In 1997 Levob entered into a contract with Financial Data Planning Corporation („FDP”),a company established in the United States.
The parties agreed on the following: use of a computer programme, sale of the software on a data carrier and customisation of the programme to the specific requirements of Levob (for use in the management of insurance contracts). The parties stipulated separate prices for the acquisition of the programme and for the subsequent customisation thereof to the specific requirements of Levob.
Levob was of the opinion that the sale of the computer programme and the customisation thereof constituted multiple taxable transactions, of which the first was supply of goods. However, the Dutch authorities found that the transactions entered into by Levob constituted a single supply of services.
Main question referred to the European Court of Justice
How should the sale of a computer programme where two separate prices are stipulated – one for the acquisition on a data carrier of a programme developed by the supplier and one for the subsequent customisation of the programme to the specific requirements of the purchaser – be regarded for VAT purposes?
The ECJ took Article 2 (1) of the Sixth VAT Directive as a basis in this case too. It pointed out that the transactions are so closely linked that they form objectively, from an economic point of view, a single transaction, since the purpose of the transactions is to develop the computer software according to the specific requirements of Levob.
Hence it is contrary to the real economic substance of the transaction if we say that two separate transactions were made: first the consumer purchased from the supplier the programme on a data carrier (which, as it stood, was of no use for the purposes of its economic activity) and then the consumer had it customised separately.
Therefore, the sale of the software on a data carrier and the related supply of service covering the customisation of the software constitute a single supply of services provided that the customisation is not minor or ancillary but is of decisive importance. The customisation of the programme can be regarded as such if its extent, cost, duration or the customisation itself is decisive in enabling the purchaser to use the software for its specific needs.
In its judgement, the ECJ fine-tuned the principles specified in its earlier judgement made in the Card Protection Plan (Case C-349/96) case. Based on this case, the characteristics of composite transactions can be summarised in the following non-exhaustive, conclusive listing:
- The sale of a product (software recorded on a data carrier) and the related supply of service covering the customisation of the product constitute a single supply if the customisation is not minor or ancillary but is of decisive importance.
- The customisation is of decisive importance if its extent, cost, duration or the customisation itself is decisive in enabling the purchaser to use the product (computer programme) for its specific needs.
- In the event of customisation of decisive importance, a single supply of services exists even if separate prices were stipulated for the sale of the product (software recorded on a data carrier) and for the customisation thereof.