Judgment summary
This case concerns a reference for a preliminary ruling from the Augstākā tiesa (Senāts) (Supreme Court (Senate), Latvia) on the interpretation of Article 138(1), Article 141 and Article 197(1) of the VAT Directive (Directive 2006/112/EC, as amended by Directive (EU) 2016/1065).
The dispute arose between AS "Trading 4", a Latvian VAT-registered company, and the Latvian National Tax Authority (Valsts ieņēmumu dienests), concerning the VAT treatment of petroleum products supplied by Trading 4, under an excise duty suspension arrangement, to undertakings established in Estonia and the United Kingdom ("taxable persons B"), who immediately resold the goods to further customers ("taxable persons C") in other Member States, with a single transport running directly from Trading 4 to taxable persons C (paras 1-2, 13-16).
The General Court held that the circumstances relied on by Trading 4, namely that the goods were supplied under an excise duty suspension arrangement, that the taxable person in the third Member State was liable for VAT under the triangular transaction simplification, and that the goods were proved to have left the first Member State and been supplied in the third Member State, do not in themselves justify VAT exemption of the first supply under Article 138(1) (para 45).
Background
Between January 2016 and January 2017, Trading 4 supplied petroleum products under an excise duty suspension arrangement to several undertakings established in Estonia and the United Kingdom (taxable persons B), which were not VAT-registered in Latvia but were registered in Estonia and the United Kingdom respectively (para 13).
On the same dates as their acquisitions from Trading 4, taxable persons B resold the goods to their own counterparties (taxable persons C) established in other EU Member States. The goods were transported directly from Trading 4 to taxable persons C, creating a chain of successive supplies involving a single act of intra-EU transport (paras 14-15). Trading 4 applied a VAT rate of 0% to its supplies to taxable persons B (para 16).
Following an inspection, the tax authority considered that taxable persons B had transferred ownership of the goods to taxable persons C before transport began, a fact of which it said Trading 4 was aware. It concluded that the supplies at issue were domestic supplies in Latvia subject to standard-rate VAT, that taxable persons B should have registered for VAT in Latvia, and that Trading 4 had participated in a VAT evasion scheme. On 7 June 2019 it issued a decision applying standard-rate VAT and imposing corrective measures (paras 17-18).
Trading 4's appeal was dismissed by the Administratīvā apgabaltiesa (Regional Administrative Court) on 6 February 2024, which held that the supplies to taxable persons B took place in Latvian territory, that ownership passed to taxable persons B when the goods were handed to the carrier, and that taxable persons B had asked Trading 4 to include information about other undertakings on the CMR consignment note, enabling Trading 4 to understand that the goods were being immediately resold in a third Member State (paras 19-20).
Trading 4 appealed on a point of law to the Augstākā tiesa (Senāts), arguing that, given the excise duty suspension arrangement, the right to dispose of the goods as owner passed to taxable persons B only on receipt at an excise warehouse in another Member State, and to taxable persons C only after delivery and signature of the electronic administrative document; that it had not been informed of the immediate resale before transport; and that requiring it to pay VAT in Latvia, despite VAT having already been paid by taxable persons C in the Member State of destination, infringed the principle of VAT neutrality (paras 21-22).
Core dispute
The referring court asked, in essence, whether Article 138(1) of the VAT Directive, read with Article 141 and Article 197(1), means that a triangular-transaction structure in which the excise goods move under a duty suspension arrangement, the final acquirer in the third Member State is liable for VAT, and the goods are proved to have physically left the first Member State and been supplied in the third Member State, is itself sufficient to exempt from VAT the supply made by the first-Member-State supplier to the intermediary acquirer in the second Member State (para 24).
A related question asked whether, in such a triangular transaction, the exemption is excluded where the first supplier is informed, before transport begins, that the intermediary will immediately resell the goods to the final customer in a third Member State (para 23, second question). A third question asked whether Article 141 applies where the final customer in the third Member State resells the goods within the same single transport operation (para 23, third question).
