VAT exemption of transport services

THE SLOVENE TAX AUTHORITY (FURS) PUBLISHED AN ADDITIONAL EXPLANATION (NO. 4230-582/2017-3) REGARDING THE TREATMENT OF SERVICES DIRECTLY RELATED TO THE INTERNATIONAL TRADE

The supply of services, including transport and auxiliary services, which are directly related to the export or import of goods as well as to the needs of vessels and aircraft are exempted transactions. However, certain limitations must be taken into account.

 In one of our previous tax newsletters, we already wrote about the narrow interpretation of services directly related to export as regards the right to claim a VAT exemption. Due to numerous questions related to the topic, FURS decided to publish an additional explanation which, in addition to the services directly related to export, defines in detail also the services directly related to import and to the needs of vessels and aircraft.

Place of supply of services

In order to treat the transport services of goods as regards VAT correctly, the place of supply of services has to be determined first. In accordance with the general rule from Article 25 of the Slovene VAT Act (ZDDV-1), the place of supply of services shall be considered the place where the service recipient – a taxable person – has established its business. The general rule regarding the place of supply of services applies not only to the export-related but also to the import-related transport services of goods. In accordance with the afore-mentioned general rule, the import-related transport services of goods supplied to a taxable person established outside Slovenia are non-taxable in Slovenia as the place of taxation of services is considered the place where the service recipient has established its business.

In case the transport service of goods is supplied to a person who is not a taxable person, the provisions of Article 28 ZDDV-1 apply when determining the place of supply of services. A distinction must be drawn between:

• the supply of transport services of goods within the Union to persons who are not taxable persons: the place of supply of transport services is the place where the transport began;
• the supply of transport services of goods (except for the transport within the Union) to persons who are not taxable persons: the place of supply of transport services is the place where the transport is performed with the distance travelled taken into account.

Export-related transport services of goods

In accordance with Article 52 Paragraph 1 Item e), the supply of services, including transport and auxiliary services, which are directly related to the export or import of goods shall be considered VAT-exempted transactions.

Following the ruling of the European Court of Justice, the VAT exemption shall not be applied to the supply of services not provided directly to the consignor or consignee of goods (e.g. subcontractor services).

If the transport of goods is directly related to export and supplied to the consignor or consignee of goods, the exemption also applies to the transport services supplied within the Union, provided that such a transport service also includes the transport of goods intended for export.

In accordance with Article 63 Paragraph 2 Item b), the contractor supplying the transport or auxiliary services directly connected to the export or import of goods and claiming a VAT exemption in accordance with Article 52 Paragraph 1 Item e) ZDDV-1 has the right to deduct VAT charged by subcontractors.

Import-related transport services of goods

The exemption in accordance with Article 52 Paragraph 1 Item e) ZDDV-1 is limited only to those cases of introduction of goods into the customs territory for which customs proceedings have been initiated upon the introduction of goods in relation to which VAT does not become chargeable (e.g. temporary storage, introduction of goods into a free zone, etc.). The exemption applies to the supply-related services for which VAT has not yet become chargeable in accordance with Article 31 Paragraph 2 ZDDV-1.

In case the tax has to be charged (e.g. special customs proceedings are concluded), the import-related transport services are VAT-exempt in accordance with Article 50 Item 12 ZDDV-1, provided that the value of the transport service is included in the tax basis during the import of goods.

As the VAT exemption applies only to the transport services the value of which is included in the tax basis, only the transport organiser has the right to claim the exemption in accordance with Article 50 Paragraph 1 Item 12 ZDDV-1. The carrier acting as a subcontractor does not have the right to claim the afore-mentioned exemption.

The value of the transport service during the import of goods which is not included in the tax basis is not VAT-exempt.

Supply of services for the direct needs of vessels and aircraft

Article 53 ZDDV-1 stipulates specific examples in which the delivery, lease and the repair of vessels and aircraft as well as the maintenance and the supply of services for the direct needs of vessels and aircraft are exempt from VAT.

The services for the direct needs of vessels from Article 53 Item a) ZDDV-1 and their cargo include, for example, the services of vessel towing, driving and mooring, the services of loading, unloading, etc. In the opinion of the Court of Justice of the EU (Judgement C-33/16), the supply of services for the direct needs of vessel cargo does not only include the services supplied in the last stage of such a service, but also preceding services. These, for example, include the services a subcontractor supplies to a business entity which then charges these services to a freight forwarder or a transportation company.