VAT. Transport services. Lack of the artificial character of transactions

In the practice of Costaș, Negru & Asociații, in a significant number of cases, in the framework of tax inspections and related tax disputes, the artificial nature of some transactions is discussed, especially from the VAT perspective, without the representatives of the tax authorities understanding the substance of the issue under discussion. Hence patently erroneous tax conclusions and, a few years later, judicial solutions overturning fundamentally wrong taxation decisions.

We have chosen to present here a recently successfully completed litigation at the Craiova Court of Appeal, in which the issue of the fictitious character of some transactions was raised.

In fact, company F., based in Italy, concluded contracts for the provision of transport services, through a transport contracting platform, with customers in France and Spain. Based on these contracts, company F. undertook to honor orders placed by customers in the platform and to transport various goods from Romania to locations in Italy, France or other countries indicated by customers.

Company F. subcontracted transport services to company M. from Romania, which picked up the goods from various production facilities in the country and delivered them, according to the contractual terms, to the indicated locations. The transport documents (CMR type waybills) indicated the circuit of the goods, and from a fiscal point of view company M. invoiced company F. the value of the transport, which in turn invoiced the transport services to the customers.

Following a fiscal inspection carried out in 2021 at company M., the County Administration of Public Finances Dolj assessed that in this case there would have been an artificial mechanism put into practice by companies F. and M., intended to deprive the Romanian State of the tax on the added value related to the transport services provided, services for which VAT was not collected in Romania. In this sense, the tax inspectors have assessed that in fact the commercial relations take place between the company M. (carrier) and the client’s subsidiaries in Romania, regardless of the existing contracts between the parties, so that the place of service provision is in Romania. Therefore, the Romanian VAT tax base was resized and additional tax obligations were calculated in the amount of 935,562 lei.

The tax dispute had a tortuous evolution. Thus, on two occasions the Dolj Court rejected the annulment action and, just as many times, the Craiova Court of Appeal quashed the judgments for lack of reasons. To her credit, on the occasion of the second annulment, the Craiova Court of Appeal retained the case for retrial of the appeal and administered the useful probation in the case.

In particular, the appeals court obliged the Dolj County Administration of Public Finances to submit to the case file the correspondence carried on with the subsidiary of a French company in Romania, the supposed beneficiary of some transport services provided directly by company M. This correspondence, during the fiscal inspection , was not submitted by the tax office to the case file on the grounds that it would fall under the scope of fiscal secrecy. The Craiova Court of Appeal censured this interpretation and ordered the presentation of the correspondence, from which an essential element emerged: the subsidiary of the French company indicated, explicitly, with copies of the relevant documents, that it has no contractual relationship with the company M., such a relationship existing only between company F. (Italy) and the parent company in France.

Analyzing in retrial the legal issue in question, by civil decision no. 1304 of May 13, 2024, the Craiova Court of Appeal held, based on the administered evidence, that there is no artificial transaction in the case.

It was thus shown that intra-community transport services fall under the basic rule of art. 44 VAT Directive, transposed in art. 278 para. (2) Fiscal Code, according to which the place of provision of services to a taxable person acting as such is the place where the said person receiving the services has established the seat of his economic activity. Specifically, in relation to the described mechanism, company M invoiced company F without VAT, which in turn invoiced customers in France and Italy without VAT, and these final customers collected VAT in their states, the place of service being provided in France or Italy . In this case, of course, the provisions of art. 271 para. (2) Fiscal Code, according to which when a taxable person acting in his own name, but on behalf of another person, takes part in a provision of services, he is considered to have received and provided those services himself. In addition, to explain the tax treatment applicable to the chain of transactions, the Craiova Court of Appeal also referred to the decision of the Court of Justice of the European Union in the case C-695/20, Fenix.

Next, the Craiova Court of Appeal also addressed the arguments of the tax authorities in the sense that there would be an artificial nature of the transactions since the companies F. and M. are affiliated companies. The appeals court reminded that the European legislation and the national legislation do not contain provisions that make inapplicable the rules of art. 44 VAT Directive, respectively art. 278 para. (2) Fiscal code in the case of related parties. Moreover, the Craiova Court of Appeal pointed out, it is irrelevant that company F. did not have the necessary means (vehicles and employees) to carry out the transports itself; if such a condition were to be imposed, say the judges, the provisions of art. 270 para. (2) and art. 271 para. (2) Fiscal Code would be empty of content as the services should be provided only in one’s own name.

In relation to the arguments of the County Administration of Public Finances Dolj, the Craiova Court of Appeal also made an analysis of the incidence of Halifax jurisprudence, with reference to the provisions of art. 11 Fiscal Code. The appeals court pointed out that this jurisprudence was not relevant in this case primarily because company M. did not exercise any right to deduct VAT. Additionally, starting from the premise that the “fiscal advantage” would have been represented by the non-taxation of transport services in Romania, the Court of Appeal invoked the decision of the Court of Justice in the case C-103/09, Weald Leasing and showed that the non-taxation in Romania does not constitutes an abusive practice within the meaning of the Directive. Company M. had no obligation to collect VAT in Romania, in fact the value added tax was collected by customers in France or Italy. Moreover, the judges show, if company M. had collected VAT on the invoices issued, the customers would have automatically acquired the right to deduct that VAT, which excludes the existence of any abuse of tax law.

The Craiova Court of Appeal also emphasized, in its reasoning, that a possible reconsideration of the chain of transactions should produce purely fiscal effects, and not legal ones. Thus, in this case, if the tax argument were accepted, company M. would have to conclude contracts with the Romanian subsidiaries of the companies in France and Italy, which the respective companies explicitly refused.

In addition, the violation of the provisions of art. 6 and 7 Fiscal Procedure Code. The Craiova Court of Appeal said that since the state of facts and the information provided by company M. outlined a complex edifying circumstance, it is illegal for the tax authorities to ignore it, by placing it behind some provisions regarding the form of documents, without any other motivation.

We are pleased to note that, finally, in the arguments of some of the tax courts in Romania, substantive arguments connected to European law and the relevant jurisprudence of the Court of Justice of the European Union prevail.

The client was represented, during the fiscal inspection and in all subsequent procedures, by the civil society of lawyers Costaș, Negru & Asociații, through av. Dr. Cosmin Flavius ​​Costaș (Arad Bar Association). The defense team included colleagues av. Cosmin Petrea and Av. Cătălin Băncioi (Dolj Bar). In addition, the client’s position was supported by a memorandum written by Mrs. Mariana Vizoli, her arguments being decisive in the economy of the case.

Costaș, Negru & Asociații is a civil society of lawyers with offices in Cluj-Napoca, Bucharest and Arad, which offers assistance, legal representation and consultancy in several areas of practice through a team composed of 20 lawyers and consultants. Details regarding legal services and team composition can be found on the website All rights for the materials published on the company’s website and through social networks belong to Costaș, Negru & Asociații, their reproduction being permitted only for informational purposes and with correct and complete citation of the source.

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