VAT Committee publishes working paper on fuel cards

With its ruling in the "Vega International" case (C-235/18, 15 May 2019), the ECJ had shaken the fuel card business to its foundations: from a VAT perspective, fuel card issuers should no longer be seen as buying and selling fuel, but rather as providing financial services. This initially prompted the German Federal Ministry of Finance (BMF) to circulate a draft letter indicating that the chain supply business would be declared the exception rather than the rule starting 1 January 2022. When it became known that the EU’s VAT Committee wanted to deal with the issue, the authority backed off to await the outcome in the interest of having a uniform EU-level ruling. On 21 October 2022, the VAT Committee published a working paper on this issue (No. 1046).

Starting point: the power of disposal

The advantage of fuel cards is that companies with a large fleet of vehicles do not have to account for and deduct the input VAT for each individual fuel receipt, but rather receive a (usually monthly) invoice from the fuel card issuer. The VAT prerequisite for this procedure is a chain transaction in which the petrol station/petroleum company supplies the fuel to the fuel card issuer and the fuel card issuer supplies it to the customer.

To acknowledge a supply for VAT purposes, the entrepreneur making the supply must enable the recipient of the supply to dispose of the goods as if they were the owner. In the "Vega" case, the ECJ found that a supply by the petrol station/petroleum company to the fuel card issuer did not exist because only the customer (and not the fuel card issuer) was able to refuel at their own discretion and thereby freely decided, among other things, on the quality, quantity and type of fuel as well as the place and time of delivery. Details on this and the draft implementation of this case law by the BMF can be found here.

Working Paper of the VAT Committee: Buy-sell business vs. commission business

The VAT Expert Group began by determining that two business models predominate in the fuel card industry: the buy-sell business and the commission business. The VAT Committee then discussed these two business models – and came up with differing results:

Buy-sell business

The fuel card typically has no payment function in this scenario. It only serves to prove to the petrol station/petrol company that the cardholder is allowed to act on behalf of a specific card issuer and that the fuel is to be delivered to the card issuer - based on a corresponding contract between the card issuer and the petrol station/petroleum company.

According to the VAT Committee, the argumentation from the "Vega" case can be applied to this model: it is not the card issuer who can dispose of the fuel like an owner, but rather the cardholder. This should therefore not be considered a chain transaction, but rather a supply of fuel from the petrol station/petroleum company to the cardholder and a (possibly VAT-exempt) financial service from the card issuer to the cardholder.

Commission business

Here, the card issuer and the cardholder agree that the card issuer acts as a purchasing commission agent for the cardholder, i. e., buys the fuel in its own name but for the account of the cardholder. The card issuer negotiates the conditions for the fuel delivery with the petrol station/petrol company and passes on discounts to the cardholder or at least discloses them. The card issuer usually issues invoices on a monthly basis, which are then normally paid immediately via direct debit.

In this scenario, the VAT Committee considers it decisive that VAT law provides for a fiction of supply for commission transactions (Art. 14 (2) lit. c VAT Directive). Accordingly, in the opinion of the VAT Committee, the usual treatment as a chain transaction should continue to apply in commission cases.

How this compares to the draft BMF letter

The BMF apparently did not consider the commission business when defining the criteria for differentiation. Instead, the authority very carefully applied the criteria that speak against it being a chain transaction as defined by the "Vega" case law. Since these criteria apply to most cases and the rare scenarios mentioned by the BMF bear little resemblance to reality, the stipulations in this draft would basically have killed the application of chain transactions in the fuel card sector.

The VAT Committee hereby offers a very interesting opportunity to maintain the status quo, which has however not come to the forefront mainly because the possibility of a commission business is atypical here. In a typical purchasing commission, the commission agent deals with the seller in their own name, while the actual prospective buyer (the principal) dictates the conditions in the background. In the fuel card business, however, the actual prospective buyer stands at the pump and decides how much and at what price to fill up the vehicle, and the commission agent (the card issuer) does not make an appearance. On the face of it, this is not your typical commission business, but the conditions have nevertheless been met because the card issuer acts in their own name but on behalf of (and with the account of) the cardholder.

The  a buy-sell andtransaction from a commission transaction has not really been resolved by the VAT Committee's solution. The difference generally lies in the fact that in a commission transaction the commission agent (in this case the card issuer) does not bear any economic risk because they are always reimbursed the respective purchase price by the principal (in this case the cardholder). As this is always the case with fuel card transactions, there is much to be said for considering the commission business to be the norm according to the VAT Committee's assessment.

What happens next?

According to Art. 398 of the VAT Directive, the VAT Committee is a purely advisory body whose duty it is to promote the coordinated application of the provisions of the VAT Directive. This is done through so-called guidelines which are, however, not legally binding. For the German tax administration, the BMF clarified this in a letter dated 3 January 2014: the BMF takes the guidelines into account when formulating its administrative opinions, but is not bound by them. As the BMF explicitly withheld the letter on the topic of fuel cards on the grounds that it was waiting for the decision of the VAT Committee, it is to be expected that the Committee's opinion will play a major role for the BMF. However, there is currently no official guideline, but only a working paper on which the delegates of the VAT Committee, i.e., representatives from the Member States and the European Commission, will still issue comments.

For the fuel card industry, the legal situation is therefore still unclear. The BMF will certainly also wait for the official guideline before drafting a new letter. The VAT Committee will hopefully also comply with the VAT Expert Group’s request to issue a uniform guideline that also covers the charging of electric vehicles with a fuel card because hybrid fuel cards are already in use in the industry. Those who want to increase the chance that their fuel card model will also be accepted as a chain transaction in the future can already check the corresponding contracts to see whether they can be redesigned or optimised to align with the prerequisites of a commission business. Insofar as it is possible from a practical standpoint, it would be a good idea to adapt the business model in such a way that, according to the criteria of the BMF draft letter, it can exceptionally be assumed that the card issuer is transferred power of disposal over the fuel. However, it is currently not possible to make a recommendation for a guaranteed legally secure design.

11 November 2022

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