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ECJ C-653/18 (Unitel) – Judgment – Export of goods – Always refusing exemption for export when the customer of the exported goods is not identified is not allowed

On October 17, 2019, the European Court of Justice gave it judgment in case C-653/18 (Unitel sp. z o.o.) on 17 October 2019. The case answers the question if tax authorities may refuse the application of the VAT zero-rate if an invoice mentions the wrong name of the recipient.

Context: Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/EC — Article 146 — Exemptions on exportation — Concept of ‘supply of goods’ — Article 131 — Conditions laid down by the Member States — Principle of proportionality — Principle of fiscal neutrality — Evidence — Tax evasion — Practice of a Member State consisting in refusing the right to exemption where the person acquiring the goods exported is not identified


Article in the EU VAT Law

Aricles 131, 146(1)(a), 146(1)(b), 168 of the EU VAT Directive 2006/112/EC

Article 131 (Exemptions – General provisions)
The exemptions provided for in Chapters 2 to 9 shall apply without prejudice to other Community provisions and in accordance with conditions which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse.

Article 146 (Exemptions on Exportation)
1. Member States shall exempt the following transactions:
(a) the supply of goods dispatched or transported to a destination outside the Community by or on behalf of the vendor;
(b) the supply of goods dispatched or transported to a destination outside the Community by or on behalf of a customer not established within their respective territory, with the exception of goods transported by the customer himself for the equipping, fuelling and provisioning of pleasure boats and private aircraft or any other means of transport for private use;

Article 168 (Origin and Scope of Right of Deduction)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries
out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18 (a)and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.


Facts (simplified):

Unitel sp. z o.o., a company established in Poland, sold mobile telephones to two Ukrainian entities. Following an audit carried out on that company, the Polish tax authorities found that the procedure for the exportation of those mobile telephones to a destination outside the territory of the European Union had been carried out, but that those goods had not been acquired by the entities stated on the invoices but by other entities which were not identified. The Polish tax authorities thus concluded that there had been no supply of goods within the meaning of Article 2(8) of the Law on VAT and, therefore, that Unitel was not entitled to apply the 0% rate of VAT provided for in Article 41(4) of that Law.

The Wojewódzki Sąd Administracyjny w Warszawie (Regional Administrative Court, Warsaw, Poland) noted that it was apparent from the findings made that one of the two Ukrainian entities was a shell company, serving to conceal the actual recipient and to perpetrate tax fraud against both the Polish and Ukrainian tax authorities, and that the other entity was not the economic operator which had acquired the telephones from Unitel. That court found that there had been no supply of goods since the tax authorities had established that the persons acquiring the goods mentioned on the invoices had not entered into possession of those goods, had not disposed of those goods as owner and did not carry out any economic activity, so therefore the transactions at issue could not be characterised as an ‘export of goods’ within the meaning of Article 2(8) of the Law on VAT. That court also held that Unitel had not exercised due diligence when conducting those transactions. It observed, inter alia, in that regard that that company had drawn up its invoices based on data submitted by entities whose mandates were not valid or which did not possess genuine business addresses or valid documents providing proof of VAT accounting.

Unitel argues that this is an incorrect interpretation and application of Article 131 of the VAT Directive, read in conjunction with Article 146(1)(a) and (b) thereof, inasmuch as the application of the rate of 0% was held subject to compliance with formal conditions even though all the substantive conditions for the application of that rate were satisfied, and an error of interpretation and application of Article 41(4) and (11) of the Law on VAT, read in conjunction with Article 41(6), Article 2(8) and Article 7(1) of that Law. That error, in Unitel’s view, consists in having found that the supply of goods is effective only when the operator mentioned on the invoice as the person acquiring the goods is the same as the operator which actually takes part in the transaction at issue in that capacity, and in refusing as a result to treat that transaction as an export of goods and to apply the rate of 0%, and in finding nevertheless that that transaction constitutes a supply taxable at the national rate.

The referring court is uncertain as to whether, in order to find that a supply of goods to a destination outside the territory of the European Union indeed took place, where the export per se of those goods is not disputed, it is in fact necessary that the entity designated on the supplier’s invoice and the customs documents as the person acquiring those goods must be the same as the actual recipient of those goods.

