STJUE on compulsory inclusion in ROI to carry out intra-Community transactions

This decision dated February 9, 2017, comes to meet the request for preliminary ruling filed by the Tax Court of Portugal, in the context of a dispute between Euro Tyre BV – Sucursal em Portugal and the Portuguese Tax and Customs Administration as a result of the denial of the exemption in VAT of an Intra-EU supply of goods for the sole reason of at the time of such delivery the acquirer was not included in the VIES of the Member State of destination.

Faced with this situation, the Portuguese Tax Court decided to stay the proceedings opened before the Portuguese courts and questions to the European Court of justice the following:

1) “Must Article 131 and Article 138(1) of Directive 2006/112 be interpreted, in respect of an intra-Community supply of goods, as precluding the tax authority of a Member State from refusing to grant VAT exemption to a vendor domiciled in that Member State on the ground that the purchaser, domiciled in another Member State, is not registered in the VIES database nor is subject in that country to a system of taxation on intra-Community acquisitions of goods, although he has, at the time of the transactions, a valid identification number for the purposes of VAT in that other Member State, which has been used in the transaction invoices, and the cumulative material conditions for an intra-Community supply have been fulfilled, namely, that the right to dispose of the goods as owner has been transferred to the purchaser and the vendor has established that these goods were dispatched or transported to another Member State and that, after that dispatch or transport, those goods physically left the Member State of departure and were delivered to a taxable purchaser or legal person acting as such in a Member State other than that in which dispatch or transport of the goods began?

2) Does the principle of proportionality preclude an interpretation of Article 138(1) of Directive No 2006/112/EC to the effect that the benefit of the right to VAT exemption is to be denied in a situation where a vendor, domiciled in a Member State, was aware that the purchaser, domiciled in another Member State, although holding a valid identification number for the purposes of VAT in that other Member State, was not registered in the VIES database nor came under a system of taxation on intra-Community acquisitions of goods, but was convinced that that purchaser would be retroactively registered as an intra-Community operator?”

In this regard, it should be noted that both the obtaining by the acquirer of a VAT identification number valid for intra-Community transactions as well as its inclusion into the VIES system do not constitute material requirements for the exemption of VAT on intra-Community supplies of goods, but instead, are formal requirements, that cannot avoid the right of the seller to the exemption from VAT if they met the material requirements of an intra-Community supply of goods.

The case law of the ECJ has been contrary to that a national provision goes beyond the necessary to ensure the correct collection of the tax to subordinate the right to exemption from VAT to fulfilling formal obligations, regardless of the material requirements.

The ECJ means that it should take into account the principle of tax neutrality, allowing that the exemption from VAT is granted if the material requirements are met even though taxpayers have omitted certain formal requirements.

Thus, in principle, the Tax Authorities of a Member State cannot deny the exemption of VAT on intra-Community supplies of goods on the sole ground that the acquirer does not figure in the VIES system and is not subject to a regime of taxation of intra-Community acquisitions.

In this sense, according to the case-law of the ECJ, only cases that a taxable person has deliberately participated in a tax fraud, it could not invoke the principle of fiscal neutrality, but in principle, in all other situations, non-compliance with a formal requirement should not entail loss of the right to exemption from VAT.

By virtue of the foregoing, the Court of Justice (Ninth Chamber) hereby rules:

“Article 131 and Article 138(1) of the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted as precluding the tax authority of a Member State from refusing to exempt an intra-Community supply from value added tax on the sole ground that, at the time of that supply, the purchaser domiciled in the territory of the Member State of destination and who was in possession of a valid identification number for the purposes of value added tax in that Member State is neither registered in the Value Added Tax Information Exchange System nor comes under a system of taxation on intra-Community acquisitions of goods, where there is no sound evidence pointing to the existence of fraud and it is established that the basic conditions of the exemption are fulfilled. In that case, Article 138(1) of that directive, interpreted in the light of the principle of proportionality, also precludes such refusal where the vendor was aware of the circumstances of the situation of the purchaser with regard to the application of VAT and was convinced that subsequently the purchaser would be registered as an intra-Community operator with retroactive effect.”

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