CJEU rules on VAT treatment of silent contracts

The CJEU held in the joined cases of Tulică and Plavoşin (C-249/12 and C-250/12) that when a contract does not address VAT, the amount paid is deemed to be inclusive of any VAT due, unless there is a legal entitlement in domestic law for the supplier to recover the additional amount from the customer.

The taxpayers entered into numerous contracts for land purchases and property transactions. The taxpayers did not consider themselves taxable persons for VAT purposes. Additionally, the contracts for the land transactions did not make any reference to VAT.

The Romanian tax authority considered the taxpayers taxable persons (i.e., making supplies subject to VAT) and considered the land transactions subject to VAT. The tax authority assessed the taxpayers for VAT that should have been charged on the amounts payable under the terms of the contracts.

The taxpayers considered the VAT a component of the price, rather than an addition, according to the legal principle of contractual freedom (the taxpayers argued the tax authority infringed this principle). The taxpayers further argued that no assumption could be made that the purchasers would have agreed to buy the properties if the contract terms had provided for the addition of VAT.

The tax authority held that the tax base should be the price agreed by the contracting parties to correctly determine the amount of VAT due. If the contract provided for VAT to be added or made no provision for VAT, VAT should be added to the agreed price (consideration). The Romanian court considering this matter sought clarification from the Principal VAT directive.

The Romanian Court referred to the CJEU the question of whether the EU Principal VAT directive must be interpreted to mean that the taxable amount is: (a) the consideration for the supply of the property determined by the parties, less the rate of VAT, or (b) the consideration for the supply of the property as agreed by the parties, when a vendor has been reclassified as a taxable person and the contract is silent on the VAT treatment.

The CJEU held that a contract with no provision for VAT added and no national law provision for the supplier to secure an additional sum equivalent to the VAT from the purchaser requires the supplier to bear the VAT burden (rather than the end user) since the agreed price is treated as the taxable amount. Otherwise, the tax authority would breach the principle that tax must not be levied on more than the supplier has received.

The CJEU further held that the national court should determine whether the taxpayers, under national law, could charge and recover from purchasers an amount equivalent to the VAT. Otherwise, the Romanian domestic legislation that enabled the tax authority to assess the additional VAT amount would be incompatible with the Principal VAT Directive, and thus incompatible with EU law.

Therefore, the CJEU held (referring the matter back to the Romanian Court) that the Principal VAT Directive must be interpreted to mean that when the price of a good established by parties does not reference VAT, and the supplier owes VAT on the transaction (and cannot recover VAT from the purchaser), the agreed price must be regarded to already include VAT.

This case highlights the necessity to include appropriately worded clauses regarding VAT in contracts. The absence of VAT clauses can lead to assessments, complications recovering VAT, and registration or other reporting obligations. Therefore, businesses should seek advice for the inclusion of appropriately worded VAT clauses in any contracts.

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