The Supreme Court (appellate jurisdiction) dismissed the Republic's appeal against a first instance decision to annul a confirmation of value added tax (VAT) of €104.959 imposed on MTN Cyprus (now Epic).
According to the decision, the company had also entered into agreements with independent resellers for the provision of services for the sale of mobile phone contracts and mobile phone handsets to third parties in relation to the tax periods between 1.1.05 and 31.12.10, a VAT confirmation dated 27.1.11 for an amount of €1,158,969.97.
It is noted that it was found that a credit entry of €699,726.00 had been entered in a specific account of the Appellants, which (according to the Appellants) was not input tax "... for the company due to the fact that there is no transaction in these cases". Accordingly, the Republic assessed as VAT due the amount in dispute (€104,959.90) pursuant to Article 49(2) of the Value Added Tax Law 95(I)/00 ("the Law 95(I)/00").
In its judgment, the Supreme Court confirmed the first instance judgment that the amount in dispute should have been understood by the Appellants as consideration for the purchase of services and not as a subsidy.
"The Appellants' contention that the promotion of the mobile phone contracts was due to the discounted price at which the mobile phones were sold cannot be sustained, nor is it supported by the issues raised in the trial court. The interconnection in question was related to the type of package and not to the price of the mobile telephone set. By selling a bundle, the resellers were selling the mobile phone and the mobile phone contract for a predetermined period of time for a minimum and pre-agreed monthly fee," it said.
It is also mentioned in the trial court judgment that the resellers, when they sell the contracts of the petitioners, receive not only profit from the sale of the handset but also commission based on its agreement with the petitioners and that the petitioners, based on the agreement with the resellers, when the latter sell mobile telephony services, also receive profit from the services offered by the resellers to them, for which they pay a fee to the resellers.
"I consider the VAT charged on this amount to be an input tax and not a subsidy directly linked to the sale price of the mobile phone under section 14(2) of the Act."
Source: CNA
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