VAT, territoriality of intra-Community transactions at risk

While the legislator is grappling with Delegated Law 111/2023 on VAT in order to make it more in line with EU principles, a further divergence is expected between the interpretation of permanent establishment by the Revenue Agency, on the one hand, and that proposed by the Court of Justice and the VAT Committee, on the other. The risk, following the current interpretation of national practice, is that of having to subject to VAT in Italy all intra-Community transactions in which the intervention of a permanent establishment of the transferor is recognised. With its answer to interpello No. 956-1164/2024, unpublished, the Italian Revenue Agency, while acknowledging the absence of intervention of the permanent establishment (and therefore, its irrelevance for VAT purposes), specifies, for the second time (see Il Sole 24 Ore of 18 January 2023), that, where it intervenes in an intra-Community supply of goods, the permanent establishment is liable for tax (Article 192 bis of Directive 2006/112/EC), with the consequent obligation to apply VAT on the subsequent domestic supply. In essence, the Agency qualifies such a transaction as a movement of goods per se, not considering the occurrence of an (intra-Community) supply of goods legally ready for delivery to the customer in the Member State of destination from the moment they leave the Member State of departure, with good reason of the EU Court on the distinction between intra-Community supply and movement of goods per se (Case C-446/13 Fonderie 2A).

In the case under analysis, in addition to the arguments in Reply No. 57/2023, the Revenue reinforces the position by observing that "this conclusion is supported by the opinion rendered by the legal services of the European Commission (editor's note with Woking Paper No. 857/2015), according to which the question whether Article 192 bis of the VAT Directive applies only to domestic supplies or also to intra-Community supplies is irrelevant". In this sense, the Agency lets it be understood that, as may certainly be the case for domestic supplies, the permanent establishment, in the presence of its intervention, may qualify as a tax debtor also for intra-Community transactions. In order to correctly interpret the VAT Committee's answer referred to above, it is necessary first to analyse the context in which the question - posed by the Italian Government itself - is presented and, subsequently, the question to which the VAT Committee replies. First of all, the question follows that posed, again by the Italian Government, concerning the possibility of applying the concept of permanent establishment to the territoriality of the supply of goods, where the VAT Committee had already clarified that, unlike for the supply of services, the territoriality of the supply of goods should not be determined having regard to the persons involved in the transaction but only on the basis of the territory of departure and arrival of the goods themselves (see Working Paper No. 791/2014). Secondly, the VAT Committee - asserting that "the question of whether Article 192a of the VAT Directive applies only to domestic supplies or also to intra-Community supplies is irrelevant" - points out, once again, that the rules referred to are absolutely useless for determining the territorial relevance of a transaction, be it a supply of services, for which Article 43 et seq. of Directive 2006/112/EC, - interpreted in the light of Art. 11 of Regulation (EU) 282/2011 with reference to the concept of permanent establishment - or a supply of goods, for the purpose of identifying which Articles 31 et seq. of Directive 2006/112/EC would apply, without any impact from the concept of permanent establishment. Nor could it be otherwise considering that, in the same context referred to by the Agency, the VAT Committee states that 'in a simple domestic supply (read, for the purpose of identifying the territoriality of a domestic supply), it would not be possible, nor would it be necessary, to apply those rules'. Which appears to be very agreeable.