"Substance Over Form" Is Relevant In VAT Matters: ECJ - Decision C-653/11

On June 20, 2013, the ECJ ruled that contractual terms, even though they constitute a factor to be taken into consideration, are not decisive for the purpose of identifying the recipient of a "supply of services" within the meaning of articles 2(1) and 6(1) of the Sixth VAT Directive.

In the case at hand, a UK loan-broker ("Ocean Finance") suffered non-recoverable input VAT on advertising costs, due to the fact that Ocean Finance was a VAT exempt financial intermediary.

In order to mitigate the amount of irrecoverable input VAT, Ocean Finance incorporated a subsidiary outside the EU VAT territory, namely in Jersey. The Jersey company provided loan-broking services to UK customers. The consequence was that no UK VAT was chargeable under the litteral reading of the statute provisions, since the supply of advertising services is taxed where the VAT registered client is established.