Flashback on ECJ cases C-245/04 (EMAG Handel Eder OHG) – Place of supply in case of chain supplies

On April 6, 2006, the ECJ issued his decision in the case C-245/04 EMAG Handel Eder OHG related to the place of supply in case if chain suppplies.

Article in the EU VAT Directive

Articles 8(1)(a) and (b), the first subparagraph of Article 28a(1)(a), Article 28b(A)(1) and the first subparagraph of Article 28c(A)(a)

1. The place of supply of goods shall be deemed to be:

(a) in the case of goods dispatched or transported either by the supplier or by the person to whom they are supplied or by a third person : the place where the goods are at the time when dispatch or transport to the person to whom they are supplied begins. Where the goods are installed or assembled, with or without a trial run, by or on behalf of the supplier, the place of supply shall be deemed to be the place where the goods are installed or assembled. In cases where the installation or assembly is carried out in a country other than that of the supplier, the Member State into which the goods are imported shall take any necessary steps to avoid double taxation in that State;

(b) in the case of goods not dispatched or transported : the place where the goods are when the supply takes place.

Article 28a(1)(a) of the Sixth Directive:

‘The following shall also be subject to [VAT]:

(a) intra-Community acquisitions of goods for consideration within the territory of the country by a taxable person acting as such or by a non-taxable legal person where the vendor is a taxable person acting as such who is not eligible for the tax exemption provided for in Article 24 and who is not covered by the arrangements laid down in the second sentence of Article 8(1)(a) or in Article 28b(B)(1)’.

Article 28b(A)(1) of that directive provides:

‘The place of the intra-Community acquisition of goods shall be deemed to be the place where the goods are at the time when dispatch or transport to the person acquiring them ends.’

The first subparagraph of Article 28c(A)(a) of that directive is worded as follows:

‘Without prejudice to other Community provisions and subject to conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions provided for below and preventing any evasion, avoidance or abuse, Member States shall exempt:

(a) supplies of goods, as defined in Article 5, dispatched or transported by or on behalf of the vendor or the person acquiring the goods out of the territory referred to in Article 3 but within the Community, effected for another taxable person or a non-taxable legal person acting as such in a Member State other than that of the departure of the dispatch or transport of the goods’.

Article 28bA(1) of the Sixth Directive provides:

‘The place of the intra-Community acquisition of goods shall be deemed to be the place where the goods are at the time when dispatch or transport to the person acquiring them ends’.

The first subparagraph of Article 28c(a) states:

(a) supplies of goods, as defined in Articles 5 and 28a(5)(a), dispatched or transported by or on behalf of the vendor or the person acquiring the goods out of the territory referred to in Article 3 but within the Community, effected for another taxable person or a non-taxable legal person acting as such in a Member State other than that of the departure of the dispatch or transport of the goods’.

Facts

During 1996 and 1997, under annual contracts, the Austrian company K GmbH sold each month a certain quantity of ‘Hütte’ soft lead ‘free at Arnoldstein, EC customs duty paid, carriage duty paid’ to the applicant in the main proceedings, EMAG Handel Eder OHG, Klagenfurt. For its part, K had acquired the soft lead from companies established in Italy and the Netherlands. In each case, the goods were stored in customs warehouses in Rotterdam or Trieste. From there they were shipped by a forwarding agent, on K’s instructions, to the specified destination at EMAG or one of EMAG’s customers. In its invoices for the supplies, K charged EMAG value added tax at the rate of 20%. However, the tax office refused to allow EMAG to deduct the input tax. In its opinion, K had been wrong to include value added tax in the invoice, since in view of the fact that the goods had been transported to EMAG from Italy or the Netherlands the transaction had to be regarded as a tax-exempt intra-Community supply.
EMAG appealed against this decision, arguing that it was only on K’s instructions that the forwarding agent dispatched the goods from Italy or the Netherlands to Austria. Therefore there was a supply from another Member State only as between K and its supplier. The subsequent supply from K to EMAG, on the other hand, was a taxable domestic supply so that the deduction of input tax should be allowed.
The Carinthia Tax Authority dismissed EMAG’s appeal as unfounded. In its view, under Paragraph 3(8) of the UStG 1994 the place for the tax-exempt intra-Community supplies was in the Netherlands or in Italy, as the case might be, since the goods had been handed over to the carriers in Rotterdam or Trieste and transported by the latter to EMAG in Austria.

