Indirect Tax Update for week ending 03 June 2016

1. © 2016 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
The Court of Justice (CJEU) has
been busy this week. Eurogate
Distribution GmbH (Eurogate)
and DHL Hub Leipzig GmbH
(DHL) challenged the German
tax authority's determination that
import VAT was payable on
goods that never entered the EU.
Both businesses operated
Customs warehouses and, in a
previous CJEU judgment, the
court ruled that customs duty
was payable because the
taxpayers had failed to enter the
removal of the goods from the
warehouse into their stock
records at the appropriate time.
The German tax authority took
this to mean that import VAT
was also due even though it was
clear that the goods were never
entered for free circulation.
The CJEU has also issued
judgments in relation to a couple
of excise duty cases.
08 June 2016
Import VAT
Eurogate and DHL are separately authorised to operate customs warehouses. Both
businesses failed to enter the re-export of goods outside the Community in their stock
records at the appropriate time and the German tax authority argued that such failure
crystallised a duty point such that customs duties fell due. In an earlier judgment of the
CJEU, the court ruled that, as both taxpayers were, indeed, in breach of the
requirements of the customs code relating to record keeping, customs duty was
payable by them.
In the light of that ruling, the German tax authority considered that, as a duty point
had been created, customs duties also included the import VAT that was also due in
relation to the goods even though it was clear that the goods had never been entered
into free circulation and that the goods had actually, physically, left the European
Union.
Eurogate and DHL challenged that view in the German courts which, in turn, referred
the matter back to the CJEU for a preliminary ruling.
The CJEU has delivered its judgment and has ruled that, in neither case, had the
taxpayers 'removed' the goods from the Customs procedure before re-exporting the
goods out of the Community. As a consequence, even though it had ruled in its earlier
judgment that the failure to enter the movement of the goods in their stock records at
the correct time created a liability to customs duty, such failure did not create any
liability to import VAT. Accordingly, as the goods had never left the customs
warehousing regime and had never 'entered' the Community, neither Eurogate nor
DHL could be held liable for the payment of import VAT.
Comment – This judgment brings to an end a decade long battle for these
taxpayers. It is clear from the Court's judgment that until an import entry is
made, goods cannot be said to have been imported into the territory of the
European Union. As a result, in the absence of an importation, no import VAT
can be payable. That is the case even though, as in this case, a customs duty
debt had arisen in relation to the goods.
Businesses that are authorised to operate customs warehousing and other
customs regimes should take note of this judgment.
Issue18/2016
Eurogate / DHL win Import VAT
case at Court of Justice
Indirect Tax Update

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GRT100456
Kapnoviomichania Karelia AE
Court of Justice
The taxpayer (Karelia) in this case was a Greek company which manufactured tobacco and was an
authorised warehousekeeper for the purposes of excise duty. In 1994, it received an order for 760
cartons of cigarettes from a company in Bulgaria at a time when Bulgaria was not yet a Member State
of the EU. An export entry was made but the cargo of cigarettes never reached their intended
destination in Bulgaria. Following investigation by the tax authority, it transpired that the lorry which
was supposed to transport the cigarettes to Bulgaria was empty as the cargo had been transferred to a
different lorry.
The Greek tax authority sought to make Karelia jointly and severally liable for the payment of
financial penalties that it imposed for the smuggling offence and, not surprisingly, Karelia challenged
this in the Greek courts. Ultimately, the matter was referred to the CJEU which decided that, in the
circumstances, the Greek law which imposes a liability on the taxpayer for financial penalties is
contrary to EU law. Greek law cannot assume that and agency relationship is created just because
there is a contractual relationship between the supplier and those that perpetrated the smuggling of
the goods. Karelia had already been held liable for the excise duty as it was the guarantor for the duty
but it would offend the principle of proportionality to also make them liable for the financial
penalties too.
Comment
The EU principle of
proportionality dictates
that Member States
cannot go any further
than is absolutely
necessary to achieve an
objective.
Here, the decision of
the Greek authority to
make the supplier
jointly and severally
liable for the financial
penalties arising from
smuggling undertaken
by its customer
offended that principle.
Polihim
Comment
One can understand
why the Bulgarian
authority took this
point - Polihim's
immediate customer in
the supply chain was
not licensed to generate
electricity. However,
the CJEU was content
that the exemption
from excise duty could
apply to the supply to
the intermediate
supplier provided that
the ultimate user of the
fuel in question met all
of the requirements set
out in Bulgarian law to
obtain excise duty free
supplies.
Court of Justice
In this case, the taxpayer operated a tax warehouse and sold fuel to another taxpayer which, in turn
immediately sold it on to another taxpayer that was licensed to use the fuel for the generation of
electricity. However, Polihim delivered the fuel directly to the licensed taxpayer and did not declare
excise duty on the basis that an exemption exists for supplies to licensed users.
The Bulgarian tax authority considered that, as Polihim's supply was to an unlicensed customer, the
exemption from excise duty did not apply and it sought to collect the duty from Polihim. The
Bulgarian courts referred two questions to the CJEU. Firstly, it asked whether a duty point was
created when goods were sold within the warehouse – the CJEU has ruled that the duty point was
only crystallised when the goods left the warehouse and not before.
Secondly, the CJEU was asked whether the supply to the intermediate supplier could benefit from
exemption from excise duty where the fuel was delivered to a licensed user. The CJEU ruled on this
point that, in the circumstances, provided that the end user (here the customer's customer) satisfies
all the requirements under national law to benefit from an exemption of excise duty on the supply of
fuel and who receives the fuel directly from an authorised warehousekeeper, the exemption from
excise duty must apply to the delivery to the intermediate supplier.
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556