Briefing Document: EU VAT Export Exemptions – Key Principles and Judicial Interpretation
Date: 1 August 2025
Subject: Review of the Court of Justice of the European Union (CJEU) judgment in Case C-602/24 (W. sp. z o.o. v Dyrektor Izby Administracji Skarbowej w W.) and its implications for EU VAT export exemptions.
Sources:
- Excerpts from “CURIA – Documents”: Judgment of the Court (Ninth Chamber) of 1 August 2025 in Case C‑602/24.
- Excerpts from “ECJ VAT Export Exemption Study Guide”.
- Excerpts from “EU VAT Export Exemptions: Key Principles and Requirements”.
Executive Summary
The CJEU’s judgment in Case C‑602/24 reaffirms the objective nature of VAT export exemptions under Article 146(1)(b) of Directive 2006/112/EC (the VAT Directive). The ruling clarifies that a supply of goods, even if initially declared as an intra-Community supply, must be treated as an export and qualify for exemption if the goods have genuinely left the EU territory. Crucially, the supplier’s lack of knowledge, initial intent, or formal documentation inconsistencies are deemed irrelevant if the physical export is objectively established, particularly by tax authorities through customs documents. This decision strongly emphasises the principles of fiscal neutrality and proportionality, limiting Member States’ ability to deny exemptions based solely on formal breaches unless there is a clear prevention of conclusive evidence or intentional participation in tax evasion.
Main Themes and Key Ideas
- Purpose of VAT Export Exemptions (Principle of Destination Taxation):
- The fundamental purpose of VAT exemptions for goods dispatched or transported outside the European Union is to ensure that these goods are “taxed at the place of destination of those goods, namely the place where the exported products will be consumed.” (CURIA, para 19; Study Guide, Q1; EU FAQs, Q1). This prevents double taxation and ensures VAT is levied where consumption occurs.
- Objective Criteria for Export Exemption:
- For an export exemption under Article 146(1)(b) of the VAT Directive to apply, three objective criteria must be met (CURIA, para 20; Study Guide, Q2; EU FAQs, Q2):
- Transfer of Ownership: “the right to dispose of the goods as owner has been transferred to the person acquiring the goods” (CURIA, para 20, 23).
- Dispatch/Transport Outside EU: “the supplier establishes that those goods have been dispatched or transported outside the European Union” (CURIA, para 20).
- Physical Departure from EU: “as a result of that dispatch or that transport, the goods have physically left the territory of the European Union” (CURIA, para 20, 31).
- For an export exemption under Article 146(1)(b) of the VAT Directive to apply, three objective criteria must be met (CURIA, para 20; Study Guide, Q2; EU FAQs, Q2):
- Irrelevance of Subjective Factors (Supplier’s Knowledge/Intent):
- The “concept of ‘supply of goods’ is objective in nature” (CURIA, para 21, 28; Study Guide, Q6; EU FAQs, Q3). This means that factors such as the supplier’s initial intention (e.g., declaring an intra-Community supply), or their lack of knowledge that the goods were ultimately exported, are generally “irrelevant” if the objective criteria for export are met (CURIA, para 28; Study Guide, Q6; EU FAQs, Q3).
- The Court explicitly states: “The fact that the parties initially agreed on an intra-Community supply which ultimately did not take place and that the supply outside the territory of the European Union was made without the supplier’s knowledge constitute subjective factors which are therefore, in principle, irrelevant.” (CURIA, para 28).
- Role of Tax Authorities’ Findings and Customs Documents:
- Proof of export can be established by the tax authorities themselves. The Court ruled that “the fact that the proof of that supply was obtained by the Polish tax authorities and not by the supplier is not relevant for the purposes of classifying the transaction at issue in the main proceedings as an export transaction” (CURIA, para 29; Study Guide, Q7; EU FAQs, Q6).
- Customs documents are considered crucial and sufficient evidence for establishing the physical departure of goods from the EU territory (CURIA, para 17, 46; Study Guide, Q7; EU FAQs, Q6).
- Principle of Fiscal Neutrality and Proportionality:
- When the substantive requirements for an exemption have been satisfied, the principle of fiscal neutrality requires the exemption to be granted, even if formal requirements have been omitted (CURIA, para 34; Study Guide, Q4; EU FAQs, Q4).
- Member States can impose formal conditions under Article 131 of the VAT Directive to prevent evasion, but these conditions “must nonetheless respect the general principles of law… including, in particular, the principle of proportionality” (CURIA, para 37; Study Guide, Q9; EU FAQs, Q7).
- A national measure is disproportionate if it “makes the right of exemption from VAT subject to compliance with formal obligations, without any account being taken of the substantive requirements” (CURIA, para 38; Study Guide, Q9; EU FAQs, Q7).
- “It would not be proportionate to refuse to apply the exemption to an export on the sole ground that the taxable person does not have the correct export documents if… the tax authorities are certain that the goods have been exported.” (CURIA, para 39; Study Guide, Q10; EU FAQs, Q7).
