Flashback on ECJ Cases – C-165/11 (Profitube) – VAT on the sale of goods placed under a customs suspension arrangement

On November 8, 2012, the ECJ issued its decision in the case C-165/11 (Profitube).

Context: Sixth VAT Directive – Applicability – Community customs code – Goods from a non-member State placed under the customs warehousing procedure in the territory of a Member State – Processing of the goods under inward processing arrangements in the form of a system of suspension – Goods sold and placed once again under the customs warehousing procedure – Goods kept in the same customs warehouse during all the transactions – Supply of goods effected for consideration in national territory – Chargeable event for VAT

Article in the EU VAT Directive

Artcile 2(1) of Sixth Council Directive (Article 2 and 30 of the EU VAT Directive 2006/112/EC).

Article 30
‘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.

Facts

It is apparent from the order for reference and the observations submitted to the Court that the Daňový úrad pre vybrané daňové subjekty (Tax administration for certain taxpayers; ‘the Daňový úrad’) carried out a VAT audit for Profitube for the months of July, August, September and October 2005 and January, February, April, May and December 2006.
That tax audit revealed that, during the period under inspection, the company SSIM a.s., established in Košice, brought in from Ukraine semi-finished steel goods, namely hot-rolled coils, which it sold to Profitube. Those coils, stored in a public customs warehouse used by the latter and situated in the territory of the Slovak Republic, were placed under the customs warehousing procedure, within the meaning of Article 98 of the customs code.
The hot-rolled coils were then placed under inward processing arrangements in the form of a system of suspension, within the meaning of Article 114 of the customs code, to be processed into steel sections.
Profitube sold those steel sections (‘the goods at issue’) to the company Mercurius s r.o., established in Košice and registered for VAT (‘the sale at issue’). The goods at issue were again placed under the customs warehousing procedure. Profitube took the view that the sale at issue was not subject to VAT.
During all those transactions carried out during the tax years 2005 and 2006, the goods at issue remained in the same public customs warehouse.
By decisions of 27 June 2006, the Daňový úrad ruled that, by not paying VAT on the sale at issue, Profitube had infringed Article 69(1) of the law on VAT, read in combination with Articles 2(1)(a), 2(2)(a), 8(1)(a), 13(1)(a) and 19(1) of that law.
In that regard, the Daňový úrad took the view that, by the sale of goods stored in a public customs warehouse situated in the territory of the Slovak Republic, Profitube had made a supply of goods which, pursuant to Article 2(1)(a) of the law on VAT, was subject to the tax.
By decisions of 25 October 2007, the Daňové riaditeľstvo confirmed the decisions of the Daňový úrad.
By judgment of 23 July 2008, the Krajský súd v Bratislave (Regional Court, Bratislava) upheld the action brought by Profitube against the decisions of the Daňové riaditeľstvo and referred the matter back to the latter. The Krajský súd v Bratislave took the view, in particular, that goods from a non-member country had to be placed in free circulation to be subject to VAT.
The Daňové riaditeľstvo having appealed against that judgment, the Najvyšší súd Slovenskej republiky (Supreme Court of the Slovak Republic), by judgment of 20 October 2009, varied the judgment of the Krajský súd v Bratislave by holding that a customs warehouse situated in the territory of a Member State legally forms part of that territory. The Daňové riaditeľstvo was therefore right to hold that the sale at issue constituted a supply of goods for consideration in national territory, for the purposes of Article 2(1)(a) of the law on VAT. Moreover, the goods at issue had not been the subject on an importation, within the meaning of Article 12 of that law.
Profitube lodged an appeal against the judgment of the Najvyšší súd Slovenskej republiky before the Ústavný súd Slovenskej republiky (Constitutional Court of the Slovak Republic). By judgment of 27 October 2010, the latter court annulled the judgment of the Najvyšší súd Slovenskej republiky and referred the matter back before the latter for a fresh ruling.
The Ústavný súd Slovenskej republiky took the view that the Najvyšší súd Slovenskej republiky had infringed Profitube’s fundamental right to legal protection, for the purposes of Article 46(1) of the Constitution of the Slovak Republic, and its right to a fair trial, within the meaning of Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms signed in Rome on 4 November 1950. The Ústavný súd Slovenskej republiky took the view, in particular, that the Najvyšší súd Slovenskej republiky had not examined the question of the application of Article 12 of the law on VAT, according to which, in the case of an importation, customs rules must take priority over that law.

