Briefing document & Podcast: C-414/17 (Arex) – VAT Treatment of Intra-Community Acquisitions of Excise Goods

Executive Summary:

This CJEU judgment addresses the complex issue of VAT liability in chain transactions involving excise goods (specifically fuel in this case) transported within the EU under an excise duty suspension arrangement. The case concerns AREX CZ a.s. (Arex), a Czech company, and its dispute with the Czech Tax Directorate regarding the deduction of VAT on fuel purchases. The central question revolves around whether Arex’s acquisitions should be classified as internal acquisitions or intra-Community acquisitions, and to which transaction the transport should be ascribed. The CJEU clarified the interpretation of Article 2(1)(b)(i) and (iii) of Council Directive 2006/112/EC (the VAT Directive) in the context of such transactions. The court ruled that whether the goods are transported under an excise duty suspension arrangement is not a decisive factor in determining to which acquisition the transport is ascribed, and clarified the conditions for applying Article 2(1)(b)(iii).

Background:

Arex purchased fuel from Czech suppliers, which originated in Austria and was transported to the Czech Republic under an excise duty suspension arrangement.
The fuel was part of a chain of transactions, initially sold by an Austrian company (Doppler Mineralöle GmbH) to several Czech companies before reaching Arex.
The Czech first buyers entered into an agreement with Garantrans s. r. o., which acted as registered consignee for those buyers and paid the excise duty on the fuel on behalf of the Czech first buyers. The latter did not pay the VAT relating to those transactions in the Czech Republic.
The Czech tax authority argued that Arex’s acquisition was an intra-Community acquisition, the place of acquisition was in Austria, and denied Arex the right to deduct VAT.
Arex contested this, arguing that it should be treated as an internal acquisition, and that Article 138(2)(b) of the VAT Directive had not been correctly transposed into Czech law, and that there was no transfer of economic ownership since it was impossible to dispose of the goods during transport under an excise duty suspension arrangement.

Key Issues and CJEU Findings:

The Supreme Administrative Court of the Czech Republic referred three questions to the CJEU. The CJEU reformulated the questions to focus on the interpretation of Article 2(1)(b)(i) and (iii) of the VAT Directive.

1. Applicability of Article 2(1)(b)(iii) of the VAT Directive:

Question: Does Article 2(1)(b)(iii) apply to all taxable persons acquiring excise goods, or only to those whose other acquisitions are not subject to VAT under Article 3(1)?
CJEU Ruling: Article 2(1)(b)(iii) applies only to “intra-Community acquisitions of excise goods, in respect of which the excise duty is chargeable in the Member State of destination… carried out by a taxable person whose other acquisitions are not subject to value added tax pursuant to Article 3(1) of that directive.” (Point 1 of the ruling). This means the provision is only relevant when a taxable person’s other acquisitions fall under the derogations listed in Article 3(1).
Rationale:The court examined the wording, context, and objectives of the provision.
It noted that applying Article 2(1)(b)(iii) to all taxable persons would make Article 2(1)(b)(i) redundant, as that provision already covers intra-Community acquisitions of all “goods”, which includes excise goods.
Article 2(1)(b)(iii) acts as an exception to the default rule established in Article 2(1)(b)(i), applying only when Article 3(1) considerations come into play.

