Opinion of the Advocate General — ECLI:EU:C:2022:91
Date: 2022-02-10
Language of the case: Hungarian
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling - inadmissible
Origin: Hungary

Summary of the factual background 
On 8 October 2007, KT and twelve employees of Jasmin Media Group Kft. 
formed the applicant company, the main activity of which is computer 
programming. Up until 28 February 2011, KT gradually acquired the equity of the 
minority shareholders, with the exception of that held by HP. The applicant 
employs professionals with many years of experience and, owing to its stable 
technical background, is considered to be the market leader in the transmission of 
multimedia content over the internet. Its main customer was the Portuguese 
company Lalib Lda., to which it issued invoices for the provision of support, 
maintenance and construction services amounting in total to EUR 8 086 829.40 
between July and December 2009 and for the whole of 2011.  
The applicant was subjected to a tax inspection carried out by the Nemzeti Adó- 
és Vámhivatal Kelet Budapesti Adó- és Vámigazgatósága Társas Vállalkozások 
Ellenőrzési Főosztály I. Társas Vállalkozások Ellenőrzési Osztály 6. (Commercial 
Company Inspection Unit No 6 of Commercial Company Inspection Department 
No 1 of the East Budapest Tax and Customs Directorate, which is part of the 
National Tax and Customs Administration, Hungary) in accordance with 
Article 89(1)(a) of the az adóigazgatási rendtartásról szóló 2017. évi CLI. törvény 
(Law CLI of 2017 regulating the administration of tax). That inspection was 
concerned with value added tax and related to the second half of 2009 and the 
whole of the 2011 financial year. As a result of the inspection, the first-tier tax 
administration, by order [OMISSIS] of 10 February 2020 and taking into account 
the applicant’s observations [OMISSIS], assessed as being payable by the 
applicant a difference of HUF 458 438 000, classified as a tax debt, and further 
imposed on the applicant a tax fine of HUF 343 823 000 plus default interest of 
HUF 129 263 000. 
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Following the appeal lodged by the applicant against the first-tier order, the 
defendant confirmed the order of the first-tier tax administration by order 
[OMISSIS] of 6 April 2020. 
The Portuguese company Lalib Gestao e Investimentos LDA (‘Lalib’) was formed 
on 16 February 1998 in accordance with Portuguese law and, during the period 
under examination, its principal activity was the provision of electronic 
entertainment services. 
The orders of the defendant tax administration were based on a finding, reached 
by that administration during the administrative procedure, that the actual 
recipient of the services provided to Lalib by the applicant was not Lalib but 
WebMindLicenses (‘WML’). 
According to the account given in the application brought by the applicant against 
the defendant’s orders, the applicant’s claim is based on its view that the place of 
supply of the services provided to Lalib should be declared to be Portugal, since 
all of the conditions laid down by the Court of Justice in this regard are met. In its 
view, the defendant’s order is also erroneous in relation to the substance of the 
supply of electronic services in question, that is to say in relation to the supply of 
services to users, which it wrongly identifies as being the direct technical 
operation of the websites in question, and thus fails to take into consideration the 
adequacy of the material and human resources required for that purpose and the 
fact that Lalib actually has available to it all of the resources necessary to provide 
the service in question. The order does not correctly assess the substance of the 
supply of electronic services. The applicant claims that, in common with other 
partner undertakings, it supplied support services directly to Lalib and not to 
WML. According to the applicant’s claim, Lalib’s conduct in matters extending 
beyond routine tasks not governed by know-how is also active and positive: it 
inspects, supervises and gives instructions to undertakings in the Docler group, 
and, therefore, to the applicant too. As regards the contracts concluded with Lalib, 
neither WML nor KT participated as recipients, with the result that they did not 
address to the applicant requests falling to be made by the recipient of the services 
and did not give instructions in this regard either. So far as concerns the activity 
relating to the supply of services, Lalib exercised control over users and received 
the necessary authorisations from their representatives. The applicant claimed 
that, in the course of the proceedings against WML, the [Nemzeti Adó- és 
Vámhivatal Kiemelt Adózók Adóigazgatósága] (Tax Directorate for Major 
Taxpayers of the National Tax and Customs Administration) asked the Portuguese 
authorities to clarify the facts in relation to the provisions contained in the 
judgment given in that case. In their response to that international request, the 
Portuguese authorities clearly stated that Lalib was established in Portugal, that, 
during the period under consideration, it actually performed an economic activity 
on its own account and at its own risk and that it had all the technical and human 
resources necessary to exploit the knowledge acquired at international level. The 
applicant considers that taxing WML on the transactions in question was contrary 
to law and that Lalib was the true party to the contract. The place of supply of the 
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service was not in Hungary, since this was objectively precluded by the lack of 
any financial institutions allowing payment to be made by bank card on websites 
for adults. This is why, prior to the collaboration with Lalib, the online service 
provider, which, at that time, was still an undertaking affiliated to the Docler 
group, was also located abroad. In any event, it was not WML but Lalib which 
presented itself to the outside world as being the supplier of the services in 
question. Lalib concluded the contracts in its own name, held the database of 
customers paying for the services in question and was the only undertaking to 
have at its disposal the revenue from the provision of those services. In any event, 
Lalib exercised control over the development of the know-how and made 
decisions about its implementation. There was no indication of any physical 
customer service facility or any office in Hungary, only evidence of Lalib’s 
registered office there. The applicant takes the view that Articles 2(1)(c), 24(1) 
and 43 of Directive 2006/112 must be interpreted and applied in order to 
determine the place of supply of the service concerned. 
