VAT Committee publishes guidelines on fuel cards

After the ECJ ruling in the "Vega International" case, the BMF (German Federal Ministry of Finance) felt compelled to circulate a draft letter in November 2021, which declared the chain supply of fuel previously common in the industry to be the exception rather than the rule as early as January 2022. When it became known that the VAT Committee of the EU Commission would take up the issue, the BMF withdrew the letter to await the outcome. Since 6 September, the corresponding guidelines of the VAT Committee have been available. These were derived from Working Paper 1067 of 5 July 2023.

Content of the guidelines

Working Paper 1046 of 7 September 2022 had already indicated the direction in which the guidelines were headed. In the typical buy/sell business, as it is currently structured at many fuel card issuers, the mineral oil company does not transfer the power of disposal of the fuel to the card issuer, but to the fuel customer (according to the ECJ in the Vega case). The card issuer does not supply fuel to the fuel customer, rather it merely provides a financing service. However, it is possible to assume a supply of fuel from the mineral oil company to the card issuer and then from the card issuer to the fuel customer if the contracts are structured in such a way that the card issuer can be regarded as a commission agent buying/selling the fuel in its own name but for the account of another.

The present guidelines and Working Paper 1067 give more detailed reasons for this: it is true that the card issuer, even as a commission agent, does not receive power of disposal over the fuel from the mineral oil company, but only ownership under civil law. However, overcoming this deficiency is precisely the purpose of the commission's regulation under Article 14(2)(c) of the VAT Directive, which feigns a supply despite the lack of power of disposal. The result of this legal fiction is the desired chain supply of fuel.

Detailed information on the conditions under which such a commission transaction can be accepted is now provided by the guidelines:

The mineral oil company must transfer ownership under civil law to the card issuer. This requires that the mineral oil company bears the risk of non-payment by the card issuer and the card issuer bears that of the fuel customer. If the fuel customer suffers damage from the fuel (e.g., to the engine), they must have a contractual claim for damages against the card issuer, not against the mineral oil company. Furthermore, the price must be set independently at both levels of the chain transaction. By confirming each individual delivery, the card issuer should decide on the terms of each purchase, including the quality, quantity, and the place and time of delivery. In doing so, the card issuer thereby also confirms that the fuel customer is granted immediate access to the fuel.
The supply by the mineral oil company to the card issuer, and that of the card issuer to the fuel customer, must be similar. This means that the fuel is not changed. The fact that in the case of the latter supply the respective customer is given power of disposal, but not in the case of the former, does not contradict the "similarity" of the supplies according to Working Paper 1067.
There must be an agreement between the card issuer as commission agent and the fuel customer/the mineral oil company as principal which states that the card issuer buys for the account of the fuel customer or sells for the account of the mineral oil company and that the object of the contract is the delivery of fuel, but not the granting of a financial service or the administration of fuel deliveries.

The card issuer must receive a fee from the tank customer (or, depending on the structure of the commission business, from the mineral oil company) for its service as a commission agent.

The contract must correspond to economic reality and the fuel customer must prove the existence of this contract at the petrol station (e.g., by presenting the fuel card).

According to the guidelines, these regulations should not affect previous national regulations on fuel card transactions, i.e., they should not have a retroactive effect.

Practical implications

At first glance, the concept of purchasing commission seems somewhat strange, as the situation in the fuel card business is not typical of it. . In a commission business, it is usually the commission agent who interacts with the seller; the principal remains in the background. Here, on the other hand, the (purchase-) commission model is combined with a proxy, in which the principal (the fuel customer) represents the commission agent (the card issuer) at the petrol station. In essence, the fuel customer is representing the card issuer in the transaction of their own (the fuel customer's) business. Nevertheless, this solution is an elegant way of achieving a chain supply of fuel, although the card issuer is not granted power of disposal over the fuel.

It is gratifying that the VAT Committee does not consider it necessary to apply the new principles retroactively to fuel card transactions. The feared chaos resulting from such a correction is thereby avoided. However, fuel card issuers who want to continue to treat their sales as chain supplies of fuel in the future should take steps to adapt their contracts as soon as possible.

The fact that the card issuers are being required to be liable to the fuel customer for damages caused by the fuel is an additional burden - but one that those affected might be willing to bear given the unlikelihood of this occurring.

The BMF draft provided that the fuel card issuer must be able to freely decide on the quality and quantity as well as the place and time of supply and that it is not enough for the fuel card issuer to merely grant a blanket authorisation that complies with the existing framework conditions and restrictions such as checking the disposal limit of the respective card. This would not have been feasible in practice. The guidelines also require an individual confirmation within the contractual agreement but are formulated more loosely, making practical solutions seem more possible here.

At first glance, it seems irritating that the price must be set individually at both levels of the chain transaction. In the fuel card business, the price is often set to automatically be the same in both relationships. However, it can probably be assumed that although there must be separate price agreements in both relationships, there can be a dependency here, since otherwise, the whole concept would always fail at this point.

It should be borne in mind with this concept of the commission that, at least according to the German understanding of § 3 (3) UStG, there is no independent intermediary service in the case of a commission transaction. The remuneration for the card issuer's service, which according to the guidelines of the VAT Committee is a prerequisite for treatment as a commission transaction, may therefore not be treated as such for VAT purposes. Rather, it changes the taxable amount for the (fictitious) fuel supply. This may also have an influence on the place of supply.

According to Art. 398 of the VAT Directive, the VAT Committee is a purely advisory body whose purpose is to promote the coordinated application of the provisions of the VAT Directive. This is done through guidelines, which, however, are not legally binding. For the German tax administration, the BMF clarified this in a letter dated 3 January 2014. In this letter, the BMF includes these guidelines in the formation of its administrative opinion but is not bound by them. As the BMF explicitly withheld the letter on the topic of fuel cards on the grounds that it was awaiting the VAT Committee’s decision, it can, however, be expected that it will now prepare a BMF letter in accordance with the principles of the guidelines. The November 2021 draft did not include the concept of commission business, so the changes are likely to be significant. For some points, it is not yet entirely clear how the BMF will implement them, e.g., with regard to the confirmation of each individual supply or the determination of the price at each level.

The guidelines show that almost all stakeholders agreed. It is therefore likely that most Member States will follow this approach.

Dated: 19 October 2023