Moving goods to another Member State – will we see a more flexible attitude in respect of the formalities?

In the wake of the ruling in favour of VAT deductions based on a non-compliant invoice, the Court of Justice has once again ruled on a case where, in the event of the non-reporting of the VAT identification number in the Member State of destination on the transfer document, the VAT exemption in the Member State of origin cannot be refused (C.o.J. 20 October 2016, case C-24/15, Plöckl).

1. The transfer and the transfer document

For VAT purposes, the transfer from one Member State to another by a taxable party of an article that belongs to its company is on a par with an (exempted) intra-Community delivery in the Member State of origin and with a (taxed) intra-Community purchase in the Member State of destination. It must here be noted that the idea of ‘transfer’ is only applicable within the territory of the EU. If such a movement is from outside the EU or vice versa, then it is still an import or export transaction.The exemption of the equivalent intra-Community delivery in the Member State is subject to a number of formal conditions, such as the creation of a ‘document’, the transfer document. Certain things must be stated on that document.

The Court of Justice has recently ruled that the drafting of such a document where no VAT identification number from the Member State of origin is listed cannot lead to the refusal of the exemption in the Member State of origin for the intra-Community transfer treated as the supply of goods. 

2. The dispute: transfer of a car, but not in accordance with the rules 

Plöckl has a sole tradership in Germany. In the course of 2006 he purchased a car for the purposes of the activities of his business. Later that year he sent the vehicle to a car dealer based in Spain (physically sent it, he did not sell it!) with the intention of selling that car in Spain. The transportation of the car from Germany to Spain is perfectly documented in a CMR bill of lading (also called consignment note), which means there is no debate about the transporting of the car from Germany to Spain. During 2007 the vehicle was effectively sold to a Spanish company by Plöckl.

Plöckl did not register the sale of the car in Germany. In 2007 he did however report an exempted intra-Community supply of goods. During a VAT audit the German tax authorities were of the opinion that Plöckl did not comply with the conditions for an exempted intra-Community supply of goods and that it was one that had to be taxed in Germany. In the first instance the courts rejected this claim, because it found that, at the time of sale, the vehicle was already in Spain. 
After that the German tax authorities changed tack by adopting the view that the act of transferring the vehicle to Spain was subject to German VAT (and that the exemption was not applicable) because Plöckl had not reported a VAT identification number in Spain, and had consequently not provided the required proof.
In Germany the exemption for the transfer (treated as an intra-Community supply of goods) is subject to the formal condition that the VAT identification number of the taxable party is reported on the transfer document in the Member State of destination/arrival.
It was this latter point that, after much peregrinations, was presented to the Court of Justice for a ruling.

3. Court of Justice: substance over form?

The Court of Justice started by recalling that the principle of fiscal neutrality requires that VAT exemption must be granted when the substantive conditions for the exemption are met, even if the taxable party has not complied with certain formal requirements (such as the obligation to state the VAT identification number for the exemption of an intra-Community supply of goods). The same holds with respect to the obligation to list the VAT identification number of the taxable party allocated by the Member State of destination for an intra-Community transfer. If the VAT identification number is recorded this acts as proof that the transfer was performed for the purposes of the economic activity of the taxable party and that that party acts as such in the Member State of destination. The Court reasoned that the capacity of the taxable party is not dependent on whether or not the party concerned has a VAT identification number. The Court consequently found that the provision of the VAT identification number does not constitute a substantive condition for the VAT exemption of the intra-Community transfer…

4. But is this always the case?

The consequence of this logic pursued by the Court of Justice is that VAT exemption for an intra-Community transfer cannot in principle be refused on the grounds that the taxable party did not provide the VAT identification number allocated to it by the Member State of destination. However, this argument is not applicable in the event of the taxable party deliberately participating in tax evasion and thus jeopardising the operation of the common system of VAT or when noncompliance with a formal requirement prevents the production of proof that the substantive conditions were satisfied.

In another context, the Court of Justice has previously already ruled that the VAT exemption for intra-Community transfers cannot be refused when the supplier, acting in good faith and after having done all that can reasonably be expected of it, is still unable to furnish the VAT identification number of the buyer. So does that mean that exemption can still be refused if a taxable party has not taken all steps that can reasonably be expected of it? 

In response to this the Court of Justice stated that the preceding cannot be considered as a general rule. It is only under a situation where it must be determined whether a taxable party invoking VAT exemption, but is unable to (fully) formally prove such, has or has not participated in tax evasion, that these grounds must be taken into account. The Court reiterated that if, such as in the present case, it is ruled out that the taxable party participated in tax evasion, the VAT exemption cannot be refused, including on the grounds that the taxable party did not do everything that could reasonably be expected in order to comply with the formal VAT obligations, such as the furnishing of the VAT identification number allocated by the Member State of destination!

