EU court bars extra VAT on misclassified chain deals without exemption gap

When two successive supplies in a goods chain share a single intra-Community movement, the transport can be attributed to only one of themSkatteverket; only that supply ranks as the intra-Community supply exempt in the departure StateSkatteverket. A Dutch company, B., bought goods from its Polish supplier BOP, stated its Polish VAT number, and both sides treated the purchase as a domestic supplySkatteverket charged at Poland's 23 per cent rateSkatteverket, while B. treated its onward sales to customers in other Member States as zero-rated intra-Community supplies and received VAT refunds. The Polish tax authority reclassified the chainSkatteverket: the transport belonged to the BOP-to-B. legSkatteverket, so that leg was an intra-Community supply by BOP and an intra-Community acquisition by B.Skatteverket, and B.'s onward sales were domestic supplies taxable where each transport endedSkatteverket.

The Court of Justice held that Article 41 of the VAT Directive can still apply where the Member State taxing the acquisition as the VAT-number State is also the State of departureSkatteverket: nothing in Article 20 makes intra-Community character depend on which registration number the acquirer usedSkatteverket, and the argument based on the post-2018 exemption conditions in Article 138(1)(b) has no bearing on that question. Nor does tax paid by B.'s customers on the wrongly labelled second leg help B.Skatteverket: the acquirer who must show taxation in the arrival State under the first paragraph of Article 41 is B. itselfSkatteverket, and tax on a separate transaction does not meet that test. The correction mechanism in the second paragraph of Article 41 against double taxation therefore does not, on its own, save the acquirer here.Skatteverket

The limit the Court drew matters more. BOP remained liable to invoice the normal VAT rate on its supply to B.Skatteverket, so that supply was never treated as exemptSkatteverket — and without an exemption there is no risk of evasion for Article 41 to policeSkatteverket. Imposing acquisition VAT on B. in Poland on top of a normally taxed supply is additional taxation incompatible with proportionality and VAT neutralitySkatteverket, even though nobody alleged fraud or abuseSkatteverket. The referring court had noted that VAT had in fact been paid at every stage of the chain.Skatteverket

For advisers, the judgment separates two questions that audits often merge. First, attribution: where transactions forming a chain of two successive supplies gave rise to only one intra-Community transport, that transport can be attributed to only one of the two supplies, which alone is exempt in the departure State as the intra-Community supplySkatteverket — the assessment turning on all the specific circumstances, as in Toridas (C-386/16). Second, consequence: an Article 41 assessment in the VAT-number State fails the proportionality test where the reclassified supply bore normal VAT and was never exemptedSkatteverket. Clients facing such assessments should therefore check the supplier's invoicing before accepting the charge, and authorities cannot point to customers' destination-State payments as the acquirer's proof under Article 41Skatteverket.

Legal basis: the Court of Justice's judgment of 7 July 2022 in case C-696/20 (ECLI:EU:C:2022:528Skatteverket), answering the question on the interpretation of Article 41 of the VAT DirectiveSkatteverket — rådets direktiv 2006/112/EG av den 28 november 2006 om ett gemensamt system för mervärdesskattSkatteverket — read with Article 40 and the principles of proportionality and fiscal neutrality.