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ECJ C-656/19 (BAKATI PLUS) – Questions – VAT exemption for ‘personal luggage’

Unofficial translation/summary:

  • The applicant (Bakati Plus) has been active as a wholesaler in retail since April 2015. About 95% of the applicant’s activity consisted of sales to customers in Serbia.
  • The applicant knew that her Serbian customers, who purchased goods in large quantities from her hundreds of times, belonged to three families and that the goods were exported from Hungary to Serbia as buyers’ travel luggage.The applicant knew that the buyers did not buy the goods for private or family use, but with a view to resale to customers on the Serbian markets.
  • Following an inspection, the tax authorities ordered the applicant to pay a tax difference, a tax fine and default interest (a total of approximately EUR 1.5 million). The tax authorities considered that the applicant was not entitled to an export exemption, since no export procedure had been initiated with the customs authorities with regard to the transactions and the applicant did not have the documents required for that purpose. The applicant also does not meet the definition of exporter.
  • By decision of 31.10.2018, the defendant (objections section of the national tax and customs service) ratified the decision at first instance against which the applicant had challenged her. The applicant seeks the annulment of the defendant’s decision and submits that neither Community law nor VAT law defines the concepts of personal luggage or travel luggage. In the absence of a tax definition, the customs authority cannot distinguish between the goods offered for export, and cannot therefore refuse to endorse the VAT refund form for the goods in question on the ground that they are presumably intended for resale. Finally, the applicant disputes the legal interpretation by the tax authorities of Paragraph 12 / A of the Tax and Customs Administration Law, according to which the mere circumstance that the customs office of exit falls under the tax authorities does not mean that it carries out tax administration duties , so that the customs authority can only confirm that the goods have left the EU, but not that this was done as part of the personal luggage or travel luggage within the meaning of §99 of the VAT Act, nor that the conditions of this provision thereby is completed.

Firstly, the question is whether national practice assimilating the concept of “personal luggage” within the meaning of the VAT Directive with the definition of “luggage” in other legislation is compatible with Article 147 of the VAT directive. If not, the question arises as to how the concept of “personal luggage” should be defined in Article 147 of the VAT Directive, and whether national practice referring to the “general meaning of words” is compatible with EU law. Secondly, the question arises as to which provisions follow to examine whether the conditions for exemption from VAT in accordance with Article 146 of the VAT Directive are met, even if the legal customs formalities are not completed. Can a transaction – even if it was not expressly intended by the buyer – be considered an export transaction exempt from sales tax? Thirdly, the purpose of the request is to ascertain whether – in this case – the national practice whereby the tax authorities refuse the refund of incorrectly declared and paid tax on deliveries of goods to foreign travelers, without those transactions being deliveries of goods with the qualify for export, is compatible with Articles 147 and 146 of the VAT Directive and with EU law principles of fiscal neutrality and proportionality.

Preliminary questions:

  1. Is the national practice of equating the concept of ‘personal baggage’, which is part of the definition of a tax-exempt supply to a foreign traveler, with the concept of ‘personal goods’ of the New York Convention of 4 June 1954 on customs facilities for the purposes of tourism and the Additional Protocol and with the concept of ‘baggage’ in Article 1 (5) of Delegated Regulation (EU) 2015/2446 supplementing Regulation (EU) No 952/2013 of the European Parliament and the Council laying down detailed rules concerning certain provisions of the Union Customs Code, compatible with Article 147 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax?
  2. If not, how should the concept of ‘personal luggage’ be defined in Article 147 of the VAT Directive, given that the VAT Directive does not contain a definition of this concept? Is the national practice whereby tax authorities refer solely to the ‘general meaning of the words’ compatible with EU law provisions?
  3. Should the provisions of Articles 147 and 146 of the VAT Directive be interpreted as meaning that if a taxable person is not entitled to an exemption for supply to a foreign traveler in accordance with Article 147 of the VAT Directive, it must be examined where appropriate whether the export exemption in accordance with Article 146 of that directive applies even when the customs formalities of the Union Customs Code and the delegated regulation have not been complied with?
  4. If the answer to the previous question is that the transaction in question cannot qualify for exemption as a delivery to a foreign traveler, but as an export transaction, then this transaction can be made against the express intention of the buyer at the time of purchase. qualify as an exempt export transaction?
  5. If the answer to the third and fourth questions is in the affirmative, then in a case such as the present one – in which the issuer of the invoice knew at the time of delivery that the goods were purchased for resale and that the foreign buyer nevertheless wished to export goods as a foreign traveler, in other words, in which the issuer of the invoice prepared the VAT refund form on the sale to the foreign buyer in bad faith and the VAT charged on the basis of the exemption that has reclaimed a foreign traveler in bad faith – the national practice whereby the tax authorities wrongly declare and refund tax paid on deliveries of goods to foreign travelers,without classifying those transactions as the supply of goods for export and making the corresponding correction, even though it is unquestionably clear that the goods in question have left Hungary as travel luggage, compatible with Articles 147 and 146 of the VAT Directive and with EU law principles of fiscal neutrality and proportionality?

Source: (Dutch)