Prepared by Davide Accorsi and Giorgio Beretta
With its decision in Case C-501/19 (UCMR – ADA) of 21 January 2021, the Court of Justice of the European Union (CJEU) has once again analysed, shortly after the last ruling on this subject, the conditions of application of the special VAT regime for agents without representation.
In its decision in Case C-734/19 (ITH Comercial Timişoara) released on 12 November 2020 (see: https://blog.pwc-tls.it/en/2020/11/17/the-contract-for-commission-sales-and-the-mandate-without-representation-under-vat/), the CJEU has underlined the need that an agreement is in place (although not necessarily in writing), according to which the agent intervenes, on behalf of the principal, in the sale of goods or the provision of services. In that case, given no such an agreement existed, the CJEU held that the special VAT regime for agents without representation did not apply (see, in particular, paragraphs 52 and 53 of the judgment mentioned above).
With its decision of 21 January 2021, released just a bit more than two months after the previous ruling, the CJEU further clarifies the terms within which the specific VAT treatment of a mandate without representation may be applied, considering that it applies even in the absence of a specific power of representation, if the mandate is conferred by law.
But let’s proceed step by step.
Article 28 of Directive 2006/112/EC (the VAT Directive) stipulates that “[w]here a taxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself”. A similar provision is contained in Article 14, paragraph 2, letter c) of the VAT Directive, concerning the operations made by a commissionaire to purchase or sell goods. As regards Italian VAT law, the relevant rules are contained, respectively, for the purchase and sale of goods, in Article 2, paragraph 2, number 3, and for the provision of services, in Article 3, paragraph 3, last sentence of Presidential Decree no. 633/1972 (the Italian VAT Act).
To remove some inconveniences associated with the application of VAT, the provisions mentioned above introduce a legal fiction by virtue of which, for VAT purposes, if a person acts in his own name but on behalf of another person, the intermediary is considered as receiving or providing the services in question, or purchasing or selling the goods, in his own name (in this regard, see the CJEU’s decision in Case C-464/10, Henfling and Others, paragraph 35). It follows from this legal fiction that two transactions are relevant for VAT purposes: one transaction between the principal and the intermediary; the other transaction – which mirrors the former one entirely – between the intermediary and the customer. These two operations must be invoiced separately, and VAT must apply to each of them, thus ensuring the right to deduct input VAT for both the intermediary and the customer.
The operation of the special VAT regime described above generally requires a contractual relationship between the intermediary and the principal, based on which the intermediary concludes one or more acts in his own name but on behalf of the principal. From an Italian civil law point of view, the contract in question is typically regarded as a contract for commission sales (Article 1731 of the Italian Civil Code) or a mandate without representation (Article 1705 of the Italian Civil Code). And in fact, the wording of Articles 2 and 3 of the Italian VAT Act recalled above specifically refers to these two types of contractual arrangements. Italian case law also refers to the need for an underlying contractual relationship being in place for the special VAT regime for agents without representation to apply (see, e.g., Italian Supreme Court, Chamber V, Decision no. 1568 of 27 January 2014).
However, the question is to establish whether a contractual relationship between the intermediary and the principal must always exist for the special VAT regime for agents without representation to apply. In this regard, Article 28 of the VAT Directive only provides that the intermediary must act “on behalf of another person”, without any reference to a contractual arrangement between the parties. Conversely, as also underlined by the CJEU in its decision of 12 November 2020 recalled above, Article 14, paragraph 2, letter c) of the VAT Directive expressly uses the term “contract”.
The CJEU’s case law does not help to shed light on this matter either. In its decision in Case C-464/10 (Henfling and Others, paragraph 42), the CJEU held that “the condition that the taxable person must act in his own name but on behalf of another … must be interpreted on the basis of the contractual relationship at issue”. However, within the same phrase, the CJEU underlines the need to “check specifically” whether, in light of all the factual circumstances, the intermediary actually acts in its own name but on behalf of another person. By and large, apart from the special VAT regime for agents without representation, in the field of VAT the CJEU has released both decisions in which the existence of a contractual arrangement appears relevant (see, e.g., San Domenico Vetraria, C-94/19, paragraph 22) and decisions in which, conversely, little or no importance is attributed to that element (see, e.g., Town & County Factors, C-498/99, paragraph 24).
In light of the above, it is unclear whether the application of the special VAT regime for agents without representation effectively requires a contractual relationship between the parties, or whether, conversely, it is sufficient to verify the concrete conditions based on which the intermediary acts.
The decision at comment is relevant for this debate. With specific reference to a collective management organisation that collects, in its own name but on behalf of holders of copyright in musical works, royalties due to them in consideration for the authorisation for the public performance of their protected works, the CJEU held that the special VAT regime for agents without representation contained in Article 28 of the VAT Directive also applies to copyright holders who have not granted a mandate to that organisation. This conclusion is because the representation power, based on which the collective management organisation acted on behalf of copyright holders, was granted by law, i.e. by the national legislation itself.
Beyond the specific subject matter examined by the CJEU, which is undoubtedly affected by the Romanian national legislation, the question regarding the scope of application of the special VAT regime for agents without representation remains unanswered: that is, whether a contractual relationship must always exist for the special VAT regime for agents without representation to apply, or, conversely, whether the application of this regime only requires that the concrete conditions indicate the exercise of a representation power by the intermediary.
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