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March 7, 2022
CJEU holds that customer recharge of costs of repair of goods under warranty to its supplier may be deemed consideration for supply by the customer
The Court of Justice of the European Union (CJEU) issued its decision in Case C-605/20 (Suzlon Wind Energy Portugal) on 24 February 2022.
This case addresses a Portuguese business that purchased goods (wind turbines) from a group company established in India. Parts of the wind turbines, that were still under warranty, started to show defects and needed repair and/or replacement.
The customer, Suzlon Wind Energy Portugal (SWEP) concluded an agreement with the supplier Suzlon Energy Limited (SEL) for the repair or replacement of the parts. Under this agreement, SWEP agreed to perform the repair services itself or by engaging subcontractors.
SWEP deducted the Value Added Tax (VAT) on the invoices issued by these subcontractors. SWEP issued invoices to SEL for the costs of the repair and replacement services. These invoices did not include any VAT charges.
According to SWEP, recharging these costs did not constitute consideration for a supply, simply because no supply was made. The costs were recharged without any mark-up. The only reason that the costs were incurred by SWEP was because it wanted a quick resolution for the issues created by the faulty products it purchased from SEL and sold to its customers.
The Portuguese tax authorities disagreed. They contended that the payment should be qualified as consideration for services provided by SWEP to SEL, among other issues, because the repair was based on a separate agreement, and because SWEP, instead of “making a claim” to have the components replaced, undertook to repair the blades and to import new components itself.
The CJEU agreed with the Portuguese tax authorities that a supply for consideration was made by SWEP to SEL. The CJEU ordered the referring court to determine whether the amounts could qualify as “amounts received by a taxable person from the customer, as repayment of expenditure incurred in the name and on behalf of the customer and entered in his books in a suspense account” under Article 79(c) of the EU VAT Directive. However, the CJEU also held that many factors would make this implausible, e.g., the fact that SWEP deducted the VAT on the costs incurred in this respect, that SWEP and SEL concluded an agreement for the supply of services for consideration and that SWEP had chosen to perform the repair services itself. The fact that the costs were recharged without a mark-up is irrelevant in this respect, according to the CJEU.
This case may affect situations where the purchaser of goods under warranty decides to take on the repair of these goods himself or through subcontracting.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Indirect Tax