Illegal acquisition of electricity still subject to VAT

After an individual used electricity unlawfully, the distributor issued him with an invoice for an amount that was calculated based on the consumption showed on the meter readings.

The invoices, that included VAT was unpaid by the illegal consumer. The Magistrates’ Court of Antwerp eventually obliged the individual to compensate the distributor for the electricity unlawfully acquired.

In essence, the questions referred to the CJEU were, taken together, whether the distributor was to be seen as having made a supply of goods that should fall within the scope of VAT.

Two elements were considered in the questions referred. First the fact that the supply was involuntary and, secondly, the fact that the distributor was a public body.

The Court held that, although it was the result of unlawful conduct, the supply of electricity did consist in the transfer of the right to dispose of tangibles (electricity being considered goods for VAT purposes). The Court also held that such a supply, even though illegal, was to be seen as an economic activity since the wrongful actions of the customer it reflected a risk inherent in the activity of the distributor and was capable of distorting competition.

Key takeaway

A supply, albeit acquired illegally from a public body, may still be considered subject to VAT in so far as it meets the relevant definition and, not treating it as such, would distort competition. Operators, including public bodies, being compensated as a result of illegal conduct must therefore still carefully consider whether they are liable for VAT on the payments received.