In CJEU judgment Nestrade (C-562/17), the taxpayer, based in Switzerland, submitted a Thirteenth Directive claim for Spanish VAT, which was initially refused on the basis that the supplier invoices quoted the taxpayer's Dutch VAT number rather than its Swiss one. The tax authority requested corrected invoices within 10 working days of demand. The taxpayer did not respond to the tax authority's request at all within the 10 day limit and did not receive the corrected invoices from the supplier until some weeks later. After three months, the tax authority, having still not received the corrected invoices, refused the refund on the grounds that it was unable to determine whether the claim was well founded. The taxpayer did not challenge the refusal and so the decision became final. When the taxpayer tried to renew the claim with corrected invoices some months later, the Spanish tax authority refused to accept it on the basis that it had already made a final decision.

The Spanish court asked the CJEU whether member states have the power to place a time limit on rectifying incorrect invoices used as evidence in the Thirteenth Directive reclaim procedure.

The CJEU found that this was a matter for national law and that: (i) provided that the procedure applies in the same way to analogous rights founded on domestic law, the principle of equivalence would not be infringed; and (ii) provided that the procedure does not render it impossible or excessively difficult to exercise the right, the principle of effectiveness would not be infringed. On the facts, the inactivity of the taxpayer (through its failure to forward the corrected invoices and its failure to challenge the refusal before it became final) meant, subject to the verification of the facts by the national court, that the principles of equivalence and effectiveness were not infringed.

DLA Piper Comment: The decision in this case shows how important it is to have robust evidence gathered in a timely manner to support cross border VAT reclaims and to be responsive to requests from the tax authority, both, all the more, and specifically, in the case of Thirteenth Directive reclaims. It is interesting to compare this judgment with the opinion of the Advocate-General in Sea Chefs Cruise Services (C-133/18) which said, in the context of a cross border VAT refund, that a taxpayer's delay in providing information should nonetheless not block a taxpayer's fundamental right to VAT recovery.

In CJEU decision in MEO - Serviços de Comunicações e Multimédia SA v Autoridade Tributária e Aduaneira (Case C-295/17), it was held, following the Advocate General's opinion given in June last year, that an amount payable under a fixed term service contract that was terminated on the customer's default was consideration for taxable supplies of telecommunications services and not compensation for the customer's breach. The Court found no relevance in the arguments that the default sum was to discourage customers from not observing the minimum commitment period and that national law classified the amounts as penalties.

The service contract tied-in the customer for a minimum period in return for favourable terms, including lowered monthly instalments. However, if the customer defaulted, the contract required the customer to pay an amount equal to the remaining instalments for the minimum commitment period (plus any outstanding instalments), even though the customer no longer used the services. When the customer defaulted, the supplier argued that the default payment was predetermined contractual damages and therefore not subject to VAT.

Following Air France-KLM and Hop! Brit-Air (Case C-250/14), in which the full price of an air ticket paid by a customer who failed to take their seat was found to be subject to VAT, the Court concluded that if the default payment was the same as the amount that would have been paid had the contract continued, the sum paid was consideration for the right to benefit from the supplier's services even if the customer did not access the services (whether by choice or because of the customer's default). The supply is made when the customer is placed in a position to benefit from the supply; there is a direct link created at that time which is not affected by the fact that the customer does not use the service.

DLA Piper Comment: It appears unsurprising that the Court followed the Air France case in this way and it would be interesting to see how the Court would decide a case in which the penalty payable by the customer is not equal to that which the supplier would have received in the absence of the customer's default.

In CJEU judgment Mesquita (C-278/18), the taxpayer had concluded a contract under which it had transferred, in return for amounts paid by way of advance, the use of property comprising of a vineyard. The contract was concluded for a period of one year and was renewable at the end of each year until one or other of the parties terminated it. The tax authorities in Portugal argued that it was not an exempt supply of letting on the basis that the letting of immovable property is generally a relatively passive activity and transactions involving a more active use of that property are excluded from the scope of the exemption. The Court held that as the owner of the vineyard was not obliged to perform any commercial activity for the tenant but was merely obliged to make the land available, the transaction fell within the scope of the exemption. The passive nature of the leasing of real estate which justifies an exemption is due to the nature of the (leasing) transaction itself and not related to the way in which the tenant uses the property concerned. Furthermore, the Court rejected the argument that the transaction consisted in the transfer of a totality of assets. While the contract covered not only the land but resulted in the transfer of certain assets and intangible rights, these were an integral part of the leasing arrangement such that there was a single, exempt supply.

DLA Piper Comment: When letting property, it does not only matter how the tenant uses the land, but also whether the landlord enters into other obligations of a more active nature in addition to the transfer of land. As opposed to the above judgement in Mesquita, reference can therefore be made to the Stockholm Lindöpark judgement (C-150/99), where the Court precluded a tax exemption in view of the landlord's more active role. It should also be noted that the CJEU ruled that the duration of a lease alone generally is not a decisive criterion.