ECJ C-401/18 (Herst) – Judgment – Intra-EU transport of excise goods, Power to dispose of the goods as owner

On 23 April 2020 the European Court of Justice gave its judgment in case C‑401/18 (Herst s.r.o.). The case deals with the question if and when an intra-Community transaction takes place.

Context: Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Article 2(1)(b) — Intra-Community acquisition of goods — Article 20 — Acquisition of the right to dispose of goods as owner — Chain of transactions for the purchase and resale of goods with a single intra-Community transport — Right to take decisions capable of affecting the legal situation of property — Transaction to which the transport should be ascribed — Transport under an excise duty suspension arrangement — Temporal effect of judgments by way of interpretation

Article in EU VAT Directive

Article 2(1)(a) and (b) of the VAT Directive provides as follows:

‘The following transactions shall be subject to VAT:

(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
(b) the intra-Community acquisition of goods for consideration within the territory of a Member State by:
(i) a taxable person acting as such, or a non-taxable legal person, where the vendor is a taxable person acting as such who is not eligible for the exemption for small enterprises provided for in Articles 282 to 292 and who is not covered by Articles 33 or 36;

As set out in Article 14(1) of that directive:

‘“Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.’

The first paragraph of Article 20 of that directive is worded as follows:

‘“Intra-Community acquisition of goods” shall mean the acquisition of the right to dispose as owner of movable tangible property dispatched or transported to the person acquiring the goods, by or on behalf of the vendor or the person acquiring the goods, in a Member State other than that in which dispatch or transport of the goods began.’

Article 138(1) of that directive states:

‘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, for another taxable person, or for a non-taxable legal person acting as such in a Member State other than that in which dispatch or transport of the goods began.’

Facts (simplified)

Herst, a Czech company, was active, inter alia, in road transport and owned several service stations. She transported fuel from other EU Member States to the Czech Republic with her own vehicles.
During transport, the ownership of the goods was transferred between different entities, creating a chain of transactions between taxpayers.
In many cases, the Czech company did not only transport the goods, but eventually also became the owner of the goods at the end of the supply chain. In this respect it must be noted that the Czech company purchased the goods from other Czech established companies. The Czech suppliers charged Czech VAT on those transactions.

In practice, the Czech company placed an order with the Czech suppliers, agreeing on the terminal from which it would purchase the goods, the date and, where appropriate, the time of loading of the goods, the name of the driver, the registration number of the vehicle and the trailer, the required amount of fuel and the unloading area.

After payment of the advance payment invoice, the Czech company was entitled to collect the goods from the suppliers. She picked-up the fuel directly at refineries in other Member States and subsequently drove to Czech Republic, where the fuel was customs cleared, excise duties were paid and the goods were brought in ‘free circulation. The fuel was than delivered at its own petrol stations or the service stations of its customers.

During a tax inspection, the tax authorities denied the deduction of the VAT charged by Czech suppliers. They argued that the taxable supplies had not taken place in Czech Republic, but in the EU country where the transport had started.
Since the Czech company itself had loaded the goods acquired in other Member States and transported them to the Czech Republic at its own expense to carry out its economic activity, the tax authorities took the view that the place of the supply of goods between Czech suppliers and the Czech company was not in Czech Republic, and thus the VAT was wrongly charged (and thus not deductible).
The Czech company argued that the transactions took place in Czech Republic, after they had been transported and released from the customs/excise regime.

The question is if and where the (economic) ownership of the fuel transferred to the Czech company (that is to say where and when the Czech company obtained the power to dispose of the goods as an owner): in the Czech Republic or in other Member States?

Preliminary questions (summarized):

(1) Is ‘the right to dispose of the goods as owner’ within the meaning of the VAT Directive acquired by a taxable person who buys goods from another taxable person directly for a specific customer in order to fulfil an already existing order (identifying the type of goods, the quantity, place of origin and time of delivery) where he does not physically handle the goods himself since, in the context of concluding the contract of sale, his buyer agrees to arrange transport of the goods from their point of origin, so that he will only provide access to the requested goods via his suppliers and communicate the information necessary for acceptance of the goods (on his own behalf or on behalf of his sub-suppliers in the chain), and his profit from the transaction is the difference between the buying-in price and the selling price of such goods without the cost of transporting the goods being invoiced in the chain?

(2) Does the principle of VAT neutrality or any other principle of EU law prevent application of the constitutional principle of in dubio mitius in national law, which obliges public authorities, where legal rules are ambiguous and objectively offer a number of possible interpretations, to choose the interpretation that benefits the person subject to the legal rule (here the taxable person for VAT)? Would the application of this principle be compatible with EU law at least if it were limited to situations where the relevant facts of the case preceded a binding interpretation of a disputed legal question by the Court of Justice of the European Union, which has determined that another interpretation less favourable to the taxable entity is correct?

(3) If it is possible to apply the principle of in dubio mitius: Was it possible, in terms of the limits set by EU law at the time when the taxable transactions took place in this case (November 2010 to May 2013), to consider the question whether the legal concept of supply of goods or transport of goods has (or does not have) the same content both for the purposes of the VAT Directive and for the purposes of the Excise Duty Directive objectively as legally uncertain and offering two interpretations?

AG Opinion

(1) In ascribing the single cross-border transport to a certain supply in a supply chain, the crucial factor is who bears the risk for accidental loss during the cross-border transport of the goods. That supply is the exempt intra-Community supply, the place for which is where transport began.

(2) Neither the principle of VAT neutrality nor any other principle of EU law preclude the application of the constitutional principle of in dubio mitius in national law, which obliges public authorities, where legal rules are ambiguous and objectively offer a number of possible interpretations, to choose the interpretation that benefits the person subject to the legal rule (here the taxable person for VAT).

Judgment

1. Article 20 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a taxable person which carries out a single intra-Community transport of goods under an excise duty suspension arrangement, with the intention of purchasing those goods for the purposes of its economic activity once they have been released for free circulation in the Member State of destination, acquires the right to dispose of the goods as owner, within the meaning of that provision, provided that it has the right to take decisions which are capable of affecting the legal situation of the goods, including, inter alia, the decision to sell them;
The fact that that taxable person had, at the outset, the intention to purchase those goods for the purposes of its economic activity once they have been released for free circulation in the Member State of destination is a circumstance which must be taken into account by the national court in its overall assessment of all of the particular circumstances of the case before it in order to determine to which of the successive acquisitions the intra-Community transport is to be ascribed.

2. EU law precludes a national court that is confronted with a provision of national tax law, which has transposed a provision of Directive 2006/112 and is open to several interpretations, from adopting the interpretation that is most favourable to the taxable person by relying on the constitutional principle of in dubio mitius under national law, even after the Court has held that such an interpretation is incompatible with EU law.

Note: although not specifically said, the ECJ implies that Herst obtained the power to dispose of the goods as owner at the moment he picked-up the goods from the first supplier. This implies that at that moment, a supply to Herst took place.

The decision is not 100% clear, as the ECJ leaves it to the national court to decide if Herst was right or not. But the case itself show that it may not be that simple to determine which transaction is the intra-Community supply.

Source

Curia

Comments

The right to dispose of goods as the owner is acquired by a taxable person which carries out a single intra-Community transport of goods under an excise duty suspension arrangement if such a taxable person has the right to take decisions which are capable of affecting the legal situation of the goods, especially the decision to sell them. The fact that a taxable person purchased such goods for the purposes of its economic activity once they were released for free
circulation in the Member State of destination must be taken into account by the national court in its overall assessment of the transaction in order to determine to which of the successive acquisitions the intra-Community transport is to be ascribed.

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