Flashback on ECJ Cases – C-203/10 (Auto Nikolovi) – Profit margin scheme does not apply to supplies of goods as used motor vehicle parts imported into the Union under normal VAT scheme

On March 3, 2011, the ECJ issued its decision in the case C-203/10 (Auto Nikolovi).

Context: Directive 2006/112/EC – Value-added tax – Second-hand parts for motor vehicles – Importation into the European Union by a taxable dealer – Margin scheme or normal VAT scheme – Origin of the right of deduction – Direct effect

Article in the EU VAT Directive

Article 314, 320(1), 320(2) in the EU VAT Directive

Article 314 (Margin dealer – Second hand goods)

The margin scheme shall apply to the supply by a taxable dealer of second-hand goods, works of art, collectors’ items or antiques where those goods have been supplied to him within the Community by one of the following persons:

(a) a non-taxable person;

(b) another taxable person, in so far as the supply of goods by that other taxable person is exempt pursuant to Article 136;

(c) another taxable person, in so far as the supply of goods by that other taxable person is covered by the exemption for small enterprises provided for in Articles 282 to 292 and involves capital goods;

(d) another taxable dealer, in so far as VAT has been applied to the supply of goods by that other taxable dealer in accordance with this margin scheme.

Article 320

1. Where the taxable dealer applies the normal VAT arrangements to the supply of a work of art, a collectors’ item or an antique which he has imported himself, he shall be entitled to deduct from the VAT for which he is liable the VAT due or paid on the import.

Where the taxable dealer applies the normal VAT arrangements to the supply of a work of art supplied to him by its creator, or the creator’s successors in title, or by a taxable person other than a taxable dealer, he shall be entitled to deduct from the VAT for which he is liable the VAT due or paid in respect of the work of art supplied to him.

2. A right of deduction shall arise at the time when the VAT due on the supply in respect of which the taxable dealer opts for application of the normal VAT arrangements becomes chargeable.

Facts

Auto Nikolovi is a company established in Silistra (Bulgaria). It deals principally in second-hand motor vehicles.
In July 2008, it was subject to a tax inspection covering, in particular, the period from 17 January 2003 and 31 May 2008 in respect of the VAT debt.
That inspection was concluded by the issue of a tax assessment, dated 16 January 2009. As grounds for that assessment, the competent tax authority referred to the finding that, during that inspection, some of the second-hand parts that Auto Nikolovi had imported from Switzerland were still on its premises and had, consequently, not been used in subsequent taxable supplies. Assuming that Auto Nikolovi had opted for the normal VAT arrangements to be applied, it refused, on the basis of Article 151(1) and (4) of the VAT Law, to recognise the right to deduct input tax amounting to BGN 405.55 for the tax month of April 2007 in connection with the VAT paid on the importation of second-hand tyres, and BGN 375.31 for the tax month of July 2007 in connection with the VAT paid on the importation of second-hand tyres, wheel rims, a second-hand car lifter and bumpers.
Auto Nikolovi brought an objection against that tax assessment before the Director of the direktsia ‘Obzhalvane i upravlenie na izpalnenieto’ – Varna claiming, in essence, that the goods at issue are not covered by the definition of ‘second-hand goods’ in paragraph 1(19) of the Supplementary Provisions to the VAT Law, although the provisions of that law relating to second-hand goods are not applicable in the present case.
That objection was dismissed by a decision of 11 March 2009, the director concluding that Auto Nikolovi was a dealer in second-hand goods and that it had opted to apply the normal VAT arrangements to the supplies of the goods at issue.
Auto Nikolovi contested that decision before the Administrativen sad Varna (Administrative court, Varna). It claimed, in essence, that its situation was not covered by the arrangements of the margin scheme in light of the fact that, under Article 314 of Directive 2006/112, and contrary to what is provided for in Article 143(1) of the VAT Law, that scheme does not cover supplies of goods imported by the taxable dealer himself. It is therefore entitled to exercise the right to deduct input tax under the conditions set out in Article 71(1) of that law.
By judgment of 11 June 2009, the Administrativen sad Varna annulled the assessment of 11 March 2009 to the extent that, by that assessment, Auto Nikolovi had been refused the right to deduct input tax in respect of the second-hand tyres, wheel rims and car lifters imported by it.
The Administrativen sad Varna held that those goods were not second-hand goods within the meaning of the VAT Law, in light of the fact that they constituted generic goods, and not goods individually identified by features which enable them to be distinguished from other goods of the same kind. Therefore, in application of the combined provisions of Articles 54 and 68(1) and (2) of that law, it held that Auto Nikolovi had lawfully exercised its right to deduct input tax in respect of the imports referred to with regard to the last month of the import procedure.
The Director of the direktsia ‘Obzhalvane i upravlenie na izpalnenieto’ – Varna lodged an appeal on a point of law against that judgment before the Varhoven administrativen sad (Supreme Administrative Court).
The referring court, which starts from the assumption that Auto Nikolovi is a taxable dealer, is faced with various questions in the resolution of the dispute in the main proceedings.
It has doubts with respect to the classification of the goods at issue as ‘second-hand goods’, in light of the fact that, in contrast to the definition of those goods in Article 311(1)(1) of Directive 2006/112, Paragraph 1(19) of the Supplementary Provisions to the VAT Law refers to goods which are ‘individually identified’. In that regard, it is uncertain whether the Member States themselves are free to define the concept of ‘second-hand goods’.
Assuming that the goods at issue are second-hand goods, it raises the question whether the arrangements under the margin scheme are applicable to the present case, in which the person concerned does not incur the risk of double taxation since it is entitled under the VAT Law to deduct the VAT paid on importation.
Assuming that the arrangements under the margin scheme are applicable to the main proceedings, it wonders whether a legislative provision which defers the right of the person concerned to deduct input tax in respect of the VAT paid on importation to the period during which the imported second-hand goods are used in subsequent taxable supplies, is compatible with the strict conditions of application of such a deferral arising from Article 319, the first subparagraph of Article 320(1) and Article 320(2) of Directive 2006/112.
Assuming that such deferral does not affect the importation of second-hand goods by the trader itself, it questions whether Article 314(a) to (d), the first subparagraph of Article 320(1) and Article 320(2) of Directive 2006/112 have direct effect allowing them to be relied upon and incompatible national provisions disapplied.

