ECJ ruling: subscription contracts for the supply of consulting services are liable for VAT

Our VAT Technical Manager examines the decision issued by the European Court of Justice in the case of Asparuhovo Lake Investment Company (ALIC).

Referred to the ECJ by the Administrative Court in Bulgaria, the case concerned the time of the chargeable event and chargeability of tax for VAT purposes in a supply of services under a subscription contract for consulting services.

ALIC is a Bulgarian company whose business is mainly concerned with agriculture, horticulture, livestock rearing and related activities. The company entered into subscription contracts for consulting services with four other companies. Under the contracts, the service providers undertook to:

  • make themselves available to ALIC for consultation, meetings and commitments, on each working day from 9am to 6pm and, when needed, outside office hours, including on Sundays and public holidays
  • where appropriate, ensure, during such time as necessary, the presence of a competent person at ALIC’s offices and/or those of a third party associated with ALIC, including outside office hours and on Sundays and public holidays
  • obtain documents and necessary information and exchange them between the parties in order to guarantee the fullest and most efficient protection possible of ALIC’s interests
  • transmit, in good time, to the customer, for consultation, negotiation and signature, all the necessary documents relating to the protection of the customer’s interests.

The service providers declared that they had not entered into similar contracts with third parties whose interests were contrary to those of ALIC and/or which were competing directly with ALIC. They also undertook to refrain from entering into such contracts. In exchange, ALIC undertook to pay them weekly remuneration, disbursed every Monday following the week for which it was due. ALIC deducted the VAT stated on the invoices issued by the service providers.

During a subsequent VAT inspection the tax authority issued an assessment refusing the ALIC the right to deduct the VAT invoiced by the service providers. It took the view that no evidence had been provided as to the type, quantity and nature of the services actually provided, there was no first-hand document relating to the number of hours performed, and no information was available regarding how the service prices had been set. The ALIC 's initial appeal was rejected and it brought an action before the referring court.

The referring court was unsure as to whether a subscription contract of this kind constituted a ‘supply of services’ and whether the chargeable event and the chargeability of the tax took place on expiry of the period in respect of which the payment had been agreed. Hence the ECJ's task was to determine:

  • whether "supply of services" also covers cases involving subscription contracts for the supply of consulting services, where a supplier, having qualified personnel available for supplying the services, has agreed to be on call for the customer during the term of the contract and has undertaken to refrain from entering into similar contracts with the customer's competitors
  • whether for subscribed consulting services, the chargeable event occurs on expiry of the period for which the payment was agreed, irrespective of whether and how often the customer makes use of the supplier's on-call services; and
  • whether a person supplying services in connection with a subscription consulting contract is obligated to charge value added tax for the services on expiry of the period for which the subscription fee was agreed, or does this obligation arise only if the customer has made use of the consultant's services?

The ECJ gave the following answer to the questions referred.

  • Article 24(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted as meaning that the term ‘supply of services’ includes subscription contracts for the supply of consulting services to an undertaking, in particular those of a legal, commercial or financial nature, under which a supplier has agreed to be available to the customer during the term of the contract.
  • With regard to subscription contracts for consulting services, such as those at issue in the main proceedings, Articles 62(2), 63 and 64(1) of Directive 2006/112 must be interpreted as meaning that the chargeable event and the chargeability of the tax occur upon the expiry of the period in respect of which the payment has been agreed, irrespective of whether and how often the customer has actually made use of the supplier’s services.

The judgment is available on the Curia website.

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Dr. Robert  Nagy
Technical update

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