A set of VAT Committee and Member States’ guidelines are currently being disputed by a group of stakeholders, in what concerns the #EU-VAT #exemption of #transport #services, connected with the #importation or #exportation of goods, if the invoice is not issued either to the exporter or to the importer.
Let us first describe the problem at hand, before pondering the stakeholders reaction and providing our own take on the matter:
- Framing the Issue
According to items (a) and (e) of paragraph 1 of Article 146 of the VAT Directive[i], Member States shall exempt the supply of goods dispatched or transported to a destination outside the Community by or on behalf of the vendor; and also the supply of services, including transport and ancillary transactions, where these are directly connected with the exportation or importation of goods.
It should be noted that Article 131 of the VAT Directive states that these exemptions shall apply without prejudice to other Community provisions and in accordance with conditions, which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible tax evasion, tax avoidance or abuse.
The Court of Justice of the European Union (CJEU), referring to a transport of goods from Latvia to Belarus, made by a carrier, using leased vehicles from a transport company, which was contracted to provide such transportation services, decided, in “L.Č.’ IK”[ii] that the above-mentioned exemption does not apply to a supply relating to a transaction consisting in the transport of goods to a third country, where such services are not provided directly to the consignor or the consignee of the goods.
Later on, the VAT Committee issued a guideline[iii], which uphold, at a large majority, the interpretation made by the CJEU, adding out that supplies of transport services or ancillary services carried out by a subcontractor of the principal contractor supplying those services to the consignor or the consignee of the goods cannot be exempt from VAT and shall be subject to taxation, according to the normal rules and regulations set forth by the VAT Directive ((i.e., subcontracting is outside the scope of the exemption).
- Stakeholder’s reaction to the problem
On the 9th of March, 2022, a petition[iv] was brought forward by Ine Lejeune, on behalf of Danish Shipping, calling on the European Parliament to ask the Commission and all the Member States not to levy VAT along any part of the trade chain on the transport of goods exported out of EU territory, and to do away with the referred VAT Committee guideline, together with the practice, implemented by some Member States, of accepting only a customs declaration, and not any other evidence from which the competent authorities can infer (with a sufficiently high degree of probability) that the transported goods were, in fact, exported from the EU.
The petitioner invoked the CJEU case “Cartrans Spedition SRLW”[v], in order to further sustain this point of view. This ruling analysed a dispute, based upon additional/supplementary tax assessments, made by the Romanian tax administration to an intermediary company, in relation with road freight transport services, in due of the fact that it had not been able to produce customs export declarations, demonstrating that the goods in question had actually been exported. Having the CJEU decided that national tax authorities, in order to grant the exemption mentioned in item (e) of paragraph 1 of Article 146 of VAT Directive, have to mandatorily examine, with a sufficiently high degree of probability, from all of the information that may be available to those authorities, that the goods were, in fact, exported (i.e., not being, therefore, absolutely necessary to present a customs declaration).
In what concerns this petition, the European Community Shipowners’ Association (ECSA), alongside with other stakeholders, such as the VAT International Association (VIA), the International Air Transport Association (IATA), the Federation of European Private Port Companies and Terminals (FEPORT), the European Sea Ports Organisation (ESPO) have recently issued a shared statement, by which they argue the following:
- EU value added tax policy should assist and aim at achieving a well-functioning transport single market that also caters for the export of European businesses, reducing costs, strengthening EU value chains and contributing to the EU’s global competitiveness, namely by simplifying and harmonising EU guidelines according to the Commission’s Regulatory Fitness and Performance (REFIT) programme and by implementing “Cartrans Spedition” to achieve burden reduction, simplification and restore the economic exemption in all Member States.
- Services mentioned in “L.Č.’ IK” “were not transport services but the supply of driver workforce”, and therefore this ruling (whose conclusions introduce an unwelcome level of complexity to the transport sector) should not be considered in B2B transactions, where no additional revenue is to be collected;
- The Commission should consider, in accordance with the principle of neutrality, and in order not to interfere with the VAT right to deduct, to allow the exemption to be granted to all of the operators associated with a transportation of goods chain, so long as they effectively participate on it (i.e., taking into consideration actual facts that prove the rendering of services and not by merely analysing contractual documentation).
- The Commission should consider the inconsistency, with the Union Customs Code, of the requirement to (intrinsically) link the carriers with the exports.
