Services – Where was service provided? – NL VAT number used (but wrongly issued)

Since 2010, following changes to the VAT law, it has become a lot easier to determine where a service is taxable for VAT purposes. This is certainly the case with services between entrepreneurs, which are established in different countries (B2B). Since 2010, where B2B services are (deemed to be) performed is determined on whether the customer is an entrepreneur and where this entrepreneur is established. There may be exceptions to this general rule, but we will not discuss them here. The entrepreneurship of the customer and the place of establishment are assessed on the basis of the VAT number of the customer. If a Dutch entrepreneur supplies a service for an entrepreneur in Portugal (with a Portuguese VAT number), this service is deemed to have been provided in Portugal on the basis of a legal fiction, so that Portuguese VAT is also due. In addition, it is the Portuguese client who is liable to pay Portuguese VAT under the reverse charge procedure.

The District Court of Noord-Holland has ruled in a case in which a Dutch entrepreneur had purchased services from service providers in other Member States. In addition, the Dutch entrepreneur had also communicated his Dutch VAT number to the service providers. Resulting in the outcome that the services of the foreign entrepreneurs are taxed in the Netherlands and that the Dutch entrepreneur must declare the Dutch VAT in his VAT return (on the basis of the reverse charge procedure). The entrepreneur had failed to do so.

What makes this case interesting is that it turns out afterwards that the Dutch entrepreneur was not an entrepreneur during the period in which the services were purchased. However, a VAT number had previously been issued through the actions of the Dutch entrepreneur and this VAT number had been passed on to the service providers abroad. From a strictly formal point of view, the VAT number was wrongly issued given the absence of entrepreneurship for VAT purposes. The question before the court was whether Dutch VAT was due because the (wrongly issued) Dutch VAT number had been used. The court is of the opinion that the Dutch entrepreneur is liable for VAT. On the basis of another legal fiction, a legal person that has been assigned a VAT number is deemed to be an entrepreneur in order to be able to properly determine the place of supply of services.

The entrepreneur does not agree with this ruling and has lodged an appeal. The presumption is that they want to have it further tested whether having a VAT number, even if it was wrongly issued, can lead to this judgment. Given the fact that there has been little litigation on this question so far, this case is very interesting for practice. Moreover, this case makes it clear once again that communicating the Dutch VAT number with foreign service providers can directly trigger VAT consequences. This communication should therefore be carefully considered. This also applies to the delivery of goods.

Finally, we note that this entrepreneur is still not entitled to deduct VAT. The legal fictions for the levying of VAT in the Netherlands only concern the determination of the place of supply of services and do not affect the right to deduct VAT.

If you have any questions about this topic or if you would like to discuss the topic further, please do not hesitate to contact us at info@vatpartners.com