CJEU on determining place of supply for services provided within VAT chain fraud

Climate Corporation Emissions Trading, an Austrian company, supplied greenhouse gas emission allowances to a German company. In their tax return, they declared the supply of allowances as an exempt supply of goods to another member state. In a tax inspection, the Austrian tax administrator discovered that the German customer was involved in VAT fraud as a ‘missing trader’ in a fraudulent chain of transactions.

Austrian Climate Corporation Emissions Trading should or could have known about the involvement in this fraudulent chain. The tax authorities therefore requested that VAT on the supply of emission allowances should be paid in Austria.

The CJEU first confirmed that the transfer of greenhouse gas emission allowances is regarded as a supply of services, not a supply of goods. This means that according to the basic rule, the place of supply shall be determined as the place where the service recipient is established or has an establishment. This aims to ensure that the service is taxed in the state of consumption and to define the competence of EU member states. The directive does not set any special rules governing the place of supply, neither for transfers of emission allowances, nor for supplies of services in the context of tax fraud. 

In the case at hand and according to the basic rule, the place of supply of the provision of emission allowances is Germany (as the place of the service recipient). Involvement in tax fraud has no effect on determining the place of supply. The refusal to grant VAT exemptions for supplies of goods within a fraudulent chain cannot be applied by analogy to the supply of services as these are different VAT regimes.