Flashback on ECJ Cases – C-273/11 (Mecsek-Gabona) – No refusal of the exemption from an intra-EU supply on the sole ground that the tax authorities of another Member State have retroactively deleted the customer’s VAT identification number after delivery of the goods

On September 6, 2012, the ECJ issued its decision in the case C-273/11 (Mecsek-Gabona) .

Context: Directive 2006/112/EC – Article 138(1) – Conditions of exemption for intra-Community transactions characterised by the obligation on the purchaser to ensure, as from the time of their loading, the transport of the goods of which it disposes as owner – Obligation on the vendor to prove that the goods have physically left the territory of the Member State of supply – Removal from the register, with retroactive effect, of the customer’s VAT identification number

Article in the EU VAT Directive

Article 138(1) in the EU VAT Directive

Article 138 (Exemption related to Suppky of goods – Intra-Community Supply of goods)

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.

Facts

Mecsek-Gabona is a Hungarian company engaged in the wholesale supply of cereals, tobacco, seeds and fodder.
On 28 August 2009, Mecsek-Gabona concluded a contract with Agro-Trade srl (‘Agro-Trade’), a company established in Italy, for the sale of 1 000 tonnes (± 10%) of rapeseed at a price of HUF 71 500/tonne for the purposes of a VAT-exempt intra-Community supply of goods.
Under the relevant clauses of that contract, the parties had agreed that, in terms of quantity, performance would be carried out in accordance with the weight loaded on the premises of the vendor in Szentlőrinc (Hungary), as attested in the weighing records and the invoices issued on the basis of those records. The purchaser undertook to arrange the means of transportation and to transport the goods to another Member State.
Prior to transportation, the purchaser provided the registration numbers of the vehicles which would come to the premises of Mecsek-Gabona to pick up the goods. After the vehicles had been weighed, the quantities of the goods purchased were entered on the CMRs (consignment notes drawn up in accordance with the Convention on the Contract for the International Carriage of Goods by Road, signed in Geneva on 19 May 1956, as amended by the Protocol of 5 July 1978), and the transport documents were presented by the carriers. The first copy of the completed CMRs was photocopied by the vendor, while the originals remained with the carriers. The serial numbers of the 40 CMRs, which were consecutive, were returned to the vendor by post from the purchaser’s address in Italy.
Two invoices were issued on 4 September 2009 in relation to the VAT-exempt sale at issue in the main proceedings, the first for HUF 34 638 175 in respect of 484.45 tonnes of rapeseed and the second for HUF 34 555 235 in respect of 483.29 tonnes of rapeseed. A few days after the consignment had been delivered, the first invoice was settled by a Hungarian natural person, who paid the related amount into Mecsek-Gabona’s bank account. By contrast, the second invoice, which had to be settled within eight months of delivery, has not been paid.
Consultation by Mecsek-Gabona of the register of taxable persons on 7 September 2009 revealed that, as at that date, Agro-Trade had a VAT identification number.
In the course of checking Mecsek-Gabona’s tax return, the Hungarian tax authority submitted a request for information to the Italian tax authority under Article 5(1) of Council Regulation (EC) No 1798/2003 of 7 October 2003 on administrative cooperation in the field of [VAT] and repealing Regulation (EEC) No 218/92 (OJ 2003 L 264, p. 1). According to the information sent by the Italian tax authority, Agro-Trade could not be found and, at the address given as that of its registered office, there was only a private home. No company of that name had ever been registered at that address. Since Agro-Trade had never paid VAT, it was also unknown to the Italian tax authority. On 14 January 2010, Agro-Trade’s Italian VAT identification number was removed from the register with retroactive effect from 17 April 2009.
On the basis of all that information, the first-level Hungarian tax authority took the view that Mecsek-Gabona had not succeeded in proving, during the fiscal procedure, that the transaction in issue was a VAT-exempt intra-Community supply of goods and, by decision of 7 September 2010, it found that Mecsek-Gabona had a tax debt of HUF 17 298 000, representing VAT for September 2009, to which it added a fine of HUF 1 730 000 and a late-payment penalty of HUF 950 000.
By decision of 18 January 2011, the Főigazgatóság upheld the decision of the first-level tax authority, on the view that Mecsek‑Gabona should have been in possession of a document proving that the goods had been dispatched and that they had been transported to another Member State. If Mecsek‑Gabona was unable to present such a document during the inspection, or if the document presented could not be regarded as authentic, Mecsek Gabona would be liable for VAT in relation to the sale at issue in the main proceedings, unless it had acted in good faith during the transaction.
According to the Főigazgatóság, Mecsek-Gabona should have acted with greater caution. Accordingly, it should not merely have ensured that the goods had been dispatched, it should also have made sure that the goods had arrived at their destination.
Before the referring court, the Baranya Megyei Bíróság (Baranya County Court), Mecsek-Gabona is claiming that the decision of the Főigazgatóság should be annulled, together with the decision of the first-level tax authority. Mecsek-Gabona argues that it cannot be accused of failing to act with due circumspection, either at the time of concluding the contract or when that contract was in course of performance, given that, on 7 September 2009, it had checked Agro-Trade’s VAT identification number; it had made sure that the number was valid; and it had made certain that the CMRs had been returned from the purchaser’s address in Italy. Mecsek-Gabona adds that it could not have had any knowledge of the fact that, on 14 January 2010 the Italian tax authority had removed that identification number from the register with retroactive effect from 17 April 2009; consequently, that removal could not have any bearing on matters.
The Főigazgatóság contends that Mecsek-Gabona’s action should be dismissed, maintaining its argument that the VAT exemption could be applied to the supply at issue only if Mecsek-Gabona had satisfied itself, not only that the goods had been dispatched, but also that they had arrived.
The Baranya Megyei Bíróság believes that an interpretation of Article 138 of Directive 2006/112 is necessary if it is to be able to determine what constitutes satisfactory evidence that a tax-exempt supply of goods has taken place and define the extent to which the vendor, if it does not arrange the transport itself, is answerable for the conduct of the purchaser. Referring to Case C‑409/04 Teleos and Others [2007] ECR I‑7797, the referring court also asks whether the fact that Agro-Trade’s VAT identification number was removed from the register after the goods had been supplied can raise doubts as to Mecsek-Gabona’s good faith and serve as a basis for finding that the transaction was not a VAT-exempt supply.

