The use of central procurement functions by multinational enterprises (MNEs) is common practice, offering advantages such as stronger negotiation positions and centralized controls. However, concerns arise regarding the organization of central invoicing processes in compliance with European Union (EU) VAT law.
Under EU VAT law, the question arises as to whether the central procurement entity can be considered the recipient of the supply, allowing for a tax-neutral breakdown of the central procurement into two taxable supplies. If the central procurement entity is not regarded as the recipient, but rather the end user, a central invoicing process would not be feasible. In such cases, suppliers would need to issue individual invoices to each user entity, making efficient central procurement nearly impossible.
EU VAT law defines a taxable supply as the transfer of tangible property as owner or the provision of services. However, it is unclear whether the transaction between a supplier and a central procurement entity can be deemed a taxable supply. Previous case law, such as the Vega case, determined that when a central procurement entity cannot dispose of goods as an owner, it is considered to be financing the purchase rather than buying the goods.
One concept that was not extensively discussed in the fuel card cases is the commission agent's principle, which equates the transfer of goods or services to a taxable supply. The commission agent's principle applies when a taxable person acts on behalf of another person and participates in the supply of goods or services. This principle creates a legal fiction of two identical supplies, with the commission agent first receiving the goods or services from the supplier and then providing them to the principal on whose behalf they act.
For central procurement structures, the purchase commissionaire structure is relevant, where the commission agent acts on behalf of the recipient of the supply. The commission agent's principle can apply even if the intermediary does not qualify as a commission agent under commercial law. Any person buying on behalf of another and recharging costs, with or without mark-up, can be considered a commission agent for VAT purposes.
To apply the commission agent's principle, two conditions must be fulfilled: the presence of a commission agreement and identical goods or services being recharged by the commission agent as those charged by the supplier. The commission agreement does not require full liability acceptance by the procurement entity, as it acts as an agent rather than a principal.
Recent cases, such as the Fenix International case, highlight the importance of direct contractual arrangements between the supplier and the beneficiary to determine whether a direct sale or an undisclosed agency structure applies. The undisclosed agency principle in VAT may still be relevant, even if the customer is aware of the supplier's identity.
The VAT Committee has discussed the issue, indicating that a fuel card system structured as a commission agent agreement should fall under the VAT Directive. In this scenario, the fuel card manager goes beyond financing the supply of fuel.
It is crucial for goods and services to remain identical for the commission agent's principle to apply. If the commission agent incorporates the purchased goods or services as part of a package that enhances the main supply, the additional services become bundled with the main supply and are subject to the same VAT treatment.
The interpretation and application of EU VAT law in the context of central procurement structures pose challenges. Understanding the commission agent's principle and ensuring compliance with the conditions of a commission agreement and identical goods or services is essential for MNEs seeking to organize their central invoicing processes in a compliant and tax-neutral manner.
By fLEXI tEAM