in cases not coming within the field of inheritance tax, a direct link does not exist where a case relates, in particular, to different taxes or to the tax treatment of different taxpayers. However, in a particular situation such as that contemplated in the German laws under analysis, the condition that the same taxpayer must be involved could not be applied given that the person who paid the inheritance tax at the time of the earlier inheritance is necessarily deceased. Therefore, the CJ concluded that that the restriction on the movement of capital resulting from national legislation such as that at issue in the main proceedings is justified by the need to preserve the coherence of the tax system. VAT CJ rules that constructing and later operating engineering agricultural works is an economic activity for VAT purposes (Lajvér) On 2 June 2016, the CJ delivered its judgment in the case Lajvér (C-263/15). Lajvér is a non-profit company, established with the aim of constructing, and later operating, agricultural engineering works (works) on land belonging to members of the company. The works necessary for the project were financed through State aid. Lajvér is to charge the owners an operating fee in relation to the operating of the work for a period of eight years. Lajvér received invoices including VAT for the works carried out, which VAT Lajvér has sought to deduct. The right to deduct VAT was refused by the Hungarian tax authorities on the grounds that the planned activity was not an economic activity and that the works corresponded to an obligation imposed by a rule of law. Lajvér claimed that for exercise of the right to deduct VAT it is sufficient to engage, on a permanent or regular basis, in an activity which results in consideration being received. The matter ended up with the Supreme Court, which decided to refer preliminary questions to the CJ. The referring court expressed uncertainty as to whether the fee paid pursuant to the contract of operation and use must be regarded as consideration and whether there is a direct link between that consideration and the maintenance of the works. The CJ ruled that the operation of Lajvér, which engages in such commercial activities only on an ancillary basis, constitutes an economic activity, notwithstanding the fact that those works have to a large part been financed by State aid and that their operation gives rise only to revenue from modest fees, provided that the fee can be regarded as having a continuing basis. The operation of works, such as those at issue, constitutes a supply of services for consideration, on the ground that the services rendered are directly linked to the fee (to be) received, provided that that modest fee constitutes remuneration for the service supplied and notwithstanding the fact that performance of those services is a legal obligation. It is for the referring court to determine whether the amount of the fee received means that a direct link exists between the services (to be) supplied and that consideration. CJ approves VAT deduction on basis of floor area when method guarantees a more precise determination of deductible proportion (Wolfgang und Dr. Wilfried Rey) On 9 June 2016, the CJ delivered its judgment in the case Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft GbR ( The Grundstücksgemeinschaft, C-332/14). Between 1999 and 2004, the Grundstücksgemeinschaft, a property partnership governed by civil law, demolished 9

10 an old building on land belonging to it and constructed a building intended for both residential and commercial purposes, which also contained underground parking spaces. The Grundstücksgemeinschaft calculated its right to deduct input VAT related to the demolition and construction work by using an allocation key based on the ratio of the expected VAT taxed turnover from the commercial units and parking spaces and VAT exempt other rental turnover, which resulted in a deduction right of 78.15% and which was approved by the German tax authorities. In the VAT return for 2004, the Grundstücksgemeinschaft adjusted the deducted VAT, based on the turnover allocation key, because certain parts of the building which were intended for VAT taxable lease had been leased out VAT exempt. expectations must be interpreted as not precluding applicable national legislation which does not expressly prescribe an input tax adjustment following amendment of the VAT allocation key. CJ rules that expired VAT adjustment period does not restrict taxation of private use at cessation of economic activity (Jan Mateusiak) On 16 June 2016, the CJ ruled in the case Minister Finansów v Jan Mateusiak (C-229/15). Mr Mateusiak is planning to cease his activity as a notary. His business assets include a residential and commercial building. For the commercial part of the building, Mr Mateusiak had claimed a right to deduct input VAT. The tax authorities declined this calculation method as the German VAT Act as amended in 2004 stipulates that the allocation key based on turnover can only be applied in the case no other method for the allocation of goods and services for mixed use is possible. Accordingly, the tax authorities determined a deduction right of 38.74%, which corresponded to the part of the total floor area of the building whose letting was VAT taxable. The matter ended up with the Federal Fiscal Court, which decided to refer to the CJ for a preliminary ruling in respect of the applicable method for determining the right to deduct input VAT. The CJ ruled that EU Member States are not required to prescribe that the ratio to determine the entitlement to deduct VAT on mixed-use costs for goods and services used for the construction, acquisition, use, conservation or maintenance of a building, which building is used both for activities that entitle to deduct VAT on costs and for activities that do not entitle to deduct VAT on costs, is determined by applying a turnover-based allocation key. Provided that this method guarantees a more precise determination of the deductible proportion, a method on the basis of floor area can be applied. Furthermore, VAT deductions need to be adjusted, during the adjustment period, following the adoption of a VAT allocation key used to calculate those deductions that departs from the method provided for determining the deduction entitlement. Finally, the general principles of EU law of legal certainty and of the protection of legitimate Mr Mateusiak raised the question whether taxation of that part of the building at ceasing his activity is precluded on the ground that the adjustment period for the correction of the deduction of input VAT in respect of the building has expired. Mr Mateusiak took the view that such taxation must no longer take place since taking the value of the assets into account would infringe the principle of neutrality