Flashback on ECJ cases C-386/16 (Toridas) – Exemption of intra-Community supply of goods in a chain of supplies only applies to the supply to which that transport can be attributed

On July 26, 2017, the ECJ issued its decision inthe case C-386/16 (Toridas) related to the Exemption of intra-Community supply of goods in a chain of supplies (tringulation). The ECJ has held that the exemption on intra-Community supplies of goods in a chain transaction with just one movement of goods within the EU only applies to the supply to which that transport can be attributed. In case the transport could only be attributed to a second supply in the chain, the first supply must be standard rated.

Article in the EU VAT Directive

Articels 138(1), 140(a) and/or 141 of Council Directive 2006/112/EC

Article 138
1. 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.

Article 140
Member States shall exempt the following transactions:
(a) the intra-Community acquisition of goods the supply of which by taxable persons
would in all circumstances be exempt within their respective territory;

Article 141
Each Member State shall take specific measures to ensure that VAT is not charged on the intra-Community acquisition of goods within its territory, made in accordance with Article 40, where the following conditions are met:
(a) the acquisition of goods is made by a taxable person who is not established in the Member State concerned but is identified for VAT purposes in another Member State;
(b) the acquisition of goods is made for the purposes of the subsequent supply of those goods, in the Member State concerned, by the taxable person referred to in point (a);
(c) the goods thus acquired by the taxable person referred to in point (a) are directly dispatched or transported, from a Member State other than that in which he is identified for VAT purposes, to the person for whom he is to carry out the subsequent supply;
(d) the person to whom the subsequent supply is to be made is another taxable person, or a non-taxable legal person, who is identified for VAT purposes in the
Member State concerned;
(e) the person referred to in point (d) has been designated in accordance with Article 197 as liable for payment of the VAT due on the supply carried out by the taxable person who is not established in the Member State in which the tax is due.

Facts

Toridas has imported frozen fish from Kazakhstan into Lithuania. The fish was then resold to Megalain in Estonia. Megalain had to export the fish from Lithuania within 30 days and hand over the supporting documents to Toridas. Toridas had to receive the fish (including storage) and bear all associated costs until the fish had actually left Lithuania.

In practice, Megalain sold the fish on the day of or after the purchase, to buyers in other EU Member States. Some of the fish was shipped from Lithuania to those other Member States immediately after resale. For this, Toridas invoiced to Megalain at the zero rate as intra-Community supplies of goods.

The Lithuanian tax authorities considered the supplies to be domestic supplies, which were taxable at the standard rate.

The referring court wonders how the first supplies should be classified under VAT law. He points out that after those transactions the second deliveries were made and that the goods in question were sent or transported intra-Community only once, so that the question arises whether the first or second deliveries should be classified as intra-Community supplies, which are exempt.

Questions

Must Articles 138(1), 140(a) and/or 141 of Council Directive 2006/112/EC ¹ of 28 November 2006 on the common system of value added tax, read, inter alia, in conjunction with Articles 33 and 40 thereof, be interpreted as meaning that, in circumstances such as those here at issue (in the main proceedings), the supply of goods by a taxable person who is established in the first Member State must be exempt under those provisions in the case where, before that supply transaction is entered into, the purchaser (that is to say, the person identified as being a taxable person in the second Member State) expresses an intention to sell the goods immediately, before transporting them from the first Member State, to a taxable person established in a third Member State, for whom those goods are transported (dispatched) to that third Member State?

Is the answer to Question 1 affected by the fact that a portion of the goods was processed on the instructions of the taxable person established (identified for tax purposes) in the second Member State, prior to their being transported to the third Member State?

AG Opinion

None

Decision

1. Article 138(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that, in circumstances such as those of the main proceedings, a supply of goods by a taxable person established in a first Member State is not exempt from value added tax under that provision where, prior to entering into that supply transaction, the person acquiring the goods, who is identified for value added tax purposes in a second Member State, informs the supplier that the goods will be resold immediately to a taxable person established in a third Member State, before he takes them out of the first Member State and transports them to that third taxable person, provided that that second supply has in fact been carried out and the goods have then been transported from the first Member State to the Member State of the third taxable person. The fact that the first person acquiring the goods is identified for value added tax purposes in a Member State other than that of the place of the first supply or that of the place of the final acquisition is not a criterion for classification of an intra-Community transaction or, in itself, evidence sufficient to show that a transaction is an intra-Community one.

2. For the purposes of interpreting Article 138(1) of Directive 2006/112, processing of the goods, in the course of a chain of two successive supplies, such as that at issue in the main proceedings, carried out on the instructions of the middleman acquiring the goods and before the goods are transported to the Member State of the person finally acquiring them, has no effect on the conditions for any exemption of the first supply where that processing takes place after the first supply.

Summary decision

The CJEU ruled that in the event that only one intra-Community transport was performed for two consecutive deliveries, in order to determine to which of these two deliveries this transport should be attributed, it must be determined whether this transport took place after the second delivery. If that is the case, only the second supply should be regarded as an intra-Community supply, which, where appropriate, falls under the exemption.

Source