VAT exemption in the intra-Community supplies of goods for supply chain. Judgment of the ECJ of July 26th, 2017. Toridas
Supply chain means those sales where there are two or more deliveries of goods (usually at an international level) but a single transport of the goods to its final destination. Where such deliveries take place within the VAT territory of the Community it is really important to establish the correct treatment for tax purposes in respect of the application of the VAT exemption for intra-Community supplies of goods defined in Article 138 of Directive 2006/112/EC of the VAT.
The European Court of Justice has ruled again on the application of this exemption in the event of a supply chain, following a dispute between a Lithuanian company and the Lithuanian Tax Administration. In the light of the facts set out in the judgment, the Lithuanian company (Toridas) sold goods to a company identified for VAT purposes in Estonia, while the buyer undertaking to transport the goods outside Lithuania and to provide Toridas with documentary proof of such departure. The invoices issued by Toridas indicated that the place of delivery and loading of the goods was in the warehouses in Lithuania.
As regard the Estonian company, the same day it purchases the goods those are sold to customers identified for VAT purposes in other Member States. Part of the goods were immediately delivered to those other Member States without passing through Estonia, while another part of the goods were stored in Lithuania to be calibrated, glazed and packaged before being transported directly to the final acquirer in the other Member States.
Although Toridas applied the VAT exemption to the sales, considering those sales as intra-Community supplies of goods, the Tax Administration understood that they could not be treated as such but as domestic supplies, subject to and not exempt from VAT, in Lithuania. The company appealed against the decision and the national court asks the EU Court how to classify the first supplies as they were followed by subsequent supplies and only one transport exists, so it does not know which of the two deliveries should be classified as an exempt intra-community supply of goods. In addition, it points out that the fact that the intermediary is identified for VAT purposes in Estonia, a possible refusal of exemption of the first supplies could entail a double taxation. Finally, it questions whether the fact that part of the goods is processed before being sent to the Member State affects the previous reply.
With regard to the first question, i.e. whether the exemption of intra-Community supplies of goods should be applied where, prior to delivery, the buyer informs the supplier that the goods are to be resold immediately to a taxable person established in another Member State, the Court recalls the conditions linked to that exemption: (a) transfer of the power of disposal as owner, (b) proof that the goods have been dispatched and (c) the goods have physically left the territory of the Member State of delivery. The Court also points out that an intra-Community supply has as its corollary an intra-Community acquisition, so that both have an identical meaning and scope, and the latter can only be classified as such when the goods have been dispatched or transported to the purchaser, son an intra-Community supply may not be deemed to exist if the goods have not been transported to the purchaser.
The Court recalls that in the case of supply chain, with a single transport, it can only be linked to one of the two supplies, which will be exempt from tax. For such purposes an overall assessment must be made of all the circumstances. In particular, it is decisive to know when the second transfer of the power of disposal to the final purchaser took place, so that if it takes place before the intra-Community transport takes place, it can no longer be attributed to the first delivery. In this case, the delivery made by the intermediary takes place before the commencement of the transport, in addition to the fact that the intermediary was not the recipient of the goods, so the first sale should be qualified as a domestic supply of goods subject to and not exempt from VAT. The identification of the buyer in a different Member State is not a sufficient criterion itself for the classification of an intra-Community transaction.
Finally, with regard to the second question, the Court states that the processing of goods does not form part of the material requirements laid down in Article 138 providing for the exemption of intra-Community supplies and does not therefore affect their classification as such.
A copy of the judgment with case number C-386/16 is attached.