Supply of goods to another EU Member State cannot be VAT exempt if it is not proved that the recipient is a taxable person

Subject of the case

In 2015 a Czech company performed supplies of rapeseed oil that was transported to Poland. According to the findings of the Tax Authorities, these goods were not supplied to the recipients declared in the tax documents but to other Polish entities, some of whom confirmed their receipt in international consignment notes.

The Tax Authorities denied VAT exemption of these goods on the grounds that the company had not proved that it had transferred the right to dispose of those goods as owner to the persons stated in the tax documents as the recipients or even that those goods had been supplied to a person registered for VAT purposes in another Member State.

The company argued that the evidence provided, certifying the actual receipt of the goods concerned by companies other than the entities declared on the relevant tax documents, makes it possible to establish the identity of the recipients to whom the right to dispose of those goods has been transferred.

The issue concerned was whether the VAT exemption upon supply of the goods to another Member State can be denied should the supplier not prove that those goods were supplied to a recipient having the status of taxable person, even though, in view of the facts and information submitted, the Tax Authorities of the supplier have the information necessary to verify that the person to whom the goods were physically supplied had such status and acted as such.

Decision of the Court of Justice of the EU

The Court of Justice of the EU in its decision stated that:

• apart substantive conditions, relating to the capacity of the taxable person, to the transfer of the right to dispose of goods as owner and to the physical movement of the goods from one Member State to another, no other condition can be placed on the classification of a transaction as an intra-Community supply of goods (the supply in question took place at the time when the VAT ID of the customer wasn’t one of substantive conditions for VAT exemption),

- these conditions however do not imply that the physical supply of the goods concerned must be made to the recipient indicated on the tax documents,

• the principle of fiscal neutrality requires that the VAT exemption be allowed if the substantive conditions are satisfied, even if the taxable person has failed to comply with some of the formal requirements; however, there are two situations in which the failure to meet a formal requirement may result in the loss of entitlement to VAT exemption:

1. the supplier has participated in tax evasion or knew or should have known that the transaction which he had carried out was part of a fraud committed by the purchaser and had not taken every step which could reasonably be required of him to prevent that fraud from being committed,
2. as a consequence of this non-compliance, it is impossible to provide conclusive evidence that the substantive requirements have been satisfied – the respective authorities

• may not impose additional requirements which may have the effect of rendering the taxable person’s right of VAT 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,
• on the other side, are not required to prove that that taxable person was involved in VAT fraud,

• as regards the types of evidence which may be required of the supplier in order to show that the condition relating to the status of the person acquiring the goods as a taxable person is satisfied, a taxable person cannot be required, in order to be able to exercise its right to VAT exemption, to prove, in every case, where the recipient of the goods concerned has not been identified, that that recipient has the status of a taxable person in so far as it clearly follows from the factual circumstances that that recipient necessarily had that status,

• it is for the Tax Authorities and the competent national courts to ascertain, on the basis of all the documents provided, including the documents in the supplier’s possession, whether the substantive conditions for entitlement to the VAT exemption were met,

• if the supplier of the goods that were transported or dispatched to another Member State has not shown that the goods were supplied to a recipient having the status of a taxable person in that other 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 did have that status is lacking, the VAT exemption must be refused.

More information can be found on the following link: C-676/22 B2 Energy