It is also claimed that simple EU guidelines in accordance with “Cartrans Spedition” will: (i) reduce the burden on industry and authorities alike, (ii) prevent the risk of tax disputes and tax uncertainty for the trade, (iii) secure harmonised implementation and transparency, whilst de-risking possible VAT fraud (not existing to date), and also avoiding high costs of implementation/management, notably for SMEs, and other additional costs for European export trade passed on in the commercial chain (which is detrimental to EU business’ global competitiveness).
- Our take on the issue
It appears we are, once again, dealing with a topic that highlights the contradiction between the principle of legal certainty and the principle of neutrality, in what concerns the EU-VAT common system.
The tension between these two EU VAT principles is something inherent, and can be seen, for instance, in what concerns the matter of proof of intra community transactions, which the VAT Directive exempts, in accordance with its Article 138.
In fact, the CJEU stated, in “Euro Tyre”[vi] that Member States are not allowed to refuse such exemption, on the sole ground that, at the time of that supply, the purchaser located in the territory of the Member State of destination, and who was in possession of a valid identification number for the purposes of value added tax in that Member State, is neither registered in the Value Added Tax Information Exchange System (VIES) nor comes under a system of taxation on intra-Community acquisitions of goods, as long as there is no sound evidence of EU VAT fraud and the basic conditions of the exemption are fulfilled.
In essence, this ruling gave primary importance to the principle of neutrality, by concluding that the formal legal requirements (i.e., registration in the VIES and subjection to a national intra-community transactions VAT scheme) are not to hinder the attribution of the exemption, so long as the transaction may be effectively proved by any other means.
This outset a reaction, by the Commission, in due of the Member State’s concerns that, without such formal conditions being necessary, the possibility to verify the existence of a factual intra-community transaction would, in some cases, simply run out.
Which led to changes on Article 28 of the VAT Directive, so that holding a valid VAT identification number by the acquirer of the goods in another Member State, as well as the accurate submission of the recapitulative statement by the supplier of goods, are now considered as substantive conditions for the application of the VAT exemption, concerning intracommunity supplies of goods (without compliance to this formal legal requisites, the exemption will not be granted).
Which means that the principle of legal certainty as prevailed for normative purposes (i.e., contradicting the “Euro Tyre” ruling).
It is easy to see some parallels with the issue now at hand, since one of the requests of the above-mentioned stakeholders, when referring to transport services connected with the importation/exportation of goods, on the basis of “Cartrans Spedition SRLW”, is that there is no need to produce a customs declaration, provided that the tax authorities are able to prove the existence of the transaction.
In this sense, we firmly believe that, should the Commission not proceed with an amendment of the VAT Directive, in order to implement, as a legal requirement (of a substantive nature), associated with the importation/exportation of goods, the submission to tax authorities, by the parties, of a customs declaration, such a formal constraint is not to be considered mandatory (i.e., in the absence of such an amendment, the principle of neutrality should prevail, in accordance with “Euro Tyre”).
However, a very different question is the applicability of the neutrality principle, that has prevailed in “Euro Tyre” and“Cartrans Spedition SRLW”, in order to exempt all of the services (directly or indirectly) associated with an importation/exportation, in accordance with Article 146 of the VAT Directive, if such services are not being directly rendered to the consignor or the consignee of those goods.
In our view, the principle of neutrality should not prevail, in such cases. The reason being that “L.Č.’ IK” is quite clear, when it makes an undoubted choice towards a restrictive interpretation of item (e) of paragraph 1 of Article 146 of the VAT Directive (given that its wording prescribes that the exemption is to be granted, exclusively, to transport services, directly connected with the exportation or importation of goods).
From which we may conclude that, in order to benefit from the exemption, the transport services must be rendered directly to the consignor or the consignee of the goods.
Pedro Costa Monteiro
September 2023
To keep track of the EU law, VAT Committee’s guidelines and the CJEU case law:
[i] Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.
[ii] CJEU ruling, dated the 29th of June 2017, referring to Case C‑288/16 (“L.Č.’ IK”) ECLI:EU:C:2017:502.
[iii] Please refer to Guidelines Resulting from the 112th Meeting of 12 April 2019.
[iv] Available at https://www.europarl.europa.eu/petitions-content/docs/petitions/petition-0276-2022-en.pdf.
[v] CJEU ruling, dated the 14th of August 2017, referring to Case C‑495/17 (“Cartrans Spedition SRL”) ECLI:EU:C:2018:887.
[vi] CJEU ruling, dated the 9th of February 2017, referring to Case C‑21/16 (“Euro Tyre BV”) ECLI:EU:C:2017:106.