European Union; Germany – ECJ Advocate General’s opinion (VAT): Criminal proceedings against A, B (Case C-453/15) – Greenhouse gas emission allowance – details

On 7 September 2016, Advocate General Wathelet of the Court of Justice of the European Union (ECJ) gave his opinion in the case of Criminal proceedings against A, B (Case C-453/15) (see European Union-1, News 7 September 2016). Details of the opinion are summarized below.

(a) Facts. A and B, who work for a large tax firm, were ordered by the Landgericht Hamburg (Regional Court, Hamburg) to pay fines for being accessories to tax evasion in a case concerning a VAT evasion scheme. This scheme, in which several companies were involved, was run by another co-defendant from April 2009 to March 2010, and was aimed at evading VAT in greenhouse gas emission allowance trading. A and B would be accessories to tax evasion under German criminal law if they intentionally submitted incorrect provisional VAT returns that led to the deduction of input tax on the basis of credit notes for supplies made by a German company to a company in Luxembourg. According to A and B, an emission allowance under article 3(a) of Directive 2003/87 is not a "similar right" within the meaning of article 56(1)(a) of the EU VAT Directive (2006/112), as opposed to Germany, where the opposite view was taken.

(b) Issue. For the issue concerned, see European Union-1, News 7 September 2016.

(c) Opinion. The AG started by pointing out that, to date, the ECJ has never interpreted the term within the meaning of article 56(1)(a) of the EU VAT Directive (2006/112). Since 1 January 2010, the general rule has been that the place where services are supplied is the place where the recipient is established; however, the rules that are applicable in the present case are based on the country of origin principle.

Second, the AG analysed the legal nature of greenhouse gas emission allowances. He stated that greenhouse gas emission allowances must be considered intangible personal property to which a regulated property right is attached, having the following characteristics: (i) the right may be assessed in monetary terms (the price of transferable allowances may fluctuate in line with market supply and demand); (ii) the right may be used as it enables the holder to carry on an industrial activity ("usus"); (iii) the right may be contractually transferred to another holder ("abusus").

The AG continued by analysing the comparability of emission allowances with intellectual property rights. He shared the view of the Bundesgerichtshof (Federal Court of Justice) that the right embodying an emission allowance is a "similar right" within the meaning of Paragraph 3a(4)(1) of the UStG, and thus also within the meaning of article 56(1)(a) of the EU VAT Directive, which has been the unanimous view taken in Germany by the tax administration, in academic literature and in case law to date. First, it is clear from the wording of that provision that the list contained therein is illustrative and non-exhaustive. Second, he considered that the list is manifestly not homogenous, as it understands "licences" to mean a group of various rights of exploitation which may be different from the intellectual property rights expressly mentioned. Third, the fact that the rules applicable to greenhouse gas emission allowances are different from those applicable to the rights expressly mentioned in article 56(1)(a) of the EU VAT Directive would be immaterial. Finally, the question as to whether a right has a similarity with the rights referred to in article 56(1)(a) of the EU VAT Directive must be answered above all having regard to the spirit and purpose of that provision. It is apparent from the ratio legis of article 56(1)(a) of the EU VAT Directive that, in order to determine whether a legal status is "similar", it must be ascertained whether applying the country of destination principle at the time of transfer raises a problem. In the case of rights recorded in a public register, the person acquiring the right, his place of business and, therefore, also the country of destination can be determined easily and with considerable legal certainty. That is the case with greenhouse gas emission allowances, which may therefore be accorded the same treatment for the purposes of VAT. Although emission allowances do not have the same purpose as an intellectual property right, it would seem clear that these two categories are comparable for the purposes of the analysis of article 56 of the EU VAT Directive. The potential of these rights to create added value is the crucial factor, which condition is met in this particular case.

Although article 56(1)(a) of the EU VAT Directive has not yet been interpreted in case law, guidance may be found in the interpretation of other parts of that paragraph. Based on a teleological interpretation, the principles stemming from the case law cited by the AG point to the conclusion that emission allowances would fall into the category of "similar rights" referred to in article 56(1)(a) of the EU VAT Directive. Not only is the right conferred by them comparable to intellectual property rights from the point of view of its characteristics, but such interpretation is also compatible with the specific objective of article 56, which is to avoid double taxation or the risk of non-taxation.

On those grounds, the AG concluded that the Court must declare that the term "similar rights" in article 56(1)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as also covering allowances as defined in article 3(a) of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC.

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