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Flashback on ECJ cases C-435/03 (British American Tobacco and Newman Shipping) – Theft of goods does not constitute a ‘supply of goods for consideration’

On July 14, 2005, the ECJ issued its decision in the case C-435/03 (British American Tobacco and Newman Shipping).

Context: Sixth VAT Directive –Articles 2 and 27(5) – Turnover tax – Scope – Chargeable event and taxable amount – Supply of goods for consideration – Theft of goods from a tax warehouse.


Article in the EU VAT Directive

Articles 2 and 27(5) of the Sixth VAT Directive (Articles 2, 394, 395 of the EU VAT Directive 2006/112/EC).

Article 2 (Taxable transactions)
1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
(b) the intra-Community acquisition of goods for consideration within the territory of a Member State by:
(i) a taxable person acting as such, or a non-taxable legal person, where the vendor is a taxable person acting as such who is not eligible for the exemption for small enterprises provided for in Articles 282 to 292 and who is not covered by Articles 33 or 36;
(ii) in the case of new means of transport, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1), or any other non-taxable person;
(iii) in the case of products subject to excise duty, where the excise duty on the intra-Community acquisition is chargeable, pursuant to Directive 92/12/EEC, within the territory of the Member State, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1);
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
(d) the importation of goods.

Article 394 (Simplification measures and measures to prevent tax evasion or avoidance)
Member States which, at 1 January 1977, applied special measures to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance may retain them provided that they have notified the Commission accordingly before 1 January 1978 and that such simplification measures comply with the criterion laid down in the second subparagraph of Article 395(1).

Article 395
1. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.
Measures intended to simplify the procedure for collecting VAT may not, except to a negligible extent, affect the overall amount of the tax revenue of the Member State collected at the stage of final consumption.
2. A Member State wishing to introduce the measure referred to in paragraph 1 shall send an application to the Commission and provide it with all the necessary information. If the Commission considers that it does not have all the necessary information, it shall contact the Member State concerned within two months of receipt of the application and specify what additional information is required.
Once the Commission has all the information it considers necessary for appraisal of the request it shall within one month notify the requesting Member State accordingly and it shall transmit the request, in its original language, to the other Member States.
3. Within three months of giving the notification referred to in the second subparagraph of paragraph 2, the Commission shall present to the Council either an appropriate proposal or, should it object to the derogation requested, a communication setting out its objections.g
4. The procedure laid down in paragraphs 2 and 3 shall, in any event, be completed within eight months of receipt of the application by the Commission.


Facts

  •  Newman operates a tax warehouse in Antwerp, in which manufactured tobacco products produced and packaged in Belgium by BATI, the owner of the goods, were stored. No tax stamps had been placed on them.
  • Cigarettes were stolen from the warehouse on 4 December 1995 and 29 January 1996 and in the night from 14 to 15 June 1998. The thefts were reported to the police.
  • The Belgian customs and excise authorities sent Newman a notice of assessment ordering it to pay excise duty and VAT in respect of the missing cigarettes, in accordance with the system established by Article 58(1) of the VAT Code. After an unsuccessful objection, Newman paid the sums demanded, but without prejudice to its rights as regards VAT. BATI reimbursed those sums to Newman in full.
  • Newman and BATI brought an action against the Belgian State in the Rechtbank van Eerste Aanleg te Antwerpen (Court of First Instance, Antwerp), seeking reimbursement of the sums paid.
  • That action was dismissed by judgment of 4 April 2001. In that judgment the Rechtbank van Eerste Aanleg considered that excise duty was due on goods which were missing as a result of thefts and that, under Article 58(1) of the VAT Code and Article 1 of Royal Decree No 13, VAT was also chargeable on those goods. The court also held that those provisions were intended to simplify the procedure for charging tax and complied with Article 27 of the Directive.
  • On 7 May 2001, the applicants in the main proceedings appealed against that judgment to the Hof van Beroep te Antwerpen (Court of Appeal, Antwerp).
  • As regards the excise duty, the Hof van Beroep found that a settlement had been agreed between the parties and implemented, thus putting an end to the dispute on the chargeability of duty.
  • As regards the VAT, the Hof van Beroep observed that, if the position of the customs and excise authorities accepted at first instance were adopted, there would be no need to examine whether the theft of goods can be regarded as a ‘supply of goods’ within the meaning of the Directive. The chargeable event for VAT would not be the supply or importation of the goods but the charging of excise duty.

Questions

1.      Can there be a “supply of goods” within the meaning of the … Directive, with the consequence that VAT can be charged:

–        in the absence of any consideration?

–        in the absence of transfer of the right to dispose freely of the goods as owner?

–        if the goods cannot lawfully be placed on the market because they are stolen goods and/or contraband?

2.      Is the answer to the first question different if the goods in question are products subject to excise duty, in particular manufactured tobacco?

3.      If no excise duty is charged on products which are subject to excise duty, is it compatible with the provisions of the … Directive to charge VAT in such a case?

4.      May Member States supplement the categories of transaction subject to VAT if they lodge a notification, as referred to in Article 27(2) or Article 27(5) of the … Directive, of their intention to charge VAT at national level in the event of theft of products subject to excise duty from a tax warehouse, or is Article 2 of the … Directive exhaustive?

5.      If a notification as referred to in Article 27(5) of the … Directive relates only to the prepayment of VAT by means of tax stamps, may a Member State supplement the categories of transaction subject to VAT by, for example, requiring the payment of VAT where products subject to excise duty have been stolen from a tax warehouse?


AG Opinion

(1)      The term ‘supply of goods … for consideration’ within the meaning of Article 2(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 must be interpreted as not covering a theft of goods, irrespective of whether the stolen goods are subject to excise duty.

(2)      An authorisation granted to a Member State, following a notification under Article 27(5) of the Sixth Directive in order to introduce a special derogating measure which establishes prepayment of value added tax on manufactured tobacco products, at the same time as excise duties, does not cover the possibility of requiring payment of value added tax as a consequence of the theft of those goods.


Decision 

1.      The theft of goods does not constitute a supply of goods for consideration within the meaning of Article 2 of the 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, and therefore cannot as such be subject to value added tax. The circumstance that goods are, like those at issue in the main proceedings, subject to excise duty does not affect that conclusion.

2.      An authorisation to apply measures facilitating monitoring of the charging of value added tax, granted to a Member State on the basis of Article 27(5) of the Sixth Directive 77/388, does not empower that State to subject transactions to that tax other than those set out in Article 2 of the Directive. Such an authorisation thus cannot provide a legal basis for national legislation subjecting to value added tax the theft of goods from a tax warehouse.


Summary

Theft of goods from a tax warehouse – Delivery of goods for consideration 

Theft of goods does not constitute a ‘supply of goods for consideration’ and therefore cannot be subject to VAT. The fact that it concerns excise goods is irrelevant for that purpose.

The authorization granted to a Member State on the basis of Article 27(5) of the Sixth Directive to introduce measures to facilitate the control of the levying of VAT does not empower that State to carry out acts other than those referred to in Article 2 of the Directive to this tax. That authorization cannot therefore provide a legal basis for national legislation subjecting the theft of goods from a tax warehouse to VAT.


Source


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