Aktiebolaget NN v Skatteverket.

• Jurisdiction: European Union
• Court: Court of Justice (European Union)
• Writing for the Court: Lõhmus
• ECLI: ECLI:EU:C:2006:575
• Date: 14 September 2006
• Docket Number: C-111/05
• Procedure Type: Reference for a preliminary ruling

OPINION OF ADVOCATE GENERAL

LÉGER

delivered on 14 September 2006 ¹(1)

Case C-111/05

Aktiebolaget NN

v

Skatteverket

(Reference for a preliminary ruling from the Regeringsrätten (Sweden))

(VAT – Supply and installation of an undersea fibre-optic cable between two Member States separated by international waters – Classification of the taxable transaction – Place of that transaction)

1. The purpose of these proceedings on a reference for a preliminary ruling is to establish how to calculate the value added tax (VAT) payable on the cost of supplying and installing an undersea fibre-optic cable between two Member States separated by international waters.

2. The questions referred relate, in essence, to the classification of such a transaction and its territorial allocation, in order to determine the entitlement of the Member States to charge taxes. The issue is, first, whether the transaction is to be classified as a supply of goods or a supply of services. It must subsequently be determined whether the transaction is to be split on the basis of the territorial positioning of the cable and whether or not VAT is payable on that part of the cable situated outside the territory of the Community.

I – Legal framework

A – Community law

3. Sixth Council Directive 77/388/EEC (2) gives VAT a very wide scope of application by providing, in Article 2(1), that ‘the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such’ is to be subject to value added tax.

4. Under Article 3(2) of the Sixth Directive, the ‘territory of the country’ shall be the area of application of the Treaty establishing the European Community as stipulated in respect of each Member State in Article 299 EC.

5. ‘Supply of goods’ and ‘supply of services’ are defined in Articles 5 and 6 of the Sixth Directive respectively.

6. Under Article 5(1) of the Sixth Directive, ‘supply of goods’ means the transfer of the right to dispose of tangible property as owner.

7. Article 6(1) of the Sixth Directive states that ‘supply of services’ means any transaction which does not constitute a supply of goods within the meaning of Article 5 of the directive.

8. Finally, Articles 8 and 9 of the Sixth Directive determine the place in which the transaction in question is taxable, depending on whether it is a supply of goods or a supply of services. The purpose of these articles, as is stated in the seventh recital in the preamble to the directive, is to avoid conflicts concerning jurisdiction as between Member States, in particular as regards supplies of goods for assembly and the supply of services.

9. Article 8(1) of the Sixth Directive is worded as follows:

‘The place of supply of goods shall be deemed to be:

(a) ... Where the goods are installed or assembled, with or without a trial run, by or on behalf of the supplier, the place of supply shall be deemed to be the place where the goods are installed or assembled. In cases where the installation or assembly is carried out in a country other than that of the supplier, the Member State into which the goods are imported shall take any necessary steps to avoid double taxation in that State;

...’

10. Article 9(1) of the Sixth Directive provides that the place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.

11. However, Article 9(2)(a) of the Sixth Directive states that the place of the supply of services connected with immovable property shall be the place where the property is situated.

B – National law

12. It follows from Chapter 1, Paragraph 1, of the Swedish VAT law (Mervärdesskattelagen (3)) that tax liability presupposes that turnover is regarded as having been effected within the country.

13. In Chapter 1, Paragraph 6, of the ML, ‘goods’ are defined as material objects, including immovable property. According to the first section of Chapter 5, Paragraph 2, goods which are to be transported to a purchaser according to the contract between a seller and a purchaser are sold within the country if the goods are situated in the country when the seller, the purchaser or some other party initiates the transport to the purchaser (subparagraph 1) or if the goods are not situated in the country when the transport is initiated but are assembled or installed there by the seller or for his account (subparagraph 2).

14. Chapter 1, Paragraph 6, of the ML also provides that the term ‘services’ covers everything which is not regarded as goods and which can be supplied as part of a professional activity.

