CJEU to decide on the subject of accounting for VAT in international supply chains
By a decision of 12 July 2024, the Province Administrative Court of Warsaw (WSA) submitted three questions to the Court of Justice of the European Union (“CJEU“) for a preliminary ruling on VAT treatment in international supply chains.
Subject matter
The case involved a Polish company (“the Company“, “the Complainant“) that sold goods to a counterparty from the United Kingdom (then a member of the European Union), registered for VAT in Latvia. The Complainant declared the intra-Community supply (“ICS“) of goods to its UK counterparty, taxed at 0%. To document the supply, the Company furnished CMR waybills confirming delivery of the goods to . Accordingly, the Complainant assumed that, as it was informed, the goods would be moved within the EU, but the counterparty ultimately transported them to a non-EU country. The authorities expressed doubts as to whether a transaction in which the actual course of delivery did not correspond to the parties’ initial arrangements should be classified as ICS or as export.
Doubts raised by the authorities
The Province Court considered whether the Company was obliged to be knowledgeable about the final destination of the goods and whether the lack of such knowledge affected the classification of the transaction. The Complainant may not be in a position to monitor all the activities of the counterparty, but at the same time it is necessary to ensure that the tax accounting is correct, consistent with the facts. Another aspect of the case is the conformity of the transport documents with the actual flow of goods. The tax authorities may be in possession of other information than the information received by the Company, which gives rise to the question of which documents are conclusive when determining the VAT rate.
The Supreme Administrative Court held that the mere fact that a purchaser of the goods decides arbitrarily to export the goods outside the territory of the European Union, without making prior business arrangements with the Company, cannot be the reason for classifying the transaction as export under Article 2(8) of the VAT Act. The Supreme Administrative Court emphasized that if the purchaser declared the goods for export on its own, the seller cannot automatically redefine the supply as export. Consequently, the Supreme Administrative Court referred the case back to the Province Administrative Court (WSA), which in turn referred the questions concerning Article 146(1)(b) of the VAT Directive (regarding the exemption from VAT on export) to the CJEU.
Consequences for Taxpayers
The CJEU’s decision on whether material or formal prerequisites for export are relevant will be crucial for companies supplying goods to foreign counterparties, both within and outside the European Union. Such taxpayers should be aware of the importance of the distinction between intra-Community supply of goods and export with a view to applying the 0% VAT rate. Different documentation is required in the two situations, so precise classification is important to avoid disputes with tax authorities and potential financial consequences.
Should you have any questions or doubts regarding the issues discussed here, we are ready to help you. Feel free to contact us.
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