This case sought a judgement from the ECJ on the applicability of the margin scheme to the sale of goods containing, inter alia, gold, silver and precious stones.
Summary of the facts
E LATS was Latvian company taxable for the purpose of VAT. It granted metals and items containing gold and silver with necklaces, pendants, ring, wedding rings, and cutlery.
E LATS used to resell the unredeemed items to persons liable to VAT. It applied a special VAT scheme to those transactions and paid VAT only on the difference between the purchase price and the sale price of the items made of precious metal.
The tax authority conducted a Vat inspection and came to conclusion that the latter resold the items made of precious metal as scrap and not as second-hand goods.
The special VAT regime (under article 138 of the law) could be not applied, thus the authorities imposed an additional amount of VAT. The Regional Administrative Court of Latvia rejected the action brought by E LATS on the grounds that the latter resold the items made of gold and silver as scrap and not as second-hand.
Questions referred to the ECJ
(1) Must Article 311(1)(1) of [the VAT Directive] be interpreted as meaning that used articles, acquired by a trader, that contain precious metals or precious stones (as in the present case) and are resold principally in order for those precious metals or precious stones to be extracted, may be regarded as second-hand goods?
(2) If the answer to question 1 is in the affirmative, is it relevant, for the purpose of limiting the application of the special arrangements, that the trader knows that the subsequent buyer intends to extract the precious metals or precious stones present in the used articles, or are the objective characteristics of the transaction (the quantity of goods, legal status of the counterparty to the transaction, etc.) relevant?’
CONCLUSIONS BY THE ECJ
Article 311(1)(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the concept of ‘second-hand goods’ does not cover used goods containing precious metals or precious stones if those goods are no longer capable of performing their initial function and have retained only the functionalities inherent in those metals and stones, (which is for the national court to determine taking into account all the objective circumstances relevant in each individual case.)
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