Questions

(1) In a situation where, in 2005 and 2006, goods from a non-Member State of the European Union (Ukraine) were placed in a public customs warehouse in the territory of a Member State of the European Union by an importer from that Member State, were subsequently processed in an inward processing suspension procedure in that customs warehouse, and the resulting product was not immediately exported within the meaning of Article 114 of Regulation No 2913/92 but instead was sold in that same warehouse by the processor of the goods to another company from that Member State, which did not to release it from the customs warehouse for free circulation, but subsequently returned it to the customs warehousing procedure, is the said sale of goods within the same customs warehouse still subject solely to Community customs rules, or has the legal situation been changed by the said sale to the extent that the transaction is now subject to the system under the [Sixth Directive], i.e. is it possible, for the purpose of the system of [VAT] under the Sixth Directive, to regard a public customs warehouse located in the territory of a Member State as part of the territory of the Community, or the territory of that Member State, in accordance with the definitions provided in Article 3 of the Sixth Directive?

(2) In the light of the doctrine of abuse of rights developed by the Court of Justice of the European Union and concerning the application of the Sixth Directive [Case C‑255/02 Halifax and Others [2006] ECR I‑1609], is it possible to treat the above as a situation where the applicant, by selling goods in a public customs warehouse located in the territory of the Slovak Republic, has already made supply for consideration in the Slovak Republic?

(3) If the reply to the first question is in the affirmative, in that the transaction in question is now subject to the system under the Sixth Directive, is that transaction then a chargeable event:

(a) under Article 10(1) and (2) of the Sixth Directive, with the tax becoming chargeable as a result of the delivery of the goods in the customs warehouse located in the territory of the Slovak Republic; or

(b) on the ground that, after the goods were imported from a third country (Article 10(3) of the Sixth Directive), the customs procedure ended while the goods were held in storage in that customs warehouse upon sale thereof to another person from the Member State?

(4) Are the objectives of the Sixth Directive as expressed in the preamble thereof, or the objectives [of the General Agreement on Tariffs and Trade 1994 (GATT)] [Agreement appearing in Annex 1A of the Agreement establishing the World Trade Organization (WTO) approved by Council Decision 94/800/EC of 22 December 1994 concerning the conclusion on behalf of the European Community, as regards matters within its competence, of the agreements reached in the Uruguay Round multilateral negotiations (1986-1994) (OJ 1994 L 336, p. 1) fulfilled if the sale of goods imported from a third country to a customs warehouse and then processed therein and sold to another person from that Member State in the customs warehouse in the territory of the Member State of the European Community is not subject to [VAT] in that Member State?

AG Opinion

Unless a Member State has made use of the opportunity to grant an exemption under Article 16 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, the fact that a sale involves goods placed under a customs suspension arrangement and/or placed in a customs warehouse does not alter that sale’s being subject to value added tax.

Decision

Where goods from a non-member State have been placed under the customs warehousing procedure in a Member State, and have then been processed under inward processing arrangements in the form of a system of suspension and subsequently sold and placed once again under the customs warehousing procedure, remaining throughout all those transactions in the same customs warehouse situated in the territory of that Member State, the sale of such goods is subject to value added tax under Article 2(1) 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, as amended by Council Directive 2004/66/EC of 26 April 2004, unless the said Member State has made use of the facility opened to it to exempt that sale from the tax under Article 16(1) of that directive, which it is for the national court to verify.

Summary

The sale of goods from a third country which have been placed under the customs warehousing procedure in a Member State, subsequently processed under the inward processing procedure in the form of the suspension system and then sold and re-sold under the customs warehouses without leaving the same customs warehouse in the territory of that Member State during those operations shall be subject to VAT under Article 2(1) of the Sixth Directive, unless the Member State concerned has made use of the goods it has placed under Article 16 , paragraph 1 of that directive, to exempt that sale from tax.

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