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(VAT) ECJ DECISION: TGE Gas Engineering GmbH (Case C-16/17)

Summary of the facts

TGE Gas Engineering GmbH (‘TGE Bonn’) was a German company established in Bonn. On 3 March 2009, it was allocated NIPC 980 410 878 in Portugal for the purpose of carrying out an isolated act (acquisition of shares) as a non-resident entity without a fixed establishment.

On 7 April 2009, TGE Sucursal em Portugal was registered in Portugal as a non-resident entity with a fixed establishment in the form of a branch and was allocated another Portugese tax identification number.

TGE Bonn went on to form an EIG with Somague Engenharia SA. For the purpose of the formation of the EIG Projesines, TGE Bonn used its tax identification number and not that of TGE Sucursal em Portugal. The EIG Projesines received its own tax identification number, namely 508 917 280.

The objective of the EIG Projesines was to implement the planned extension of the liquefied natural gas terminal at Sines in Portugal.

The EIG itself was a contractor for Redes Energéticas Nacionais (REN), a Portuguese electricity company. The EIG carried out for that company, the Sines Terminal Expansion Project, which concerns a liquefied natural gas terminal.

On 4 May 2009, the EIG entered into a subcontracting agreement with TGE Portugal. A similar agreement was also entered into with Somague.

Under those agreements TGE Portugal and Somague made supplies of goods and services as subcontractors to the EIG. Pursuant to the provisions of the subcontracting agreement between the EIG and TGE Portugal (‘full back-to-back general principle’), the EIG invoiced all of those supplies of goods and services made to it by TGE Portugal to REN as the client.

The EIG invoiced the costs incurred for its own business activity to TGE Portugal in the order of 64.29% using the NIPC which had been allocated to TGE Portugal. Somague was invoiced for 35.71% of the costs by the EIG. (The invoicing by the EIG to TGE Portugal and Somague was made in accordance with the Articles of Association of the EIG). Thus, the costs were shared in accordance with the internal members’ agreement on meeting the EIG’s liabilities. Nevertheless, the EIG showed the VAT on invoices and paid it to the Portuguese tax authority, which at no point raised any objection.

Questions referred to the ECJ

Must Articles 44, 45, 132(1)(f), 167 [to] 169, 178, 179, [192a to 194] and 196 of [the VAT] Directive …, Articles 10 and 11 of Implementing Regulation No 282/2011 and the principle of neutrality be interpreted as precluding the Portuguese tax authorities from refusing the right to deduction of VAT by a branch of a German company, in circumstances where:

(a) The German company obtained a tax identification number in Portugal to carry out an isolated act, namely “acquisition of shares”, corresponding to a non-resident entity without a fixed establishment;

(a) Subsequently, the branch of that German company was registered in Portugal and was assigned its own tax identification number, as a fixed establishment of that company;

(b) Later, the German company, using the first identification number, entered into a contract with another company to establish an [EIG] to carry out a works contract in Portugal;

(c) Subsequently, the branch, using its own tax identification number, entered into a subcontract with the EIG setting out the reciprocal services between the branch and the EIG and agreeing that the latter would invoice the subcontractors, in the agreed proportions, for the costs which it incurred;

(d) The EIG indicated the branch’s tax identification number in the debit notes which it issued to invoice costs to that branch, and charged VAT;

(e) The branch deducted the VAT charged in the debit notes;

(f) The transactions of the EIG consist (by way of subcontracting) of the transactions of the branch and of the other company forming part of the EIG, those entities having invoiced to the EIG the entire revenue that the EIG invoiced to the developer.

(g) TGE Portugal subsequently claimed deduction of the VAT shown on those invoices

(h) The tax authorities in Portugal refused the VAT deduction claimed by TGE Portugal on the basis that it was TGE Bonn who was the member of the EIG stating that the EIG had acted unlawfully in invoicing its costs to TGE Portugal.

Conclusion by the ECJ

Articles 167 and 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value-added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, and the principle of neutrality must be interpreted as precluding the tax authority of a Member State from regarding a company which has its headquarters in another Member State and the branch which it has in the first of those States as constituting two separate taxable entities on the ground that each of those entities has a tax identification number, and, for that reason, from refusing that branch the right to deduct value-added tax (VAT) on the debit notes issued by an economic interest group of which that company, and not its branch, is a member.

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Franco Falzon
(Managing Partner)


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