Deduction of VAT on fuel purchases using fuel cards

The General Financial Directorate of the Czech Republic (hereafter the ‘GFD’) issued, in the second half of December last year, a long-awaited information confirming this possibility, albeit subject to several necessary conditions.

Adverse case law

The fact that there might be something wrong with the deduction claim on the side of the issuers or holders of fuel cards was brought as a bolt from the blue in 2003 by the judgment of the Court of Justice of the European Union (hereafter the ‘CJEU’) C-185/01 Auto Lease Holland BV. The CJEU concluded that the leasing company providing its customers with a fuel card did not have the right to dispose of the fuel as the owner and therefore was not entitled to recover VAT on the ‘purchase’ of the fuel. The fuel supplies should have been considered to have been made directly to the end customer and not to the leasing company. Although this case caused a considerable discussion, it did not ultimately bring about a major change in practice.

In particular, the public debate was opened by the CJEU's later decision in Case C-232/18 VEGA International, in which the CJEU again rejected the claim for the VAT refund on fuel purchased via fuel cards. 

The above-mentioned case has given rise to debates in individual EU Member States as to whether the issuers of the fuel cards acquire the rights to dispose of the goods as the owner, since only under such a condition can the issuers of the fuel cards subsequently transfer these rights to the holders of the fuel cards. It has become increasingly apparent that in practice the above conditions will not normally be met.

However, in its decisions, the CJEU did not address the possibility that the individual business models fulfil the characteristics of a so-called commission structure, which is characterised by the fact that the issuer of the fuel card acts as a person acting in his own name but on behalf of the petrol station (so-called sales commission structure) or on behalf of the customer (so-called purchase commission structure).

Finding a solution

The possibility of applying the commission structure was then repeatedly discussed by the VAT Committee, set up as an advisory committee under the VAT Directive.

As already mentioned above, in the case of a commission structure, the issuer of the fuel card, generally a representative person, acts in its own name but on behalf of the represented person. According to the general provisions of the VAT legislation, in such a case a fiction is applied where the petrol station supplies fuel to the fuel card issuer and subsequently the fuel card issuer supplies fuel to the fuel card holder. It soon became apparent that the commission structure would become the basic basis for maintaining the business models that had been established in practice and thus the basis for maintaining the deduction claims of the fuel card holders.

The VAT Committee has defined the basic prerequisites for the supply of goods or services using fuel cards to qualify as commission structures.

These conclusions were then used as a basis for the GFD, which prepared a comprehensive material on the subject (hereafter the ‘Information’) summarising the key conditions of the commission structures in the Czech Republic.

Specific conditions for the possibility of claiming the deduction

The information sets out the specific criteria for the delivery of fuel or other goods to a fuel card issuer without the need to transfer the right to dispose of the goods as owner. In this respect, the following conditions may be particularly mentioned.

• The contracting parties bear the risk of non-payment of their deemed delivery (i.e. the fuel supplier in relation to the fuel card issuer and the fuel card issuer in relation to the fuel card holder).
• The risk of damage to the goods delivered to the holder of the fuel card is borne by the issuer of the fuel card, i.e. in the event of damage to the vehicle's engine caused by the refuelling, the holder of the fuel card must claim against the issuer of the fuel card and not directly against the petrol station.
• The parties independently negotiate the price at each link in the chain, i.e. separately at the level of the fuel supplier and separately at the level of the fuel card issuer.
• By confirming each individual delivery to the fuel card holder, the fuel card issuer decides on the terms of purchase and confirms that the fuel card holder is entitled to refuel.
• The payment received and made by the fuel card issuer is of a similar nature.

It was pointed out that the characteristics of a commission structure would not be fulfilled in those cases where the economic substance of the relationship between the issuer of the fuel card and the holder of the fuel card consists in the provision of financial or administrative services (e.g. deferment of maturity, payment processing, pre-financing, etc.).  

In the case of business structures involving multiple links in a chain, it is necessary to examine the fulfilment of the conditions for each individual entity in the chain.

How we can help you

Both the Information itself and the VAT Committee's guidance clearly define that the correct contractual setting is crucial. Whether you are a fuel card issuer or a fuel card holder claiming deductions based on tax documents issued by the fuel card issuer, we recommend that you pay close attention to the contractual set-up.

If you are interested, we are ready to examine this area and set it up so that tax risks are eliminated. We will also be happy to answer your questions regarding this issue.

Authors:

Milena Drábová, Tax Department Manager

Jana Žilková, Senior Consultant, Tax Department