VAT and Indirect Taxes

• In two judgments dated December 7th, 2016 (no. 396461-396462 and no. 396460-396463), the French administrative Supreme Court judged that payments made by an administrator of a loyalty program to the members of this program who were offering goods and services to their own clients must be considered as the counterparty, paid by a third party, of a delivery of goods or services to these customers.
• These payments cannot be considered as the remuneration for goods or services used by the administrator of the program for the needs of his taxable operations. Thus, the corresponding input VAT on this flow is not deductible. Nevertheless, the input VAT invoiced by the member to the administrator that relates to a separate transaction is deductible.
• This solution is in line with the CJEU cases law (CJEU 7/10/2010, aff. 53/09 and 55/09).

Is the fee paid in favor of collective copyright companies the counterparty of a supply of service of the holders of reproduction rights?

• In a judgment dated January 18th, 2017, the CJEU judged that there is no legal relationship in which mutual services are exchanged between, on the one hand, the holders of reproduction rights (or the copyright collective companies) and, on the other hand, the producers and the importers of virgin supports and recording and reproduction devices (CJEU, 22/06/2016, C-11/15).
• Furthermore, there is an obligation upon the producers to pay fees under national law and this obligation should not be considered as resulting from a supply of a service which payment would be the direct counterparty. That is the reason why the holders of reproduction rights are not supplying services for consideration.

Bonus on capture of bank cards: is this bonus counterparty to a real and individualized service?

• A EIG (Economic Interest Group) sets up a system of control and seizure of bank cards fraudulently used and provides a bonus on capture paid to traders for every intercepted card.
• The French administrative court of appeal (CAA, Versailles, 15/11/2016, no. 14VEo3680) judges that the payment of such a bonus is directly connected with a real and individualized service provided by the trader to the EIG.
• Such a service must therefore be subject to VAT.

Exclusion of the reduced VAT rate on electronic books: the ECJ judges that the unequal treatment is justified and proportionate to the pursued aim.

• In this case, the Court of Justice has judged that there is a difference in treatment — resulting from Article 98(2) of Directive 2006/112 as amended, read in conjunction with point 6 of Annex III — between the supply of digital books electronically and the supply of books on all physical means of support. However, the principle of equal treatment is not infringed as this difference is duly justified. The court therefore confirms that, as regards to the current EU VAT Directive, the Member States cannot apply a reduced VAT rate to the supply of digital books electronically.
• However, since the 1st December 2016, the European Commission has proposed to grant all Member States the possibility to apply the same VAT rates to electronically supplied publication via a proposal for a Council Directive. This proposal of Directive is in line with the Action Plan on VAT.