Law Firm Warns on "Unexpected" VAT Costs for Intermediaries in Bunker Transactions

Nctm says companies involved in supply chains to vessels with intermediaries might be faced with unexpected VAT costs.

Italy-based law firm Nctm Studio Legale (Nctm) has warned on possible unexpected VAT costs being applied to bunkers, following the recent examination of a Court of Justice of the European Union (CJEU) ruling.

The case in question saw Fast Bunkering Klaipeda (FBK) of Lithuania filling orders from European Union-established traders, who in turn took instruction from the operators/owners of the international sea-going vessels.

FBK did not charge VAT on its invoices to the traders, based on its understanding of Article 148(a) of the EU's tax directive, which for international transport exempts VAT on "the supply of goods for the fuelling and provisioning of vessels used for navigation on the high seas."

Lithuanian tax authorities had argued that this zero percent VAT rate only applies when bunkers are directly supplied to the operators of ocean going vessels, but in this case the physical supplier was dealing with intermediaries that were acting in their own name.

In fact, the court stated that the tax exemption only applies to the final supply of goods to the vessel, and not necessarily to intermediaries along the commercial chain; that is, the supply of bunkers between intermediaries acting in their own name cannot be considered the supply of bunkers within the meaning of Article 148(a).

However, in the specific case in question, the order of business was for FBK to load the bunkers onto the vessel in question, and only then invoice the intermediaries.

This meant that, while ownership of the bunkers was contractually transferred to the intermediaries, they were never in a position to dispose of the bunkers - a power that was always with the vessel operator.

As such, FBK was not considered to be engaged in the supply of goods to an intermediary, but rather a supply made directly to the operators of the vessel - and hence the zero rate VAT rate was applicable.

The ruling raises interesting questions over the timing of when ownership in the bunkers is transferred to intermediaries in relation to when the operator gains entitlement to burn the bunkers, and the resulting application of VAT.

Indeed, the court noted that 148(a) "is not, in principle, applicable to supplies of goods for the fuelling and provisioning to intermediaries acting in their own name."

"As a consequence of this ruling, the companies involved in supply chains to vessels with intermediaries might be faced with unexpected VAT costs, taking in due consideration also the fact that Member States may still have different views on exemption," Nctm warned.

"The operators of the sector should bear in mind these possible consequences."