Payment in instalments and payment of VAT in case of one-off service supplies
Transactions involving a one-off supply of services for which the taxpayer is paid in instalments will not defer the date of payment of the tax. This is pursuant to the judgment of the CJEU of October 28, 2021. (C-324/20).
The judgment was handed down in the case of X-Beteiligungsgesellschaft mbH, a company with its registered office in Germany, conducting business in the area of intermediation in the sale of real estate. From a contract concluded by the company with its contractual partner it followed that the company had already fulfilled its contractual obligations in 2012, while the remuneration for the brokerage service was to be paid in five instalments plus VAT. On the lapse of the due date of each instalment, the company issued an invoice and paid the output VAT.
The German tax authorities stated that the service was de facto of one-off nature – it was performed in 2012. The Company should, therefore, pay input VAT calculated on the taxable base including the full amount of remuneration for the service provided at the time of its provision. The moment of payment of such remuneration is of no relevance for taxation.
The Federal Finance Court hearing the case decided to refer two questions to the CJEU for a preliminary ruling. The first question was whether a one-off supply of services where the consideration is payable in instalments postpones the payment of VAT. The second question was whether, where a taxable person has agreed, at the time of supply of a one-off service, to spread the consideration for that service over instalments, it may be held that there is a default in payment in respect of successive instalments, other than the first, of the consideration (before they become due), with the result that the taxable person may reduce the taxable amount, with the possibility of subsequently increasing it again upon payment of the successive instalments.
The CJEU did not agree with the taxpayer. As a matter of principle, the chargeable event occurs and VAT becomes chargeable at the time of the supply which is the subject of the transaction. An exception to this rule is, inter alia, a transaction involving an advance payment or continuous services, where the supply is deemed to be completed upon expiry of the payment terms to which these payments relate. In the Court's opinion, the above-mentioned derogation should only apply to services the timing of which is difficult to determine clearly, in particular when the service is continuous and, due to its inhomogeneous nature, requires payments to be spread over time. This provision does not apply to one-off transactions where the time of performance can be determined unequivocally, readily and precisely.
In the Court’s view, the VAT should be charged and paid in a single payment at the time the service is provided, irrespective of the fact that the parties to the contract have voluntarily agreed to spread the remuneration over instalments. The solution in such a case may be either to charge and collect all output VAT on the first instalment payment or to allocate that first instalment to the payment of the VAT. Thereby, the taxpayer is not compelled to allocate his own financial means to pay the tax.
The position of the CJEU expressed in the ruling in the X-Beteiligungsgesellschaft case (C-324/20) should persuade taxpayers to construe contracts between contractors in such a manner as to provide for the liability to pay the entire VAT already at the time of the provision of the service, regardless of the payment of individual instalments for the provision of a one-off service.
Katarzyna Czerwińska-Sabała, Tax Consultant, ATA Tax Sp. z o.o.
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