By Erik Zietse
In today's global economy, the number of international
transactions increases every year. Unfortunately, so do the number of court
proceedings relating to these cross-border transactions. For example, the VAT
implications and VAT consequences of intra-community transactions seem to be an
inexhaustible source of court proceedings. Recently, the ECJ provided an
important judgment in this respect.
On April 22, the ECJ issued its judgment in joined cases
C-536/08 and C-539/08. In these cases, the Dutch Supreme Court asked for a
preliminary ruling on a question related to the deduction of input VAT in
intracommunity transactions. The Supreme Court asked the ECJ to rule on the
"Must Article 17(2) and (3) and Article 28b(A)(2) of
the Sixth Directive be interpreted as meaning that, if the place of an
intra-community acquisition is deemed, on the basis of the first subparagraph
of the latter provision, to be within the territory of the Member State which
issued the VAT identification number under which the person acquiring made the
acquisition, the aforementioned person acquiring the goods has the right
immediately to deduct the VAT thus due in that Member State?"
Although upon first glance this appears to be a very
technical question, this question may be of relevance to a lot of companies, as
illustrated by the facts in case C-539/08. In that case, a Dutch company
purchased goods of companies located in other Member States (i.e., Germany and
Italy) and sold the products to companies located in Cyprus, but VAT registered
in Greece. The goods were transferred directly from Germany and Italy to Spain.
The suppliers did not include any VAT on the invoices. They
did, however, refer to the VAT number of the Dutch company. The Dutch company,
in turn, did not include any VAT in the invoices to its Cypriot customers, but
made reference to the Greek VAT number of the customers.
In its VAT return, the Dutch company mentioned the VAT due
in respect of the intra-community acquisitions and deducted that VAT. It also
made reference to the intra-community supplies to the Cypriot customers under
the Greek VAT identification number. However, the customers did not fill out
any intra-community acquisition declarations either in Cyprus, Greece or Spain.
The Dutch Tax inspector took the view that the Dutch company
made intra-community acquisitions and was not entitled to deduct the VAT. This
was disputed and eventually resulted in the prejudicial questions raised by the
The ECJ first considered that the right to deduct input VAT
is a fundamental tenet of the VAT legislation which, in principle, may not be
limited, and should be exercised immediately. Any limitation on the right to
deduct VAT has a direct impact on the tax burden and must therefore be applied
in a similar manner in all Member States.
However, in this situation, where the goods are taxed as
intra-community acquisitions and, based on the applicable legislation the
acquisitions are deemed to have been made in the Member State that issued the
identification number, and do not actually enter that Member State, those
transactions cannot be regarded as giving rise to a right to deduct under the
Therefore, the ECJ concluded that where a taxable person has
failed to establish that the intra-community acquisition has been subject to
VAT in the Member State of arrival of the dispatch or transport, the taxable
person is, in principle, subject to the tax in the Member State that issued the
identification number, and does not have the right immediately to deduct the
input VAT charged on the intra-community acquisition.
This judgment by the ECJ once more highlights the importance
of implementing thorough VAT compliance regimes and procedures for all
companies dealing with cross-border transactions. Failure to comply with the
requirements can have serious consequences and can result in a significant