2. Intra-Community Acquisition and Excise Duty Liability in Chain Transactions:

Question: In a chain transaction with a single transport under excise duty suspension, does the acquisition by the trader liable for excise duty in the Member State of destination automatically qualify as an intra-Community acquisition under Article 2(1)(b)(iii)?
CJEU Ruling: “Article 2(1)(b)(iii)… must be interpreted as meaning that, in a chain of successive transactions which gave rise only to a single intra-Community transport of excise goods under an excise duty suspension arrangement, the acquisition carried out by the trader liable for payment of the excise duty in the Member State of destination… cannot be classified as an intra-Community acquisition subject to value added tax under that provision, where that transport cannot be ascribed to that acquisition.” (Point 2 of the ruling). Liability for excise duty does not automatically equate to VAT liability under Article 2(1)(b)(iii) if the transport cannot be assigned to that specific transaction.
Rationale:VAT liability under Article 2(1)(b)(iii) requires three cumulative conditions: (1) intra-Community acquisition as defined by Article 20, (2) the transaction concerns excise goods for which the excise duty is due in the Member State of destination, and (3) the transaction is carried out by a taxable person whose other acquisitions are not subject to VAT pursuant to Article 3(1) of that directive.
The court emphasized that the intra-Community transport could only be ascribed to ONE acquisition.
The condition related to excise duty (making the goods subject to excise duty and VAT in the same Member State) doesn’t mean that the taxable person paying the excise duty is liable for VAT under that provision if the intra-Community transport cannot be ascribed to that acquisition.

3. Excise Duty Suspension and Ascription of Transport:

Question: In a chain transaction with a single transport under excise duty suspension, is the excise duty suspension arrangement a decisive factor in determining to which acquisition the transport is ascribed for VAT purposes under Article 2(1)(b)(i)?
CJEU Ruling: “Article 2(1)(b)(i)… must be interpreted as meaning that, where there is a chain of successive acquisitions concerning the same excise goods and which gave rise only to a single intra-Community transport of those goods under an excise duty suspension arrangement, the fact that those goods are transported under that arrangement does not constitute a decisive factor in determining to which acquisition the transport is to be ascribed for the purposes of applying value added tax under that provision.” (Point 3 of the ruling).
Rationale:The court referred to previous case law that stipulates a global assessment of all circumstances in determining which supply the transport is ascribed to, and that is generally determined when the second transfer of the right to dispose of the goods as an owner to the person finally acquiring the goods occurred.
The temporal criteria are based on when conditions relating to intra-Community transport and transfer of right to dispose of property as owner occur.
Directives 92/12 and 2008/118, while laying down requirements for transport under excise duty suspension arrangements, do not affect the conditions for the transfer of ownership of goods.
Chargeable event for VAT is the supply or import of the goods, not the levying of excise duty on the latter.

Implications:

This ruling clarifies the VAT treatment of chain transactions involving excise goods, emphasizing the importance of determining to which acquisition the intra-Community transport is ascribed based on an assessment of all relevant circumstances, and not relying solely on the excise duty suspension arrangement.
The judgement reinforces the principle that excise duty liability and VAT liability are distinct and not automatically linked in such transactions.
National courts must conduct a case-by-case analysis to determine when the right to dispose of the goods as owner was transferred, and to which acquisition the transport relates.
The CJEU’s comments about when transfer of the right to dispose of the property occurs (point 75) are particularly important in conducting the overall assessment.

Key Quotes:

“Intra-Community acquisition of goods” shall mean the acquisition of the right to dispose as owner of movable tangible property dispatched or transported to the person acquiring the goods, by or on behalf of the vendor or the person acquiring the goods, in a Member State other than that in which dispatch or transport of the goods began.” (Paragraph 6, Article 20 of the VAT Directive)
“VAT is not linked to excise duty…” (Paragraph 22)
“…where there is a chain of successive acquisitions concerning the same excise goods and which gave rise only to a single intra-Community transport of those goods under an excise duty suspension arrangement, the fact that those goods are transported under that arrangement does not constitute a decisive factor in determining to which acquisition the transport is to be ascribed for the purposes of applying value added tax under that provision.” (Point 3 of the Ruling)
“A transfer of the power to dispose of tangible property as owner does not require that the party to whom the property is transferred must physically possess it or that it must be physically transported to and/or received by that party” (Point 75).

Conclusion:

The CJEU judgment in Case C-414/17 provides important guidance on the VAT treatment of complex chain transactions involving excise goods. The ruling highlights the need for a comprehensive assessment of all relevant facts to determine the correct VAT liability and emphasizes that the excise duty suspension arrangement is not a determining factor.