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SAC: One work contract does not necessarily mean a single supply for VAT purposes

The Supreme Administrative Court (SAC) ruled in the case 3 Afs 295/2020 on what can be classified as construction or assembly works provided to which the reverse charge regime applies.

The company carried out work for the customer consisting in the modernisation of a building (a dairy), but the work also included the supply of movable assets which, according to the company, were functionally related to the modernisation of the building (stainless steel racks, refrigerators, a refrigerated vehicle, etc.). The company considered that the reverse charge regime could also be applied to these taxable supplies as they were carried out in connection with the provision of construction or assembly work.

However, according to the Regional Court (CC), such an interpretation is too broad. The provisions of §92e of the VATA are intended to apply only to supplies which are actually related to construction and assembly work (e.g. industrial dairy machinery) and not to the purpose for which the building is to be used. The CC further stated that, if the company's logic is applied, the reverse charge regime could also apply to the supply of advertising printed matter or the supply of milk. The SAC upheld the reasoning of the CC.

On a literal, purely grammatical, interpretation, the Company's reasoning might not be completely incomprehensible. The wording of the law at the time was: 'If a taxpayer who carries out a taxable supply related to the provision of construction or assembly work ... applies the reverse charge regime to that taxable supply [and the counterparty accepts it] ..., that taxable supply shall be deemed to be subject to the reverse charge regime.'

However, as the reasoning of the CC illustrates, other methods of interpretation, in particular the meaning and purpose of a particular rule, must also be taken into account for a correct result. In its reasoning, the CC refers to, inter alia, the literature, which only confirms the importance of paying attention to other sources beyond the VATA (e.g. the commentary to the VATA or the coordination committees).

The courts' decisions also confirm that the legal arrangement (here a single works contract) does not necessarily determine the VAT regime applied. We therefore recommend that you always give due consideration to what the actual content of the transaction is.

We will be happy to discuss specific situations from practice with you. If you have any questions, please contact the authors of the article or other members of the EY team with whom you work.

Authors:

Jakub Kašuba

Lenka Doležalová