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ECJ Case Flashback: VAT Exemption for Ship Provisions Deliveries - My Vat Calculator

ECJ Case Flashback: VAT Exemption for Ship Provisions Deliveries

"ECJ Ruling Sets Precedent for Tax Exemptions in EU: Velker International Oil Company Case"

On June 26, 1990, the European Court of Justice (ECJ) issued a decision in the case C-185/89 (Velker International Oil Company). The case revolved around tax provisions and the harmonization of laws related to turnover taxes, specifically the exemption of the supply of goods for the fuelling and provisioning of vessels. The decision was based on Article 15(4) of the Sixth VAT Directive (Articles 148 and 150 of the EU VAT Directive 2006/112/EC).

According to Article 148 of the EU VAT Directive, Member States are required to exempt certain transactions related to international transport. These transactions include the supply of goods for the fuelling and provisioning of vessels used for navigation on the high seas and carrying passengers for reward or used for commercial, industrial, or fishing activities. The exemption also applies to vessels used for rescue or assistance at sea, or for inshore fishing, with the exception of ships’ provisions in the case of vessels used for inshore fishing.

Furthermore, the exemption covers the supply of goods for the fuelling and provisioning of fighting ships leaving their territory and bound for ports or anchorages outside the Member State concerned. It also includes the supply, modification, repair, maintenance, chartering, and hiring of the vessels mentioned above, as well as the supply, hiring, repair, and maintenance of equipment incorporated or used in these vessels. Additionally, services other than those mentioned above, which meet the direct needs of the vessels or their cargoes, are also exempt.

The ECJ’s decision was based on a preliminary ruling requested by the Hoge Raad der Nederlanden (Supreme Court of the Netherlands). The case involved the interpretation of Article 15 of the Sixth Council Directive (77/388/EEC) on the harmonization of laws relating to turnover taxes. The questions arose in a dispute between the Netherlands State Secretary for Finance and Velker International Oil Company Ltd NV, Rotterdam (referred to as “Velker”).

In the case, Velker had sold bunker oil to Forsythe International BV, The Hague. The oil had been acquired by Velker from Handelmaatschappij Verhoeven BV, Rotterdam, which had bought one of the consignments from Olie Verwerking Amsterdam BV. The consignments were delivered to tanks rented by Forsythe and then loaded onto sea-going vessels. The invoices for the oil did not include any turnover tax, and Velker applied a zero VAT rate to the sales invoiced to Forsythe.

The Netherlands tax authorities disagreed with the VAT exemption claimed by Velker and issued an additional turnover tax assessment notice for 1983. The case went before the Gerechtshof (Court of Appeal), The Hague, which annulled the assessment notice, stating that the oil supplied by Velker was for the fuelling and provisioning of sea-going vessels and should be exempt from VAT.

The Netherlands State Secretary for Finance appealed against the judgment of the Gerechtshof, arguing that only the supply of goods coinciding with the fuelling and provisioning of vessels and followed by exportation could be considered a supply of goods for the fuelling and provisioning of vessels.

The Hoge Raad referred two questions to the ECJ for a preliminary ruling. The questions sought clarification on the interpretation of Article 15(4) of the Sixth Directive and the meaning of the term “for the fuelling and provisioning of vessels.”

In its decision, the ECJ explained that the term “for the fuelling and provisioning of vessels” must have the same meaning in the Netherlands legislation as it does in the Community directive. The court concluded that the supply of goods for the fuelling and provisioning of vessels includes both supplies coinciding with the fuelling and provisioning of vessels and supplies followed by exportation.

This decision provided clarity on the scope of the VAT exemption for the supply of goods for the fuelling and provisioning of vessels. It ensured that Member States would apply a consistent interpretation of the exemption and harmonize their tax laws in line with the Sixth VAT Directive.

In conclusion, the ECJ’s decision in the case C-185/89 (Velker International Oil Company) clarified the interpretation of Article 15(4) of the Sixth VAT Directive and provided guidance on the scope of the VAT exemption for the supply of goods for the fuelling and provisioning of vessels. The decision ensured consistency and harmonization among Member States in their application of the exemption, promoting a common system of value-added tax within the European Union.

Barry Caldwell

Barry Caldwell

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