Questions

1. Is the first sentence of Article 8(1)(a) of the Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (77/388/EEC) ¹ to be interpreted as meaning that the place where dispatch or transport begins is relevant even when several undertakings enter into arrangements for the supply of the same goods and those arrangements are implemented by way of a single movement of goods?

2. Are successive supplies to be treated as exempted intra-Community supplies when several undertakings enter into arrangements for the supply of the same goods and those arrangements are implemented by way of a single movement of goods?

3. If the answer to the first question is in the affirmative, is the place at which the second supply begins the actual place of departure of the goods or the place where the first supply finishes?

4. Is the identity of the party having the right of disposal of the goods during their movement a relevant factor in answering the first, second and third questions?

AG Opinion

(1) When several undertakings enter into arrangements for the supply of the same goods and those arrangements are implemented by way of a single movement of goods, only one of the successive supplies is to be treated as an exempted intra-Community supply; in this case the intra-Community supply is that supply which corresponds to intra-Community acquisition within the meaning of Article 28a(1)(a) of the Sixth Directive.

(2) The place where dispatch begins within the meaning of Article 8(1)(a) of the Sixth Directive does not determine whether, within the context of such a chain transaction, a supply is to be treated as an exempted intra-Community supply.

(3) In a situation such as that which forms the subject of the main proceedings, the place from which the goods are actually dispatched is not to be treated as the place of a supply that follows upon an intra-Community acquisition. On the contrary, the place of supply is situated in the Member State of intra-Community acquisition.

(4) In determining who in such chain transactions effects the intra-Community acquisition, in the absence of other indications, it is of decisive importance to establish who transported the goods or on whose behalf they were transported and who possessed the right of disposal of the goods during transport.

Decision

1. Where two successive supplies of the same goods, effected for consideration between taxable persons acting as such, gives rise to a single intra-Community dispatch or a single intra-Community transport of those goods, that dispatch or transport can be ascribed to only one of the two supplies, which alone will be exempted from tax under the first subparagraph of Article 28c(A)(a) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995.

That interpretation holds good regardless of which taxable person – the first vendor, the intermediary acquiring the goods or the second person acquiring the goods – has the right to dispose of the goods during that dispatch or transport.

2. Only the place of the supply which gives rise to dispatch or intra-Community transport of goods is determined in accordance with Article 8(1)(a) of the Sixth Directive 77/388/EEC, as amended by Directive 95/7; that place is deemed to be in the Member State of the departure of that dispatch or transport. The place of the other supply is determined in accordance with Article 8(1)(b) of that directive; that place is deemed to be either in the Member State of departure or in the Member State of arrival of that dispatch or transport, according to whether that supply is the first or the second of the two successive supplies.

Summary

(1) Where two successive supplies of the same goods for consideration between taxable persons acting as such lead to a single intra-Community shipment or a single intra-Community transport, that dispatch or transport can be attributed to only one of the two supplies and only this single supply is exempt under the first paragraph of Article 28c (A) (a) of the Sixth Directive.

This interpretation applies regardless of which taxable person – the first seller, the first customer or the second customer – has the power to dispose of the goods during such dispatch or transport.

(2) Only the place of supply for which the goods are dispatched or transported within the Community is determined in accordance with Article 8 (1) (a) of the Sixth Directive; this delivery is deemed to have been made in the Member State from which the dispatch or transport starts. The place of the other supply is determined in accordance with Article 8 (1) (b) of this Directive; this delivery shall be deemed to have been made either in the Member State of commencement or in the Member State of arrival of this dispatch or transport, depending on whether this delivery is the first or second of the two consecutive deliveries.

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