Questions

Is Article 138(1) of Directive 2006/112 to be interpreted as meaning that the sale of a product is exempt from VAT if the product is sold to a buyer who is registered for VAT in another Member State at the time when the sale contract is concluded, and the buyer concludes the sale contract in respect of the product in such a way that the right of disposal and right of ownership are transferred to the buyer upon loading onto the mode of transportation, and the buyer assumes the obligation of transportation to the other Member State?

In order to make a VAT-exempt sale, is it sufficient for the seller to satisfy himself that the goods sold are transported by foreign-registered vehicles, and that he is in possession of the CMRs returned by the buyer, or must he ensure that the product sold has crossed the national border and has been transported within Community territory?

Can the fact of a VAT-exempt sale of a product be called into question purely on the basis that the tax authority of another Member State retrospectively revokes the buyer’s Community tax number with effect from a date prior to the sale of the product?

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, as amended by Council Directive 2010/88/EU of 7 December 2010, is to be interpreted as not precluding, in circumstances such as those of the case before the referring court, refusal to grant a vendor the right to the VAT exemption for an intra-Community supply, provided that it has been established, on the basis of objective evidence, that the vendor has failed to fulfil its obligations as regards evidence, or that it knew or should have known that the transaction which it carried out was part of a tax fraud committed by the purchaser, and that it had not taken every reasonable step within its power to prevent its own participation in that fraud.

2. A vendor may not be refused the VAT exemption for an intra-Community supply, in accordance with Article 138(1) of Directive 2006/112, as amended by Directive 2010/88, solely on the ground that the tax authority of another Member State has removed the purchaser’s VAT identification number from the register, with retroactive effect from a date prior to the sale of the goods even though the number was removed after the goods had been supplied.

Summary

The exemption of an intra-Community supply may be refused, provided that it is established on the basis of objective elements that the seller has failed to fulfill his obligation to prove or that he knew or should have known that the act performed by him was part of fraud committed by the buyer and he has not taken all reasonable steps at his disposal to prevent his own involvement in this fraud.

The seller cannot be refused exemption from an intra-Community supply on the sole ground that the tax authorities of another Member State have retroactively deleted the customer’s VAT identification number after delivery of the goods, until before that delivery.

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