of VAT. The Polish tax authorities, however, opposed this view and concluded that taxation of the goods in connection with the cessation of a taxable activity was justified by the structure of the VAT itself as a consumption tax and that it was also an expression of the principle of neutrality. Finally, the matter ended up with the Supreme Administrative Court, which referred questions to the CJ for a preliminary ruling regarding the interpretation of Article 18(c) of the EU VAT Directive in relation to the adjustment period laid down in Article 187 of the EU VAT Directive. The CJ noted that the purpose of tax being levied on the retention of goods on which VAT became deductible pursuant to Article 18(c) of the VAT Directive is similar to the purpose of the adjustment mechanism during the adjustment period insofar as it is a matter, first, of avoiding giving an unjustified economic advantage to a taxable person compared to a final VAT paying consumer, and, secondly, of ensuring a correspondence between deduction of input tax and charging of output tax. However, according to the CJ, the similarity of those objectives does not mean that the adjustment period 10

11 may be treated as a period beyond which taxation on the retention of goods pursuant to Article 18(c) of the EU VAT Directive is no longer possible. As a result, in the view of the CJ, the retention of goods can be treated as a VAT taxable supply of goods insofar as these have a residual value. In that case, the taxable amount of the transaction is the value of the goods in question determined at the time of the cessation. CJ rules on application rounding-up rule for pro rata deduction right in the event of adjustment (Kreissparkasse Wiedenbrück) On 16 June 2016 the CJ delivered its judgment in the case Kreissparkasse Wiedenbrück (C-186/15). Kreissparkasse is a credit institution which acquired mixed use goods and services. It established that the VAT on those mixed-use goods and services was deductible for 13.55% for the year 2009 and 13.18% for the year Kreissparkasse rounded these percentages up to 14%. In calculating the amount of adjustments (because of its waiver of a tax exemption scheme with respect to transactions with its professional clients) Kreissparkasse also rounded the deductible proportion up to 14%. accordance with one of the derogating methods set out in Article 173(2) of that Directive. However, EU Member States are required to apply the rounding-up rule in the event of adjustment where, under their national legislation, the deductible proportion has been calculated in accordance with one of those derogating methods, only where that rule was applied to determine the initial amount of the deduction. Financed public broadcasting activity does not constitute a supply of services for consideration according to CJ (Český rozhlas) On 22 June 2016, the CJ delivered its judgment in the case Český rozhlas (C-11/15). Český rozhlas is the Czech public broadcasting body created by law and financed, in particular, by the radio fee established under national law. By supplementary VAT returns, Český rozhlas applied a further increase to its right to deduct VAT by excluding the radio fees paid to it from the calculation of the coefficient (pro rata) used for calculating the deductible VAT on supplies. In that regard, Český rozhlas argued that those fees did not constitute (a VAT exempt) remuneration for the public broadcasting service provided. Following a tax inspection carried out in 2011, Kreissparkasse was required to effect a further VAT adjustment on the ground that it had wrongly rounded up the deductible proportion of VAT to the next whole number. Kreissparkasse lodged an objection to those decisions, relying on Article 175(1) of the EU VAT Directive, according to which it claimed that the deductible proportion must be rounded up to a figure not exceeding the next whole number. The tax authorities dismissed that objection on the ground that the Federal Republic of Germany had made use of a derogation option since, in accordance with national law, the deductible proportion must be established, as far as possible, according to the so-called method of economic allocation. The matter ended up with the Finance Court, which decided to stay proceedings and to refer to the CJ for a preliminary ruling in respect of application of the rounding-up rule. The CJ ruled that Article 175(1) of the EU VAT Directive must be interpreted as not requiring the EU Member States to apply the rounding-up rule laid down in that provision where the deductible proportion is calculated in The Czech tax authorities did not accept the position taken by Český rozhlas and, by supplementary VAT assessments, rejected the exclusion of those supplies from the calculation of the pro rata. Following this rejection, Český rozhlas challenged the tax authorities decisions before the Municipal Court, which annulled those decisions. The matter ended up before the Supreme Administrative Court which decided to stay the proceedings and to refer to the CJ for a preliminary ruling on the VAT qualification of the financed public sector broadcasting. First of all, the CJ ruled that it was clear that there is no legal relationship between Český rozhlas and the persons liable to pay the radio fee, in the course of which there is an exchange of reciprocal performance, or direct link between that public broadcasting service and that fee. The obligation to pay the radio fee is linked solely to the possession of a radio receiver and not to the use of the public broadcasting services provided by Český rozhlas, of which the access is free and in no way subject to the 11

12 payment of the radio fee. From these circumstances, it followed in the CJ s view that the provision of public broadcasting services at issue does not constitute a supply of services for consideration, as a result of which this activity falls outside the scope of VAT. CJ rules that Municipality is entitled to deduct all VAT paid in respect of construction buildings despite of considerable low supply price (Gemeente Woerden) On 22 June 2016, the CJ delivered its judgment in the case Gemeente Woerden (C-267/15). The case concerned the right to deduct VAT of a Municipality which constructs and sells a building to a Foundation for a price less than the cost of constructing it. The Municipality of Woerden ( Municipality ) ordered the construction of two buildings intended for multipurpose use by a Foundation. It deducted almost all the VAT invoiced in respect of the works supplied to it. Rather than granting a lease over the buildings, the Municipality decided to sell them to the foundation. The buildings were sold for an amount corresponding to approximately 10% of the cost price and VAT was charged. The Foundation then granted the use of part of the building at