It raises the issue of whether, in such a situation, there is a transfer of the right to dispose of tangible property as owner, within the meaning of Article 14(1) of the VAT Directive.

In that context, the issue then arises, in the referring court’s view, of knowing to what extent possible tax evasion, which occurs in the territory of the non-Member State where the goods exported were received by a person other than that indicated on the customs documents, affects the applicability of the exemption with the right to deduct VAT. Examining the case-law of the Court according to which it is for the Member States to refuse to grant the rights provided for in the VAT Directive in the event of tax evasion committed by the taxable person himself or where that person knew or ought to have known that, by the transaction at issue, he was participating in a transaction which was part of a VAT fraud, it raises the issue of whether that obligation, which is aimed at protecting the internal market, applies where the tax evasion is committed only in a non-Member State, that being the State of destination and consumption of the goods exported.


Question

In the light of Article 146(1)(a) and (b) and Article 131 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax 1 and of the principles of taxation of consumption, neutrality and proportionality, should the correct national practice be to apply an exemption with the right to deduct (which in Poland means application of a 0% rate) in each case where both of the following conditions are met:

(a)    the goods have been exported to an unidentified recipient outside the European Union; and

(b)    there is clear evidence that the goods have left the territory of the European Union, and this is not disputed?

Do the provisions of Article 146(1)(a) and (b) and Article 131 of Directive 2006/112/EC and the principles of taxation of consumption, neutrality and proportionality preclude a national practice whereby it is assumed that no supply of goods has taken place in the case where the goods have been indubitably exported outside the territory of the European Union, and following their exportation the tax authorities establish in the course of their investigation that the person actually acquiring the goods was not the entity to whom the taxable person issued the invoice documenting the supply, but was another entity unidentified by the authorities, as a result of which the authorities refuse to exempt such a transaction from tax with the right to deduct (which in Poland means application of a 0% rate)?

In the light of Article 146(1)(a) and (b) and Article 131 of Directive 2006/112/EC and of the principles of taxation of consumption, neutrality and proportionality, should the correct national practice be to apply the domestic rate to the supply of goods where there is clear evidence that the goods have left the territory of the European Union, but the authorities, in the absence of an identified recipient, conclude that no supply of goods has taken place, or should it rather be assumed that no taxable transaction for VAT purposes has taken place at all in those circumstances and therefore that the taxable person is not entitled to deduct input VAT on the purchase of the exported goods under Article 168 of Directive 2006/112/EC?


AG Opinion

None


Decision

1.      Article 146(1)(a) and (b) and Article 131 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and the principles of fiscal neutrality and proportionality must be interpreted as precluding a national practice, such as that at issue in the main proceedings, which consists in considering in all cases that there is no supply of goods, within the meaning of that former provision, and in refusing as a result the value added tax (VAT) exemption, where the goods concerned were exported to a destination outside the European Union and where, following their exportation, the tax authorities found that the person acquiring those goods was not the person stated on the invoice issued by the taxable person but another entity which has not been identified. In such circumstances, the VAT exemption provided for in Article 146(1)(a) and (b) of that directive must be refused if the failure to identify the person actually acquiring the goods prevents it from being proved that the transaction at issue constitutes a supply of goods within the meaning of that provision or if it is established that that taxable person knew or ought to have known that that transaction was part of a fraud committed to the detriment of the common system of VAT.

2.      Directive 2006/112 must be interpreted as meaning that where, in those circumstances, there is a refusal to grant the value added tax (VAT) exemption provided for in Article 146(1)(a) and (b) of Directive 2006/112, the transaction in question should be considered not to constitute a taxable transaction and, accordingly, not to confer entitlement to the deduction of input VAT.


Source 


Summary

The Court of Justice has ruled on many occasions that Member States are not allowed to defeat the objectives of the Directive by insisting on compliance with local formal conditions.
Here, the Polish tax authority
took the view that, as the ultimate customer for the supply of goods could not be sufficiently identified, the supply could not benefit from the exemption for exports from the  community. The Court confirmed that unless the lack of identification of the customer meant that there was no proof that the supply had occurred or that the supplier knew or should have known that his transactions was connected to VAT fraud, refusal to allow exemption would offend the principle of proportionality.


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