Flashback on ECJ Cases – C-26/16 (Santogal M-Comércio e Reparação de Automóveis) – Exemption on I/C supply of new means of transport. No condition that the purchaser resides in the MS of destination.

On June 14, 2017, the ECJ issued its decision in the case C-26/16 (Santogal M-Comércio e Reparação de Automóveis).

Context: Reference for a preliminary ruling — Value added tax (VAT) — Directive 2006/112/EC — Article 138(2)(a) — Conditions for the grant of the exemption for an intra-Community supply of a new means of transport — Purchaser’s residence in the Member State of destination — Temporary registration in the Member State of destination — Risk of tax evasion — Good faith of the vendor — Obligation of diligence on the part of the vendor

Article in the EU VAT Directive

Article 138(2)(a) of the EU VAT Directive 2006/112/EC

Article 138
1. Member States shall exempt the supply of goods dispatched or transported to a destination outside their respective territory but within the Community, by or on behalf of the vendor or the person acquiring the goods, for another taxable person, or for a non-taxable legal person acting as such in a Member State other than that in which dispatch or transport
of the goods began.
2. In addition to the supply of goods referred to in paragraph 1, Member States shall exempt the following transactions:
(a) the supply of new means of transport, dispatched or transported to the customer at a destination outside their respective territory but within the Community, by or on behalf of the vendor or the customer, for taxable persons, or non-taxable legal persons, whose intra-Community acquisitions of goods are not subject to VAT pursuant to Article 3(1), or for any other non-taxable person;

