On October 4, 2017, the ECJ issued its decision in the case C-273/16 (Federal Express Europe).
Context: Reference for a preliminary ruling — Value added tax (VAT) — Sixth Directive 77/388/EEC — Directive 2006/112/EC — Exemption from VAT — Article 86(1)(b) and Article 144 — Relief from import duties for goods of negligible value or of a non-commercial character — Exemption of the supply of services relating to the importation of goods — National legislation levying VAT on the transport costs of documents and goods of negligible value despite their being ancillary to non-taxable goods
Article in the EU VAT Directive
Articles 86(1)(b), 144 of the EU VAT Directive 2006/112/EC
Article 86 (Taxable amount)
1. The taxable amount shall include the following factors, in so far as they are not already included:
(b) incidental expenses, such as commission, packing, transport and insurance costs, incurred up to the first place of destination within the territory of the Member State of importation as well as those resulting from transport to another place of destination within the Community, if that other place is known when the chargeable event occurs.
Article 144 (Exemption on Importation)
Member States shall exempt the supply of services relating to the importation of goods where the value of such services is included in the taxable amount in accordance with Article 86(1)(b).
Facts
- Following a tax inspection carried out by the Guardia di Finanza (Italian Finance Police) and the drawing-up of an official report notified on 18 September 2008, four tax assessment notices were issued against FedEx regarding ‘inbound’ transport services carried out by it, namely receiving international consignments and subsequently delivering them to recipients in Italy.
- In particular, in the tax assessment notice relating to the 2007 financial year, at issue in the main proceedings, the Revenue Authority found that the VAT should have been increased by EUR 1 913 970 and, furthermore, applied penalties totalling EUR 5 167 719.01 for the ‘failure to invoice taxable transactions’ and for the ‘under-declaration of tax due’.
- The Revenue Authority relied on an interpretation of point 2 of Article 9(1) of Decree No 633/72, read in conjunction with Article 69(1) of that decree, pursuant to which the non-applicability of VAT for customs purposes to the importation of small consignments of goods does not preclude the levying of VAT on the payment corresponding to the transport costs relating to those goods, and that the exemption from VAT of those ancillary costs is granted only if those costs have already been subject to VAT at the customs stage.
- FedEx brought an action before the Commissione tributaria provinciale di Milano (Provincial Tax Court, Milan, Italy) against that tax assessment notice, submitting in particular that the Revenue Authority’s interpretation of point 2 of Article 9(1) of Decree No 633/72 was manifestly lacking any foundation in law.
- By judgment of 27 March 2013, the Commissione tributaria provinciale di Milano (Provincial Tax Court, Milan) upheld the action brought by FedEx.
- In the meantime, FedEx had lodged a complaint with the European Commission seeking the initiation, pursuant to Article 258 TFEU, of infringement proceedings against the Italian Republic regarding the transport costs of imported goods of negligible value being subject to VAT, which it considered to be contrary to Article 86(1)(b) and Article 144 of the VAT Directive.
- After the initiation of infringement proceedings on 27 September 2012, the Commission issued a letter of formal notice on 1 October 2012 and a reasoned opinion on 21 November 2013. Since the Italian Republic, following that reasoned opinion, amended Article 9(1) of Decree No 633/72 in the manner set out in paragraph 15 above, the infringement proceedings were closed.
- The judgment of the Commissione tributaria provinciale di Milano (Provincial Tax Court, Milan) of 27 March 2013 was confirmed by the Commissione tributaria regionale della Lombardia (Regional Tax Court, Lombardy, Italy), which took the view that the Revenue Authority’s position was ‘manifestly contrary’ to Article 144 of the VAT Directive. The Revenue Authority lodged an appeal on a point of law against that judgment before the Corte suprema di cassazione (Supreme Court of Cassation, Italy).
- In its appeal on a point of law, the Revenue Authority argued that its interpretation of point 2 of Article 9(1) of Decree No 633/72, read in conjunction with Article 69(1) of that decree, is not contrary to the VAT Directive in so far as, first, that directive entered into force only on 1 January 2008 and, accordingly, is not applicable to the dispute in the main proceedings and, second, in any event, the dispute does not fall within the scope of either Article 86 or Article 144 of that directive, since the costs at issue in the main proceedings are not ancillary in nature and were not incurred as a result of an international transport.
Questions
Can Article 144 and Article 86(1) of [the VAT Directive] [corresponding to Article 14(1) and (2) and Article 11.B(3) of 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 (OJ 1977 L 145, p. 1)], taken together, be interpreted to mean that the only condition in order for connected services consisting of the “inbound” transport service — from airports to the place of destination within the territory of the Member State, with the “free-at-destination” clause — not to be liable to VAT is that their value is included in the taxable amount, regardless of whether or not the goods in question were in fact subject to customs duties, at the time of their importation; and is it therefore incompatible with those [EU law] provisions if the domestic rules laid down in [point 2 of] Article 9(1) and Article 69(1) of [Decree No 633/72] read together in the versions in force at the time of the material facts, provide that in every case, and therefore also in the case of imports that are not liable to VAT — as is the case here, since it concerns documents and goods of negligible value — there has to be compliance with the additional requirement that those imports must in fact be liable to VAT (and customs duty must in fact be paid) at the time of the importation of such goods, even, if need be, when account is taken of the ancillary nature of the transport services in relation to the main services (namely the importation) and of the rationale of simplification underlying both the main and the ancillary operations?
AG Opinion
None
Decision
Article 144 in conjunction with Article 86(1)(b) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as precluding national legislation such as that at issue in the main proceedings which requires, for the application of an exemption from value added tax for ancillary services, including transport services, not only that their value is included in the taxable amount, but also that value added tax has in fact been charged on those services at the customs stage at the time of importation.
Summary
Following a tax audit, the Italian tax investigation service imposes additional VAT assessments on Federal Express Europe Inc. According to the Italian tax authorities, VAT is due on the costs of transport related to the importation of goods which are exempt from VAT. According to the tax authorities, the VAT exemption for transport costs only applies if these costs have already been subject to VAT at customs. The Italian court is asking questions for a preliminary ruling in this case.
The EU Court of Justice has ruled that it is contrary to EU law for Italy to grant a VAT exemption for additional services only under certain conditions. In fact, Italy requires not only that the value of the services be included in the taxable amount, but also that the services were actually subject to VAT at the time of importation at customs. The European Court of Justice notes in this regard that the objective of the exemption is technical simplification, and therefore not the prevention of double taxation. It is irrelevant whether the transport costs were subject to VAT at customs. The costs of transport related to the final importation of goods should therefore be exempt from VAT according to the EU Court of Justice,
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