VAT-free export administration fees

Hatar Diszkont Kft (Case C-427/23) concerns the question of the correct VAT treatment of a fee charged by a seller of goods for processing the VAT free export documentation. At first sight, one would be forgiven for thinking the issue straightforward. It is consideration for carrying out a supply of services and subject to VAT. The Advocate General, however, adopted a much more nuanced analysis and suggested there was no separate supply at all. The fee simply represents an additional amount charged for the goods and, as such, was subject to the same VAT liability as the goods. In the alternative, the AG suggested that, if there was a discrete service, then it was one that was entirely dependent and ancillary to the main supply of the goods and should share the same VAT treatment in any event.

The CJEU has now delivered its judgment in the case and held that the circumstances do not give rise to a single supply and nor is the consideration simply further consideration for the main supply.

Background

The seller in this case charged a 15% administrative fee when selling goods for export outside the EU. This involved checking customers travel documents and a required tax refund form. On refund of the amounts initially paid as VAT, the taxpayer issued an invoice for payment of the 15% administration fee. It treated the administration fee as exempt from VAT. However, the VAT refund administration services were not invoiced at the same time as the goods, but later at the time when the VAT was refunded (that is after the customer has paid for the goods and exported them to a third country). The Hungarian tax authority initially accepted over many years that the supply of administrative services were exempt from VAT, but  later sought to assess VAT on such services. The taxpayer appealed.

Was there a single supply?

The CJEU noted that the purchase of the goods and the VAT refund administration services could not be regarded as so closely linked so as to form an indivisible single economic supply. It was clear that the service could be separated from the supply of goods and the refund service was not "the necessary outcome of the supply of goods". It was quite possible for the supply of goods to take place without the refund services and whilst the services were "connected", a connection is not sufficient.

Moreover, the refund services could not be said to be "ancillary" to the sale of the goods, even if received as a discount on the purchase price. The activity of administering VAT refunds pursues an objective which is independent to the supply of the goods. The supply of goods was completed as soon as they were paid for, without the additional service being necessary. The VAT refund service could not be regarded simply as a means of better enjoying the supply of goods.

Finally, the Court rejected the argument that the fee paid for the refund service was simply an incidental expense with respect to the supply of the goods. It was a fee for a separate supply of services.

An exempt supply under Article 135(1)(d)?

The CJEU has also rejected the argument that the services in the case could fall within the exemption for transactions concerning payments etc under Article 135(1)(d). It was clear from the Court's case law that this exemption does not cover administrative services and requires a functional approach in transferring funds or effecting payments and must bring about changes in the legal and financial situation. In this case, the taxpayer did not cause the actual payment or transfer of ownership of funds to customers and it could not be regarded as the type of financial transaction falling within the exemption.

Legitimate expectation?

The taxpayer also argued that, since the tax authorities had checked and accepted the taxpayer's approach to accounting for VAT over several years without challenging the VAT exempt classification, it would be contrary to the principle of legitimate expectation to now reverse that approach.

The Court noted that the right to rely on the principle of protection of legitimate expectations extends to any person in a situation in which an administrative authority has caused that person to entertain expectations which are justified by precise assurances provided to them. However, the failure to challenge the classification during several tax audits by a tax authority did not meet the necessary requirements to give rise to legitimate expectation. A tax authority's mere acceptance, even for several years, of VAT returns did not amount to a "precise assurance". Similarly, the fact that the tax authority did not challenge the returns does not, in principle, suffice ("except in very specific circumstances") to give rise in the mind of a prudent and well-informed trader, to a reasonable expectation that tax would not be levied on such transactions. Only information that is "precise, unconditional and consistent and comes from authorised and reliable sources constitutes precise assurances" for these purposes. In particular, the Court noted that an omission cannot under any circumstances constitute a precise assurance.

In addition, the Court agreed with the AG that the giving of "ex post non-binding information" by a tax authority cannot have any effect on the tax treatment of transactions already carried out.

Exclusive of VAT?

Finally, the Court held that that the Austrian tax authorities had been wrong to treat the amounts paid as the consideration such that VAT was payable in addition to such consideration. The price agreed for the service must be regarded (in the absence of specific agreement otherwise) as the gross price, including any VAT. It was clear from settled case law that where a contract is concluded without reference to VAT and in a situation where the supplier has no means of subsequently recovering the VAT from the customer (as in this case), the total price is VAT inclusive.