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(VAT) ECJ DECISION: ENTECO BALTIC (CASE C-108/17)

Summary of the Facts

Enteco Baltico was a company established in Lithuania and operated in the wholesale fuel trade. In the period, from 2010 to 2012, Enteco Baltic imported into Lithuania fuel from Belarus. That fuel was subject to the procedure known as “Customs Procedure 42”, which allowed goods to be released for free circulation without being subject to VAT on importation.

Enteco Baltic sold the fuel to companies established in Poland, Slovakia and Hungary on the basis of written contracts and individual orders. The contracts provided for ‘ex-works’ supply. Under those contracts, Enteco Baltic was thus obliged only to hand over the fuel to the purchasers in Lithuania, and they were responsible for the continuation of its transport to the Member State of destination. Both the individual orders of the purchasers and the invoices issued by Enteco Baltic were usually sent by electronic mail.

After delivery of the goods to the receiving tax warehouses in Poland, Enteco Baltic received an electronic confirmation of the supply of the goods (‘e-ROR confirmation’). It also received the CMR consignment notes confirming the receipt of the goods by the receiving tax warehouses.

Enteco Baltic occasional traded goods to taxable persons in other Member States, different from those whose identification numbers were shown on the import declarations. That information was always provided to the Tax Inspectorate.

In 2012 the Tax Authorities of Lithuania (the ‘Vilniaus teritorinė muitinė’ hereinafter referred to as “VTM”) completed a partial analysis of the import declarations for the period from 1 April 2010 to 31 May 2012. Consequently, the latter found that Enteco Baltico had provided sufficient evidence to show that the goods had left Lithuanian territory and that the right to dispose of the goods as owner had actually been transferred to the purchasers.

In 2013 the VTM received information from the Hungarian, Polish and Slovak tax authorities concerning possible fraud in the application of ‘customs procedure 42’. In particular, those authorities stated that they could not certify that the fuel had been received by the purchasers and observed that those purchasers had not declared VAT for the period concerned.

The VTM also carried out, in 2014 and 2015, a further check relating to the period from 1 April 2010 to 31 May 2012 and an initial check relating to the period from 1 June 2012 to 31 December 2013. Following those checks, the VTM found that Enteco Baltic had not supplied the fuel to the taxable persons shown on the import declarations, or had not shown that the fuel had been transported and that the right to dispose of it as owner had been transferred to the persons whose names were stated on the invoices mentioning the VAT due.

On 25 November 2015 the Vilniaus teritorinemuitine muitine (VTM) adopted an inspection report, in which it found that Enteco Baltic had wrongly taken the view that imports of fuel from Belarus were exempt from VAT. Consequently, it ordered it to pay the sum of EUR 3 220 822 in VAT, plus penalties.

Enteco Baltic appealed the decision of the Customs Department to the Tax Disputes Commission and referred the case back to the Customs Department.

Both Enteco Baltic and the Customs department brought proceedings before the referring court seeking, inter alia, the annulment of the decision of the Tax Disputes Commission of the Government of the Republic of Lithuania.

Questions referred to the ECJ

(1) Is Article 143(2) of the VAT Directive to be interpreted as prohibiting a tax authority of a Member State from refusing to apply the exemption provided for in Article 143(1)(d) of that directive solely because at the time of importation the goods were planned to be supplied to one VAT payer and therefore its VAT identification number was specified in the import declaration, but later, after a change in circumstances, the goods were transported to another taxable person (VAT payer) and the public authority was provided with full information about the identity of the actual purchaser?

(2) In circumstances such as those of the present case, can Article 143(1)(d) of the VAT Directive be interpreted as meaning that documents that have not been disproved (e-AD [electronic administrative document] consignment notes and e-ROR confirmations) confirming transport of the goods from a tax warehouse in the territory of one Member State to a tax warehouse in another Member State may be regarded as sufficient proof of transportation of the goods to another Member State?

(3) Is Article 143(1)(d) of the VAT Directive to be interpreted as prohibiting a tax authority of a Member State from refusing to apply the exemption provided for in that provision if the right of disposal was transferred to the purchaser of the goods not directly, but via the persons specified by it (transport undertakings/tax warehouses)?

(4) Does an administrative practice conflict with the principle of neutrality of VAT and of the protection of legitimate expectations where under that practice the interpretation differs as to what is to be regarded as a transfer of the right of disposal, and as to what evidence must be submitted to substantiate such a transfer, according to whether Article 167 or Article 143(1)(d) of the VAT Directive is applicable?

