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ECJ case 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.

Unofficial translation

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):

(Note: The questions are quite difficult to read and understand – The AG or ECJ may well combine them or simplify them when dealing with this case.)

Is “the power to dispose of the goods as an owner” obtained by a taxpayer who purchases goods directly from another taxpayer on behalf of a particular customer in order to purchase an already existing order, whereby he does not treat the goods physically himself, as his customer agrees to transport the goods from the place of origin, so that the taxpayer will only provide access to the requested goods through his suppliers and provide the information necessary for the acceptance of the goods (for his own account or on behalf of his sub-suppliers in the chain), and his profit from the transaction consists of the difference between the purchase price and the selling price of those goods without the costs for freight transport being billed in the chain?

In the assessment of a supply associated with transport within a chain of deliveries of goods under a duty suspension arrangement with a single transport, where is a transport within the meaning of the VAT Directive deemed to start and end?

The ECJ pointed out that some (or all) of the questions may already have been answered in its judgment in case C-414/17 (AREX) of 19 December 2018. Therefore, the ECJ only answers question 4 and 7.

Considerations

In the context of the overall assessment, it should in particular be determined at what point in time the power to dispose of the property in question as owner is transferred to the final customer. If this transfer took place before intra-Community transport, that transport cannot, in the present case, be regarded as a circumstance on the basis of which the acquisition thus made can be classified as intra-Community acquisition.

If the referring court were to consider that the right to dispose of the fuel at issue in the main proceedings had been transferred several times during its transport to different intermediaries in the chain of purchase and resale transactions, the application of the above point, however, the case-law of the Court does not enable it to determine to which acquisition within that chain that single transport of the fuel is to be attributed.

That case-law is based on a time criterion according to which it is necessary to assess whether a transfer or transfer of the power to dispose of an asset as an owner took place prior to its transport in order to determine which of the acquisitions in this single intra-Community transport must be attributed and, therefore, which of those acquisitions is the only one to be classified as intra-Community acquisitions. In the present case, the application of that time-limit could enable the referring court to determine whether the fuel transport at issue in the main proceedings should be attributed to the acquisition made by the first intra-Community transport of that fuel market participant in the chain of purchase and resale transactions. However, that criterion cannot be applied if successive transfers of that power have taken place during that transport in the main proceedings.

In order to determine which of the acquisitions at issue in the main proceedings to which the single intra-Community transport is to be attributed and, therefore, which of those acquisitions are the only ones to be classified as intra-Community acquisitions, it is, in those circumstances, to the referring court referred to in this judgment to make an overall assessment of all the particular circumstances of the main proceedings.

As the Czech Republic argues in its written observations, the referring court may take into account in its overall assessment that Herst started intra-Community transport at issue in the main proceedings in order to pursue its own economic activity, to acquire the fuel once it has been released for free circulation in the Czech Republic and then resell it to its own customers, using a trade margin consisting of the difference between the purchase price and the selling price of that fuel.

Judgment

The ECJ rules as follows:

The taxable person carrying out a single intra-Community transport of goods under the regime of suspension of excise duties, with the intention of acquiring these goods for the purposes of its economic activity once they have been put into free circulation in the Member State of destination, obtains the power to dispose of those goods goods as an owner, provided that he has the possibility of taking decisions likely to affect the legal situation of the same goods, including, in particular, the decision to sell them.

The fact that that taxable person intended from the outset to acquire those goods, for the purposes of his economic activity once they have been put into free circulation in the Member State of destination, constitutes a circumstance which must be taken into account by the national court in the context of its overall assessment of all the particular circumstances of the case before it with a view to determining that of the successive acquisitions to which the said intra-Community transport must be attributed.

Union law precludes a national court, faced with a provision of national tax law, having transposed a provision of Directive 2006/112, which lends itself to several interpretations, to retain the interpretation most favorable to the taxable person, relying on the national constitutional principle in dubio mitius  , even after the Court has held that such an interpretation is incompatible with Union law.

Source Curia

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.