Flashback on ECJ Cases – C-272/13 (Equoland) – VAT exemption on imports to be subject to the condition that the imported goods are actually stored in a tax warehouse

On July 17, 2014, the ECJ issued its decision in the case C-272/13 (Equoland.

Context: Reference for a preliminary ruling — Value added tax — Sixth Directive 77/388/EEC — Directive 2006/112/EC — Exemption of imported goods which are intended to be placed under warehousing arrangements other than customs — Obligation to physically place the goods in the warehouse — Non-compliance — Obligation to pay VAT notwithstanding the fact that it has already been settled under the reverse charge mechanism

Article in the EU VAT Directive

Articles 16(1), 28 of the Sixth VAT Directive (Articles 156, 168(e) of the EU VAT DIrective 2006/112/EC)

Article 156 (Exemption)
1. Member States may exempt the following transactions:
(a) the supply of goods which are intended to be presented to customs and, where applicable, placed in temporary storage;
(b) the supply of goods which are intended to be placed in a free zone or in a free warehouse;
(c) the supply of goods which are intended to be placed under customs warehousing arrangements or inward processing arrangements;
(d) the supply of goods which are intended to be admitted into territorial waters in order to be incorporated into drilling or production platforms, for purposes of the construction, repair, maintenance, alteration or fitting-out of such platforms, or to link such drilling or production platforms to the mainland;
(e) the supply of goods which are intended to be admitted into territorial waters for the fuelling and provisioning of drilling or production platforms.
2. The places referred to in paragraph 1 shall be those defined as such by the Community customs provisions in force.

Article 168 (Right to deduct VAT)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

(e) the VAT due or paid in respect of the importation of goods into that Member State.

Facts

On the basis of the order for reference and the observations submitted by Equoland, the Italian and Spanish Governments and by the European Commission, the facts in the main proceedings may be summarised as follows.
In June 2006 Equoland imported, via from the Customs Agency, a consignment of goods from a third country. On the customs declaration, it was stated that those goods were destined for the tax warehouse for the purposes of VAT. Consequently, no payment of VAT on importation was requested on the date of that transaction.
On the day after the import, the manager of the warehouse to which the goods were destined registered them in the warehouse register. However, the goods were never physically stored in the warehouse, but were placed there ‘virtually’, namely by including them in that register. The goods were then immediately withdrawn from the tax warehouse arrangements and the VAT was paid by Equoland under the reverse charge mechanism.
Considering that, as the goods were not physically placed in the tax warehouse, the necessary conditions for the postponement of payment of VAT on importation were not met, the Customs Agency considered that Equoland had not paid the tax due and sought, under Article 13 of Legislative Decree No 471/97, payment of the VAT on importation plus a penalty of 30% of that VAT amount.
Equoland brought an action against that decision before the Commissione tributaria provinciale di Livorno (Provincial Tax Court of Livorno) arguing that it had regularised its situation with regard to the VAT on importation through the reverse charge mechanism, paying that VAT on importation to the Agenzia delle Entrate (the tax authority) rather than paying it to the Customs Agency. Consequently, it argued that Article 13 of Legislative Decree No 471/97 is not applicable to a case such as that in the main proceedings.
Since its action was dismissed, Equoland appealed against that dismissal decision to the Commissione Tributaria Regionale per la Toscana, reiterating its view that the adjusted assessment notice was based solely on the fact that the imported goods had not been ‘physically’ placed in the tax warehouse, with no VAT deduction since, at the time of release for consumption, Equoland had undertaken to issue invoices to itself for the purchase by importation and to pay the adjusted VAT. Moreover, Equoland argues that, in several Member States, the ‘virtual’ placing of goods in a tax warehouse is legal.
The Customs Agency claims, first, that the application of the law on VAT warehouses, which suspends the obligation to pay the tax upon importation and allows it to be paid only at the time of the periodic VAT return, is subject to the necessary condition that the imported goods are ‘physically’ placed in such a warehouse. The national provisions are clear and require the ‘physical’ placing of those goods in the warehouse since the delayed collection of the VAT would be guaranteed only by the presence of those goods in a duly authorised tax warehouse.
Next, the principle of VAT neutrality, which relates to the economic effects of that tax on consumption only, cannot be relied on in order to evade the obligation to pay VAT when the chargeable event occurs. In the present case, this is when the goods are imported.
Finally, as VAT on importation is a tax related to crossing the border, it should be calculated and collected by the customs authorities, in this case the Customs Agency, which, moreover, allows payment of the part owed to the European Union in good time.
When the referring court heard the case, it noted that the interpretation advocated by the Customs Agency would result in the VAT being charged twice for failure to comply with an obligation which should be considered as being purely formal in nature. The infringement of such an obligation could be independently penalised if the physical placing of the goods in the tax warehouse were held to be mandatory, but this should not lead to VAT being applied to those goods where there has not been a taxable transaction.

Questions

(1) In order to benefit, under Article 16 of the [Sixth Directive] and Articles 154 and 157 of [the VAT Directive], from the exemption from the payment of the VAT on importation resulting from the placement of the imported goods under warehousing arrangements other than customs warehousing, that is to say under VAT warehousing arrangements, is it sufficient that such placement occur only on paper and not physically?

(2) Do the [Sixth Directive] and [the VAT Directive] preclude a practice whereby a Member State collects VAT on importation despite the fact that that VAT — by error or irregularity — has been settled already under the reverse charge mechanism through self-invoicing and simultaneous entry in the sales and purchases register?

(3) Is the principle of VAT neutrality breached when the Member State seeks to collect VAT which has already been settled under the reverse charge mechanism through self-invoicing and simultaneous entry in the sales and purchases register?

AG Opinion

None

Decision

1. Article 16(1) 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 2006/18/EC of 14 February 2006, in the version resulting from Article 28c of the Sixth Directive, must be interpreted as not precluding national legislation which makes the grant of an exemption from the payment of the value added tax on importation provided for by that legislation subject to the condition that goods which are imported and destined for a tax warehouse for the purposes of value added tax be physically placed in that warehouse.

2. Sixth Directive 77/388, as amended by Directive 2006/18, must be interpreted, in accordance with the principle of neutrality of value added tax, as precluding national legislation under which a Member State requires the payment of value added tax on importation even though that tax has been settled already under the reverse charge mechanism through self-invoicing and entry in the sales and purchases register of the taxable person.

Summary

Exemption from importation of goods that will be subject to a warehousing regime other than customs warehousing ‒ Non-compliance with the obligation to actually store goods in a warehouse ‒ Obligation to pay VAT although already paid via reverse charge mechanism

National legislation is permitted which makes exemption from VAT on importation subject to the condition that the imported goods which are placed under the system of tax warehouses for the purpose of that tax are actually stored in such a warehouse.

In accordance with the principle of neutrality, the VAT Directive precludes national legislation under which a Member State requires payment of VAT on imports, even though this has already been paid under the reverse charge mechanism by issuing an invoice in its own name and entering it in the register of purchases and sales of the taxpayer.

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