Stock ‘94 Szolgáltató Zrt. v Regional Customs and Finance Directorate-General for Southern Transdanubia of the National Tax and Customs Office, Hungary, [2016] BVC 45, C-208/15 (European Court of Justice (5th Chamber))

Stock ‘94 was a company which acted as an “integrator,” i.e., it assisted Hungarian farmers (“integrated producers”) by making a loan to the farmer, which was used to purchase current assets for use on the farm. The Hungarian authority applied VAT to the loan interest. Art. 78(b) of the VAT Directive provided that “the taxable amount shall include…incidental expenses, such as commission, packing, transport and insurance costs, charged by the supplier to the customer,” and Art. 135(1)(b) exempted “the granting and the negotiation of credit.”

In upholding the Hungarian authority’s position (subject to some further findings of fact to be made by the local court), Da Cruz Vilaça J stated (at paras 27, 31, 32, 33):

[T]here is a single supply where two or more elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. … In particular, a supply must be regarded as ancillary to a principal supply if it does not constitute for customers an end in itself but a means of better enjoying the principal service supplied… .

…[T]he integrator grants a loan to an integrated producer, which that producer may use only to purchase current assets from the integrator.

In those circumstances, the grant of such loans does not constitute a supply with an independent interest from the perspective of integrated producers.

…Stock ‘94 itself acknowledges … , not having authorisation to act as a credit institution, it could not grant loans to the integrated producers without their being intended for the purchase of its current assets.

A Hungarian company was set up to assist Hungarian farmers by lending them money to fund the purchase by them from it of current assets needed in their business. The European Court of Justice (subject to some further findings of facts to be made by the local court) essentially applied the single supply doctrine to find that the loan interest was part of the consideration for the sale of products by the company to the farmers, so that the interest was subject to VAT (even though, of course, interest on loans viewed as being for a separate supply was VAT-exempt). The Court was influenced by the facts that the loan could only be used to fund the purchases from the company (which was their sole purpose), and that the company was not authorized to make loans to anyone other than farmers.