Intra-Community supply agreed but in fact export. Application of the 0% VAT rate if the supplier was not aware?

Introduction:

A recent ruling by the Court of Justice of the European Union provides clarity to suppliers with regard to intra-Community supplies and exports.

If the supplier has agreed an intra-Community supply with the buyer, but the buyer decides to transport the goods to a country outside the EU instead of to another Member State, the 0% VAT rate can still be applied. In that case, the 0% VAT rate intended for export transactions applies.

Case specifics

A Polish fruit trader delivered apples to a buyer registered in Latvia (EU Member State). Based on the agreement between the supplier and the buyer, the goods would be transported to a Lithuania (EU member state). This was also recorded in the consignment notes. This supply therefore qualifies as an intra-Community supply, to which the 0% VAT rate applies. However, the buyer, who was responsible for the transport, transported the apples to Belarus, not being an EU member state. 

Logically, the Polish tax authorities did not accept this supply as an intra-Community supply because the goods had simply not been transported to another Member State. In such a situation, the standard VAT rate still applies. In this case, the reduced Polish VAT rate applied (5%, apples) and the Polish tax authorities imposed a fine of 30%.

Since it was established that the goods had been exported to Belarus, the supplier demanded the application of the 0% VAT rate for export. The Polish tax authorities did not accept this, so the case eventually ended up at the Court of Justice of the EU.

Decision of the Court of Justic EU

The Court ruled that the 0% VAT rate for export also applies to supplies that were initially declared as intra-Community supplies, but where the goods were actually exported outside the EU by or on behalf of the buyer. It is irrelevant that the export took place without the knowledge of the supplier. What matters is that:

1. the right to dispose of the goods as owner has been transferred to the buyer
2. the goods have physically left the EU
3. there is no fraud or abuse

The Court reiterated that the concept of 'supply of goods' is objective in nature and does not depend on the intention or knowledge of the supplier. As long as the material conditions for export are met, namely transfer of ownership and actual export, the 0% VAT rate for exports applies. Formal shortcomings and the fact that the supplier itself did not have the export documents make no difference in this regard. This is only different if there is fraud.

What does this mean for you? 

It is possible that you do not have a direct insight into the actual transport of goods and assume that the goods are transported to another Member State on the basis of agreements made with the buyer, while in reality they are exported. In this situation, there is no intra-Community supply and the application of the 0% VAT rate does not apply. The responsibility for applying the 0% VAT rate lies with the supplier. If this situation occurs, a VAT assessment will be imposed on the supplier (21% or 9%), including a fine.

The Court's ruling makes it clear that the 0% VAT rate can still be used for export. It is important to emphasize that in the case of the Polish supplier, it was established that the goods were exported and that there was no fraud. In practice, the situation regularly arises in which you do not have a copy of the export documents and can no longer obtain them. In this circumstance, regrettably, the Court's decision does not provide a resolution. In other words, caution is still advised.

If you have any questions about this topic or if you would like to discuss the topic further, please do not hesitate to contact us at info@vatpartners.com