Briefing document & Podcast: ECJ C-676/22: No exemption on intra-EU supplies if it can not proven that the recipient is a taxable person

Subject: Interpretation of Article 138(1) of Council Directive 2006/112/EC (VAT Directive) regarding exemption for intra-Community supplies of goods, specifically where the supplier fails to prove delivery to the intended recipient but provides other evidence of the actual recipient’s taxable status.

Summary:

This judgment addresses a request for a preliminary ruling from the Supreme Administrative Court of the Czech Republic concerning a dispute between B2 Energy and the tax directorate regarding the refusal of VAT exemption on intra-Community supplies. The central issue is whether a VAT exemption should be denied when the supplier fails to prove delivery to the recipient indicated on tax documents, but presents other information suggesting the actual recipient is a taxable person in another Member State. The Court of Justice of the European Union (CJEU) ruled that the exemption should be refused only if the supplier fails to show that the goods were supplied to a taxable person in the other Member State and that there is a lack of information necessary to verify the factual circumstances and evidence provided by the supplier, that the recipient had that status.

Key Themes and Ideas:

Intra-Community Supply Exemption: Article 138(1) of the VAT Directive mandates Member States to exempt supplies of goods dispatched or transported to another Member State for a taxable person.
Conditions for Exemption: The Court reaffirms the conditions for the exemption: transfer of the right to dispose of goods as owner, proof of dispatch/transport to another Member State, and the recipient being a taxable person acting as such in another Member State. These are considered the “substantive conditions.”
Fiscal Neutrality: The principle of fiscal neutrality dictates that VAT exemptions should be granted if substantive conditions are met, even if formal requirements are not fully complied with, unless there is fraud or lack of conclusive evidence.
“Therefore, the principle of fiscal neutrality requires that an exemption from VAT be allowed if the substantive conditions are satisfied, even if the taxable person has failed to comply with some of the formal requirements.”
Burden of Proof & Cooperation: Member States are responsible for setting conditions for exemptions, but they must adhere to the general principles of EU law, including proportionality and legal certainty. Tax authorities must assess the evidence provided by taxable persons in good faith. It is principally on the basis of the evidence provided by taxable persons and their statements that the national tax authorities are to carry out the necessary checks.
Role of Tax Authorities: The tax authorities must consider all available information to determine if the substantive conditions for the exemption are met. It is for the tax authorities and the competent national courts to ascertain, on the basis of all the documents produced, including the documents in the supplier’s possession, whether the substantive conditions for entitlement to the VAT exemption were met.
Limited Denial of Exemption: An exemption can only be refused when the non-compliance with a formal requirement effectively prevents the production of conclusive evidence that the substantive requirements have been satisfied.
“It is only where, having regard to the factual circumstances, and despite the evidence provided by the taxable person, the information necessary to verify that the conditions laid down in Article 138(1) of the VAT Directive are satisfied is lacking, that the taxable person must be refused the VAT exemption, without the tax authorities being required to prove that that taxable person was involved in VAT fraud.”
Focus on Taxable Person Status: The Court clarifies that the physical supply doesn’t necessarily need to be to the recipient on the tax documents, as long as the actual recipient is a taxable person and the tax authorities have the information needed to verify that status.

Facts of the Case:

B2 Energy (a Czech company) made deliveries of rapeseed oil to Poland. The tax authority denied VAT exemption because B2 Energy could not prove that the goods were supplied to the recipients declared on tax documents or that they were supplied to a VAT-registered person in Poland. The referring court notes that the goods were transported to Poland and received by entities there, some of whom confirmed receipt. The referring court seeks clarity on whether the VAT exemption must be denied if the supplier fails to prove delivery to the initially declared recipient, despite the presence of evidence confirming that the actual recipient in the destination Member State did indeed have taxable person status.

CJEU Ruling:

Article 138(1) of the VAT Directive must be interpreted as meaning that the exemption from VAT of a supplier established in one Member State, having supplied goods to another Member State, must be refused where that supplier has not shown that the goods were supplied to a recipient having the status of a taxable person in that Member State and that, in the light of the factual circumstances and evidence provided by the supplier, the information necessary to verify that the recipient had that status is lacking.

Implications:

This judgment clarifies the conditions for VAT exemption on intra-Community supplies. It emphasizes the importance of substantiating the taxable status of the actual recipient, even if they differ from the declared recipient. Tax authorities should not impose additional requirements which may have the effect of rendering the taxable person’s right of exemption ineffective for practical purposes, where it has the information necessary to establish that the substantive requirements have been satisfied, and in particular that the goods were supplied to a taxable person acting as such.