Questions

1. Does the term “second-hand goods” set out in Article 311(1)(1) of … Directive 2006/112 … also cover second-hand movable property which is not individualised (by mark, model, serial number, year of manufacture etc.) in such a way that it can be distinguished from goods of the same variety but is instead identified by generic features?
2. Does the phrase “as defined by the Member States” contained in Article 311(1)(1) of … Regulation 2006/112 … grant Member States the possibility of defining the term ‘second-hand goods’ themselves, or must the definition of this term in the directive be reproduced strictly in national law?
3. Is the requirement, incorporated into national law, that second-goods be individually identified, consistent with the spirit and purpose of the definition of “second-hand goods” in Community law?
4. Having regard to the aims set out in recital (51) of the preamble to … Directive 2006/112 … , can it be concluded that the phrase “where those goods have been supplied to him within the Community” contained in Article 314 … thereof also covers the importation of second-hand goods which the taxable dealer has imported himself?
5. If the arrangements under the margin scheme are also applicable to the supply of second-hand goods by a taxable dealer who has imported those goods himself, must the person from whom the taxable dealer has acquired those goods belong to one of the categories of person referred to in Article 314(a) to (d)?
6. Is the list of goods contained in Article 320(1) of … Directive 2006/112 … exhaustive?
7. Are the first subparagraph of Article 320(1) and Article 320(2) of … Directive 2006/112 … to be interpreted as meaning that they preclude a national provision under which the taxable dealer’s right to deduct as input tax the VAT paid by him on the importation of second-hand goods arises and is exercised in the period during which those goods were supplied in connection with a subsequent taxable supply to which the taxable dealer applies the normal tax arrangements?
8. Do Articles 314(a) to (d), the first subparagraph of Article 320(1), and Article 320(2) of Directive 2006/112 … have direct effect and can the national court rely on them directly in a case such as the present?

AG Opinion

None

Decision

1. Article 314 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the margin scheme is not applicable to supplies of goods such as spare parts for motor vehicles, which the taxable dealer himself imported into the European Union under the normal value-added tax scheme.

2. The first subparagraph of Article 320(1) and Article 320(2) of Directive 2006/112 must be interpreted as meaning that they preclude a national provision which provides for the deferral, until the subsequent supply under the normal value added tax scheme, of the right of the taxable dealer to deduct value added tax paid on importation of goods other than works of art, collectors’ items or antiques.

3. Article 314, the first subparagraph of Article 320(1) and Article 320(2) of Directive 2006/112 have direct effect which authorises an individual to rely on them before a national court for the purposes of having national legislation which is incompatible with those provisions disapplied.

Summary

Import of used motor vehicle parts by a taxable dealer — Profit margin scheme or normal VAT scheme — Origin of right to deduct — Direct effect

The profit margin scheme does not apply to supplies of goods as used motor vehicle parts that the taxable reseller has himself imported into the Union under the normal VAT scheme.

The first subparagraph of Article 320(1) and (2) of the VAT Directive precludes a national provision according to which the right of a taxable dealer to deduct the importation of goods other than works of art, antiques or collectors’ items paid under the normal scheme VAT is deferred until the later delivery under this scheme.

The first subparagraph of Articles 314 and 320(1) and Article 2 of the VAT Directive have direct effect in the sense that an individual may rely on them before a national court to disapply national legislation contrary to those provisions.

Source: