VATupdate
VAT
* click here if you have interesting news to share *

ECJ C-653/18 (Unitel) – Judgment – Export of goods – Recipient different from customer on invoice

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.

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.

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.

Judgment:

The ECJ rules as follows;

Article 146(1)(a) and (b) and Article 131 and the principles of fiscal neutrality and proportionality preclude a national practice, 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 VAT exemption, where the goods concerned were exported to a destination outside the EU 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.

The VAT exemption may only be refused if the failure to identify the person actually acquiring the goods prevents it from being proved that the transaction at issue constitutes an export of goods, 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.

If the VAT exemption is refused, the transaction in question should be considered not to constitute a taxable transaction and, accordingly, will not entitle to deduction of input VAT.

Source: curia.europa.eu