15. In accordance with the first subparagraph of Chapter 5, Paragraph 4, of the ML, services which relate to immovable property are supplied within the country if the property is situated there. According to point 4 of the first subparagraph of Chapter 5, Paragraph 6, services are supplied within the country if they are performed in Sweden and relate to works for goods which are movable property, including checking or analysis of such goods.

16. The first subparagraph of Chapter 5, Paragraph 8, of the ML provides inter alia that, for other services, the turnover is to be regarded as having been effected within the country if the party supplying the services has the seat of its economic activity or has a permanent trading establishment in Sweden from which the services are supplied. The national court points out, however, that that provision should not be applied to telecommunications services. The same subparagraph provides, finally, that the services, if they are not supplied from such a seat or place of establishment in Sweden or abroad, are supplied within the country if the party supplying the services is regarded as being usually or permanently resident in Sweden.

II – Facts

17. These proceedings arise out of an action between Aktiebolaget NN, (4) established in Sweden, and the Skatteverket (Local Tax Board) regarding the application of VAT to the costs relating to the supply and installation of an undersea fibre-optic cable between Sweden and another Member State from which it is separated by international waters.

18. Under the terms of the transaction envisaged by NN, the company will own the cable when the installation work is commenced. Ownership of the cable will be transferred to the client only after installation is complete and preliminary operational tests have been carried out.

19. The cable will be fixed and buried in the ground on the Swedish mainland then, metre by metre, lowered into the water. It will therefore be installed first in Swedish territorial sea (i.e. Sweden’s inland and territorial waters), and then in international waters. It will then be laid in the inland and territorial waters of the other Member State and, finally, buried in the ground on the mainland of that State.

20. If the seabed conditions permit, the cable will also be buried there. Similarly, depending on the distance between the fixing points, it may in certain cases be necessary to lengthen the cable, which is a relatively complicated technical procedure.

21. It is up to the client, not NN, to settle questions of easement and to obtain the necessary permits.

22. In normal circumstances, the cost of the cable accounts for between 80 and 85% of the total cost of the transaction. However, that percentage may be reduced in unfavourable circumstances, for example in storms.

23. In order to ascertain how VAT on the cost of such a transaction should be determined, NN put the following two questions to the Skatterättsnämnden (Revenue Law Commission). It asked, first, whether the laying of an undersea cable between different countries constitutes a service relating to immovable property in accordance with Chapter 5, Paragraph 4, of the ML or work on movable property in accordance with Chapter 5, Paragraph 6, of the ML, or some other service and, in that case, what service.

24. It asked, secondly, whether Sweden constitutes the country of turnover for the laying of the undersea cable if it is laid between a point on land in Sweden and a point on land in another country with the territorial waters of those countries and international waters between them.

25. In an interim decision of 13 June 2003, the Skatterättsnämnden found that the transaction envisaged was to be regarded as a service provided in Sweden under the first subparagraph of Chapter 5, Paragraph 8, of the ML.

26. It gave the following reasons for its decision. As regards, first, the classification of the transaction, it stated that, although the remuneration received by NN for the cable laying is for the greater part in respect of the cost of the cable itself, the transaction should as a whole, with reference inter alia to the complicated equipment and the skill required, be regarded as a supply of services.

27. Secondly, as regards the establishment of the place of the supply of the service, it bases its decision on the judgment in Berkholz, (5) which concerns taxation of the turnover generated by gaming machines on ferry-boats sailing between Germany and Denmark. It pointed out that, in that judgment, the Court of Justice held that Article 9 of the Sixth Directive does not restrict the Member States’ freedom to tax services provided outside their territorial jurisdiction on board seagoing ships over which they have jurisdiction.

28. In that judgment, the Court also stated that the rule, laid down in Article 9(1) of the Sixth Directive, that the place where a service is supplied shall be deemed to be the place where the supplier has established his business, is a primary point of reference. That rule may be set aside only if it does not lead to a rational result for tax purposes or...