Court findings
The General Court recalled that, for the Article 138(1) exemption to apply, the right to dispose of the goods as owner must have been transferred to the acquirer, and the supplier must show that the goods were dispatched or transported to another Member State and physically left the Member State of supply as a result (para 26). Where a chain of two successive supplies gives rise to only a single intra-Community transport, that transport can be ascribed to only one of the supplies, which alone benefits from exemption (para 27).
Because the supplies in question predate the entry into force of Article 36a of the VAT Directive (as inserted by Directive (EU) 2018/1910), which now lays down detailed ascription rules, the ascription must instead be determined by an overall assessment of all the specific circumstances of the case (paras 28-29). In particular, it must be established when the second transfer of the right to dispose of the goods as owner (to the final acquirer) occurred; if that second supply took place before the intra-Community transport, the transport cannot be ascribed to the first supply (para 30).
The transfer of the right to dispose of property as owner is not limited to procedures prescribed by national law but covers any transfer empowering the transferee to dispose of the property as if owner, including the power to decide to sell it; physical possession or receipt is not required (paras 31-32). Relevant factors include whether the operator initiated the transport for its own economic activity, bore the costs and made logistical arrangements, mobilised its own resources, exercised actual or functional control over the movement of goods, or whether the transport was part of a resale on its own account (para 33).
The Court held that the fact that the transport occurred under an excise duty suspension arrangement is not decisive for ascribing the transport, since the excise suspension arrangement does not affect the conditions for transfer of the right to dispose of the goods, and the VAT chargeable event is the supply itself, not the levying of excise duty (paras 34-36). The timing of signature of the electronic administrative document likewise does not affect when the right to dispose passes, although a report of receipt may help prove that the goods physically left the Member State of dispatch (para 37).
Neither the fact that the final acquirer in the third Member State is liable for VAT under a triangular transaction, nor the fact that the goods are proved to have left the first Member State and been supplied in the third Member State, bears on whether the right to dispose as owner was transferred to the intermediary (para 38). The simplification arrangement in Article 141 presupposes that the first supply is already an exempt intra-Community supply under Article 138(1); it cannot be used to establish that exemption, and its use by the intermediary and final acquirer is irrelevant to ascribing the transport (paras 40-43).
It is for the referring court, as sole judge of the facts, to determine when the right to dispose passed to the final acquirer and whether the second supply preceded the intra-Community transport, irrespective of the excise suspension arrangement, the final acquirer's VAT liability, or proof that the goods left the first Member State (para 44).
On the third question, the Court found that the dispute in the main proceedings concerned the application of Article 138(1) to Trading 4's supplies, not the application of the Article 141 simplification arrangement (which concerns taxable persons B). As that simplification measure was found to be irrelevant to the application of Article 138(1), the third question bore no relation to the subject matter of the dispute and was inadmissible (paras 47-51).
Outcome
The Court ruled that Article 138(1) of the VAT Directive, read with Article 141 and Article 197(1), must be interpreted as meaning that the excise duty suspension arrangement, the liability of the taxable person registered in the third Member State for VAT under a triangular transaction, and proof that the goods actually left the first Member State and were supplied in the third Member State, do not in themselves constitute grounds for exempting from VAT the supply made by a taxable person registered in the first Member State to an intermediary acquirer registered in the second Member State (operative part; para 45).
As the second question was referred only in the event of an affirmative answer to the first question, it did not need to be examined (para 46). The third question was declared inadmissible (para 51). The decision on costs was left to the referring court (para 52).
Major issues / areas of contention
- Whether an excise duty suspension arrangement affects the determination of when the right to dispose of goods as owner is transferred for VAT purposes.
- Whether liability of the final acquirer for VAT under the Article 141 triangular-transaction simplification, or proof that goods physically left the first Member State, is itself sufficient to exempt the first supply in a chain under Article 138(1).
- How to ascribe a single intra-Community transport to one supply in a chain of successive supplies, in the absence of Article 36a of the VAT Directive (not yet applicable to the facts).
- Whether the timing of signature of the electronic administrative document for excise-suspended movements affects the transfer of the right to dispose of goods as owner.
- Whether the Article 141 simplification arrangement can itself justify exemption of the preceding supply under Article 138(1), or presupposes that exemption.
- Admissibility of a question on Article 141 that concerned a resale by the final acquirer, found unrelated to the actual subject matter of the main dispute.