Facts

Santogal is a company operating in the motor trade in Portugal.
Under an invoice of 26 January 2010, Santogal sold for a sum of EUR 447 665 a new vehicle which it had previously acquired from Mercedes-Benz Portugal SA and the entry of which into Portuguese territory had been recorded in a vehicle customs declaration of 25 May 2009.
In the course of the sale, the purchaser, an Angolan national, informed Santogal of his intention to use the vehicle for his personal use in Spain, where he claimed to be established, to take personal responsibility for transporting it to Spain, to arrange for it to undergo the technical inspection and to have it registered. The purchaser submitted to Santogal his Spanish foreign national’s identification number (NIE), a document issued on 2 May 2008 by the Ministério del Interior, Dirección General de la Policia y de la Guardia Civil — Comunidad Tui-Valencia (Ministry of the Interior, Directorate-General of Police and of the Civil Guard — Municipality of Tui-Valencia, Spain) confirming his entry in the central register of foreign nationals under that NIE, as well as a copy of his Angolan passport. The address of the purchaser, as given by him in the course of the sale, did not match that stated on the document of 2 May 2008.
In the light of those documents, Santogal considered that the sale was exempt of VAT pursuant to Article 14(b) of the RITI. Consequently, there had been no VAT assessment in Portugal.
The vehicle was transported to Spain in a totally enclosed trailer.
Following the technical inspection of the vehicle in Spain, the purchaser sent to Santogal, at the latter’s request, two documents to complete the sale, namely, first, a technical inspection certificate issued on 11 February 2010 and, second, a Spanish registration document issued on 18 February 2010. That registration document, which provided an address for the purchaser which matched neither the address given by the purchaser at the time of the sale nor that stated on the document of 2 May 2008, related to a temporary ‘tourist’ registration due to expire on 17 February 2011. According to the information provided by the referring court, in accordance with Spanish law, tourist registration amounts to a temporary registration, which can normally be used for 6 months in every 12-month period and may be extended by the authorities. Only persons not habitually resident in Spain may avail themselves of such registration.
Further to information sent by Santogal in February 2011 with a view to cancelling the customs declaration of 25 May 2009, Mercedes-Benz Portugal filed, on 3 March 2011, a supplementary customs declaration (‘the supplementary declaration’) seeking the cancellation of that earlier declaration because the vehicle had been dispatched. The customs declaration of 25 May 2009 was cancelled by the competent Portuguese authorities.
By letter of 24 October 2013, the Direção de Serviços Antifraude Aduaneira (Directorate of Customs Anti-Fraud Services, Portugal) recommended that the Direção de Finanças de Lisboa (Directorate of Finances, Lisbon, Portugal) order an assessment of the VAT owing on the sale of the vehicle be carried out. That directorate noted inter alia that the purchaser resided, and was registered as a company director, in Portugal. In addition, it stated that in response to a request for information, the Spanish authorities had stated that the purchaser did not appear to be resident in Spain during 2010 and had never submitted income returns in that country.
Accordingly, Santogal was the subject of a partial internal VAT audit for the month of January 2010. In that context, the tax and customs authority produced a report in which it concluded that the sale of the vehicle was not covered by the exemption provided for in Article 14(b) of the RITI, on the ground that the purchaser did not reside in Spain or carry on any economic activity there. It further stated that, according to its databases, the purchaser had a Portuguese taxpayer’s number assigned before 2001 and that his country of residence was Portugal.
Further to that audit, on 14 October 2014, the tax and customs authority issued an additional VAT assessment in the amount of EUR 89 533 and a calculation of default interest relating to the period from 12 March 2010 to 20 August 2014 in the amount of EUR 15 914.80. Santogal paid those amounts in December 2014.
Santogal brought an application before the referring court for the cancellation of those assessments and a claim for damages. Before that court, it argued, inter alia, that the tax and customs authority’s interpretation of Articles 1(e) and 14(b) of the RITI is contrary to Article 138(2) of the VAT Directive, which it claimed has direct effect. Santogal also submitted that any VAT fraud committed by the purchaser could not be relied on against it.
In the order for reference, first, the referring court expresses doubts as to the purchaser’s place of residence at the time of the sale of the vehicle at issue in the main proceedings. In particular, that court notes that the purchaser’s habitual residence was not in Spain. Yet, it has not been established that he resided in Portugal at the time of that sale. Furthermore, the documents produced before the referring court contain no information concerning the payment of VAT relating to the vehicle in Spain or the fate of the vehicle after the grant of the tourist registration. Nor has it been established that eligibility under the rules on tourist registration ceased in accordance with the detailed rules laid down in Spanish law.
Next, the referring court observes that it has not been shown that Santogal cooperated with the purchaser in order to avoid payment of VAT on the sale of the vehicle. On the contrary, it is of the view that it is clear from the evidence produced before it that Santogal ensured that the conditions for exemption from VAT were satisfied. It notes that neither the customs agents nor the customs authorities raised doubts as to whether the documents were sufficient to cancel the customs declaration of 25 May 2009 and that the letter from the Directorate of Customs Anti-Fraud Services of 24 October 2013 was based on additional information to which Santogal did not have access.
Finally, referring to the judgment of 7 December 2010, R. (C‑285/09, EU:C:2010:742), the referring court considers that the Court’s case-law does not answer sufficiently clearly the questions raised by the dispute before it.

Questions

(1) Is it contrary to Article 138[2](a) of Council Directive 2006/112/EC ¹ of 28 November 2006 [on the common system of value added tax] for provisions of national law [Articles 1(e) and 14(b) of the VAT Rules on Intra-Community Transactions — RITI] to require, for the grant of exemption from VAT on the supply for consideration of new means of transport, transported by the purchaser from national territory to another Member State, the purchaser to be established or domiciled in that Member State?

(2) Is it contrary to Article 138[2](a) of Council Directive 2006/112/EC for exemption from the tax in the Member State of commencement of the transport operation to be refused in circumstances in which the means of transport purchased has been transported to Spain, where it has been granted tourist registration, provisionally and subject to the fiscal rules laid down in Articles 8 to 11, 13 and 15 of Spanish Royal Decree 1571/1993 of 10 September 1993?

(3) Is it contrary to Article 138(2)(a) of Council Directive 2006/112/EC to require the payment of VAT by the supplier of a new means of transport in circumstances in which it has not been demonstrated whether or not the tourist registration rules have ceased to apply because of one of the situations provided for in Articles 11 and 15 of Spanish Royal Decree 1571/1993 of 10 September 1993, or whether VAT has been or will be paid by reason of the disapplication of those rules?

