Input VAT deduction and VAT exemption for export supplies in the event of VAT fraud in the third country

Issue: The case centered on the disputed VAT treatment of a textile company’s export transaction, where the tax authorities found a significant discrepancy between the value stated on the outgoing invoice and the value declared in the export documents, leading to a denial of VAT exemption for part of the transaction.
Decision: The Administrative Court ruled in favor of the Feldkirch Tax Office, annulling the previous decision of the Federal Finance Court regarding the VAT exemption, citing the illegality of the content of that decision and emphasizing that proper proof of export was required.
Legal Implications: The court underscored the importance of substantive legal requirements for VAT exemptions, aligning with European Court of Justice principles that mandate businesses must demonstrate good faith and avoid participation in transactions linked to tax evasion.

ECJ Cases referred to:

Kittel and Recolta Recycling (C-439/04 & C-440/04) – This case addresses the principle that a taxable person cannot rely on VAT exemption if they knew or should have known that their transaction was linked to tax evasion.
Cartrans Spedition (C-461/21)– This case reinforces the notion that compliance with formal requirements is secondary to the existence of substantive legal requirements for VAT exemption.
Vinš (C-275/18) – This case discusses the conditions under which VAT exemptions can be denied in cases where a taxable person participated in tax evasion.