On 14 February 2019 the European Court of Justice gave its judgment in case C-531/17 (Vetsch Int. Transporte GmbH), regarding the exemption from VAT on importation and subsequent intra-Community supply, where subsequent VAT fraud by the customer with regard to imported goods.
Context: Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/CE — Article 143(1)(d) — Exemptions from VAT on importation — Imports followed by an intra-Community transfer — Subsequent intra-Community supply — Tax evasion — Refusal of the exemption — Conditions
Article in EU VAT Directive
Article 17(1), 138, 143(1)(d) and 201 of the EU VAT Directive 2006/112/EU
Article 138 (Exemption)
1. Member States shall exempt the supply of goods dispatched or transported to a destination outside their respective territory but within the Community, by or on behalf of the vendor or the person acquiring the goods, where the following conditions are met:
(a) the goods are supplied to another taxable person, or to a non-taxable legal person acting as such in a Member State other than that in which dispatch or transport of the goods begins;
(b) the taxable person or non-taxable legal person for whom the supply is made is identified for VAT purposes in a Member State other than that in which the dispatch or transport of the goods begins and has indicated this VAT identification number to the supplier.
1a. The exemption provided for in paragraph 1 shall not apply where the supplier has not complied with the obligation provided for in Articles 262 and 263 to submit a recapitulative statement or the recapitulative statement submitted by him does not set out the correct information concerning this supply as required under Article 264, unless the supplier can duly justify his shortcoming to the satisfaction of the competent authorities.
2. In addition to the supply of goods referred to in paragraph 1, Member States shall exempt the following transactions:
(a) the supply of new means of transport, dispatched or transported to the customer at a destination outside their respective territory but within the Community, by or on behalf of the vendor or the customer, for taxable persons, or non-taxable legal persons, whose intra-Community acquisitions of goods are not subject to VAT pursuant to Article 3(1), or for any other non-taxable person;
(b) the supply of products subject to excise duty, dispatched or transported to a destination outside their respective territory but within the Community, to the customer, by or on behalf of the vendor or the customer, for taxable persons, or non-taxable legal persons, whose intra-Community acquisitions of goods other than products subject to excise duty are not subject to VAT pursuant to Article 3(1), where those products have been dispatched or transported in accordance with Article 7(4) and (5) or Article 16 of Directive 92/12/EEC;
(c) the supply of goods, consisting in a transfer to another Member State, which would have been entitled to exemption under paragraph 1 and points (a) and (b) if it had been made on behalf of another taxable person.
Article 143 (Exemption upon importation)
1. Member States shall exempt the following transactions:
(d) the importation of goods dispatched or transported from a third territory or a third country into a Member State other than that in which the dispatch or transport of the goods ends, where the supply of such goods by the importer designated or recognised under Article 201 as liable for payment of VAT is exempt under Article 138;
Article 201 (Liability to pay VAT upon importation)
On importation, VAT shall be payable by any person or persons designated or recognised as liable by the Member State of importation
Facts (simplified):
- Two Bulgarian companies (B and K) acquired goods from a company in Switzerland and were given the power of disposal of these goods in Switzerland. These goods were imported into Austria, where B and K used Vetsch Int. Transporte GmbH (‘Vetsch’) as their customs agent. Subsequently, the goods were transported to Bulgaria on behalf of B and K by a forwarding agent – who had submitted the relevant consignment notes to Vetsch.
- Vetsch submitted declarations as an indirect representative of the respective Bulgarian recipients at an Austrian customs office for the release for free circulation of goods coming from Switzerland under the so-called ‘customs procedure 42’. At the same time, Vetsch applied for an exemption from VAT on import.
- It is clear from the facts that the goods were indeed transported from Austria to Bulgaria. B and K also reported the intra-Community transfer from Austria to Bulgaria, both in Austria and in Bulgaria, and paid the tax due. According to the referring court, it can be assumed that the goods arrived in Bulgaria and that B and K had the power to dispose of the goods during the entire duration of the transport.
- This is were it went wrong. Both Bulgarian companies B and K resold the goods (apparently with VAT). However, they did not indicate this sale but, on the contrary, filed a tax-free intra-Community supply to Vetsch which they had previously used for the customs declaration. That delivery, however, never happened. In the view of the national court, B and K were guilty of tax evasion in Bulgaria. Vetsch was not involved in any way in VAT fraud.
- Nevertheless, Vetsch was designated as the person liable for payment of VAT on importation, since, according to the Austrian tax authorities, the conditions for the exemption upon importation were not fulfilled. And as customs agent, Vetsch was the person liable for payment of VAT on importation.
- The reasoning by the Austrian court was that the VAT exemption for intra-Community supplies (or more precisely intra-Community transfers) in Austria must be refused, because of the subsequent tax evasion by the Bulgarian companies B and K. And therefore, the condition for the exemption from VAT on importation was not met, as this required an exempt supply to be made after importation.
In those circumstances, the Verwaltungsgerichtshof (Upper Administrative Court, Austria) decided to refer to the Court of Justice the following questions for a preliminary ruling:
‘(1) Is the exemption under Article 138 of [the VAT Directive] for an intra-Community transfer from a Member State to be refused where the taxable person carrying out that transfer to another Member State does in fact declare in the other Member State the intra-Community acquisition linked to the intra-Community transfer, but commits tax evasion in connection with a subsequent taxable transaction concerning the goods in the other Member State by wrongfully declaring an exempt intra-Community supply from that other Member State?
(2) Is it relevant to the answer to Question 1 whether the taxable person had intended at the time of the intra-Community transfer to commit tax evasion in respect of a subsequent transaction concerning those goods?’
Questions
1. Is the exemption under Article 138 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax 1 for an intra-Community transfer from a Member State to be refused where the taxable person carrying out that transfer in another Member State does declare in the other Member State the intra-Community acquisition linked to the intra-Community transfer, but commits tax evasion in connection with a subsequent taxable transaction with the goods concerned in the other Member State by wrongfully declaring an exempt intra-Community supply from that other Member State?
2. Is it relevant to the answer to Question 1 whether the taxable person had intended at the time of the intra-Community transfer to commit tax evasion in respect of a subsequent transaction with those goods?
AG Opinion
Article 143(1)(d), in conjunction with Article 138, of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax is to be interpreted to the effect that the reference to exemption under Article 138 relates solely to its abstract existence. It is not therefore possible to refuse the declarant of import VAT exemption for the import where the recipient of the goods alone knew or should have known that, by the intra-Community transfer, he was taking part in a transaction connected with fraudulent evasion of VAT.
Decision
Article 143(d) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and Article 143(1)(d) of that directive, as amended by Council Directive 2009/69/EC of 25 June 2009, must be interpreted as meaning that the exemption from import value added tax laid down in those provisions may not be refused in respect of an importer designated or recognised as liable for payment of that tax, within the meaning of Article 201 of Directive 2006/112, in a situation, such as that in the main proceedings, in which, first, the recipient of the intra-Community transfer of goods effected after that import commits tax evasion in connection with a transaction which is subsequent to that transfer and is not linked to that transfer and, secondly, there is no evidence to support the conclusion that the importer knew or ought to have known that that subsequent transaction entailed tax evasion on the part of the recipient.
Summary
The exemption from import VAT may not be refused in respect of an importer designated or recognised as liable for payment of that tax, in a situation, such as that in the main proceedings, in which, first, the recipient of the intra-Community transfer of goods effected after that import commits tax evasion in connection with a transaction which is subsequent to that transfer and is not linked to that transfer and, secondly, there is no evidence to support the conclusion that the importer knew or ought to have known that that subsequent transaction entailed tax evasion on the part of the recipient.
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