ECJ case C-276/18 (KrakVet Marek Batko) – Judgment – Place of supply of goods sold by online retailers cross border

On June 18, 20202, the ECJ issued its decision in the case C-276/18 (KrakVet Marek Batko) .

A company that sells goods to private individuals in another EU country, may apply the so-called distance selling rules. THis enables him to avoid having a VAT registration in the other EU country, and to charge local VAT in his own country as long as he does not go over the distance selling threshold.

In this case, the question was if the seller (Krakvet) was selling the goods from his own country, or if he sold the goods in the other country. The difference may seem trivial, but if the goods are first brought from his own EU country to the country of the customer, and then locally sold, the distance selling rules could not be applied.

The question therefore is: who arranges the transportation of the goods?

Context: Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Article 33 — Determination of the place where taxable transactions are carried out — Supply of goods with transport — Supply of goods dispatched or transported by or on behalf of the supplier — Regulation (EU) No 904/2010 — Articles 7, 13 and 28 to 30 — Cooperation between the Member States — Exchange of information

Executive summary

The Court ruled on the interpretation of VAT rules regarding cross-border transactions under Directive 2006/112 and Regulation No 904/2010.
It affirmed that tax authorities of one EU Member State can impose a different VAT treatment than another Member State without violating EU law.
The definition of “transport by or on behalf of the supplier” was clarified, emphasizing the supplier’s predominant role in organizing delivery.
The ruling stated that connections between suppliers and logistics companies do not automatically imply abusive practices or tax avoidance.
The decision highlighted the need for cooperation among Member States to resolve VAT jurisdictional conflicts and ensure fiscal neutrality.

Relevant articles in the EU VAT Directive

Articles 7, 13, 28, 29, 30, 33(1) of the EU VAT Directive 2006/112/EC

Article 7 (Territoriality)
1. In view of the conventions and treaties concluded with France, the United Kingdom and Cyprus respectively, the Principality of Monaco, the Isle of Man and the United Kingdom Sovereign Base Areas of Akrotiri and Dhekelia shall not be regarded, for the purposes of the application of this Directive, as third countries.
2. Member States shall take the measures necessary to ensure that transactions originating in or intended for the Principality of Monaco are treated as transactions originating in or intended for France, that transactions originating in or intended for the Isle of Man are treated as transactions originating in or intended for the United Kingdom, and that transactions originating in or intended for the United Kingdom Sovereign Base Areas of Akrotiri and Dhekelia are treated as transactions originating in or intended for Cyprus

Article 13 (Taxable person)
1. States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.
However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as nontaxable persons would lead to significant distortions of competition.
In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a
small scale as to be negligible.
2. Member States may regard activities, exempt under Articles 132, 135, 136 and 371, Articles 374 to 377, Article 378(2), Article 379(2) or Articles 380 to 390c, engaged in
by bodies governed by public law as activities in which those bodies engage as public authorities.

Article 28 (Taxable transaction – Supply of services)
Where ataxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself.

Article 29
Article 19 shall apply in like manner to the supply of services.

Article 30 (Taxable transactions – Importation of Goods)
“Importation of goods” shall mean the entry into the Community of goods which are not in free circulation within the meaning of Article 24 of the Treaty.
In addition to the transaction referred to in the first paragraph, the entry into the Community of goods which are in free circulation, coming from a third territory forming part of the customs territory of the Community, shall be regarded as importation of goods.

Article 33 (Place of supply of goods – Distance selling)
1. By way of derogation from Article 32, the place of supply of goods dispatched or transported by or on behalf of the supplier from a Member State other than that in which dispatch or transport of the goods ends shall be deemed to be the place where the goods are located at the time when dispatch or transport of the goods to the customer ends, where the following conditions are met:
(a) the supply of goods is carried out for a taxable person, or a non-taxable legal person, whose intra-Community acquisitions of goods are not subject to VAT pursuant to Article 3(1) or for any other non-taxable person;

(b) the goods supplied are neither new means of transport nor goods supplied after assembly or installation, with or without a trial run, by or on behalf of the supplier.

Facts (simplified):

KrakVet Marek Batko sp. K. (‘KrakVet’) is a company registered and established in Poland. It has no establishment, office or warehouse in Hungary.

KrakVet sells products for animals, mainly food for dogs and cats in the neighbouring Member States, notably through its various ‘zoofast’ websites. It has numerous clients in Hungary who effect their purchases through the Hungarian version of this website.

KrakVet applied the so-called distance selling rules, meaning that in so far as the sales were below the threshold, KrakVet charged Polish VAT to the Hungarian non-business customers.

The products are transported by and on behalf of KrakVet from Poland to Hungary, using a Polish transport company (“KBGT”). The goods were delivered at two distribution points in Hungary, from where a Hungarian transportation company delivered the goods to customers.

The Hungarian tax authorities raised an assessment with KrakVet, arguing that KrakVet had performed domestic supplies in Hungary. According to the Hungarian tax authorities, the transport had started in Hungary (the country of the customer), and not in Poland.

KrakVet did not agree, and argued that according to the Polish rules, it was making distance sales, subject to Polish VAT. Applying the decision of the Hungarian tax authorities would result in double taxation.

Questions

Must the objectives of Council Directive 2006/112/EC ¹ of 28 November 2006 on the common system of value added tax ([‘the VAT Directive’]), in particular the requirements for the prevention of jurisdictional conflicts between Member States and double taxation, referred to in recitals 17 and 62 thereof, and Council Regulation (EU) No 904/2010, ² in particular recitals 5, 7 and 8 and Articles 7, 13 and 28 to 30 thereof, be interpreted as precluding a practice of the tax authorities of a Member State which, by attributing to a transaction a qualification that differs both from the legal interpretation of the same transaction and the same facts that was carried out by the tax authorities of another Member State and from the response to the binding inquiry provided by those authorities on the basis of that interpretation, as well as from the confirmatory conclusion of both that those authorities reached in the tax inspection they carried out, gives rise to the double taxation of the taxable person?

If the answer to the first question is that such a practice is not contrary to EU law, can the tax authorities of a Member State, taking into account Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, and EU law, unilaterally determine the tax obligation, without taking into consideration that the tax authorities of another Member State have already confirmed, on various occasions, first at the request of the taxable person and later in its decisions as a result of an inspection, the lawfulness of that taxable person’s actions?

Or should the tax authorities of both Member States cooperate to reach an agreement, in the interests of the principle of fiscal neutrality and the prevention of double taxation, so that the taxable person has to pay [VAT] in only one of those countries?

If the response to the second question is that the tax authorities of a Member State can change the qualification of a tax unilaterally, should the provisions of the [VAT Directive] be interpreted as meaning that the tax authorities of a second Member State are obliged to return to the taxable person required to pay VAT the tax determined by those authorities in response to a binding inquiry and paid in relation to a period closed with an inspection, so that both the prevention of double taxation and the principle of fiscal neutrality are guaranteed?

How should the expression in the first sentence of Article 33(1) of the Harmonised VAT Directive, according to which the transport is carried out ‘by or on behalf of the supplier’, be interpreted? Does this expression include the case in which the taxable person offers as a seller, in an online shopping platform, the possibility for the buyer to enter into a contract with a logistics company, with which the seller collaborates for operations other than the sale, when the buyer can also freely choose a carrier other than the one proposed, and the transport contract is concluded by the buyer and the carrier, without the intervention of the seller?

Is it relevant, for interpretative purposes — especially taking into account the principle of legal certainty — that by the year 2021 the Member States must amend legislation transposing the aforementioned provision of the [VAT Directive], so that Article 33(1) of that directive must also be applied in case of indirect collaboration in the choice of carrier?

Should EU law, specifically the [VAT Directive], be interpreted as meaning that the facts mentioned below, taken as a whole or separately, are relevant to examine whether, among the independent companies that carry out a delivery, expedition or transport of goods the taxable person has arranged, to circumvent Article 33 of the [VAT Directive] and thereby infringe the law, legal relationships that seek to take advantage of the fact that the VAT is lower in the other Member State:

5.1. the logistics company carrying out the transport is linked to the taxable person and provides other services, independent of transport,

5.2. at the same time, the customer may at any time depart from the option proposed by the taxable person, which is to order the transport to the logistics company with which it maintains a contractual link, being able to entrust the transport to another carrier or personally collect the goods?

