On September 21, 2017, the ECJ issued its decision in the ECJ case (SMS group GmbH).
Article in the EU VAT Directive
Article 170 of Council Directive 2006/112/EC
Article 170
All taxable persons who, within the meaning of Article 1 of Directive 86/560/EEC, Article 2(1) and Article 3 of Directive 2008/9/EC and Article 171 of this Directive, are not established in the Member State in which they purchase goods and services or import goods subject to VAT shall be entitled to obtain a refund of that VAT insofar as the goods and services are used for the purposes of the following:
(a) transactions referred to in Article 169;
(b) transactions for which the tax is solely payable by the customer in accordance with Articles 194 to 197 or Article 199.
Facts
- A German established company SMS Meer contracted with an Austrian company (Zimekon Handels GmbH) to construct and supply a pipe-welding system, the consignee of the system was a Ukrainian company (OOO Zimekon). The contract was to be paid in instalments but as some payments were not made, the performance of the contract was suspended in lieu of receiving the outstanding payments.
- During this time SMS Meer contracted with a supplier established in Turkey for the supply of equipment needed to manufacture the pipe-welding system. This equipment was imported from Turkey to Romania and VAT was charged and accounted for on import. Following importation, the equipment was stored in a warehouse located in Romania.
- Subsequent to this import it became clear that the purchaser was unable to make the remaining payments and the performance of the contract was never resumed. SMS stated that the equipment could not be used for other projects and it intended to sell it for scrap. SMS subsequently applied for a refund of the import VAT paid on the basis that upon import it intended to exports those goods onward to Ukraine.
- However the Romania tax authorities refused to refund the import VAT on the basis that SMS had failed to provide any supporting documentation to demonstrate the specific destination and date on which the exportation was to take place. The Court held that as the importation of the goods had taken place for the purpose of, ultimately, exportation; SMS had acquired the right to a refund of the VAT paid on import.
- It went on to state that where a taxable person has been unable to use goods or services which gave rise to a refund due to circumstances beyond their control and in the absence of fraud or abuse, the right of refund, once it has arisen, is retained.
- Also the Court stated that the imposition of additional documentation requirements such as those in the present case added a substantive condition to the eligibility for refund which is not provided for by the VAT system and cannot be used as an excuse to refuse a refund.
Questions
- Must Articles 2, 3, 4 and 5 of Directive 79/1072/EEC, 1 in conjunction with Article 17(2) and (3)(a) of Directive 77/388/EEC, be interpreted as precluding a practice of a national tax administration which considers that there is no objective evidence to confirm the declared intention of the taxable person to use the goods imported in connection with its economic activity in the case where, on the date of the actual importation, the contract for the performance of which the taxable person had purchased and imported the goods was suspended, with the serious risk that the subsequent supply/transaction for which the imported goods were intended would no longer be carried out?
- Does proof of the subsequent circulation of the imported goods, that is to say, establishment of the fact that the imported goods were actually intended for the taxable transactions of the taxable person, constitute, and if so in what way, an additional condition required for the purposes of refunding VAT, different from those listed in Articles 3 and 4 of Directive 79/1072/EEC and prohibited by Article 6 thereof, or necessary information on the essential condition for refunding relating to the use of the imported goods in connection with taxable transactions, which the tax authority may request under Article 6 thereof?
- Can Articles 2, 3, 4 and 5 of Directive 79/1072/EEC, in conjunction with Article 17(2) and (3)(a) of Directive 77/388/EEC, be interpreted as meaning that the right to a refund of VAT may be denied in the case where the subsequent transaction planned, in connection with which the imported goods were intended to be used, is no longer carried out? In those circumstances, does the actual intended use of the goods, that is to say, whether they were used in any event, in what way and in which territory, namely in that of the Member State in which the VAT was paid or outside that State, have any relevance?
AG Opinion
None
Decision
Eighth Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of the Member States relating to turnover taxes — Arrangements for the refund of value added tax to taxable persons not established in the territory of the country, read in conjunction with Article 170 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted as precluding a refusal by a Member State to refund the value added tax paid on the importation of goods to a taxable person who is not established on its territory in circumstances such as those in the main proceedings where, at the time of importation, the performance of the contract in connection with which the taxable person purchased and imported those goods was suspended, the transaction for which they were intended to be used was in the end not carried out, and the taxable person did not provide proof of their subsequent movements.
Summary
The Court held that as the importation of the goods had taken place for the purpose of, ultimately, exportation; SMS had acquired the right to a refund of the VAT paid on import. It went on to state that where a taxable person has been unable to use goods or services which gave rise to a refund due to circumstances beyond their control and in the absence of fraud or abuse, the right of refund, once it has arisen, is retained. Also the Court stated that the imposition of additional documentation requirements such as those in the present case added a substantive condition to the eligibility for refund which is not provided for by the VAT system and cannot be used as an excuse to refuse a refund.
Source
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