issue without consideration to three institutions providing special primary education. Leases over the other parts were granted for consideration to various tenants, which leases are VAT exempt, except for the lease of sport facilities. The Netherlands tax authorities took the view that the Municipality had not supplied the two buildings, but had leased them to the foundation on a VAT exempt basis as a result of which the Municipality would be liable to pay VAT in relation to a self-supply. As a result, VAT was claimed by an additional assessment. The Municipality brought an action against this assessment and the matter ended up with the Supreme Court, which Court decided to refer to the CJ for a preliminary ruling. By its question, the referring court asked whether a VAT taxable person who has constructed and sold a building for a price less than the cost of constructing it, is entitled to deduct all of the VAT paid in respect to the construction of that building, or only a part of that VAT in proportion to the parts of the building which its purchaser uses for economic activities. The CJ ruled that it follows from its case law that if the supply price is lower than the cost price, the deduction cannot be limited in proportion to the difference between the supply price and the cost price, even if the supply price is considerably lower than the cost price, unless it is purely symbolic. Moreover, in circumstances such as those at issue, in which a VAT taxable person has constructed a building and has sold that building for a price less than the cost price, that VAT taxable person is entitled to deduct all the VAT paid in respect of the construction of that building, and not only for a part of that tax in proportion to the parts of the building which its purchaser uses for economic activities. The fact that the purchaser allows parts of the building at issue to be used without charge is of no importance in that regard. AG Wahl Opines that VAT exemption for the supply of blood encompasses human blood plasma also if it is intended to be used for manufacturing medicinal products (TMD) On 2 June 2016, AG Wahl delivered his Opinion in the case TMD Gesellschaft für transfusionsmedizinische Dienste mbh ( TMD ). TMD operates a blood donor centre. In the course of its activity, it supplied blood plasma for the purpose of manufacturing medicinal products to a company established in Switzerland, which collected the plasma from TMD and transported it to its production facilities elsewhere in the EU. In its VAT return for 2008, TMD deducted the input tax relating to these supplies. The German tax authorities refused the deduction of input VAT on the ground that the supplies of blood plasma to the other EU Member State were VAT exempt, both as intra- Community supplies and supplies of blood. In 2012, TMD requested again for the input VAT relating to the supply of plasma to be recognized. In support of its request, it contended that the intra-community supplies of blood plasma were not exempt as supplies as blood, as they involved the supply of source plasma to pharmaceutical companies for fractionation and subsequent manufacture of medicinal products. The German tax authorities refused the request for amendment. TMD brought an 12

13 action before the referring court and finally the matter ended up with the Finance Court, which decided to refer to the CJ for a preliminary ruling. The referring court asked whether the term blood in Article 132(1)(d) of the VAT Directive encompasses blood plasma obtained from human blood and also if it encompasses blood plasma that is not intended for therapeutic purposes, but exclusively for manufacturing medicinal products. The AG firstly opined that the term blood in Article 132(1) (d) of the EU VAT Directive encompasses the supply of blood plasma obtained from human blood. Furthermore, the AG opined that it is significant that plasma can, in principle, be used both for therapeutic purposes and for the manufacturing of medicinal products but that it is one and the same product. Against that background, it seemed to the AG that interpreting Article 132(1) of the EU VAT Directive as encompassing blood plasma regardless of its intended use is more in line with the principle of fiscal neutrality. Therefore, according to the AG, the term blood also encompasses blood plasma that is intended to be used for manufacturing medicinal products. AG Opines that award of prizes for bestperforming horses gives rise to VAT taxable transactions (Baštová) On 14 June 2016, AG Wahl Opined in the case Pavlína Baštová (C 432/15). Ms Pavlína Baštová is registered as a VAT taxable person in the Czech Republic and is in the business, inter alia, of breeding and training racehorses. The stables used for this purpose were occupied partly by her own horses and partly by horses belonging to others entrusted to her to be prepared for races. She also had two horses which she used for agro-tourism and training of young horses, as well as breeding mares and foals. Part of Ms Baštová s income came from prizes won by her horses and the trainer s shares of prizes won by horses belonging to others. Another part came from payments for preparing horses belonging to others for the races. In her VAT return, Ms Baštová claimed a full right to deduct VAT on the supplies acquired, which concerned her horses and horses belonging to others. In the same VAT return, Ms Baštová also declared output VAT at the reduced rate of 10% on the service operation of racing stables which she supplied to the other horse owners. The Czech tax authorities did not accept the claim for full deduction, nor did it agree with the reduced rate of VAT on the service operation of racing stables. Ms Baštová brought an appeal against that decision and finally the matter ended up with the Supreme Administrative Court. Entertaining doubts as to the interpretation of the provisions of the EU VAT Directive, the referring court decided to stay the proceedings and to refer questions to the Court for a preliminary ruling. The AG Opines that insofar as the running of a horse in a race is a component of the economic activity of a person who operates in the field of breeding and training racehorses, the expenses related to that component give rise to deduction of input VAT. Furthermore, according to the AG, the award of prizes to the horses producing the best performances gives rise to taxable transactions under the EU VAT Directive. Moreover, the AG Opined that, subject to verification by the national court, the operating of racing stables cannot as a whole be subject to a reduced rate of VAT by virtue of point 14 of Annex III to Directive 2006/112. In his view, the vast majority of the time spent by a horse in Ms Baštová s racing stables is in the indoor and outdoor resting areas, the stalls, the feeding areas, and so forth, which areas cannot be regarded as sporting facilities within the meaning of the EU VAT Directive. Directive on minimum standard VAT rate On 31 May 2016, the Council of the EU adopted Council Directive 2016/856, amending the EU VAT Directive, with regard to the duration of the obligation to respect a minimum standard rate. From 1 January 2016 to 31 December 2017, the standard rate may not be lower than 15%. In view of the ongoing discussion on the features of the definitive VAT regime for intra-eu trade, according to the Council of the EU, it would be premature to set a permanent standard VAT rate or to consider changing the minimum VAT rate. ECOFIN discussed generalizing reverse charge mechanism in Austria and the Czech Republic During its 3475th meeting on 17 June 2016, the Economic and Financial Affairs Council (ECOFIN) discussed the 13

