ECJ VAT C-125/24 (Palmstråle) – Judgment – VAT exemptions for re-imported goods, even if customs rules are not followed, unless there’s an attempt to cheat

On June 12, 2025, the ECJ released the judgment in the case C-125/24 (Palmstråle).

Context: Request for a preliminary ruling under Article 267 TFEU concerning the interpretation of Article 143(1)(e) of Directive 2006/112/EC on the common system of value added tax (VAT Directive) and Articles 86(6) and 203 of Regulation (EU) No 952/2013 laying down the Union Customs Code (Union Customs Code)

Summary

Case Background: The case involves AA, who re-imported horses into the EU after participating in competitions in Norway without declaring them to customs. The Swedish customs authorities imposed VAT on the re-importation, stating that AA did not meet the formal requirements for exemption.
Key Question: The court was asked whether the failure to comply with customs formalities (like presenting goods to customs) precludes the VAT exemption for re-imported goods under Article 143(1)(e) of the VAT Directive and Articles 86(6) and 203 of the Customs Code.
Court’s Decision: The ECJ ruled that unless there is an attempt to evade customs regulations, failing to meet formal obligations does not prevent entitlement to VAT exemption for re-imported goods.
Justification for Decision: The Court emphasized the importance of good faith, stating that minor negligent failures in complying with customs obligations should not automatically disqualify a trader from benefiting from VAT exemptions, aligning with the principles of the VAT system.
Implications: This ruling clarifies that VAT exemptions for re-importation can apply even if certain customs formalities are not fulfilled, as long as there is no intention to manipulate the system.

Articles in the EU VAT Directive

Article 143 (1)(e) of the EU VAT Directive 2006/112/EC

1. Member States shall exempt the following transactions:

(e) the reimportation, by the person who exported them, of goods in the state in which they were exported, where those goods are exempt from customs duties;

Facts

The applicant is AA and the defendant is the general representative of the Swedish Customs Authority. AA owns horses that are used for competitions. For this purpose she exported two horses to Norway, and then brought them back to Sweden after the competition. The horses were not presented as imported goods at the border crossing into Sweden, and thus back into the European Union. AA was stopped during a roadside check in Sweden and customs decided to impose a VAT assessment. AA will appeal against this decision.

Consideration:

It is mandatory to pay VAT on the import of goods from a third country into the Union. Pursuant to Article 143(1)(e) of Directive 2006/112, exemptions may be granted for the re-importation of goods. Article 203 of Regulation 952/2013 sets procedural conditions for this, such as declaring the goods intended for free circulation and submitting a request for exemption. AA had failed to declare the goods in breach of Article 139(1). This has created a customs debt under Article 79. It is not clear to the referring court whether both the substantive and formal conditions of Article 203 must be met in order to grant exemption from import duties where a customs debt has been incurred.

Questions

Must Article 143(1)(e) of the VAT Directive and Article 86(6) and Article 203 of the Customs Code be interpreted as meaning that both the substantive and formal conditions of Article 203 of the Customs Code must be met satisfied in order to be able to grant exemption from import duties – and therefore exemption from VAT – upon re-importation when a customs debt within the meaning of Article 79 of the Customs Code has been incurred due to failure to comply with the presentation obligation of Article 139(1) of the Customs Code?

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AG Opinion

Article 143(1)(e) of the VAT Directive only requires that the substantive conditions laid down in Article 203 of the Customs Code are fulfilled. In so far as a customs debt under Article 79 of the Customs Code has only been incurred through non-compliance with the customs declaration obligation under Article 158(1) of the Customs Code and the presentation obligation under Article 139(1) of the Customs Code or the lack of an application for relief from customs duty under Article 203 of the Customs Code, the re-importation of returned goods within the meaning of Article 203 of the Customs Code is exempt from VAT. For that reason, it is irrelevant for the import VAT exemption under Article 143(1)(e) of the VAT Directive whether the requirements for a relief under Article 86(6) of the Customs Code (on account of the lack of an attempt at deception) are fulfilled.

Summary

Advocate General Kokott delivered an opinion on March 6, 2025, regarding Case C-125/24, concerning the re-importation of goods and the interplay between customs law and VAT exemptions under EU law, specifically focusing on the VAT exemption for goods exempt from customs duties.
The case involves an applicant who exported horses to Norway for competitions and then re-imported them into Sweden without properly following customs procedures, leading to the Swedish Customs Authority imposing import VAT despite no customs debt being established.
The central legal question is whether compliance with customs procedures is necessary for obtaining an import VAT exemption under Article 143(1)(e) of the VAT Directive, particularly when substantive conditions for customs duty exemption are met but procedural requirements are not.
Advocate General Kokott argues that the VAT exemption is not accessory to customs legislation; therefore, it should be granted if the substantive conditions for customs relief are satisfied, regardless of procedural non-compliance related to customs declarations or presentations.
The opinion concludes that if a customs debt arises solely from procedural failures, the import VAT exemption still applies, and it is unnecessary to assess compliance with Article 86(6) of the Customs Code regarding attempts at deception, suggesting that the substantive requirements are sufficient for VAT exemption.

Decision

Article 143(1)(e) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and Articles 86(6) and 203 of Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code,

must be interpreted as meaning that:

unless it constitutes an attempt at manoeuvre, the failure to comply with formal obligations such as the presentation of goods to customs as provided for in Article 139(1)(a) of that regulation and the declaration for release for free circulation provided for in Article 203 of that regulation does not preclude entitlement to the exemption from value added tax provided for in Article 143, (1)(e) of that directive for re-imports into the territory of the European Union of goods in the state in which they were exported.

Source