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SAC on VAT exemption

In tax inspections, tax offices increasingly focus on VAT fraud connected with the transit of goods. What to watch out for when delivering goods to another EU member state, and how not raise the tax authority’s suspicions? The recent Supreme Administrative Court ruling may help with the answers.

In Supreme Administrative Court (SAC) judgement No. 9 Afs 48/2016, a company delivered goods to Germany and claimed VAT exemption in accordance with the relevant provision of the VAT Act. The tax administrator, however, ascertained that in several consecutive cases of delivery, the goods were actually unloaded in Ireland, a different state than the one declared by the company. Ireland was also stated in the international transport notes. The company was thus denied the entitlement for VAT exemption.

Under the VAT Act, three conditions have to be cumulatively met for the entitlement to an exemption from exit VAT to arise: the first condition is that the goods are delivered to another member state to a person registered for tax in another member state. The second condition is that goods are dispatched or transported to another member state. This is connected with the third condition, stipulating that the transportation of goods must be provided for by the payer or acquirer, or a third person authorised to do so.

In this case, the company referred to the Court of Justice of the EU’s ruling in the Teleos case. This judgement defined the conditions for VAT exemption for intra-community deliveries and dealt with the possibility of substituting any of the evidence by claiming good faith. The SAC nevertheless refused to acknowledge that the company might have been acting in good faith, since it knew that the goods were being transported to a different state than had been contracted, even though the company’s representative had personally met with the customer and checked his registration in the VIES system. The SAC noted that the company should have had substantial doubts as to the place of delivery and should have requested further evidence that the goods had been delivered to the contractual customer. According to the SAC, the situation was thus completely different from the Teleos judgement. The conditions for VAT exemption were not met, and the good faith of the company was not proved. The supply was eventually classified as a local supply, and the company was obliged to report exit VAT on the supply.