14 possibility to allow several EU Member States to apply a generalized reversal of liability for VAT payments ( reverse charge mechanism ) as a means of preventing VAT fraud. Such a mechanism implies that liability for VAT payments in the business chain is shifted from the supplier to the customer. The Commission presented an analysis of the possible application of a generalized reverse charge mechanism in Austria and the Czech Republic. In a joint letter to the Commission in April 2016, Austria and the Czech Republic reiterated a request to be authorized to apply a generalized reverse charge mechanism for domestic supplies above EUR 10,000. According to ECOFIN, a generalized reverse charge mechanism would require a unanimous Council decision. VAT rules on vouchers approved by Council of the EU On 27 June 2016, the Council of the EU announced after years of negotiations the adoption of a Directive regarding the VAT treatment of vouchers. Currently, no specific rules exist at EU level on the treatment of vouchers. The new rules in the Directive define two types of vouchers, i.e. single-purpose vouchers ( SPV ) and multi-purpose vouchers ( MPV ). In the event of an SPV the supply of goods and/or services to which the voucher relates is known, so one can easily identify the VAT treatment of the underlying transaction. Therefore, the transfer of an SPV is considered a taxable event. The subsequent transfer of the voucher by a taxable person acting in its own name is thus assimilated with the underlying taxable supply of goods or services. By contrast, the real nature of the transaction, neither the place of supply nor the amount of VAT due is yet known in case of an MPV. Therefore, the transfer of an MPV will not be considered as a taxable event until the actual goods or services are identified and handed over in return for the acceptance of the voucher. The chargeable event will here be the redemption of the MPV. The taxable amount will be equal to the consideration paid for the MPV, or in case of lack of information concerning such consideration, the monetary value indicated on the voucher. EU Member States will have until 31 December 2018 to transpose the Directive into national laws and regulations. Provisions will only apply to vouchers issued after that date. Customs Duties, Excises and other Indirect Taxes CJ rules on the chargeability of excises upon removal from warehouse (Polihim SS EOOD) On 2 June 2016, the CJ delivered its judgment in the Polihim SS EOOD case (C-355/14). The case concerns the chargeability of excises for mineral oils that were removed from a tax warehouse and used for the production of electricity. Polihim is an authorised warehouse keeper which manages a tax warehouse in Lukovit (Bulgaria), in which it is authorised to manufacture energy products and store them under a duty suspension arrangement. Under a three-party contract concluded between Polihim, Petros Oyl OOD and TETS Bobov dol EAD, Polihim sold heavy fuel oils to Petros Oyl, which sold them on to TETS Bobov dol, the end-user exempt from excise duty for the purposes of Bulgarian legislation. Those heavy fuel oils were delivered directly by Polihim to TETS Bobov dol from its tax warehouse. It is apparent from the order for reference that TETS Bobov dol used the heavy fuel oils to produce electricity, within the meaning of Article 14(1)(a) of Directive 2003/96. During a tax inspection of Polihim, the Bulgarian customs authorities found that that company had, on its excise declarations drawn up for the tax periods from 1 to 30 June 2012 and 1 to 30 September 2012, declared that it had made eight releases for consumption of heavy fuel oils under CN code to Petros Oyl but stated that it was not liable for any excise duty in that regard since those goods were intended for use in the production of electricity within the meaning of Article 24(2).3 of the ZADS. 14

15 Being of the view that Petros Oyl, which had been declared by Polihim as the consignee of the goods at issue in the main proceedings, did not have the status of end-user exempt from excise duty, within the meaning of national legislation and that, accordingly, the removal of those goods from Polihim s tax warehouse had given rise to an excise debt owed by Polihim, the Bulgarian customs authorities issued a document finding that there had been an administrative offence. Polihim submitted its written objections to that document, arguing that those goods, once removed from its tax warehouse, had been delivered directly by it to TETS Bobov dol, a company which produces electricity and holds the status of end-user exempt from excise duty. By decision of 27 May 2013, the NMS rejected those objections and imposed fines on Polihim corresponding, in respect of each release for consumption, to twice the amount of the unpaid excise duty, under Article 112(1) of the ZADS. The rate of excise duty taken into consideration in calculating those fines was that applicable to energy products used for purposes other than as motor fuel or as heating fuel. Polihim brought an action against that decision before the Rayonen sad de Lukovit (District Court, Lukovit, Bulgaria). In its judgment, that court pointed out that the goods at issue in the main proceedings had been removed from Polihim s tax warehouse without Polihim having paid the corresponding excise duty, in breach of Article 20(1) of the ZADS. According to that court, it made little difference, in that regard, that those goods were delivered directly to TETS Bobov dol, since Petros Oyl, declared as consignee of the goods on the tax documents drawn up by Polihim itself, did not have the status of an end-user exempt from excise duty. Nonetheless, that court amended the decision of 27 May 2013, reducing the amount of the fines imposed. Polihim lodged an appeal on a point of law against that judgment before the referring court. Taking the view that, in order to resolve the dispute before it, it was necessary to interpret