VAT treatment of unauthorised electricity consumption
In Case C-677/21 Fluvius Antwerpen, the Court of Justice of the European Union (CJEU) ruled on whether a supply of electricity that is unvoluntary and a result of a third party’s unlawful conduct constitutes a taxable supply of electricity carried out within an economic activity of a public entity.
Fluvius Antwerpen is a Belgian municipal association which distributes electricity to persons who do not have a contract with a commercial distributor. For VAT purposes, it is therefore regarded a body governed by public law. Between 7 May 2017 and 7 August 2019, an individual (a natural person) unlawfully took electricity from the association. After having discovered this, the association issued a tax document including VAT. The individual did not pay, and the case proceeded to the Magistrates’ Court in Antwerp.
The court had doubts as to whether the unlawful taking (unvoluntary supply) of electricity was subject to VAT.
The court thus referred a question to the CJEU: whether the taking (consumption) of electricity constitutes a supply of goods in the sense of a transfer of the right to dispose of the goods as its owner for consideration and whether the unlawful consumption of electricity falls within the economic activity of the association (and if so, whether it is a negligible activity).
Unlawful consumption of electricity subject to VAT
The CJEU ruled that unlawful consumption is a supply of goods for consideration and is subject to VAT. It is clear from the nature of electricity that the person who consumed it could and did dispose of it as its owner. As for the consideration, the CJEU noted that under the directive there must be a direct link between supply and consideration. Usually, such direct link is established by contract (which did not exist in this case) but must be nevertheless given a broader meaning. Thus, since the association was able to establish the quantity of electricity consumed, for which it also invoiced the relevant price, there was a direct link between the consumption and the consideration. As for the characteristics of an economic activity, the CJEU observed that it was an activity that is regular in nature and is carried out for consideration. The questions referred to the CJEU were not about the classification of energy distribution as an economic activity but rather about the assessment of distribution that was unvoluntary and isolated.
The CJEU also added that the risk of loss or theft is a typical commercial risk, which clearly indicates that the public entity was acting as a person engaging in an economic activity. However, under Belgian law, the economic activity of a body governed by public law is outside the scope of VAT if carried out on such a small scale as to be negligible: meaning of a minimal scale in space or time and, consequently, of no significant impact on the competition. However, according to the CJEU, considering the association's scope of activity, it can be concluded that energy distribution was not a marginal activity and could not be separated from the association’s principal activity.