On 26 October 2016, the Court of Justice of the European Union (“ECJ”) released its judgment in the case of Josef Plöckl against Finanzamt Scrobenhausen (C-24/15), which dealt with the VAT exemption/zero-rated on intra-Community transfers.
The case was referred to the ECJ by the Finanzgericht München (Germany). The local tax authorities refused to grant a VAT exemption for the transfer made by Mr. Plöckl of a vehicle from Germany to Spain, on the grounds that Mr. Plöckl had not provided a VAT identification number assigned by the Member State of destination (Spain) even though, the dispatch had been recorded with a CMR consignment note.
The question raised in this Case is as to whether tax authorities can refuse the exemption applicable to intra-Community supply of goods (transfers) on the grounds that a VAT identification number is not assigned by the Member State of destination.
The ECJ has ruled that a tax authority of the Member State of origin cannot refuse to exempt an intra-Community transfer from VAT on the ground that the taxable person has not provided a VAT identification number issued by the Member State of destination, where there is no specific evidence of tax evasion, the goods have been moved to another Member State and the other conditions of exemption from VAT are also met.
In 2006, Mr Plöckl, a sole trader established in Germany, acquired a business vehicle. On 20 October 2006, Mr. Plöckl dispatched the business vehicle to a dealer established in Spain with a view to selling it in Spain. That dispatch was evidenced by a CMR consignment note. On 11 July 2007, the vehicle was sold to an undertaking established in Spain. Mr Plöckl did not declare any turnover in respect of that transaction for 2006. For 2007, he declared an intra-Community supply of goods zero-rated.
The Tax Office took the view that the conditions applicable to an intra-Community supply were not satisfied and that the transaction was a supply which was required to be taxed in Germany in respect of the year 2007. It therefore issued a VAT amendment notice for 2007.
During the subsequent proceedings before the Finanzgericht München (Finance Court, Munich, Germany), that court established that the vehicle at issue in the main proceedings was already in Spain in 2007, which led the Tax Office to annul that amendment notice.
Following that annulment, the Tax Office corrected the VAT calculation for 2006, taking the view that the transfer of the vehicle to Spain in 2006 was subject to VAT and was not exempt (i.e. zero-rated), since Mr Plöckl had not provided a VAT identification number issued by Spain and had not, therefore, produced the accounting evidence required for the purposes of exemption from VAT.
Mr.Plöckl brought an action against that decision before the referring court.
The referring court wonders whether that transfer should be exempt from VAT. It notes that, while Mr. Plöckl did not take all reasonable measures to provide a VAT identification number issued by the Member State of destination, there is no specific evidence of tax evasion and the Tax Office rules out any such evasion. According to the referring court, Mr. Plöckl simply made an error of law in recording the transfer and subsequent sale as an intra-Community supply and did not make a false statement to the Tax Office.
The Finanzgericht München (Finance Court, Munich) therefore decided to refer the following question to the Court of Justice for a preliminary ruling:
‘Do Article 22(8) of the Sixth Directive, in the version resulting from Article 28h thereof, and the first subparagraph of Article 28c(A)(a) and Article 28c(A)(d) of the Sixth Directive permit Member States to refuse to grant a tax exemption in respect of an intra-Community supply (in this instance, an intra-Community transfer) where, although the supplier has not taken all the measures that can reasonably be expected of him from the point of view of the formal requirements applicable to the recording of the VAT identification number, there is no specific evidence of tax evasion, the goods have been moved to another Member State and the other conditions of exemption from tax are also met?’
The ECJ noted that it is apparent from the order for reference that there is no dispute about the fact that an intra-Community supply was made. Moreover, the ECJ stated that the principle of fiscal neutrality requires that an exemption from VAT be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements. The only exception is if non-compliance with such formal requirements would effectively prevent the production of conclusive evidence that the substantive requirements have been satisfied.
In that regard, the ECJ held that the obligation to communicate the taxable person’s VAT identification number issued by the Member State of destination constitutes a formal requirement with regard to the right to exemption from VAT. As a consequence, an authority of a Member State cannot, in principle, refuse to grant an exemption from VAT in respect of an intra-Community transfer on the sole ground that the taxable person has not provided the VAT identification number issued to him by the Member State of destination.
On those grounds, the ECJ (Fourth Chamber) ruled that:
“Article 22(8) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2005/92/EC of 12 December 2005, in the version resulting from Article 28h of that Sixth Directive, and the first subparagraph of Article 28c(A)(a) and Article 28c(A)(d) of that directive must be interpreted as precluding a tax authority of the Member State of origin from refusing to exempt an intra-Community transfer from VAT on the ground that the taxable person has not provided a VAT identification number issued by the Member State of destination, where there is no specific evidence of tax evasion, the goods have been moved to another Member State and the other conditions of exemption from tax are also met.”
KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.
Our tax professionals are able to review your company’s current tax position and provide relevant advice and planning on a range of indirect taxes, including VAT, customs duties and excise taxes (such as tax audits, reorganizations and acquisitions, etc). Furthermore, we can help your company with its administrative obligations and contacts with administrative bodies.
KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative ("KPMG International") a Swiss entity. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International Cooperative ("KPMG International") or KPMG member firms.