ECJ on unintentional export supplies

Facts

Polish company W sold apples to a purchaser based in the United Kingdom and VAT-registered in Latvia. It was agreed that the purchaser would collect the goods in Poland and have them transported to Lithuania. The transport company's driver confirmed this with a stamp and signature on collection of the apples, and W accordingly declared the transaction as a zero-rated intra-Community supply.

However, the Polish tax authorities determined on the basis of customs documents that the purchaser had in fact transported the apples directly from Poland to Belarus. The authorities took the view that, for this reason, the supply should be reclassified as a domestic supply in Poland subject to VAT at 5%, also imposing a penalty of 30%. Objectively, no intra-Community supply had taken place and, at the time of supply, neither party had intended or wished to make an export supply.

According to the findings of the Latvian tax authorities, W was an unreliable and elusive market participant, although the Polish tax authorities did not allege any abuse or tax evasion in this particular supply chain.

Under Polish law, application of the zero VAT rate for an export supply requires that the supplier has received a document confirming export from the EU before expiry of the VAT return deadline.

ECJ ruling

The ECJ held that the question of whether a supply has taken place and whether the conditions for an intra-Community or export supply are met must be assessed on the basis of objective criteria. The intentions of the parties involved are irrelevant, as is the fact that W was unaware that the apples had been transported to Belarus instead of Lithuania. The fact that proof of export came from the Polish tax authorities themselves rather than from W is also immaterial. There can be no question of local supply in Poland, as the apples were not consumed in Poland.

Since the substantive requirements for export were met, the tax exemption must be granted even though W did not meet certain formal requirements. Only in two scenarios could non-compliance with formal requirements lead to the loss of VAT exemption: if non-compliance prevented reliable proof that the substantive requirements were met, or if there were involvement in tax evasion. In the present case, the tax authorities were certain that the export had taken place, so that it would be disproportionate to refuse VAT exemption solely on the grounds that W did not have the correct export documents. The tax authorities did not claim that the transaction in question was part of tax evasion.

Analysis

An export is an export – regardless of what the parties originally intended. The Polish tax authorities may have had reasons for objecting which have to do with the purchaser's unreliability; however, these are not apparent from the ECJ ruling. Nevertheless, the ruling would certainly have been different if this specific transaction had been part of tax evasion (even in a chain) and if it had been proven that W knew or should have known of such evasion.

Author: Nadia Schulte