On 10 July 2019, the European Court of Justice gave its judgment in case C-26/18 (Federal Express Corporation Deutsche Niederlassung). The case deals with the question if and when goods that arrive in an EU country, are immediately subject to VAT, or only in the country where they are finally released into free circulation (for consumption).
FedEx sent goods from Israel, Mexico and the United States to different recipients located in Greece, their final destination. The goods were subject to import duties. The goods were transported in 18 separate lots by air to Frankfurt am Main (Germany), where they were placed on another aircraft to Greece.
The customs office of Athens airport (Greece) informed the German customs office that the 18 consignments had been sent to Greece in breach of the customs regulations.
In view of that information, the German customs office investigated and concluded that for 14 of the 18 consignments the wrong customs procedures were used in Germany and therefore had given rise to a customs debt on importation.
For 3 of the 18 consignments, the German Main Customs Office considered that the goods concerned were in temporary storage on arrival at Frankfurt Airport, that they had been transported to Athens without having were placed under the external Community transit procedure and that they had, as a result, been removed from the place of deposit without authorization. For the last batch, it was found that the transfer of the goods to Athens had been preceded by a duly cleared external transit procedure from Paris (France) to Frankfurt-Main, but that these goods had also been removed from the place of deposit without authorization. Thus, also for these four lots, the German Main Customs Office considered that the breaches of the customs regulations gave rise to a customs debt on importation.
As a result, for the 18 lots FedEx received a notice for payment for the customs duties on imports, as well as an assessment for the import VAT.
FedEx initially paid the customs import duties and VAT, but later claimed the refund of these duties and the tax, on the ground, inter alia, that they had been subject to a double levy, contrary to EU law. In this regard, FedEx claimed that the goods in issue, after arriving in Athens, were released for free circulation and that the import duties, including the Greek import VAT, have been collected.
The German Main Customs Office rejected these refund applications.
Before the German Court, FedEx argued that the tax is a tax on consumption that only affects the goods that are actually consumed domestically. Since the goods in question were brought into Greece without having been introduced into the German economic circuit, they can not be regarded as having been imported into German territory and as being capable of being the subject of a taxable transaction on that basis.
The Hessisches Finanzgericht (Finance Court, Hessen) decided to ask the following questions to the Court of Justice for a preliminary ruling:
“Is importation subject to the condition that goods which have been introduced into the territory of the European Union must enter the economic network of the European Union, or is the mere risk that the goods introduced may enter the economic network of the European Union sufficient?
If importation is subject to the condition that goods must enter the economic network of the European Union:
Do goods which have been introduced into the territory of the European Union automatically enter the economic network of the European Union in the case where, contrary to customs law, those goods are not placed under a specific customs arrangement or, although initially placed under such an arrangement, they later cease to be covered by that arrangement on account of conduct contrary to customs law, or is it the case that, in the event of conduct contrary to customs law, entry into the economic network of the European Union is subject to the condition that it may be presumed that, on account of the conduct contrary to customs law, the goods entered the economic network of the European Union in the fiscal territory of the Member State in which the unlawful conduct was committed and may have been consumed or used?
The ECJ ruled as follows:
Whereas, when a good is introduced into the territory of the European Union, it is not sufficient for that good to be the subject of infringements of the customs rules in a given Member State, which have given rise in that State to a customs debt on importation, to consider that the said good has entered the economic circuit of the Union in that Member State, where it is established that the same good was conveyed to another Member State, its final destination, where it was the value-added tax attached to that good then only arises in that other Member State.