If an Austrian brand owner books a TV spot on Italian TV through a German intermediary where is the service supplied for VAT purposes? Sounds like a tax exam question but the ECJ recently grappled with this very scenario. But did the Appeal judges come up with a clear answer? Ronan Lowney analyses.
Who: Athesia Advertising, Athesia Druck and the Italian Ministry of Finance
When: February 2009
Where: European Court of Justice
Law stated as at: 31 March 2009
A recent case in the European Court of Justice, Athesia Druck Srl v Ministero dell’Economia e delle Finanze, dealt with the question of where advertising media such as ad spots on TV are supplied for VAT purposes.
Athesia Advertising was an Austrian company which acquired advertising time on Italian media and sold this to Austrian and German clients. At the relevant time for the purposes of this case (1993-4) Austria was not yet a member of the EU.
Athesia Advertising had an Italian subsidiary, Athesia Druck, which acted as the tax representative in Italy. Athesia Druck invoiced Athesia Advertising for the Italian media and Athesia Advertising then invoiced the end, advertiser client in either Austria or Germany.
Athesia Druck had put in a claim to the Italian tax authorities for a VAT refund for the years 1993 and 1994. This was rejected on the basis that VAT had not been charged by Athesia Advertising in its invoices to the advertisers in Austria or Germany.
Default "place of advertiser's business is place of supply" principle
The default principle for the place of supply of advertising services is that they are supplied where the recipient, in other words the advertiser, has its place of business. This is based on article 9(2) of the Sixth VAT Directive.
On this basis, as the ultimate recipients of the supply were based in Austria or Germany, the VAT'able supply was in either Austria or Germany. The indirect nature of the supply (Italian media to Athesia Advertising to Athesia’s clients) did not alter this. Indeed the ECJ emphasised the point that where there is an indirect supply each supply in the chain should be looked at individually to determine its appropriate treatment.
Change to default principle allowed
The Sixth VAT Directive allows countries a derogation from the main principle in that the advertising service could instead be treated as occurring in the country where the service is effectively used and enjoyed. For advertising, the ECJ determined that this is where the advertising material is disseminated. In this case that would be Italy. The Italian government had exercised the derogation (so has the UK), therefore the additional provisions of the Sixth VAT Directive did apply.
Therefore, the operation of the derogation meant that whether or not the supply was to an intermediate customer (for example Athesia Advertising) or to the ultimate advertiser, then the place of supply would have been where the advertising was published (in this case Italy).
This meant that where the business billed by the media owner was based in an EU state, VAT would be charged at the prevailing rate in the country where the advertising was published.
"Place of enjoyment" derogation doesn't apply if media owner bills non EU business
If on the other hand, the party billed for the media is based outside the EU, as was the case here when the bill was made out to Athesia Advertising in Austria in 1993/4, the "place of enjoyment" derogation does not apply.
The effect of all this in the context of the Athesia case was that the ECJ passed the matter back to the Italian court for them to reach a final decision on the correct VAT treatment based on the guidance contained in the ECJ's judgment.
Why this matters:
The impact of the case therefore is to underline that the default approach for cross border advertising media supply and VAT is that the place of supply of the media is regarded as the place of business of the advertiser.
This principle will not be materially impacted if the supply occurs indirectly, through one or more intermediaries.
The case also emphasises that it is open to EU states to "derogate" from this default principle. This can be done by individual governments. It is possible to find out if a particular state has done this by seeking advice in the relevant jurisdiction in which the service is provided.
If derogation has been opted for, then the place of the effective use and enjoyment of the service is the key factor. In the case of the supply of advertising time or space, this will be the country in which the advertising is published. This is the country where the VAT should be charged, save for supplies via an intermediate company in a non EU state, as the derogation does not apply in such situations.