''Substance Over Form'' Is Relevant In VAT Matters: ECJ- Decision C-653/11

On June 20, 2013, the ECJ ruled that contractual terms, even though they constitute a factor to be taken into consideration, are not decisive for the purpose of identifying the recipient of a "supply of services" within the meaning of articles 2(1) and 6(1) of the Sixth VAT Directive.

In the case at hand, a UK loan-broker ("Ocean Finance") suffered non-recoverable input VAT on advertising costs, due to the fact that Ocean Finance was a VAT exempt financial intermediary.

In order to mitigate the amount of irrecoverable input VAT, Ocean Finance incorporated a subsidiary outside the EU VAT territory, namely in Jersey. The Jersey company provided loan-broking services to UK customers. The consequence was that no UK VAT was chargeable under the litteral reading of the statute provisions, since the supply of advertising services is taxed where the VAT registered client is established.

The UK tax authorities argued however for the set-up to constitute an abusive arrangement considering that under a substance over form approach it was Ocean Finance - and not the Jersey company - that was the real supplier of the loan broking services and the recipient of the supplies of advertising.

The ECJ ruled that national courts may look beyond contractual terms; they may ignore the contractual position under certain circumstances, if...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT