VAT Updates – European Union news overview for October 2016

Sovos Tax Research Team
October 28, 2016

This blog was last updated on October 28, 2016

Here is a summary of news and updates related to value-added-tax in the European Union during the month of October 2016.

Publication of Draft Improvements to Cross-Border VAT Rules

On October 7, 2016, the European Council published a set of draft conclusions regarding potential improvements to current VAT rules on cross-border transactions. The Council stated the overriding goal of a simpler, more efficient, more robust, and fraud-proof VAT system, and offered specific conclusions in four areas:

  1. VAT Identification Number and VIES Data: The Council suggests that a taxable person making an intra-Community supply should have to present a valid VAT identification number provided by the customer, in a Member State other than the place of origin, in order to receive an exemption on that supply;
  2. Chain Transactions: The Council invites the European Commission to impose uniform criteria and harmonized application of VAT rules concerning triangular transactions, to avoid national divergences between Member States;
  3. Call-off Stock: Similarly, the Council invites the Commission to propose simplified VAT rules for the treatment of “call-off stock,” i.e., cross-border transfers of goods to a warehouse at the disposal of a known buyer, where that buyer becomes the owner of the goods upon removal;
  4. Proof of Intra-EU Supply: The Council stresses the need for increased legal certainty for tax-compliant businesses with respect to the level of proof of dispatch or transport needed to claim an exemption for intra-Community supplies.

The possible adoption of these conclusions will be placed on the agenda of a forthcoming Council meeting.

Extension of Polish Derogation on Mixed Use of Motor Vehicles

Council Implementing Decision 2016/1837, published on October 11, 2016, authorizes Poland to limit the right to deduct VAT to 50% on the purchase, acquisition, importation, hire, or leasing of certain motor vehicles that are not entirely used for business purposes.

Taxable persons in Poland are not obligated to account for VAT on the non-business use of such vehicles. This is a derogation from the normal method of accounting for VAT on goods and services used for both business and non-business purposes, which is set out in Article 26(a) and Article 168 of Council Directive 2006/112/EC (“the EU VAT Directive”).

Poland was initially authorized to derogate from the Directive until December 31, 2016; the derogation has now been extended to December 31, 2019.

Requirements for Exemption on Intra-Community Transfers

The Court of Justice of the European Union (CJEU) has recently held that for purposes of obtaining an exemption on Intra-Community transfers of goods, the provision of a VAT identification number from the Member State of destination is a formal rather than a substantive requirement. Case C24/15 (Josef Plöckl), decided on October 20, 2016, involved a German trader who had transferred a vehicle from Germany to Spain, with a view towards selling the vehicle there.

The trader retained a dispatch note, and in proceedings before the Finance Court in Munich, it was proven that the vehicle was in fact in Spain rather than Germany. Nevertheless, the German tax authorities denied an exemption on the transfer, on the grounds that the trader had not provided a VAT identification number issued by Spain in his documentation.

The CJEU held that the German authorities were precluded from denying the exemption. The Court reasoned that national legislation conditioning an exemption upon formal requirements, rather than substantive requirements, would go further than necessary to ensure the correct collection of VAT.

The Court then held that proof of an exempt Intra-Community transfer would not depend exclusively, in every case, on receipt of a VAT identification number from the Member State of destination. The provision of that number would not, therefore, be a substantive condition for the exemption.

This ruling is in line with similar CJEU case law on exemptions for Intra-Community supplies of goods. As noted above, however, the European Council has just recommended that receipt of a valid VAT identification number from a Member State outside the country of origin become a substantive condition for obtaining a VAT exemption on Intra-Community supplies. If the Council’s recommendation is adopted, this branch of CJEU case law might be overturned.

Supplies of Blood Plasma for Manufacturing Purposes

On October 5, 2016, the CJEU issued a judgment in a case involving the scope of a VAT exemption for supplies of human blood. A German supplier, the manager of a blood donor centre, had shipped blood plasma to a pharmaceutical company in Switzerland for the preparation of medical products.

The supplier attempted to deduct input VAT for its operations relating to the supply, but was denied by the German tax authorities, who claimed that the supply was an exempt transaction pursuant to Article 132(1)(d) of the EU VAT Directive, which exempts “the supply of human organs, blood and milk.”

The CJEU considered two questions: first, whether blood plasma qualified as “human blood” under the definition in Article 132(1)(d); and secondly, whether human blood could be exempted when supplied for manufacturing purposes. The Court concluded that while blood plasma does fall under the scope of “human blood,” the exemptions in Article 132 are intended solely for supplies made in the public interest. Because the supply of blood plasma in question was not made for healthcare of therapeutic purposes, but rather for pharmaceutical purposes, the Court ruled that it did not come under the exemption set out in article 132(1)(d).

VAT on Concealed Goods

The CJEU has ruled that national tax authorities may presume a taxable sale of goods, and assess VAT, where there is evidence that a taxpayer has fraudulently concealed goods or revenue. Case C576/15 (Maya Marinova ET) involved a Bulgarian trader accused of receiving and selling goods without collecting and remitting VAT. Several vendors had issued invoices for tobacco and food products that were not recorded in the trader’s accounts or present in its warehouse. The Bulgarian authorities presumed that these goods had been resold to unknown third-parties.

Pursuant to national law, the authorities assessed VAT on the goods, determining the taxable amount by reference to the sales price of corresponding products. The trader countered that the mere absence of the goods did not mean they were resold, and objected to the authorities’ method of determining the taxable amount of the goods.

In its decision of October 5, 2016, the CJEU held that the EU VAT Directive did not preclude the Bulgarian authorities from presuming that the goods in question were resold. The Court found it relevant that the authorizing law sought to determine the taxable amount of the goods as closely as possible to the consideration actually received by the trader, and noted that the principle of neutrality could not legitimately be invoked by a taxable person intentionally participating in tax evasion.

The Court did remand the case for a determination of whether the scope of the authorizing law was adequately limited to the goals of ensuring correct collection of VAT and preventing evasion, but noted that nothing in the documentation suggested that the law was over-broad.

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