Flashback on ECJ Cases – C-288/16 (L.Č.) – Only VAT exemption on export if service is provided directly to sender or receiver

On June 29, 2017, the ECJ issued its decision in the case C-288/16 (L.Č.).

Context: Reference for a preliminary ruling — Directive 2006/112/EC — Value added tax (VAT) — Article 146(1)(e) — Exemptions on exportation — Supply of services directly connected with the exportation or the importation of goods — Meaning

Article in the EU VAT Directive

Article 146(1)(e) of the EU VAT Directive 2006/112/EC

Article 146 (Exemptions on importation)
1. Member States shall exempt the following transactions:
(e) the supply of services, including transport and ancillary transactions, but excluding the supply of services exempted in accordance with Articles 132 and 135, where these are directly connected with the exportation or importation of goods covered by Article 61 and Article 157(1)(a).

Facts

On the basis of contracts concluded with several consignors, ‘Atek’ SIA undertook to ensure the transport of goods placed under a transit procedure, from the port of Riga (Latvia) to Belarus.
Under another contract, ‘Atek’ assigned the effective performance of that freight transport to ‘L.Č.’.
That transport was carried out with vehicles belonging to ‘Atek’ and leased to ‘L.Č.’, bearing in mind that, as regards the consignors of those goods, ‘Atek’ acted as the carrier. For its part, ‘L.Č.’, was responsible for driving the vehicle, repairs, refuelling, customs formalities at border points, surveillance of the goods, transferring the goods to the consignee and the necessary loading and unloading tasks.
‘L.Č.’, considering that it had supplied services connected with transit, applied a VAT rate of 0% to those services.
A tax inspection was carried out on ‘L.Č.’ in respect of the period from January 2008 to December 2010. Following that inspection, the tax authorities ordered that company to pay an additional VAT assessment, a fine and late payment interest to the revenue authorities.
By decision of 21 September 2011 the tax authorities confirmed that assessment, on the ground that ‘L.Č.’ was not entitled to apply a VAT rate of 0% to the services that it had provided in the context of its contract concluded with ‘Atek’, since (i) in the absence of a legal connection with the consignor or the consignee of the transported goods, those services could not be equated with the services of a carrier or a freight forwarder and (ii) since it did not hold the requisite licence under Latvian law, ‘L.Č.’ could not be regarded as a carrier and was therefore not authorised to transport freight.
‘L.Č.’ brought an appeal against that decision before the Administratīvā rajona tiesa (District Administrative Court, Latvia) which upheld that appeal by judgment of 11 December 2012.
Ruling on an appeal brought against that judgment, the Administratīvā apgabaltiesa (Regional Administrative Court, Latvia), by a judgment of 29 May 2014, partly upheld and partly dismissed that appeal. In particular, that court considered that, since there was no legal connection between the consignor or the consignee of the goods and ‘L.Č.’, the services supplied by the latter could not be regarded as consignment or freight-forwarding services, but rather constituted the supply of driver services consisting in providing a driver for a vehicle owned by a carrier which holds an international carriage licence, namely ‘Atek’, and that, since it lacks such a licence, ‘L.Č.’ also could not be regarded as a carrier. Consequently, according to that court, the VAT rate of 0% could not be applied to the services supplied by ‘L.Č.’.
‘L.Č.’ brought an appeal in cassation against that judgment before the Augstākā tiesa (Supreme Court, Latvia), in so far as, by that judgment, the Administratīvā apgabaltiesa (Regional Administrative Court) had dismissed its appeal.
The referring court considers that there are doubts concerning the interpretation of Article 146(1)(e) of Directive 2006/112. In particular, that court is uncertain whether, despite the fact that the services supplied by ‘L.Č.’ were connected with the goods transported in transit through Latvia, the circumstance that those services were supplied, not directly to the consignee or the consignor of those goods, with which ‘L.Č.’ had no legal connection, but to their contractual counterparty in Latvia, namely ‘Atek’, affects the application of the exemption laid down in that provision, which requires the existence of a direct connection between the supply of services and the exportation or importation of the goods in question.

Questions

Must Article 146(1)(e) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be interpreted as meaning that the exemption laid down therein is applicable only where there is a direct legal connection or a reciprocal contractual relationship between the services provider and the consignee or the consignor of the goods?

What criteria must be met by the direct connection referred to in the abovementioned provision in order for a service connected with the importation or exportation of goods to be exempt?

AG Opinion

None

Decision

Article 146(1)(e) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the exemption laid down in that provision does not apply to a supply of services, such as that at issue in the main proceedings, relating to a transaction consisting in the transport of goods to a third country, where those services are not provided directly to the consignor or the consignee of those goods.

Summary

The services rendered by L.C. are necessary for the actual realization of the export, but those services are not provided directly to the recipient or the exporter of those goods. Moreover, those services were provided with vehicles belonging to Atek, which acted as a carrier vis-à-vis the consignors of those goods. The by L.Č. services rendered therefore fall outside the scope of the exemption referred to in Article 146(1)(e) of the VAT Directive.

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