certain provisions of Directives 2008/118 and 2003/96, the national court decided to stay proceedings and refer to the Court the following questions for a preliminary ruling: 1. Is the term consumption of energy products in Article 1(1)(a) of Directive 2008/118 to be interpreted in cases involving energy products which have been released for free circulation and are removed from a tax warehouse of an authorised warehouse keeper, sold in a commercial transaction to a purchaser which possesses neither an authorisation for the production of electricity nor a certificate as an end-user exempt from excise duty, and which are then resold by that purchaser to a third party which possesses an authorisation for the production of electricity, a permit from the competent authorities of the Member State for receiving dutyfree energy products and a certificate as an end-user exempt from excise duty, and to which the energy products are delivered directly by the authorised warehouse keeper, without coming under the actual control of the purchaser - as meaning that the energy products are consumed by their direct purchaser, which does not in fact put them to use in a particular operation, or as meaning that they are consumed by the third party, which does in fact put them to use in an operation which it carries out? 2. Is the term used to produce electricity in Article 14(1)(a) of Directive 2003/96 to be interpreted - in cases involving energy products which have been released for free circulation and are removed from a tax warehouse of an authorised warehouse keeper, sold in a commercial transaction to a purchaser which possesses neither an authorisation for the production of electricity nor a certificate as an end-user exempt from excise duty, and which are then resold by that purchaser to a third party which possesses an authorisation for the production of electricity, a permit from the competent authorities of the Member State for receiving duty-free energy products and a certificate as an end-user exempt from excise duty, and to which the energy products are delivered directly by the authorised warehouse keeper, without coming under the actual control of the purchaser as meaning that the energy products 15

16 are used by the direct purchaser, which does not in fact put them to use in a particular operation for achieving a purpose exempt from excise duty, or as meaning that they are used by the third party, which does in fact put them to use in an operation which it carries out for achieving a purpose exempt from excise duty, namely heating, for example, for the production of electricity? 3. Taking into account the principles of the provisions of EU law concerning excise duty, in particular Article 1(1)(a) of Directive 2008/118 and Article 14(1)(a) of Directive 2003/96, are energy products subject to excise duty and, if so, at what rate - that for motor fuel or that for energy products used for heating purposes - if it is established that the energy products concerned were supplied to an enduser which possesses the appropriate authorisations and permits under national law for the production of electricity and a certificate as an end-user exempt from excise duty and which received the goods directly from the authorised warehouse keeper, but which is not the first purchaser of the goods? 4. Taking into account the principles of the provisions of EU law concerning excise duty, in particular Article 1(1)(a) of Directive 2008/118 and Article 14(1)(a) of Directive 2003/96, are energy products subject to excise duty at the rate for motor fuel if it is established that the energy products concerned are consumed or used for a purpose which is exempt from excise duty, namely the production of electricity, by a person which possesses the corresponding authorisations and permits under national law and which received the goods directly from the authorised warehouse keeper, but which is not the first purchaser of the goods? about their release for consumption until the time at which those goods are physically removed from that tax warehouse; 2. Article 14(1)(a) of Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity, read in conjunction with Article 7 of Directive 2008/118, must be interpreted as precluding a refusal by the national authorities to exempt from excise duty energy products which, after having been sold by an authorised warehouse keeper to an intermediate purchaser, are sold on by that purchaser to an end-user who satisfies all the requirements under national law to benefit from an exemption of excise duty on those products and to whom those products are delivered directly by that authorised warehouse keeper from his tax warehouse, on the sole ground that the intermediate purchaser, declared by that warehouse keeper as the consignee of those products, does not have the status of enduser authorised under national law to receive energy products exempt from excise duty. CJ rules on the conditions for the application of the excise rate for heating fuels (case ROZ- ŚWIT) On 2 June 2016, the CJ delivered its judgment in the case ROZ- ŚWIT (C-418/14). The case concerns the conditions for applying the excise rate of motor fuels on heating fuels. By decision of 23 February 2011, the Naczelnik Urzędu Celnego we Wrocławiu (Head of the Wrocław Customs Office, Poland) issued a notice of additional assessment in respect of excise duty in relation to the tax debt incurred by ROZ-ŚWIT. The CJ ruled as follows: 1. Article 7(2) of Council Directive 2008/118/EC of 16 December 2008 concerning the general arrangements for excise duty and repealing Directive 92/12/EEC must be interpreted as meaning that the sale of excise goods held by an authorised warehouse keeper in a tax warehouse does not bring It is apparent from that decision that the proceedings brought by the tax authorities established that, during the period from 1 March to 31 December 2009, ROZ- ŚWIT had made a series of heating fuel sales consisting of amounts of light fuel oil. It was found that those sales had been confirmed and that there was no doubt that the purchasers had confirmed the purchase and consumption of that fuel for heating purposes. However, 16