AG Opinion

Question 4:

Article 33(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, is to be interpreted as covering only situations where goods are dispatched or transported by or on behalf of the supplier. It does not address situations where the supplier intervenes only indirectly in the dispatch or transport of the goods.

If the supplier, at his initiative and choice, takes most or all of the essential steps necessary to prepare the goods for transportation, makes the arrangements for the goods to be collected and start their journey and relinquishes possession of and control over the goods, there has been ‘dispatch’ by the supplier.

If the supplier either himself or through his agent physically carries out the transport operation, or owns or controls the legal entity that does so, there has been ‘transportation’ by the supplier.

Goods are dispatched or transported ‘on behalf of’ the supplier if the supplier, rather than the customer, effectively takes the decisions governing how those goods are to be dispatched or transported.

Question 5:

Where a taxpayer inquires of the competent authorities in the Member State in which he is registered for value added tax (VAT) as to the correct legal classification for VAT purposes of an intended course of action (setting out in detail the arrangements that he proposes to put in place) is given a response that is legally binding upon him and upon those tax authorities, and then conducts his business in strict accordance with the proposal that he put forward to those authorities in his inquiry (which is for the national court to verify), the competent authorities in another Member State are precluded by the principle of sincere cooperation enshrined in Article 4(3) TEU and the principle of protection of legitimate expectations from treating his actions as an abuse of rights under the test laid down in Case C‑255/02, Halifax and sanctioning that conduct accordingly.

Decision

The European Court of Justice rules as follows:

The EU VAT Directive and Articles 7, 13 and 28 to 30 of Council Regulation (EU) No 904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the field of value added tax must be interpreted as not precluding the tax authorities of a Member State from being able, unilaterally, to subject transactions to value added tax treatment different from that under which they have already been taxed in another Member State.
Article 33 of the EU VAT Directive must be interpreted as meaning that, when goods sold by a supplier established in one Member State to purchasers residing in another Member State are delivered to those purchasers by a company recommended by that supplier, but with which the purchasers are free to enter into a contract for the purpose of that delivery, those goods must be regarded as dispatched or transported ‘by or on behalf of the supplier’ where the role of that supplier is predominant in terms of initiating and organising the essential stages of the dispatch or transport of those goods, which it is for the referring court to ascertain, taking account of all the facts of the dispute in the main proceedings.
EU law and, in particular, Directive 2006/112 must be interpreted as meaning that it is not necessary to find that transactions by which goods sold by a supplier are delivered to purchasers by a company recommended by that supplier constitute an infringement of the law when, on the one hand, there is a connection between the supplier and that company, in the sense that, irrespective of that delivery, the company takes charge of some of the supplier’s logistical needs, but, on the other hand, the purchasers remain free to make use of another company or personally collect the goods, since those circumstances are not liable to affect the finding that the supplier and the transport company recommended by it are independent companies which engage, on their own behalf, in genuine economic activities and, consequently, those transactions cannot be classified as abusive.

Source

Curia

Summary

On 18 June 2020, the European Court of Justice has given its judgment in case C-276/18 (KrakVet Marek Batko). The Hungarian court wanted to find out more about the rules when Member States have a different interpretation about a cross border transaction, if that triggers double taxation.

Further, the Hungarian court has asked the ECJ for guidance how to view ‘transport by or on behalf of the supplier’. Especially in the case where the buyer, when ordering his goods, is able to opt for a carrier with which the seller cooperates? Can taxpayers bypass the distance selling arrangements in such a simple way, by arranging that the client directly engages for the transport in this way?

Comments on the decision

The Directive allows the tax authorities of one Member State from being able to unilaterally subject transactions to tax treatment in respect of VAT if not yet taxed in another Member State.
When the goods are transported to consumers by a company recommended by the seller, the distance selling regime applies only if the role of the supplier is predominant in both the initiative and the organisation of the essential stages of transport.
Such agreements are not fraudulent if the seller and the transport company recommended by him are independent companies engaged in actual economic activities.

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