Tax Newsletter - December 2018 | Judgments

Corporate income tax

A legislation that taxes dividends differently according to where the company receiving them is a resident is contrary to the free movement of capital

Court of Justice of the European Union. Judgment of November 22, 2018, case C-575/17

In this judgment the CJEU held to be contrary to the free movement of capital a legislation, such as that in France, under which the dividends distributed by a resident company are taxable at source if they are received by a nonresident company, whereas, if it is a resident company receiving them, they are only taxed at the end of the tax period if the company receiving the dividends has recorded income in that period. Additionally, the CJEU warned that no taxation at source may take place if that company ceases trading without having become profitable after receiving those dividends.

The CJEU held in this respect that the difference in tax treatment of dividends dependent on the place of residence of the companies receiving those dividends is liable to deter nonresident companies from investing in companies in France and also to deter investors residing in France from purchasing holdings in nonresident companies. This separate treatment is not justified by different objective circumstances, by a balanced distribution of the powers of taxation between the member states, nor by the effective collection of tax.

VAT

For VAT to be deductible, in the absence of the invoice, other proof of the acquisition of goods or services may be produced

Court of Justice of the European Union. Judgment of November 29, 2018, case C-664/16

The Romanian tax authorities refused the right of an individual, a VAT taxable person, to deduct input VAT as a result of not having the relevant invoices. To compensate for the absence of the invoices, the taxable person produced two experts’ reports which determined the amount of input VAT, by estimate It so happened that when the goods and services on which input VAT was paid were acquired it was not mandatory to issue invoices to individuals.

The Court of Justice concluded as follows:

1. According to the Court’s own settled case law, the right to deduct VAT is a fundamental principle of the common system of VAT which, in principle may not be limited. In other words, the common system of VAT ensures that all economic activities, whatever their purpose or results, provided that they are themselves subject to VAT, are taxed in a wholly neutral way.
2. To be able to benefit from this right, there is a procedural requirement to be in possession of an invoice issued in accordance with article 226 of the VAT Directive.
3. However, the deduction of input VAT must be allowed if the substantive requirements are satisfied, even if the taxable persons have failed to comply with certain procedural requirements. Therefore, the tax authorities cannot refuse the right to deduction of VAT, if the taxable person has available all the information to ascertain whether the substantive conditions for that right are satisfied.
   Nevertheless, it is for the taxable person seeking deduction of VAT to establish that they meet the conditions for eligibility. Accordingly, the taxable person is required to provide objective evidence that goods and services were actually provided as inputs by taxable persons for the purposes of their own transactions subject to VAT, in respect of which they have actually paid VAT.
   That evidence may include, in particular, documents held by the suppliers or service providers from whom the taxable person has acquired the goods or services in respect of which they have paid VAT.
   It must be noted, however, that an assessment based on an expert report commissioned by a national court may, if necessary, supplement that evidence or reinforce its credibility, but may not replace it.

VAT

Penalties for failing to meet minimum terms for telecommunications services are subject to VAT

Court of Justice of the European Union. Judgment of November 22, 2018, case C-295/17 (MEO)

The Court examined the case of a company domiciled in Lisbon engaged in providing telecommunications services . Some of the contracts it signed with its clients established minimum terms. In these cases, the monthly charges are lower. In exchange, penalties are established if they discontinue the services before the end of the minimum term. These penalties are calculated by multiplying the monthly charge by the difference between the minimum term established in the contract and the number of months in which the service was provided.

The Court of Justice affirmed that:

1. Payment of the penalty for breach of the minimum term in actual fact allows the company to receive the same revenues as if the customer had not terminated its contract early. In other words, the penalty remunerates the services provided by the company in the same way as the payment of a customer that does exercise its right to benefit from the services until the end of the minimum term.
2. This penalty amounts, therefore, to remuneration for a supply of services  subject to VAT.
3. This conclusion is not altered by the fact that the aim of the penalty is to deter customers from breaching the minimum term and to compensate for the loss caused to the operator, or that, as a result of the penalty, the company could end up losing an even greater price than if a minimum term had not been stipulated.

VAT

The chargeable event for VAT purposes related to acting in the placement of a player occurs with each of the club’s payments to the agent not when the placement takes place

Court of Justice of the European Union. Judgment of November 21, 2018, case C-548/17

The examined case involved a German company providing agency business services in the professional football sector. In respect of placing a player with a football club, the company receives commission that is paid in installments every six months for as long as the player remains under a contract with that club and holds a German football league license.

According to the Court, in the case of a service such as that examined, which entails negotiating the placement of a player for a certain number of seasons with a club and remunerated by means of conditional payments in installments over several years following the placement, the chargeable event and chargeability of the tax does not occur when the player is placed, but on expiry of the periods to which the payments made by the club relate.

Inheritance and gift tax and transfer tax

The contribution of assets to the matrimonial property system is not a gift but a transfer subject to but exempt from transfer tax

Murcia High Court. Judgment of October 25, 2018

Murcia High Court confirmed in this judgment that if a taxpayer, married under the matrimonial property system, contributes the taxpayer’s own individual assets to the matrimonial property system, there is no gift to the other spouse (in respect of half the value of the assets) taxable in respect of inheritance and gift tax.

What does take place, however, is a transfer for consideration subject to transfer tax, under the “transfers for consideration” heading. For these purposes, the court recalled that a gift of individual assets to the matrimonial property system is a perfectly allowable legal transaction according to the Civil Code, equal to a transfer in which there is delivery (even if symbolic), and a reason, to cover marital costs.

It is, however, an exempt transaction under article 45 of the law on the tax which provides that spouses’ contributions of assets and rights to the marital property system are exempt.