CJEU challenges transaction benefiting from simplified procedure for triangular transactions
The Court of Justice of the EU ruled on the use of the simplified procedure for triangular transactions. If documents issued by the middle party under the scheme do not comply with the VAT Directive, the scheme cannot be used, according to the court.
Recently, the CJEU heard a rather controversial case concerning VAT and trade in cars. In 2014, when Great Britain was still a member of the EU, an Austrian company bought luxury cars in there and immediately sold them to an entity registered in the Czech Republic which then transported the purchased cars directly from Great Britain to the Czech Republic using the simplified procedure for triangular transactions.
Upon inspection, the Austrian tax administrator found that the tax documents issued by the Austrian company (middle party) to the Czech customer did not contain a clear identification of the supply recipient as the person who should settle the tax. The tax documents read 'Exempt intra-Community triangular transaction'. However, the tax authority argued that this notation, in conjunction with the directive, was inconclusive and could not be relied upon to conclude that the recipient was liable to pay the tax. Consequently, the triangular transaction scheme could not be applied.
The CJEU sided with the Austrian tax authority and held that Article 226 of the VAT Directive makes a distinction between, on the one hand, a reference to the relevant provisions of the directive or national legislation when special schemes are applied and, on the other hand, a clear identification of the supply recipient who is subsequently responsible for settling the tax. For this reason, it is necessary not only to explicitly state on tax documents that they involve a simplified triangulation scheme but also to clearly define the last entity in the chain that shall settle the tax. For this purpose, the documents should include the sentence: "Tax shall be paid by the customer."
Finally, it should be mentioned that the last party in the chain, i.e., the Czech entity, became uncontactable during the proceedings and never settled the tax. Nevertheless, the CJEU's conclusions on triangulation scheme are fully in line with the directive and confirm that to use the simplified procedure, it is necessary to state both texts on the document: a reference to the directive or national legislation that the transaction involves a triangular transaction as well as the sentence "Tax shall be paid by the customer", clearly identifying the person who is to settle the relevant tax.