5. How does the ruling affect Belgian disputes?

The case that was brought before the Court of Justice concerned a dispute involving German formalities for the transfer of goods.
The condition that underlay the dispute in Germany is strictly speaking also applicable in Belgium, because the taxable party that transfers goods from Belgium must also compile a ‘document’ for that purpose. This document, which is required to contain the same statements as an invoice, must contain the following information: ‘…when transfers are at issue as referred to in article 39bis, section 1.4 of the Code … the company name, the address and the VAT identification number that is allocated to the taxable party in the Member State of destination of the goods’.
This ruling consequently provides reasons for avoiding an additional Belgian tax assessment should the VAT number of the Member State of destination not be stated on the transfer document.

Property planning finds itself in turbulent waters
Valuation of a usufruct: in complete (r)evolution?
Much has been said and written in the past few years about the valuation of a usufruct and where the fiscal shoe pinches. An overview of valuation problems, current trends and a look at future property planning is provided below. Valuation of a usufruct Valuation of a usufruct: a changing world Usufruct is one of the oldest property rights known and was already applied in Roman times. Usufr
This difference in treatment needs to be corrected
Benefit in kind on immovable property: tax authority abides by the court ruling (for now)
The Federal Public Service Finance published Circular 2018/C/57 on 15 May 2018 on the flat-rate valuation of the benefit in kind for providing an immovable property or a part of an immovable property free of charge to employees or managers. The flat-rate estimate of these benefits is laid down by the Royal Decree implementing the Income Tax Code 1992 (RD/BITC 92). The Courts of Appeal of Ghent and
The 'use and enjoyment" rules explained
Freight transport and closely associated services: new rules clarified in a circular
On 31 October 2017, (previous) Royal Decree No 57, which deals with the freight transport services Department and related services, was replaced by a new RD which came into force on 23 November 2017. It clarifies the former RD in part while introducing a new rule. In order to clarify and discuss the (new) rules, the tax authorities published an administrative circular in this regard on 31 May 2018
Guidelines
Substantial changes in the obligations for partnerships
The Company Law Reform, published on 27 April 2018, is making a number of changes in the Companies Code and the Code of Economic Law. These new regulations will enter into force on 1 November 2018. A few rules will also change for partnerships. Although some clarifications will still be published, we would already like to provide the following guidelines. Changes in the Companies Code A first
Quickly detect system risks
Without a Legal Entity Identifier your company will not be trading on the stock market in 2018
  As from 3 January 2018, every legal entity that buys or sells financial instruments must have a Legal Entity Identifier or LEI. Legal Entity Identifier A LEI is a 20-digit alpha-numeric code enabling quick identification of legal entities that are active on the (international or local) financial markets. The LEI enables regulators to quickly detect system risks. Registrati
A summary of the main points
Immovable property leases to include VAT
  Although currently there is just a draft bill on this issue, which obviously can be subject to change in the meantime, we would like to summarize the main points of the upcoming revolution in the VAT landscape: immovable property leases may become subject to VAT. History Until recently, immovable property leases have – in principle – been exempt from VAT (section 44, paragr
UBO = Ultimate Beneficial Owner
The UBO register: new disclosure requirements planned for your company’s administrative body
As a result of the insertion of sections 14(1) and 14(2) into the Belgian Companies Code all companies must in the future obtain adequate, accurate and current information about their ‘ultimate beneficial owners’ (UBOs) and record the data in the new ‘UBO Register’, a central register containing data about companies and the natural persons behind them. In view of the unwavering atte
Introduction of the matrimonial property law
Is it the end of the final set-off clause or is it getting new life?
  Much has been said about the final set-off clause in recent years. After the Court of Cassation in 2017 ruled in favour of the tax payer that the claim was deductible in the scope of the payable succession duties, the Flemish regulator decided to come to the aid of the tax authorities by changing the law. What is a final set-off clause and how does it work? Many spouses married un
Also the unequal treatment gets reviewed
Benefit in kind for housing: how to anticipate the higher or lower scenario?
Discrimination as regards the benefit in kind for housing has been highlighted on several occasions. Specifically, it relates to the unequal treatment of the same benefits, whether in terms of provision by a sole trader or provision by a legal person. In the most common cases, the benefit arising from being a limited company is almost four times more expensive taxation-wise than the benefit arisin
To reduce the financial burden
Start-up reduction on social security contributions for self-employed persons
The start-up reduction was part of the 'Summer agreement' and took effect on 1 April 2018. With this initiative, the government intends to reduce the financial burden of self-employed persons in start-ups, who often have low incomes at the start of their activity, thereby stimulating entrepreneurship.  Which self-employed persons are eligible?  The reduction measure applies to all se

Subscribe to our newsletter