(4) Is it contrary to Article 138 [2](a) of Council Directive 2006/112/EC and the principles of legal certainty, proportionality and protection of legitimate expectations to require VAT to be paid by the supplier of a new means of transport dispatched to another Member State, in circumstances in which:

the purchaser, before dispatch, informs the supplier that he resides in the Member State of destination and produces to him a document proving that he has been assigned a foreign national’s identity number in that Member State, indicating a residence in that State different from the residence stated by the purchaser himself;
the purchaser subsequently gives to the supplier documents proving that the means of transport purchased has undergone a technical inspection in the Member State of destination and that he has been granted a tourist registration in that State;
it has not been demonstrated that the supplier collaborated with the purchaser to avoid paying VAT;
the customs authorities have not raised any objection to the cancellation of the customs declaration for the vehicle on the basis of the documents in the possession of the supplier?

AG Opinion

(1) Article 138(2)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that it precludes a Member State from making the exemption of an intra-Community supply of a new means of transport subject to the condition that the purchaser of that means of transport resides in the Member State of destination of the transaction.

(2) Regardless of the circumstances specific to a particular case, Article 138(2)(a) of Directive 2006/112 must be interpreted as meaning that it precludes a Member State from refusing to grant the exemption from value added tax to the vendor of a new means of transport, which has been transported to another Member State by its owner, simply because that vehicle was registered temporarily in that latter Member State.

(3) Article 138(2)(a) of Directive 2006/112 and the principles of legal certainty, proportionality and fiscal neutrality must be interpreted as meaning that they preclude a Member State from refusing to grant the exemption from value added tax to the vendor of a new means of transport where that vendor has not participated in tax fraud, has acted in good faith and has taken all the reasonable measures within his power to ensure that the transaction which he concluded satisfies all the substantive conditions for an intra-Community supply, within the meaning of that article, in particular the condition relating to the final, permanent consumption of the new means of transport in the Member State of destination.

It is for the referring court to determine whether the vendor in the main proceedings complied with the requirements of good faith and reasonable diligence, in the light, inter alia, of the steps which it took with regard to the purchaser and of the supporting documents produced by him and making it possible to determine that he ensured that the new means of transport would be put to final, permanent use in the Member State of destination following the expiry of the temporary registration period in that Member State. If that is the case, the vendor cannot be refused the right of exemption from value added tax. Otherwise, unless the Member State of supply is able to demand payment of the value added tax from the purchaser a posteriori, that Member State is justified in requiring the vendor of the new means of transport to pay the value added tax a posteriori with a view to preventing the transaction from avoiding all taxation.

Decision

1. Article 138(2)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax precludes national provisions from making the benefit of the exemption of an intra-Community supply of a new means of transport subject to the requirement that the purchaser of that means of transport must be established or domiciled in the Member State of destination of that means of transport.

2. Article 138(2)(a) of Directive 2006/112 must be interpreted as meaning that the exemption of a supply of a new means of transport cannot be refused in the Member State of supply on the sole ground that that means of transport has been registered only temporarily in the Member State of destination.

3. Article 138(2)(a) of Directive 2006/112 precludes the vendor of a new means of transport, transported by the purchaser to another Member State and registered in that latter State temporarily, from being required to pay value added tax at a later stage when it is not established that the temporary registration regime has ended and value added tax has or will be paid in the Member State of destination.

4. Article 138(2)(a) of Directive 2006/112 as well as the principles of legal certainty, proportionality and protection of legitimate expectations preclude the vendor of a new means of transport, transported by the purchaser to another Member State and registered on a temporary basis in that State, from being required to pay value added tax at a later stage in the event of tax evasion by the purchaser, unless it has been established, in the light of objective evidence, that that vendor knew or ought to have known that the transaction was part of a fraud committed by the purchaser and he did not take all reasonable steps within his power to avoid his participation in that fraud. It is for the referring court to verify whether this is the case on the basis of an overall assessment of all the evidence and circumstances of the case in the main proceedings.

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