According to the defendant, the declaration of liability to tax that is contained in 
its orders was well founded. It argued that, in the previous proceedings, the 
judgment at first instance stated that the tax administration had to prove that the 
service in question, namely the operation of a website, was not provided by Lalib 
in Portugal, but was actually provided by the defendant in that case in Hungary, 
and that the tax administration had to prove this on the basis of objective facts, 
which it did by reference to the facts of the case in those proceedings. The tax 
administration brought new proceedings against WML in which it claimed that the 
service in question was provided not by Lalib but by WML from Hungary, and 
that the licence agreement in question was fictitious. In its view, the present 
proceedings do not meet the conditions of fact and law necessary to support a 
reference for a preliminary ruling to the Court of Justice. It further expressed the 
opinion that, as regards the questions raised at the applicant’s request, the Court of 
Justice had already given a ruling in this regard and had held that the assessment 
of the circumstances was a matter for the national court making the reference. 
Articles 2(1)(c), 24(1) and 43 of the Directive have already been interpreted by the 
Court of Justice. In the proceedings instituted at the request of WML, the Fővárosi 
Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, 
Budapest, Hungary), acting on the applicant’s request, had brought before the 
Court of Justice, with a view to obtaining an interpretation of the provisions in 
question, preliminary ruling proceedings in which the latter clearly defined the 
criteria against which the national court may adjudicate on the place of supply of 
the service to end users. In its ruling, the Court of Justice specifically interpreted 
the aforementioned provisions of EU law. 
II. Description of national law 
So far as concerns the rules relating to the place of performance that are contained 
in the az általános forgalmi adóról szóló 2007. évi CXXVII. törvény (Law 
CXXVII of 2007 on value added tax), both the parties to the proceedings and the 
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referring court take the view that [the rules relating to the place of performance 
contained in that Law] are in conformity with the provisions of the VAT 
Directive, which states that, in the case of supplies of services to a person who is 
not a taxable person, the place of supply of services is to be the place where the 
service provider is established. 
Nonetheless, the referring court observes that, in order to answer the question of 
who may be regarded as being the provider of the service, it is necessary to 
examine, first of all, the contractual relationship between the recipient and the 
provider of that service, although, in the light of the judgment given by the Court 
of Justice in the previous proceedings to which WML was a party, the 
Portuguese and Hungarian tax administrations, in their capacity as tax 
administrations of Member States, as determined in that judgment, took different 
positions on the place in which the service was actually provided. 
III. Reasons why a reference for a preliminary ruling is necessary 
According to the legal reasoning followed by the referring court, the dispute 
between the parties to these proceedings cannot be disposed of without an 
interpretation of EU law, in particular Articles 2(1)(c), 24(1) and 43 of Council 
Directive 2006/112, and without the application of that interpretation by the 
national court [to the present case]. In the context of the facts of the main 
proceedings, it may be noted that the Portuguese and Hungarian tax 
administrations, as tax administrations of Member States, have treated the same 
economic transaction differently from the point of view of tax. Both Member 
States have indicated that they are entitled to levy the VAT due on the transaction 
in question. 
[OMISSIS] [repetitive reasoning] The Court of Justice has already examined the 
legislation of several Member States in the light of Articles 2(1)(c), 24(1) and 43 
of Council Directive (EC) 2006/112, and interpreted the provisions of the VAT 
Directive relating to the supply of services in the judgment in WML. Nonetheless, 
the referring court considers that, in addition to that interpretation, the present case 
calls for a further interpretation, given that, taking into account the judgments of 
the Court of Justice relating to the interpretation of those same provisions of EU 
law, the Portuguese and Hungarian tax administrations have arrived at difference 
conclusions. 
The predecessor to this dispute is found in the request for a preliminary ruling that 
was made by the court hearing the administrative-law action which had been 
brought by WML in connection with part of financial year (FY) 2009 and FYs 
2010 and 2011, the Court of Justice having ruled on that reference for a 
preliminary ruling in Case C-419/14. In that case, the Court of Justice held that it 
is incumbent on the referring court to analyse all the circumstances of the main 
proceedings in order to determine whether the agreement concluded between the 
parties constituted a wholly artificial arrangement concealing the fact that the 
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services at issue were not actually supplied by the company acquiring the licence, 
but were in fact supplied by the company granting it, and determined the 
circumstances that must form the subject of its analysis; in the light of that ruling, 
it may be said that the Court of Justice attached decisive importance to whether 
Lalib possessed premises, infrastructure and staff in Portugal and whether it 
engaged in the economic activity in its own name and on its own behalf, under its 
own responsibility and at its own risk, and is therefore the recipient of the 
applicant’s services.  
