The European Court of Justice has ruled that the tax point for VAT may be defined as the moment of formal acceptance of work performed under a construction contract. In its judgement of 2 May 2019 (C-224/18) the court stated that the tax point may arise at the time of formal acceptance of the work stipulated in the contract.
In its recent judgment the ECJ allows the tax point to be defined as the moment of signing the handover protocol, provided that the following three conditions are jointly met:
a) A formal acceptance protocol is stipulated by the parties under the contract,
b) Formal acceptance protocols are common commercial practice in the field in which the service is supplied,
c) It is not possible to establish the consideration due by the client before the client formally accepts the construction or installation work.
This ECJ judgement impacts both future and past transactions and may be also applied in other areas, such as the supply of medical devices and the provision of architectural, IT and advisory services.
How can ASB Tax support you?
We recommend that you confirm that VAT on construction works has been settled in the correct periods. In some cases, it may be prudent to conduct a tax review to identify and mitigate risks in this area. Although the above ECJ judgment concerns the construction industry the same principles may apply in other business fields where acceptance reports are commonly used as a way of determining that work is completed and that a client is obligated to pay the contractor.