Meeting conditions for exempted delivery
Proving the entitlement for VAT exemption when delivering goods to another member state is becoming increasingly difficult due to the growing demands of the tax administrators. Taxpayers will thus surely be happy to hear of any ruling that may make their life slightly easier in the future, or at least give them some hope. Supreme Administrative Court (SAC) judgement No. 1 Afs 253/2016 – 29 may be one of them.
In the case in question, a Czech VAT payer supplied metal scrap to a customer in Germany and therefore considered the supply VAT exempt. In a subsequent tax inspection at the supplier, the tax administrator demanded that the supplier produce documents proving that the conditions for exempting the supply were met.
When proving the entitlement for VAT exemption, three conditions have to be met cumulatively. The goods must be delivered to a person registered for tax in another member state; the goods must be dispatched or transported to another member state; and the transportation must be arranged by the payer, the acquirer, or a third person authorised by them.
The tax administrator objected that the customer was not registered for VAT in Germany at the time of the trade. They also pointed out the carelessness of the Czech supplier who did not seek more information on the transportation of the goods and failed to prove that the goods physically left the territory of the Czech Republic. The supplier and the customer had agreed on the EXW term, meaning that the customer was paying for the transportation. This was supported by a statement of the customer’s statutory representative, who was subsequently questioned by the tax administrator as a witness. The supplier also submitted delivery notes and a confirmation of the customer’s registration for VAT in Germany to the tax administrator.
While it was true that the customer was not in fact registered for VAT in Germany at the time of the trade, this did not yet show in the European VIES system. In the SAC’s opinion, the fact that entities involved in international trade in metal scrap are prone to conclude informal arrangements is not at all surprising and does not in itself indicate that they are committing tax evasion. Moreover, if the tax administrator had any doubts as to the veracity of any evidence submitted, they should have considered the supplier’s good faith, following the CJEU’s ruling in the Teleos case. The SAC thus dismissed the tax administrator’s cassation complaint, stating that it cannot imagine how else the supplier could have proved meeting the conditions for the entitlement for VAT exemption.