VAT: Sjelle Autogenbrug (C-471/15) Advocate General Opinion

VAT: Sjelle Autogenbrug (C-471/15)

The Advocate General is of the opinion that spare parts from end of life vehicles are eligible for the second hand margin scheme.

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The taxpayer is a ‘vehicle reuse undertaking’. It purchases end of life vehicles. However, because these purchases are from private individuals or insurance companies, no VAT is charged. The taxpayer’s main activity is the resale of used motor vehicle parts that are removed from the purchased vehicles. The other activities of the business include environmental and waste treatment of the cars and the sale of scrap metal. The dispute concerns the taxpayer’s resale of used parts. The Advocate General (AG) has supported the taxpayer’s arguments that the onward sale of spare parts from end of life vehicles purchased from individuals and insurance companies must be covered by the margin scheme.

Historically the business had accounted for VAT on these sales at the standard rate. The taxpayer applied to the local tax authority to account for VAT under the second hand margin scheme. The tax authorities refused this application, arguing that:

  • They were not second hand goods, as they did not retain their identity i.e. the purchase is of a complete car, the onward sale is of parts; and
  • Even if they were second hand goods, it would be impossible to apply the scheme because the purchase price of the parts cannot be precisely determined.

The AG asked two questions:

Are the parts second hand goods? 

  • The AG was of the opinion that such goods were second hand goods for the purposes of Article 311(1) (1) on the basis that the definition of ‘suitable further use’ and the comments on repair, is aimed at only excluding new goods. The AG supported this view on the following basis:
  • Directive 2005/53 EC on end of life vehicles defines ‘reuse’ as ‘any operation by which components of end of life vehicles are used for the same purpose for which they were conceived’. The parts in the current case retain their original characteristics as they will be reused for the same purpose, albeit in another vehicle;
  • Exclusion from the margin scheme, would undermine the encouragement in Directive 2005/53 to reuse such parts; and

Exclusion from the scheme would result in ‘a legal vacuum as regards the tax treatment’.

Does the absence of a specific purchase price preclude the parts from the scheme?
The Greek Government agreed with the Danish Government that inclusion in the scheme and the absence of a specific purchase price for the part could lead to misuse of the scheme. However, the AG was of the view that if the parts were second hand goods VAT must be accounted for under the margin scheme on the basis this is a ‘shall’ provision within the Directive and non-application would breach fiscal neutrality. The AG noted a number of methods using estimated percentages and ways in which the taxpayer could calculate margin (para 58) but left this down to the national court to decide.

This is a positive opinion for the taxpayer. The opinion found that there was nothing in the directive to exclude such goods but importantly it was the issue of double taxation and the potential breach of fiscal neutrality on which the AG’s opinion is based. In terms of the UK, this is not likely to have a significant impact as HMRC’s policy appears supportive of the inclusion of car parts under the global margin scheme subject to certain conditions (see Notice 718).

To access the opinion, click here.

 

For further information please contact :

Karen Killington 

Steve Powell 

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