- Limited Grounds for Denying Exemption due to Formal Breaches:
- The Court outlines only two situations where failure to meet a formal requirement may lead to loss of exemption (CURIA, para 40; Study Guide, Q8; EU FAQs, Q5):
- Prevention of Conclusive Evidence: “if the effect of the breach is to prevent the production of conclusive evidence that the substantive requirements have been satisfied” (CURIA, para 41). This was not the case here, as substantive conditions were met (CURIA, para 42).
- Intentional Participation in Tax Evasion: If the taxable person “has intentionally participated in tax evasion which has jeopardised the operation of the common system of VAT” (CURIA, para 43). This requires proof that the taxable person “knew or ought to have known that the transaction he or she carried out was part of a fraud committed by the person acquiring the goods” (CURIA, para 43). In the W. sp. z o.o. case, “the tax authorities had not referred to any fraud or abuse on the part of the supplier” (CURIA, para 44).
- The Court outlines only two situations where failure to meet a formal requirement may lead to loss of exemption (CURIA, para 40; Study Guide, Q8; EU FAQs, Q5):
Case Specifics (W. sp. z o.o. v Dyrektor Izby Administracji Skarbowej w W.)
- Dispute Origin: Company W declared supplies of apples as intra-Community supplies (0% VAT) to a UK company (A.E.) registered for VAT in Latvia. Waybills showed delivery to Lithuania.
- Tax Authorities’ Findings: Polish tax authorities discovered that A.E. had exported the apples directly from Poland to Belarus. They deemed A.E. an “elusive and unreliable entity” but “do not refer to any fraud or abuse on the part of company W in the chain of supply” (CURIA, para 9).
- Initial Reclassification and Penalty: Authorities reclassified the transaction as a domestic supply (5% VAT) and imposed a 30% penalty, arguing Company W “had not duly checked where the goods would be delivered” (CURIA, para 10; Study Guide, Q3).
- Lower Court Ruling (Wojewódzki Sąd Administracyjny w Warszawie): Annulled the tax authorities’ decision, applying the principle of fiscal neutrality, as substantive export requirements were met despite formal non-compliance (CURIA, para 12; Study Guide, Q4).
- Supreme Court Opinion (Naczelny Sąd Administracyjny): Set aside the lower court’s judgment on procedural grounds but issued a legal opinion stating that the acquirer’s independent decision to export, without the supplier’s knowledge or initial intent for export, was not sufficient to reclassify a domestic supply as an indirect export (CURIA, para 13-15; Study Guide, Q5). This opinion formed the basis for the preliminary ruling request.
- CJEU Ruling (Summary): The CJEU concluded that the exemption provided in Article 146(1)(b) of the VAT Directive “covers a supply of goods initially declared by the supplier as an intra-Community supply which, without the supplier’s knowledge, was made outside the territory of the European Union by the person acquiring the goods, where the export at issue has been established by the tax authorities on the basis of the customs documents.” (CURIA, para 46; Study Guide, Final Answer; EU FAQs, Q8).
Implications
- Shift in Focus: The judgment reinforces the Court’s consistent emphasis on the objective reality of transactions over the subjective intent or initial declarations of the parties. If goods physically leave the EU, they should be treated as exports for VAT purposes.
- Supplier Responsibility: While suppliers are generally expected to ensure compliance, this ruling suggests that their inability to perfectly document the final destination or their unawareness of an export does not automatically disqualify the transaction from an exemption, provided that the physical export can be objectively verified (e.g., by tax authorities). This eases the burden on suppliers who might be unaware of their customer’s subsequent actions.
- Limits on National Formalities: Member States cannot impose disproportionate formal requirements that deny an exemption when the substantive conditions are met and there is no evidence of the supplier’s participation in fraud. This places a significant limit on national tax administrations’ discretion under Article 131 VAT Directive.
- Burden of Proof: While the supplier typically bears the burden of proving an export, the judgment acknowledges that “the fact that the proof of that supply was obtained by the Polish tax authorities and not by the supplier is not relevant” (CURIA, para 29). This implies that if tax authorities, through their own investigations and customs documents, establish the export, the exemption should be granted, effectively shifting or sharing the evidentiary burden once the objective fact of export is confirmed.
- Fraud Prevention: The ruling reiterates that only intentional participation in fraud by the taxable person justifies denying an exemption when substantive conditions are met. Simple formal errors or a lack of knowledge from the supplier are not sufficient grounds.
Conclusion:
This judgment provides critical clarity for businesses engaged in cross-border trade within and from the EU. It reiterates that the substantive fact of export – the physical departure of goods from the EU – is paramount for VAT exemption, overriding formal discrepancies or the supplier’s lack of knowledge, provided there is no intent to defraud. National tax administrations must ensure their conditions for exemption are proportionate and do not unduly penalize businesses for formal omissions when the objective reality of an export is established.
Source Curia
See also
- Join the Linkedin Group on ECJ/CJEU/General Court VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
