VAT treatment of lump-sum / subscription contracts

Anytime tax advisers in the CEE region are asked to review a consulting contract, we all highlight the importance of invoices issued being specified and services documented as much as possible for the recipient not to lose its right to the input VAT deduction. In practice, where subscription contracts are concerned, the latter is often impossible.

Well, based on the CJEU ruling in case C 463/14 (Asparuhovo Lake Investment Company OOD), it seems that this will no longer (have to) be the case.

Lump sum fees and subscription contracts are a specific issue as the tax authorities usually do not understand that the service of being at disposal is actually a service and demand a specification of invoice and/or proof that the services were rendered.

The preliminary question in this case was whether the term „supply of services” under the VAT Directive also includes subscription contracts for the supply of consulting services, namely where a supplier, having qualified personnel available for supplying the service, has agreed to be on call for the customer during the term of the contract and has undertaken to refrain from entering into contracts with similar subject-matter with the customer's competitors. If so, the Court was asked to rule on when the chargeable event and the chargeability of VAT for these services would occur.

Asparuhovo Lake Investment Company (ALIC), a company whose business was focused on agriculture and horticulture, concluded a series of consulting service agreements by which the supplier agreed to render a certain scope of consulting services (financial, commercial development, legal services and IT security) without any indication or specification of the subject matter, deadlines or unit price. Additionally, the service providers stated they will refrain from entering into similar contracts with third parties whose interests were either contrary to those of ALIC or which were competing directly with ALIC. In exchange, the company agreed to pay subscription fee.

The Tax Authorities challenged the right to the input VAT deduction because there was no proof of the type, quantity and nature of the services actually received.

In its ruling, CJEU confirmed that where the supply of services which is characterized by the permanent availability of the service provider in order to supply, at the appropriate time, the services required by the customer, it is not necessary, in order to find that there is a direct link between that service and the consideration received, to establish that a payment relates to a personalized supply of services at a specific time carried out at the request of a customer.

The Court concluded that in the case at hand there is a supply of service which consists in the fact that the provider is available to the recipient to provide assistance during the period specified in the subscription agreement, independent of the volume and nature of consulting services actually provided in period the remuneration is referred.

In relation to the question of the chargeable event and the chargeability of VAT, the CJEU ruled that the subscription represents a supply of services that implies successive payments, hence the chargeable event occurs 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.

Now it remains to be seen how long it takes for this ruling to automatically apply in practice.

Source

http://curia.europa.eu/juris/liste.jsf?td=ALL&language=en&jur=C,T,F&num=c-463/14