Stricter rules for VAT exemption of transport connected with exportation of goods

The Court of Justice of the EU recently considered a case in which the exporter of goods authorised a carrier to transport goods to a third country. For capacity reasons, the carrier was unable to transport the goods and asked a sub-supplier (another carrier) to carry out the transport of goods in its stead. The court confirmed the local tax authority’s decision to reject the sub-supplier’s application of VAT exemption on the transport of goods, on the grounds of it being connected with the exportation of goods. The sub-supplier effecting the transport of goods should have considered this service a standard transport service liable to VAT.

The tax authority’s decision thus interprets Article 146 of Council Directive 2006/112/EC, on the common system of value added tax, in a more restrictive manner. The exemption from VAT of the transport services connected with the exportation of goods is conditional upon a direct contractual link between the exporter and the carrier of goods in question. The judgement thus implies that the exemption of transport services upon the export of goods may only be applied by the carrier that was authorised to perform these services directly by the exporter.

The court’s approach tightens the rules for applying an exemption of the transport of goods on exportation, as the existing interpretation of the Czech VAT Act allows sub-suppliers to claim this exemption.

The judgment only deals with the transport of goods exported to a destination outside the EU. The question remains what the court’s view would be on the transport of goods imported to the EU. Both the VAT Directive and the Czech VAT Act offer another VAT exemption option relating to transport services connected with the importation of goods: if the value of transport is included in the tax base upon the import of goods, transport services are deemed services exempted from VAT, i.e. if the carrier is certain that the value of transport will be included in the tax base upon the import of goods, these services may be exempt from VAT with an entitlement to VAT deduction, despite the fact that no direct contractual relationship exists between the carrier and the importer.

In connection with this judgment, the General Financial Directorate is preparing Information on uniform approach to the application of VAT exemption of transport services directly connected with the importation or exportation of goods.