On 3 September 2015, the Court of Justice of the European Union (CJEU) ruled in the Fast Bunkering Klaipeda UAB (FBK) case. This case relates to the question whether or not the VAT exemption for the fueling of seagoing vessels could be applicable in chain transactions with intermediaries. In my opinion, this is an interesting case, as the CJEU leaves room for interpretation in relation to the applicability of the VAT exemption.

Fast bunkering case

The relevant facts of the FBK case can be summarized as follows:

  • FBK is registered in Lithuania and supplied fuel that originated outside the E and, which was stored in a customs warehouse.
  • FBK received orders to deliver fuel from intermediary parties. The fuelling orders were not placed by the owners or operators of the vessels, but by intermediaries established in different EU Member States.
  • The intermediaries acted in their own name, but never took physical delivery of the fuel (the intermediaries did not get [at any moment] the right to dispose of the goods).

FBK (the fuel supplier) applied the VAT exemption (zero rate) on the supply of the fuel to the intermediaries, pursuant to Article 148(a) EU VAT Directive.

The question referred to by the Lithuanian court was, whether or not pursuant to Article 148(a), the VAT exemption for the fuelling of seagoing vessels can be applied in relation to supplies other than supplies to the actual operator of the vessel, i.e., intermediaries acting as a commissionaire/undisclosed agent; specifically in the case at the moment the fuel is supplied to such intermediaries, the ultimate use of the goods (fuel) is known in advance and has been duly established.

Dictum CJEU

According to the CJEU, the VAT exemption of Article 148 (a) EU VAT Directive can only apply in relation to the final supply within the commercial chain, as in relation to this supply, it is possible to determine whether or not the goods will indeed be used for seagoing vessels. The CJEU ruled that the reasons that the VAT exemption may not be applied in relation to a supply from a fuel supplier to an intermediary are:

  1. The final use cannot be determined (yet) in relation to this supply due to a lack of supervision and control in relation to the fuelling of seagoing vessels (i.e., supervision and control comparable to The Convention on International Civil Aviation).
  2. The intermediary will not use the goods in accordance with the usage described in Article 148 (a) EU VAT Directive (as the intermediary will not actually use the fuel at all and will only sell it to the vessel owner).

Furthermore, in the FBK case, the intermediary did not take part of the fueling process. It was FBK (the fuel supplier) who loaded the fuel directly into the fuel tanks of the vessels for which the fuel was intended. Based on this, the CJEU indicated that the intermediary did not obtain the right to actually dispose of the goods, which is essential for the application of the of VAT exemption of Article 148(a) EU VAT Directive (i.e., also considering the statement of the CJEU that "usage" of the fuel is important to determine in order to apply the VAT exemption; in order to guarantee the usage of the fuel [see point 1 and 2 above]).

Furthermore, in the FBK case, the intermediary did not take part of the fueling process. It was FBK (the fuel supplier) who loaded the fuel directly into the fuel tanks of the vessels for which the fuel was intended. Based on this, the CJEU indicated that the intermediary did not obtain the right to actually dispose of the goods, which is essential for the application of the of VAT exemption of Article 148(a) EU VAT Directive (i.e., also considering the statement of the CJEU that "usage" of the fuel is important to determine in order to apply the VAT exemption; in order to guarantee the usage of the fuel [see point 1 and 2 above]).

However, the CJEU did mention that some EU Member States implemented mechanisms and rules to determine the actual use of goods for the fuelling and provisioning of vessels. This point is important, as the CJEU stated in this regard, under such circumstances it may be possible to apply the VAT exemption to supplies to intermediaries, i.e., in case: (1) intermediaries obtain ownership of the goods (based on national law of the EU Member State) and (2) such ownership is obtained at the earliest, at the same time when the operators of the seagoing vessel obtained the right to dispose of the goods as owner. Note that the CJEU did state that the latter should be determined by the national court of the EU Member State at hand. The dictum of the FBK case can be illustrated as follows:

Click here to view table.

Considering the outcome of the FBK case, it is important for intermediaries offering services in relation to the fuelling of seagoing vessels (but also aircrafts as a similar provision is included in the EU VAT Directive) to review their contracts and perform a EU country analysis, in order to determine whether or not the VAT exemption could be applicable. Furthermore, the latter is also important in order to prevent a possible refusal of Tax Authorities on the recovery of input VAT incurred by an intermediary, in the case the Tax Authorities take the position that such input VAT is incorrectly charged, and thus, not recoverable.