In that context, the question of the criteria against which a national court in a 
Member State must assess the circumstances obtaining when determining the 
place of supply of services provided via the websites at issue, and, correlatively, 
the existence of any abuse of rights, is of decisive importance in the present 
proceedings. It is appropriate to ask whether the place of supply of the service to 
end users may be located in Hungary, and, therefore, whether the transaction 
between the applicant and Lalib may be regarded as being wholly artificial, 
notwithstanding that Lalib was the centre of the complex network of contracts and 
services essential to the provision of that service, and that it provided the 
conditions necessary for its supply, in the form of its own databases and IT 
software and suppliers that were either third parties or members of the Lalib group 
or of the applicant’s group of undertakings, and thus took on itself the legal and 
economic risk inherent in the supply of that service, and notwithstanding even the 
fact that subcontractors affiliated to the know-how proprietor’s group of 
undertakings, including the applicant, took part in the process of technical 
implementation of the know-how, and that the applicant undertaking’s ultimate 
owner ― which was also the manager and ultimate owner of the proprietor of the 
know-how ― had an influence on the operation of the know-how. The question is 
how to interpret the fact that Lalib possessed premises, infrastructure and staff in 
Portugal. The courts that heard the previous proceedings instituted at the request 
of WML instructed the tax administration, when investigating the actual place of 
supply of the service, to question and involve the Portuguese tax administration. 
The Portuguese tax administration confirmed that Lalib did indeed carry on an 
economic activity in Portugal and that it did so on its own account and at its own 
risk. Given that, in the proceedings before the Court of Justice in WML, Portugal 
submitted observations and its representative appeared in person and attended the 
hearing, it is clear that that the Portuguese tax administration was familiar with the 
essential content of the judgment in WML. It nonetheless maintained its position 
with respect to the matter of Lalib’s establishment in Portugal. Notwithstanding 
the judgment in WML, the Hungarian and Portuguese tax administrations 
maintained their previous different positions. The referring court therefore 
considers that the judgment in WML is not sufficiently clear with respect to the 
legal issue applicable to the present case and that that judgment must therefore be 
interpreted and clarified.  
As the Court of Justice had already held in paragraph 51 of the judgment in 
KrakVet, where they find that the same transaction has been the object of a 
different tax treatment in another Member State, the courts of a Member State 
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before which a dispute raises issues involving an interpretation of provisions of 
EU law and requiring a decision by them have the power, or even – depending on 
whether there is a judicial remedy under national law against their decisions – the 
obligation, to refer a request for a preliminary ruling to the Court of Justice. It is 
common ground that, in judgments relating to permanent establishment, the Court 
of Justice has also given definitive rulings on the question of which of two 
Member States has taxing powers (judgments given in Cases C-168/84, Grunter 
Berkholz, and C-231/94, Faaborg-Gelting Linien). In the present case, in which 
two Member States classify a single transaction differently for tax purposes, the 
referring court considers itself bound to make the present reference for a 
preliminary ruling to the Court of Justice. Given that that transaction is a cross-
border transaction, its assessment constitutes an important question of principle at 
EU level, not only from the point of view of determining the place of liability to 
tax, but also from the point of view of the free movement of services. In the light 
of the foregoing considerations, the referring court has instituted preliminary 
ruling proceedings before the Court of Justice on account, principally, of the 
aforementioned different tax classifications effected by the tax authorities of the 
Member States in question. By the questions raised, the referring court seeks the 
guidance of the Court of Justice as to whether, in the context of the transaction 
forming the subject of this dispute, the declaration of liability to tax made by the 
Portuguese tax administration or that made by the Hungarian tax administration is 
lawful, and as to which of the two Member States is the proper place for the 
taxation of that transaction. In that regard, it asks about the importance or 
otherwise of the criteria given. 
Given that VAT is a harmonised tax in the European Union, cooperation between 
the Member States has an importance which must not only be formal but must 
also be reflected in acceptance of the official position of foreign tax authorities. 
The outcome of the dispute between the tax administrations of the two Member 
States must not be that those party to the transaction remain subject to double 
taxation by virtue of the fact that two Member States adopt a different position in 
relation to the authenticity of the economic transaction and the place in which the 
service was supplied. After all, the provisions that determine the connecting factor 
for the purposes of the taxation of supplies of services have as their objective to 
avoid conflicts of competence that may give rise to double taxation, which would 
be contrary to the basic concept of the uniform system of VAT. 
[OMISSIS] [OMISSIS] [matters of domestic procedural law] 
Budapest, 28 September 2020 [OMISSIS] 
 [OMISSIS] 
[OMISSIS] [signatures]