No supplies in the case invoicing back and forth

Facts of the case

The claimant, a temporary employment agency, supplied temporary workers to Company A for deployment in Company A’s staff canteens at various locations. It was later agreed that the temporary workers would also be permitted to eat in the canteens where they were employed, at the same discounted prices that Company A’s employees were required to pay.

The temporary employment agency was entitled to invoice Company A for the additional costs arising from this canteen usage agreement, plus VAT. For its part, the claimant undertook to pay Company A, in return for the temporary workers’ use of the canteens, a flat-rate fee per temporary worker per day, which was also to be subject to VAT. The reciprocal payment obligations were of equal value in each case.

The temporary employment agency claimed input VAT deduction on the basis of A’s invoices. It regarded the amounts paid by A for the additional costs as remuneration for the supply of temporary staff.

Federal Fiscal Court (BFH) ruling

The Senate ruled that no exchange of supplies had taken place between the temporary employment agency and A. The two agreements concerning the reciprocal payments formed part of a single set of contracts. Accordingly, A was required to make the discounted use of the canteen available directly to the temporary employment agency’s staff and to bear the costs incurred in doing so. Although A had initially invoiced the temporary employment agency for the flat-rate fee, the agency had consistently re-invoiced the amount back to A. In economic reality, only A was to bear the costs of the temporary workers’ use of the canteen.

The lower Finance Court had argued at first instance that, through the canteen usage agreement, the temporary employment agency had acquired its own enforceable claim to discounted canteen use for the temporary workers, thereby establishing the exchange of supplies. The Federal Fiscal Court (BFH) does not agree with this, as this claim already arises from the Temporary Employment Act, meaning that the contract has no significance beyond this.

The temporary employment agency is therefore not entitled to an input VAT deduction on the basis of A’s invoices, as A did not provide the corresponding supply. However, the temporary employment agency is liable for VAT under Section 14c(2) of the German VAT Act (UStG) because it showed VAT on its invoices to A but likewise did not provide any supply.

Analyses

Although civil law contracts generally provide a sound basis for determining the supply relationships for VAT purposes, this is not always the case. ‘Supply’ is an autonomous concept under EU law, as this judgment clearly demonstrates. What is decisive, therefore, is not who agreed to something with whom, but who conferred what consumable economic benefit upon whom – and whether, from an economic perspective, such a benefit was conferred at all. Above all, the judgment should serve as a warning against structuring a contractual exchange of supplies that does not actually exist. Return supplies of all kinds should be examined particularly carefully in this regard.

Author: Nadia Schulte