Last reviewed 2 January 2013
Neil Baylis looks at Case C-273/11: Mecsek-Gabona Kft v Nemzeti Adó-és Vámhivatal Dél-dunántúli Regionális Adó Főigazgatósága, regarding the charging of VAT on intra-Community transactions.
In August 2009, Mecsek-Gabona (MG) sold 1000 tonnes of rapeseed to an Italian company that was registered for VAT. The seed was collected from MG's Hungarian premises and the buyer subsequently sent MG a number of consignment notes, which proved that the seed had been transported to a destination outside Hungary.
MG issued two invoices to the buyer in relation to the transaction. On the assumption that the sales had been made "intra-Community" and were therefore exempt from VAT, MG did not include any VAT in its invoices to the buyer and subsequently paid no VAT to the Hungarian tax authorities.
The Italian tax authority discovered that the Italian company could not be found and had never paid any VAT in Italy. It therefore decided, in January 2010, to remove the Italian company's VAT identification number from the register with effect from 17 April 2009. The Hungarian tax authority then decided that the rapeseed sold by MG could not be regarded as a VAT-exempt intra-Community sale and ordered MG to pay VAT in relation to the two sales.
MG challenged the decision of the Hungarian tax authority.
Council Directive 2006/112/EC of 28 November 2006, on the common system of value added tax as amended by Council Directive 2010/88/EU of 7 December 2010, sets out the EU law on harmonisation of value added taxes in the EU.
Judgment of the Court
The European Court of Justice (ECJ) noted that there were three conditions that had to be met for an intra-Community transaction to be VAT-exempt.
The right to dispose of the goods must have been transferred to the buyer.
The seller must be able to prove that the goods had been dispatched or transported to another Member State.
As a result of that dispatch or transportation, the goods must have physically left the territory of the seller's Member State.
The ECJ noted that the title in the rapeseed had been passed to the Italian buyer and therefore the first condition was met. The directive is silent as to the evidence required to prove that an intra-Community supply of goods has taken place. Accordingly, it was a matter for the national laws of each Member State, so long as such laws were in accordance with the general principles of EU law, ie certainty and proportionality.
The directive was clear that Member States were entitled to refuse to grant VAT-exempt status to a seller, if that seller failed to provide sufficient evidence to prove the conditions set out in points 1 and 2 above.
The ECJ also noted that the seller should not be held liable for VAT where the contractual obligation to dispatch or transport the goods out of the Member State had not been met by the buyer. In that case, it was the buyer that would be held liable to pay the VAT in the Member State of supply.
Finally, the ECJ noted that MG should not be made liable for VAT as a result of the retro-active removal of the buyer's VAT registration number by the Italian tax authority. MG had relied on that registration and could not be penalised for its subsequent removal.
It will be for the Hungarian courts to apply the ECJ's judgment to the facts of this case. However, it is clear that, where the buyer of goods is responsible for transporting goods to another Member State, the seller will not be made liable for VAT in cases where the buyer has failed to transport the goods as agreed.