ECJ: Importer can apply import VAT exemption without meeting all conditions

Recently, the European Court of Justice (ECJ) issued its judgment in the case of Božicevic Ježovnik (no. C‑528/17) regarding an importer who, according to the Slovenian tax authorities, unjustly applied the VAT exemption on an importation of goods. In this news item, we discuss the case and its relevance for day to day practice.

The case facts

In the period 2009 to 2011, a fruit-seller imported bananas from third countries into Slovenia. At the importation of the goods, the fruit-seller applied the VAT exemption for goods which are subsequently transported to other EU Member States (art. 143(1)(d) VAT Directive; hereinafter: the import VAT exemption). The bananas were bought by Romanian customers. After the transactions took place, it appeared that the customers probably committed VAT fraud. Even though the fruit-seller provided evidence for the application of the import VAT exemption, the Slovenian customs authorities believed the exemption was applied incorrectly. Thus, they imposed additional VAT assessments on the fruit-seller.

ECJ judgment

In its judgment, the ECJ firstly points out that the import VAT exemption can only be applied if the importer of the goods is subsequently effecting a VAT-exempt intra-Community supply. In other words: after the importation, the goods must be transported to another EU Member State. If afterwards, it appears that this condition is not met, the customs authorities cannot demand the payment of import VAT from the importer if they had authorised the import VAT exemption based on a prior examination of the information provided by the importer in the Customs declarations. This is only different if it appears that the importer knew, or should have known, that the customers committed VAT fraud, and if he did not take all  reasonable steps to avoid that fraud.

Day to day practice

The judgement of the ECJ implies that the import VAT exemption cannot automatically be refused if it appears afterwards that other parties involved in the supply chain committed VAT fraud. An interesting point is that the ECJ weighs the behaviour of the Customs authorities. In this case, the Customs employees checked and initially approved the proof provided by the importer. That behaviour created legitimate expectations on the side of the importer. However, the fact that the Customs authorities authorised the application of  import VAT exemption prior to the actual Customs declaration does not mean that they cannot retract this authorisation if the importer had not acted in good faith.

VAT fraud by third parties involves considerable financial risks for importers, expeditors and fiscal representatives. This is particularly so in case of negligence, or when parties should have known that fraud was taking place. Finally, we note that the import VAT exemption discussed in this article is not often applied in the Netherlands due to the extensive conditions. Instead, the import VAT deferment licence (or so-called art. 23 licence) is often used in order to simplify the VAT consequences of the importation of goods into the Netherlands.

If you have any questions concerning this article, or if you would like to know what the impact of this judgement is for your company, please contact Frank Nellen