Advocate General opinions

In B  (C-696/20), the taxpayer was a company established in the Netherlands and was registered for VAT in both the Netherlands and Poland.  It acted as an intermediary in a chain of transactions purchasing goods from BOP, a company established in Poland and reselling those goods to its own customers located in other Member States.  The goods were shipped directly from BOP in Poland to the ultimate customers.  When it acquired the goods from BOP, the taxpayer used its Polish VAT number and, considering those supplies to be domestic supplies, Polish VAT at 23% was applied.  The taxpayer then classified the supplies it made to its clients as intra-Community supplies and therefore exempt.  The taxpayers’ customers declared the VAT applicable on the intra-Community acquisition. 

Although no acts of fraud were alleged and VAT was declared, the dispute between the taxpayer and the Polish tax authority centred on whether the first transaction should be treated as an intra-community transaction which in turn partly depended on whether transport should be attributed to the first or the second transaction.  The Polish tax authorities re-classified the transactions ascribing transport to the first supply rather than the second and considered that the first transaction amounted to an intra-Community supply which ought to have been declared as an intra-Community acquisition by the taxpayer in the Member State of destination of the goods, for which purpose the taxpayer should have registered there, while the taxpayer’s supplies to its clients there should have been taxed as domestic transactions.  Moreover, since the taxpayer used its Polish VAT registration number, it should have declared VAT on its reclassified intra-Community acquisition in Poland while the specular intra-Community sale occurred in Poland was not qualified as exempt. Indeed, it was taxed as domestic sale in Poland and VAT deduction was not recognized to the intra-Community acquisition leading to a whole tax charge equal to 46%). 

Noting that it was for the referring court to determine whether transport should be ascribed to the first or second transaction, the Advocate General proceeded on the basis that it would confirm that the transport should be ascribed to the first transaction and approached the remainder of the problem by reference to the rationale underpinning the provision at the heart of the case (article 41 PVD).  Article 41 is a back-up to the general rule that an intra-Community acquisition of goods has to be taxed in the Member State where the transport of the goods ends and says that the place of supply is the Member State which issued the VAT registration number under which the person acquiring the goods acted, except where VAT has been applied in the place where transport of the goods ends.   The purpose of article 41 was both to ensure that an intra-Community acquisition is subject to tax and to prevent double taxation of the same acquisition.  In the view of the Advocate General, the fact that the tax authority treated the first supply in the chain as a non-exempted intra-Community supply meant that article 41 did not apply and indeed was not needed given that there was no risk of tax evasion.  By seeking to apply article 41, the tax authority had acted in breach of the principle of proportionality.

DLA Piper comment:  The case analysed by the Advocate General refers to chain transactions occurred before the implementation of the so-called quick fixes introduced by EU Directive 2018/1910. The questions asked by the Polish referring court refers to the first sale performed by the Dutch intermediary company (B) which considered the acquisition from BOP as a Polish domestic sale, subject to local VAT while the local court believed that transport of goods should have been allocated to that sale meant as the only intra-Community supply.

Interestingly, Advocate General reiterated that under quick fixes rules (and in particular, under new art. 36-a of the VAT Directive), the transport of the goods would have been ascribed to the supply of goods carried out by B. Thus, the treatment applied by B would be correct (first acquisition qualified as domestic transaction in Poland and subsequent sales treated as intra-Community sales in different Member States). However, also leveraging on Explanatory Note on the so-called ‘Quick Fixes’, Advocate General expressed the view that article 36-a cannot be applied to transactions occurred before its introduction. Therefore, the transport has to be ascribed according to the European Court case law (in particular, C-430/09, Euro Tyre Holding) which, in his view, implies that the purchase made by B from BOP in Poland has to be requalified as intra-Community acquisition pursuant to art. 41 of the VAT Directive (ie the Member State which issued the VAT identification number under which the person acquiring the goods made the acquisition).

Nevertheless, the fact that the deemed intra-Community acquisition of goods occurred in Poland under said art. 41 of the VAT Directive is not counterbalanced by the existence of a reclassified intra-Community sale exempt from VAT in Poland. This latter circumstance (the non-exemption regime), in the light of the principle of proportionality, renders the application of article 41 of the VAT Directive provisions redundant, leading to an unnecessary tax burden (the same transaction would be subject twice to Polish VAT). In case the Advocate General position would be confirmed by the Court there would be two main takeaways: (i) “quick fixes” rules are capable to grant a correct application of VAT in chain transactions but only to those performed after its implementation; and (ii) for transactions occurred before such implementation, if the allocation of the transport (needed to assess which transaction qualifies as intra-Community) is wrongly assessed by parties, the principle of proportionality requires that the reclassified intra-Community sale would be qualified as exempt in order to avoid a double taxation phenomenon.