17 ROZ-ŚWIT had not submitted, within the specified period, a list of statements from the purchasers as provided for in Article 89(14) of the Law on excise duty. Consequently, the motor fuel rate laid down in Article 89(4)(1) of that law was applied in accordance with paragraph 16 of that article. ROZ-ŚWIT brought an appeal against that decision before the Director of the Wroclaw Customs Chamber (DICW) arguing that the failure to present lists of statements from purchasers constituted merely a formal error, while the actual intended use of the fuel in question for heating purposes was not in doubt. That appeal having been dismissed, ROZ-ŚWIT brought an action before the Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Wrocław, Poland). The Wojewódzki Sąd Administracyjny we Wrocławiu (Regional Administrative Court, Wrocław) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling: (1) Must Article 5, read in conjunction with Articles 2(3) and 21(4) of Directive 2003/96, be interpreted as precluding the national rules laid down in Article 89(16) of the Law on excise duty, which require that the rate of excise duty laid down in respect of motor fuels be applied to heating oil if the taxable person fails to fulfil the formal condition laid down in Article 89(14) and (15) of the Law on excise duty? (2) Does the principle of proportionality preclude the formal requirement laid down in Article 89(14) and (15) of the Law on excise duty, which makes application of the reduced rate of excise duty laid down for heating oil contingent on the drawing-up and submission of a list of statements from purchasers within a statutory period, regardless of whether the substantive condition requiring the sale of fuel for heating purposes is fulfilled? (3) Is the penalty laid down Article 89(16) of the Law on excise duty, which consists, as in the circumstances of the present case, in imposing on the seller, in relation to heating oil, excise duty calculated at the rate laid down for motor fuels (Article 89(4)(1) of the Law on excise duty) because the formal condition laid down in Article 89(14) and (15) of the Law on excise duty is not fulfilled, consistent with the principle of proportionality? The CJ ruled as follows: Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity, as amended by Council Directive 2004/75/EC of 29 April 2004, and the principle of proportionality must be interpreted as: - not precluding national legislation under which sellers of heating fuel are required to submit, within a prescribed time limit, a list of statements from purchasers that the products purchased are for heating purposes, and - precluding national legislation under which, if a list of statements from purchasers is not submitted within a prescribed time limit, the excise duty applicable for motor fuels is applied to the heating fuel sold, even though it has been found that the intended use of that product for heating purposes is not in doubt. CJ rules on the tariff classification of anti-radiation protective coats (MIS) On 9 June 2016, the CJ delivered its judgment in the case Medical Imaging Systems GmbH (MIS -288/15). The case concerns the classification in the Combined Nomenclature (CN) of anti-radiation protective coats. The following question was referred for a preliminary ruling: Does classification under subheading Industrial and occupational clothing of the CN depend solely on external appearance or intended use, or does General Rule 3(b) require that consideration be given to those components of the goods which give them their essential character? The CJ ruled that the Combined Nomenclature must be interpreted as meaning that an anti-radiation protective apron-coat, such as that at issue in the main proceedings, must be classified in subheading of the CN due to its objective characteristics and properties, including, in particular, its external appearance, without it being necessary to refer to the components conferring on the product in question its essential character. 17

18 CJ rules on the determination of the customs value (EURO 2004) On 16 June 2016, the CJ delivered its judgment in the case EURO Hungary Kft (C-291/15). The case concerns the determination of the customs value in a case where there were doubts on the veracity of the transaction value of imported goods. On 4 March 2014, EURO Hungary, a company with its registered office in Hungary, initiated, by means of an electronic customs declaration, before the Nemzeti Adó- és Vámhivatal Zala Megyei Vám- és Pénzügyőri Igazgatósága (the Customs and Tax Directorate for the County of Zala forming part of the National Treasury and Customs Authority) ( the County Customs Authority ), through its customs representative, a procedure for the release for free circulation of various goods coming from the People s Republic of China with a gross weight of 13,000 kg. Having released the goods for free circulation after a partial physical inspection, that authority subsequently decided to undertake a post-clearance examination of that declaration under Article 78 of the Customs Code. The County Customs Authority, by decision of 12 June 2014, concluded the post-clearance examination of that declaration and, rejecting the customs value of HUF 2,589,926 (Hungarian forints; approximately EUR 8,288) stated in the customs declaration, it fixed the final customs value of the imported goods at HUF 3,023,938 (approximately EUR 9,676). As a result of those amendments, the County Customs Authority ordered EURO Hungary to pay HUF 12,970 (approximately EUR 41) in customs duties and HUF 47,784 (approximately EUR 153) in VAT. It is apparent from the statement of reasons for the decision of 12 June 2014, that in the declaration the customs value of the goods was calculated on the basis of the transaction value in accordance with Article 29 of the Customs Code, that the restrictions and conditions laid down in Article 29(1)(a) to (c) of that code were not applicable to the goods and that there was no link between the parties as referred to in Article 29(1)(d) of that code. It is apparent from the file submitted to the Court that the County Customs Authority compared the commercial invoice which had been submitted to it with the importer s accounting records and proofs of payment and with the bank certificate produced and found that the amount indicated in those documents corresponded to the content of the customs declaration. Nevertheless, taking the view that the customs values of the imported goods by net kilo corresponded to a price charged that was exceptionally low in relation to the statistical average values for comparable goods, that authority questioned the accuracy of the customs values of the goods described as cotton oven gloves with a net weight of 150 kg and microfiber floor cloths with a net weight of 24 kg. The County Customs Authority asked EURO Hungary to demonstrate that the customs value of the goods concerned was correct, but it is apparent from the documents before the Court that that company has not submitted any further evidence and merely stated that it had paid the amount stated on the invoice to its Chinese partner. As the County Customs Authority still had doubts as to whether that value was correct, using statistical data, it analysed the unit price at which the types of goods at issue were sold to Hungarian importers and determined their customs value in accordance with the transaction value of similar goods referred to in Article 30(2)(b) of the Customs Code. The Regional Customs Authority hearing EURO Hungary s administrative action confirmed the decision of the County Customs Authority of 12 June 2014, holding that the latter was adopted correctly in the context of the procedure laid down in Article 181a of the Implementing Regulation, that the County Customs Authority s doubts, concerning the validity of the declared value of the goods at issue were reasonable and that the determination of the customs value of those goods was based on up-todate statistics. EURO Hungary brought an administrative law action before the referring court against the decision of the Regional Customs Authority. According to that company, 18

