Flashback on ECJ Cases – C-146/05 (Collée) – Exemption for an intra-EU supply of goods may not be refused if it has taken place and proof of such a supply has not been provided in time

On September 27, 2007, the ECJ issued its decision in the case C-146/05 (Collée).

Context: Sixth VAT Directive – First subparagraph of Article 28c(A)(a) – Intra-Community supply – Refusal of exemption – Belated production of evidence of the supply

Article in the EU VAT Directive

Article 28c(A)(a) of the Sixth Directive (Art. 138 of the EU VAT Directive 2006/112/EC)

Without prejudice to other Community provisions and subject to conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions provided for below and preventing any evasion, avoidance or abuse, Member States shall exempt:

(a) supplies of goods, as defined in Articles 5 and 28a(5)(a), dispatched or transported by or on behalf of the vendor or the person acquiring the goods out of the territory referred to in Article 3 but within the Community, effected for another taxable person or a non-taxable legal person acting as such in a Member State other than that of the departure of the dispatch or transport of the goods.

Facts

Collée was the parent company of a German-law limited liability company (‘the GmbH’) which sold cars as the authorised dealer for public limited company A (‘A-AG’). In the spring of 1994, the GmbH entered into a contract with a Belgian dealer, B, for the sale of 20 demonstration vehicles. B transferred the net purchase monies to the GmbH’s account and, after the latter had received payment, collected the vehicles from the premises of the GmbH using its own vehicle carrier.
The GmbH, which, on territorial protection grounds, was entitled to claim commission from A-AG only in respect of sales to customers established in the local area, engaged car dealer S as an intermediary. In return for a commission, S purchased and re-sold the demonstration vehicles for form’s sake. The GmbH issued invoices showing the VAT to S in respect of that sham sale. S delivered blank invoices to the GmbH, which were subsequently used in the name of S in connection with the supply of the cars to B. In its VAT returns for the period from July to September 1994, S reclaimed the input tax invoiced to it by the GmbH.
Following a special investigation by the Finanzamt in October 1994, the Finanzamt refused to allow S to deduct the input VAT invoiced, because it had determined that the sale between the GmbH and S was a sham, S having intervened only for form’s sake.
Having learned of that investigation, Collée informed S that the invoices for July to September 1994 had become redundant, cancelled the relevant account entries on 25 November 1994 and booked the corresponding sale proceeds to the ‘exempted intra-Community supplies’ account, recording the transaction in its provisional VAT return for November 1994.
By a tax amendment notice dated 12 February 1998, relating to VAT for 1994, the Finanzamt increased Collée’s taxable turnover by an amount equivalent to that of the sale price of the cars supplied to B, but refused to allow a tax exemption in respect of that supply, on the ground that the prescribed records had not been updated regularly and immediately after the relevant transaction had been completed.
The objection to that tax notice was dismissed, as was the action brought before the Finanzgericht. Therefore, Mr Collée went on to lodge an appeal on a point of law (‘Revision’) before the Bundesfinanzhof. In support of that appeal, Mr Collée relies on the existence of accounting evidence in relation to the contract of sale, the transfer of the sale proceeds and B’s confirmation of collection, later supplemented by the invoices issued to B by the GmbH. Convinced that those commercial records proved that an intra-Community supply had occurred, Mr Collée applied for the tax notice to be corrected so that the supply of demonstration vehicles made at the beginning of 1994 would be treated as being exempt from tax.
The referring court states that, according to its own case-law in relation to the evidential requirements for export deliveries to third countries, which applies equally to the dispute before that court, the supporting documents are an integral part of the accounting evidence, and the records required for the purposes of that accounting evidence must be updated regularly and immediately after the relevant transaction has been completed. Having established that the latter requirement has not been fulfilled in the present case, the court questions how the conflict between the obligation to produce evidence of the intra-Community supply and the principle of proportionality is to be resolved under Community law.

Questions

1. Is a tax authority entitled to refuse to allow an intra-Community supply, which undoubtedly occurred, to be exempt from tax solely on the ground that the taxable person did not produce the prescribed accounting evidence in good time?

2. Does the answer to the question depend on whether the taxable person initially knowingly concealed the fact that an intra-Community supply had occurred?

AG Opinion

(1) Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment precludes a practice by the national tax authority of refusing to allow an intra-Community supply which undoubtedly occurred to be exempt from tax solely on the ground that the taxable person did not produce the prescribed accounting evidence regularly and immediately after completion of the transactions.

(2) Where a Member State has not laid down a statutory time-limit for the production of evidence, all the relevant circumstances of the particular case must be taken into account in determining whether an intra-Community supply is to be exempt from tax. In that regard the determining factors are whether the taxable person bears any responsibility for the delayed production of accounting evidence and whether the delayed production of accounting evidence could put the levying or collection of taxes at risk.

Decision

The first subparagraph of Article 28c(A)(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 91/680/EEC of 16 December 1991, must be interpreted as precluding the refusal by the tax authority of a Member State to allow an intra-Community supply – which actually took place – to be exempt from value added tax solely on the ground that the evidence of such a supply was not produced in good time.

When examining the right of exemption from value added tax in relation to such a supply, the referring court should take into account the fact that the taxable person initially knowingly concealed the fact that an intra-Community supply had occurred only if there is a risk of a loss in tax revenues and that risk has not been wholly eliminated by the taxable person in question.

Summary

The tax authorities of a Member State may not refuse to exempt from VAT an intra-Community supply that has actually taken place just because proof of such a supply has not been provided in time.

When examining the right to exemption from VAT on such a supply, the referring court need only take into account the fact that the taxable person initially fully knowingly withheld an intra-Community supply that has taken place only where there is a risk of loss of tax revenue and the taxpayer has not completely eliminated this danger.

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