(5) Does the scope of the principle of good faith in relation to the levying of VAT also encompass the right of persons to exemption from import VAT (under Article 143(1)(d) of the VAT Directive) in cases such as that in the main proceedings, that is to say, where the customs office denies the right of a taxable person to exemption from import VAT on the basis that the conditions for further supply of goods within the European Union (Article 138 of the VAT Directive) were not complied with?

(6) Is Article 143(1)(d) of the VAT Directive to be interpreted as prohibiting an administrative practice of Member States under which the assumption that (i) the right of disposal was not transferred to a specific contractual partner and (ii) that the taxpayer knew or could have known about possible VAT fraud committed by the contractual partner is based on the fact that the undertaking communicated with the contractual partners by electronic means of communication and that it was established when the investigation was carried out by a tax authority that the contractual partners did not operate at the addresses specified and did not declare the VAT on the transactions with the taxable person?

(7) Is Article 143(1)(d) of the VAT Directive to be interpreted as meaning that, although the duty to substantiate the right to a tax exemption falls on the taxpayer, this does not, however, mean that the competent public authority deciding the issue of transfer of the right of disposal has no obligation to collect information accessible only to public authorities?’

Conclusions by the ECJ

Article 143(1)(d) and Article 143(2)(b) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2009/69/EC of 25 June 2009, must be interpreted as precluding the competent authorities of a Member State from refusing exemption from value added tax on importation on the sole ground that, following a change of circumstances after the importation, the goods in question have been supplied to a taxable person other than the person whose value added tax identification number was stated in the import declaration, where the importer has communicated all the information on the identity of the new purchaser to the competent authorities of the Member State of import, provided that it is shown that the substantive conditions for the exemption of the subsequent intra-Community supply are actually satisfied.

Article 143(1)(d) in conjunction with Article 138 and Article 143(2)(c) of Directive 2006/112, as amended by Directive 2009/69, must be interpreted as meaning that:

  • Documents which confirm the transport of goods from a tax warehouse in the Member State of import, not to the purchaser but to a tax warehouse in another Member State, may be regarded as sufficient evidence of dispatch or transport of the goods to another Member State.
  • Documents such as consignment notes on the basis of the Convention on the Contract for the International Carriage of Goods by Road, signed at Geneva on 19 May 1956, as amended by the Protocol of 5 July 1978, and electronic administrative documents accompanying movements under suspension of excise duty may be taken into account to show that, at the time of importation into a Member Statethe goods concerned are intended to be dispatched or transported to another Member State within the meaning of Article 143(2)(c) of Directive 2006/112, as amended, provided that the documents are submitted at that time and include all the necessary information. Those documents, as also the electronic confirmations of the supply of the goods and the report of receipt issued following a movement under suspension of excise duty, are capable of showing that the goods have actually been dispatched or transported to another Member State in accordance with Article 138(1) of Directive 2006/112, as amended.

Article 143(1)(d) of Directive 2006/112, as amended by Directive 2009/69, must be interpreted as precluding the authorities of a Member State from refusing an importer the right to the exemption from value added tax laid down in that provision for imports of goods into that Member State carried out by him and followed by intra-Community supplies on the ground that the goods were not transferred directly to the purchaser but were handled by transport undertakings and tax warehouses designated by the purchaser, where the power to dispose of the goods as owner was transferred to the purchaser by the importer. In this context, the concept of ‘supply of goods’ within the meaning of Article 14(1) of that directive, as amended, must be interpreted in the same way as in the context of Article 167 of the directive, as amended.

Article 143(1)(d) of Directive 2006/112, as amended by Directive 2009/69, must be interpreted as precluding an administrative practice under which, in circumstances such as those of the dispute in the main proceedings, an importer acting in good faith is refused the right to the exemption from value added tax on importation where the conditions for the exemption of the subsequent intra-Community supply are not satisfied, because of tax evasion on the part of the purchaser, unless it is shown that the importer knew or ought to have known that the transaction was involved in tax evasion committed by the purchaser and did not take all reasonable steps in his power to avoid participation in the evasion. The mere fact that the importer and the purchaser communicated by electronic means of communication cannot allow it to be presumed that the importer knew or could have known that he was participating in tax evasion.

Article 143(1)(d) of Directive 2006/112, as amended by Directive 2009/69, must be interpreted as meaning that the competent national authorities are not obliged, when examining the transfer of the power to dispose of goods as owner, to collect information to which only the public authorities have access.

For more information kindly contact:

Franco Falzon
(Managing Partner)
E: franco@ffinternational.com.mt


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