19 the County Customs Authority did not accept the customs value declared for the goods at issue only because it had been able to purchase the goods at a lower price, thanks solely to its good business relations, which cannot serve as a basis to call that value into question. The Regional Customs Authority maintained the line of argument on which its decision was based, arguing that EURO Hungary had not explained why the price of the goods at issue was unreasonably low in relation to the comparable statistical values. The referring court takes the view that an interpretation of Article 181a of the Implementing Regulation is necessary to resolve the question whether a customs authority can, on the basis of that provision, in order to determine the customs value of imported goods, dispense with the application of the method based on the transaction value of those goods. In that regard, the referring court took the view that the consideration of the transaction value of those goods is the principal method, applicable as a general rule for the determination of the customs value of imported goods. If the authenticity of the documents submitted as evidence of the transaction value of the imported goods and the real purpose of the operation are not otherwise open to doubt and if there is no specific reason not to take into account the transaction value of those goods, the customs authorities are obliged to accept as the customs valuation of those goods their certified transaction value, given that that practice excludes the use of arbitrary customs values allowing the customs system to operate in a neutral fashion. The referring court took the view that that interpretation follows from the conclusions in paragraphs 52 to 60 of the judgment of 28 February 2008 in Carboni e derivati (C 263/06), with the proviso, however, that the facts of the case that gave rise to that judgment differ considerably from those of the present case and that judgment does not examine the possible basis for the doubts referred to in Article 181a of the Implementing Regulation. In those circumstances, the Zalaegerszegi közigazgatási és munkaügyi bíróság (administrative and labour court, Zalaegerszegi, Hungary) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling: Must Article 181a of Commission Regulation (EEC) No 2454/93 of 2 July 1993 be interpreted as precluding a practice of a Member State whereby the customs value is determined on the basis of the transaction value of similar goods if it is considered that the declared transaction value, in comparison with the statistical average of the purchase prices verified in the context of the importation of similar goods, is unreasonably low and, consequently, incorrect, despite the fact that the customs authority does not refute or call into question the authenticity of the invoice or the bank transfer certificate produced in order to establish the price actually paid for the imported goods, without the importer having submitted additional evidence to demonstrate the transaction value? The CJ ruled as follows: Article 181a of Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code, as amended by Commission Regulation No 3254/94 of 19 December 1994, must be interpreted as not precluding a customs authority practice, such as that at issue in the main proceedings, whereby the customs value of imported goods is determined on the basis of the transaction value of similar goods, the method in Article 30 of Council Regulation No 2913/92 of 12 October 1992 establishing the Community Customs Code, as amended by Regulation (EC) No 82/97 of the European Parliament and of the Council of 19 December 1996, where the declared transaction value is considered to be unreasonably low in comparison with the statistical average of the purchase prices verified in the context of the importation of similar goods and despite the fact that the customs authority does not refute or call into question the authenticity of the invoice or the bank transfer certificate produced in order to establish the price actually paid for the imported goods, without the importer having submitted, in response to a request to that effect from the customs authority, additional evidence to demonstrate the accuracy of the declared transaction value of those goods. 19

20 Commission proposes signature and conclusion of EU-Canada trade deal On 5 July 2016, the Commission formally proposed to the Council of the EU the signature and conclusion of a free trade agreement between the EU and Canada, known as the Comprehensive Economic and Trade Agreement, or CETA. The deal is set to benefit people and businesses - big and small - across Europe as of the first day of its implementation. To allow for a swift signature and provisional application, so that the expected benefits are reaped without unnecessary delay, the Commission has decided to propose CETA as mixed agreement. This is without prejudice to its legal view, as expressed in a case currently being examined by the Court of Justice of the European Union concerning the trade deal reached between the EU and Singapore. With this step, the Commission makes its contribution for the deal to be signed during the next EU-Canada Summit, in October. After receiving the green light from the Council and the consent of the European Parliament it will be possible to provisionally apply the agreement. From day one, CETA will scrap almost all customs duties, saving EU firms hundreds of millions of euros a year in duty payments, thus also benefitting European consumers directly, by reducing prices and increasing the choice of products imported from Canada. Besides cutting customs duties, CETA will help cut costs for EU firms, especially the smaller ones. This will happen thanks to the mutual recognition of so-called conformity assessment certificates for a wide range of products, from electrical goods to toys. For example, if an EU firm wants to export toys it will only need to have its product tested once, in Europe, to obtain a certificate valid for Canada, thus saving time and money. Canada has also undertaken commitments to follow the EU s approach and publish all