The European Court of Justice (ECJ) has recently ruled that when additional work is performed in the country of the recipient prior to final delivery of goods dispatched from another EU country, the place of supply is considered to be the country where the additional work is performed. The ruling upholds a decision of the French tax authorities to deny a VAT refund claim by an Italian supplier.

The case involved an Italian supplier producing metal components for a French customer. Prior to delivery to the French customer, the components were painted by a third party in France, which charged VAT to the Italian supplier. The supplier subsequently made a claim for a refund of the VAT paid, but the claim was denied by the French tax authorities because they deemed the supply to have been made from France, not Italy.

Normally, a business is able to claim a refund of VAT when incurred in connection with their business activities in an EU Member State. However, a refund is not available when the business is deemed to have made taxable supplies in the Member State from which the refund is claimed.

If the Italian supplier had dispatched the components directly from Italy to the French customer, the place of supply would have been Italy and a French VAT refund claim could have been made. But, because the components were sent to the third party painter and then delivered to the customer, the Italian supplier was deemed to have made supplies in France, so no refund could be claimed.