VAT upon incorrect classification of intra-community supplies in chain transactions

In Polish case C-696/20 B., the CJEU ruled on whether a VAT payer involved in a chain transaction may be required to pay VAT on both the supply and the acquisition of goods. In its opinion, the CJEU recalled that the purpose of Article 41 of the VAT Directive is to guarantee the taxation of the acquisition of goods while avoiding the double taxation of the same supply/acquisition.

Dutch company B was an intermediate party in a chain transaction in which it first acquired goods from a Polish supplier and then supplied the goods to its customers in other EU member states. The goods were transported from the Polish supplier directly to customers in other EU member states. Since company B provided the Polish supplier with its Polish VAT number and not the VAT number of the state where the transport ended, the companies regarded the first supply of goods as a local supply subject to Polish VAT; the subsequent supplies to final customers were then treated as supplies of goods to another member state.

However, the Polish tax authorities argued that transport could only be attributed to the first supply (i.e., the supply of goods to company B) and reclassified that transaction as an intra-Community supply. Following Article 41 of the VAT Directive, the tax authorities considered Poland to be the place of supply for the purposes of the acquisition of the goods because company B had provided the supplier with its Polish VAT number. Therefore, the authorities demanded the payment of VAT on that acquisition in Poland. At the same time, they also demanded the payment of VAT on the intra-Community supply of goods by the first supplier, since the transaction could not be exempt from VAT (because of the provision of a Polish VAT number).

The CJEU disagreed with the Polish tax authorities’ decision and stated that such a course of action was contrary to the principles of neutrality and proportionality. The purpose of Article 41 of the VAT Directive is to guarantee the taxation of a given acquisition of goods while avoiding double taxation of the same supply/acquisition. Since, in the case in question, VAT would be paid in Poland on both the intra-community supply of goods and the intra-community acquisition of goods, this would lead to the double taxation of a single transaction.

In this case, the CJEU did not agree with the application of Article 41. Generally, however, Article 41 still applies. Thus, if the customer does not provide the VAT number of the destination country upon the delivery of goods to another member state, tax implications have to be considered. Which is why for cross-border transactions we recommend always checking that the customer's VAT number corresponds to the goods’ country of delivery.

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