its public procurement tenders on a single website. This will make it much easier for interested EU companies to access the information they need about such tenders. CETA also contains strong rules on the protection of labour rights and the environment. Both sides have pledged never to undermine the EU s high standards for the sake of commercial interests, but instead, to work together to encourage others around the world - particularly developing countries - to raise their own. Over 140 European Geographical Indications of food and drink products (from Tiroler Speck, from Austria, to Gouda and Roquefort cheeses from the Netherlands and France) will enjoy a high level of protection in the Canadian market, whereas without the agreement, there is no such protection. CETA ensure sure that only genuine products can be sold in Canada under those names. It will boost trade in services, create new market access and provide better access for European suppliers of services in which EU companies are world leaders, ranging from maritime services, telecoms, and engineering to environmental services and accountancy. It will make it easier for service suppliers to travel between the EU and Canada to connect with their customers. It will facilitate the recognition of professional qualifications for regulated professions (such as architects, accountants and engineers), opening up new opportunities for professionals in these sectors. And it will allow EU companies to bid for Canadian public contracts at all levels of government - federal, provincial and local - and in areas ranging from IT systems to roads to trains. In addition, CETA introduces a new investment court system and enhanced rules on investment protection. This guarantees the right of EU governments to regulate in the interest of their citizens, while still encouraging foreign investors by protecting their investments. The new system also makes the resolution of investment disputes fairer and more transparent. As such, it serves as an important step towards the EU s ultimate goal of a global investment court. Following a decision by the Council, it will be possible to provisionally apply CETA. Its full entering into force will be subject to the conclusion by the EU, through a Council decision with the consent of the European Parliament, and of all Member States through the relevant national ratification procedures. 20

21 EU removes customs duties on IT equipment On 1 July 2016, the EU expanded duty-free treatment to new IT products covered by the Information Technology Agreement (ITA) revised in December The agreement should eliminate custom duties on more than 200 IT products in 54 countries of the world, which represents around 90% of the global trade in such products. The EU, together with the US, is among the first participants to ratify and implement the expanded agreement. As a result, EU citizens will enjoy cheaper access to IT goods such as GPS, video and audio technology including multi-media software and video-games. Also, cheaper components and parts will allow EU industry to lower their production costs and will help to keep production in the EU. Elimination of tariffs in other participating countries will also help EU exports to take off. Procedural delays have occurred in China, Japan and Korea, but implementation by those countries is expected soon. The last participating countries (Australia, Iceland, the Philippines and Switzerland) will implement the agreement as of 1 January statistics. The report is transmitted to the Council and the European Parliament. Most of the trade defence measures against the EU in 2015 were in anti-dumping, although there were some safeguard measures too. The number of measures in force at the end of the year was 151, compared to 140 at the end of In 2015, 37 new measures were imposed against the EU, a comparable number to those put in place the previous year. India, China, the US and Brazil are the most prolific users of trade defence instruments against the EU, but several other countries have also been active. Steel was the sector most affected, with 19 new investigations in 2015, followed by the chemical sector with 7 new investigations. The year was also marked by an increased complexity of cases due to various factors such as the ongoing debate on global steel overcapacity and, in some countries, the economic context where TDI measures may be used for political reasons and be applied for protectionist purposes. Latest EU Trade Defence Report confirms increase in third country measures against EU exports The Commission s 13th annual report on trade defence actions taken by non-eu countries against EU exports shows there was an increase in the number of measures in force against EU in 2015 and that cases are becoming more complex. Against this difficult background, the Commission has achieved positive results and the best outcome for EU exporters. Some persistent problems remain. The Commission has adopted its 13th Annual Report on third country trade defence action taken against the European Union. The report sets out the general trends, achievements and problems faced in It also gives details of the more notable cases, including supporting 21

22 About Loyens & Loeff Loyens & Loeff N.V. is the first firm where attorneys at law, tax advisers and civil-law notaries collaborate on a large scale to offer integrated professional legal services in the Netherlands, Belgium, Luxembourg and Switzerland. Loyens & Loeff is an independent provider of corporate legal services. Our close cooperation with prominent international law and tax law firms makes Loyens & Loeff the logical choice for large and medium-size companies operating domestically or internationally. Editorial board For contact, mail: eutaxalert@loyensloeff.com: René van der Paardt (Loyens & Loeff Rotterdam) Thies Sanders (Loyens & Loeff Amsterdam) Dennis Weber (Loyens & Loeff Amsterdam; University of Amsterdam) Correspondents Gerard Blokland (Loyens & Loeff Amsterdam) Kees Bouwmeester (Loyens & Loeff Amsterdam) Almut Breuer (Loyens & Loeff Amsterdam) Robert van Esch (Loyens & Loeff Rotterdam) Raymond Luja (Loyens & Loeff Amsterdam; Maastricht University) Arjan Oosterheert (Loyens & Loeff Zurich) Lodewijk Reijs (Loyens & Loeff Rotterdam) Bruno da Silva (Loyens & Loeff Amsterdam; University of Amsterdam) Patrick Vettenburg (Loyens & Loeff Rotterdam) Ruben van der Wilt (Loyens & Loeff Amsterdam) Editors Patricia van Zwet Bruno da Silva Although great care has been taken when compiling this newsletter, Loyens & Loeff N.V. does not accept any responsibility whatsoever for any consequences arising from the information in this publication being used without its consent. The information provided in the publication is intended for general informational purposes and can not be considered as advice. 22