ECJ Case C-628/16 (Kreuzmayr ) – Judgment – Chain supplies: Which supply is zero-rated?

On 21 February 2018 the ECJ judged in case C-628/16 (Kreuzmayr), regarding the question where in a supply chain a zero-rated supply takes place.

Article in the EU VAT Directive

Article 32
Where goods are dispatched or transported by the supplier, or by the customer, or by a third person, the place of supply shall be deemed to be the place where the goods are located at the time when dispatch or transport of the goods to the customer begins.
However, if dispatch or transport of the goods begins in a third territory or third country, both the place of supply by the importer designated or recognised under Article 201 as liable for payment of VAT and the place of any subsequent supply shall be deemed to be within the Member State of importation of the goods.

Facts (simplified):

BP Marketing GmbH (DE) sold petroleum products to BIDI Ltd (AT VAT ID #). BIDI agreed to order and arrange the transport of those products from DE to AT.
Without informing BP Marketing, BIDI resold the goods to Kreuzmayr, agreeing that Kreuzmayr would order/arrange the transport of the goods from DE to AT, which Kreuzmayr did.
BP Marketing treated its supplies to BIDI as intra-Community supplies. BIDI treated its supplies to Kreuzmayr as local sales in AT, charging AT VAT, which VAT Kreuzmayr subsequently recovered.
When BP Marketing found out that BIDI had resold the products, and did, in fact, not transport the goods, BP Marketing reissued its invoices to BIDI, charging DE VAT. BIDI sent amended invoices to Kreuzmayr without VAT.
However, BIDI did not repay the wrongly charged AT VAT to Kreuzmayr. BIDI went bankrupt, and Kreuzmayr never recovered the amounts of VAT which it had paid to BIDI.
The AT tax authorities raised an assessment with Kreuzmayr, arguing that the VAT on the original invoices from BIDI was wrongly charged, and was thus not deductible.

Questions

Question 1:

In circumstances such as those at issue in the main proceedings, in which a taxable person X1 has at its disposal goods stored in Member State A and has sold those goods to a taxable person X2, and X2 has expressed to X1 its intention to transport the goods to Member State B, and X2 has presented to X1 its VAT identification number issued by Member State B,

and X2 has sold those goods on to a taxable person X3 and X2 has agreed with X3 that X3 will arrange or carry out the transport of the goods from Member State A to Member State B and X3 has arranged or carried out the transport of the goods from Member State A to Member State B and X3 was already entitled to dispose of the goods as owner in Member State A,

and X2 has not, however, informed X1 that he has already sold on the goods before they leave Member State A,

and X1 also could not know that X2 would not be arranging or carrying out the transport of the goods from Member State A to Member State B,

is EU law to be interpreted as meaning that the place of supply from X1 to X2 is determined in accordance with the first paragraph of Article 32 of Directive 2006/112/EC ¹ and that the supply from X1 to X2 is thus the intra-Community (the so-called ‘active’) supply (bewegte Lieferung)?

Question 2:

If Question 1 must be answered in the negative, is EU law then to be interpreted as meaning that X3 may nevertheless deduct as input VAT an amount of VAT of Member State B invoiced to it by X2, provided that X3 uses the goods purchased for purposes of its transactions taxed in Member State B and no wrongful exercise of the right of deduction of input VAT can be imputed to X3?

Question 3:

If Question 1 must be answered in the affirmative and X1 subsequently learns that X3 has arranged the transport and was already entitled to dispose of the goods as owner in Member State A, is EU law then to be interpreted as meaning that the supply from X1 to X2 retrospectively loses its status as the intra-Community supply (that it is thus to be viewed retrospectively as a so-called ‘passive’ supply (ruhende Lieferung))?

AG Opinion

None

Decision

1. In circumstances such as those in the main proceedings, the first paragraph of Article 32 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that it applies to the second of two successive supplies of the same goods which gave rise to only one intra-Community transport.

2. Where the second supply in a chain of two successive supplies involving a single intra-Community transport is an intra-Community supply, the principle of the protection of legitimate expectations must be interpreted as meaning that the person ultimately acquiring the goods, who wrongly claimed a right to deduct input value added tax, may not deduct, as input value added tax, the value added tax paid to the supplier solely on the basis of the invoices provided by the intermediary operator which incorrectly classified its supply.

Summary/Comments

The ECJ repeats that there can be only 1 intra-Community supply, which is the chain in which the transportation takes place. This is the transaction where the right to dispose of the goods as owner takes place.

In this case, Kreuzmayr was the owner of the goods before the intra-Community transport took place. This means that the intra-Community transport must be ascribed to the second supply.

Kreuzmayr could/should also have known or realized this, and can therefore not claim back any (wrongly) charged VAT

In accordance with earlier cases relative to A-B-C transactions, the ECJ ruled that the first sale (by A) may not be zero-rated where C may dispose of the goods in the Member State of departure before the intra-Community transport takes place.

The Court even goes a step further: where C may dispose of the goods in the Member State of departure, the supply by A may not be zero-rated even if B presents itself with a VAT number issued by the country of destination and A has not been informed that the goods would be resold by B to C.

That case-law again shows that the allocation of transport to a well-defined supply in the chain is crucial. The ECJ proves to be even stricter than in a previous case-law where A was given conclusive information (shipment and VAT registration number) allowing to treat first supply as a zero-rated one under certain circumstances (see ECJ C-430/09).

The businesses involved in intra-Community trade should be very careful, especially where they are not in charge of the transport. In the latter situation, they do indeed not necessarily have all the information allowing to determine in which commercial relationship the transport is deemed to take place and the risk is therefore high that the VAT exemption is erroneously applied.

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