On 9th October, 2014 European Court of Justice has made a preliminary ruling (which is binding not only on the national court on whose initiative the reference for a preliminary ruling was made but also on all of the national courts of the Member States) regarding exemption from value added tax (VAT) for intra-Community goods supply and made it clear that EU Member States which lay down the conditions for the application of the VAT exemption in respect of intra-Community supplies must ensure correct and straightforward application of VAT exemption, without unnecessary and disproportional obstacles for persons to use VAT exemption provision established in VAT directive.
The request for preliminary ruling has been made in proceedings between Traum EOOD (‘Traum’), a company established in Bulgaria, and the Director of the Varna ‘Appeals and practice in the field of tax and social security’ directorate at the central office of the public revenue agency (‘the Direktor’) regarding a tax adjustment notice refusing to grant Traum an exemption from VAT in respect of a transaction which it had categorised as an ‘intra-Community supply of goods’. In its VAT return in respect of the period from 1 September to 31 October 2009, Traum declared that it had made intra-Community supplies of knife blocks and blanks, exempt from VAT, to the company Evangelos gaitadzis, established in Greece, submitting documents under Bulgarian regulatios, namely two invoices containing the Greek VAT identification number of Evangelos gaitadzis, acceptance and handover reports, international consigment notes and a signed certificate attesting receipt of the goods.
On 2nd November, 2009 the Bulgarian tax authorities issued an offset and refund notice with regard to Traum. The Bulgarian tax authorities have indicated that Evangelos gaitadzis (a Greek company) was registered for VAT purposes and had had a valid VAT identification number since 15 November 2005. In a later VAT inspection, the Bulgarian tax authorities found that Evangelos gaitadzis had been de-registered for VAT purposes since 15 January 2006. Therefore, those authorities issued an adjustment notice with regard to Traum, rendering the sale transactions to Evangelos gaitadzis subject to VAT on that ground that company was not registered for VAT purposes in another Member State, so that the condition for exemption from VAT that the purchaser must be a taxable person was not satisfied. Traum made a claim to the national court against such decision. The Direktor maintained that the certificate attesting receipt of the goods in question and the acceptance and handover reports submitted contained no information as to the exact address at which the goods were accepted or the identity, position or power of representation of the person who accepted the goods on behalf of Evangelos gaitadzis, so that those documents had no probative force.
The national court which examined the case decided to request the European Court of Justice whether the VAT directive provisions shall be understood in a way that it prohibits tax authorities, in circumstances such as those in the main proceedings, to refuse the entitlement of tax exemption due to the fact that it was established that the person acquiring the goods was recorded as not having the status of a ‘person registered for VAT purposes’ after the actual supply had taken place or the status of “person no longer registered for VAT purposes” was recorded belatedly, but the applicant claims that it acted with due diligence by carrying out searches for information in the database. Member States shall exempt the supply of goods dispatched or transported to a destination outside their respective territory but within the Community, by or on behalf of the vendor or the person acquiring the goods, for another taxable person, or for a non-taxable legal person acting as such in a Member State other than that in which dispatch or transport of the goods began. Therefore the Bulgarian national court has also requested whether the above norm of the VAT Directive has direct effect.
The European Court of Justice while examining the VAT directive’s (Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax) provisions indicated that the Article 138 sec. 1 must be interpreted as having direct effect, so that it may be relied upon by taxable persons before national courts against the State in order to obtain an exemption from value added tax in respect of an intra-Community supply of goods. Basically it means that the person who is facing unfounded obstacles to apply VAT exemption provision, e.g. requirement to submit excessive documents or evidences from the part of responsible state body, may defend his rightful interests in courts directly applying VAT directive provisions.
The European Court of Justice confirmed it is for Member States to lay down the conditions in which intra-Community supplies of goods will be exempt, but stressed that such discretion should be implemented with a view to ensuring the correct and straightforward application of those exemptions and observe the general principles of legal certainty and proportionality.
Such ruling is important for Lithuania as a taxable person who wishes to exempt VAT in respect of an intra-Community supply of goods shall submit evidence that goods have been dispatched or transported to a destination outside Lithuanian territory but within the Community. Such requirement is set in the Value Added Tax Law of the Republic of Lithuania. Still, the Law does not specify the exact list of evidence showing the goods have been delivered to another Member State. According to aforementioned, tax administrator gains wide discretion to decide what evidences are suitable and necessary. Therefore, if tax administrator would require documents which aggravate person’s ability to use the VAT exemption for supply in the community, such person may defend his rights in Lithuanian courts relying upon the VAT directive.
In circumstances such as those in the main proceedings the European Court of Justice pointed that it would be contrary to the principle of legal certainty if a Member State which has laid down the conditions for the application of the VAT exemption in respect of intra-Community supplies by prescribing, among other things, a list of the documents to be presented to the competent authorities, and which has accepted, initially, the documents presented by the supplier as evidence establishing entitlement to the exemption, could subsequently require that supplier to account for the VAT on that supply, where it transpires that, because of the purchaser’s fraud, of which the supplier had and could have had no knowledge, the goods concerned did not actually leave the territory of the Member State of supply. For details of a preliminary ruling, see:
Dovilė Aukštuolytė,
Senior Associate, Miškinis & Partners law office