The Court of Justice of the EU passes another judgment on chain transactions

On 7 July 2022, the Court of Justice of the European Union (“CJEU” or “Court”) passed another judgment on chain transactions. This time the Court did not consider the rules for assigning the status of “movable” to a chain transaction but examined compliance of Article 25 par. 2 of the Polish VAT Act with the VAT Directive.

This regulation applies to all intra-Community acquisitions of goods, and the case considered by the Court involved ICA made as part of chain transactions. According to the regulation, a taxable person who made an intra-Community acquisition and for the purpose of the transaction used a VAT number assigned to him by a country other than the country of destination of the goods (e.g. by Poland) should tax the ICA also in the state which assigned the VAT number (e.g. Poland). The taxable person has no right to deduct the input VAT related to this additional (sanctioned) ICA. Consequently, the taxpayer is obliged to pay the output tax in the state which assigned the VAT number used.

The Court held that the regulation, as such, was compliant with the VAT Directive and gave the authorities the right to sanction the intra-Community acquisition if the taxpayer, for the purpose of the ICA, provided a VAT number issued by a state other than the state of destination of the goods. At the same time, the Court held that, with respect to the sanctioned ICA, it was not relevant that the VAT on the ICA was settled in the country of destination by another entity because the entity was not the buyer in the transaction.

However, the Court was of the opinion that application of this regulation must not give rise to double taxation, as in the case which was the basis for the judgment. The transaction which was a sanctioned ICA was already taxed by the taxpayer’s counterparty at the rate of 23% (as a domestic supply). However, the Court stated that, given the principles of neutrality and proportionality, a sanctioned ICA cannot be applied to a transaction which had already been taxed by a counterparty.

It is not certain, however, whether the Court’s conclusion would be the same if the supplier used the 0% rate. Therefore, special caution must be exercised when constructing and settling chain transactions, which are among the most difficult elements of the VAT system.

It seems that the Court’s conclusions are also applicable to situations other than chain transactions (e.g. ordinary ICS and ICA) and may offer an argument for taxable persons against double taxation of such transactions.

Should you have any questions or doubts regarding the issues discussed here, we are ready to help you. Feel free to contact us.


Aleksandra Kalinowska Partner, Warsaw

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Elżbieta Lis Partner, Katowice

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Anna Hleb-Koszańska Director, Warsaw

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