The Court of Justice of the EU (“Court”) recently issued its ruling in case C - 628/16 Kreuzmayr GmbH, stating that, if intra-Community supplies of goods are incorrectly deemed as local supplies of goods, the beneficiaries are not entitled to deduct the input VAT incorrectly charged by suppliers.
The Court clarifies the situation regarding (1) the application of the VAT exemption related to successive supplies of goods subject to a single intra-Community transportation and (2) the right to deduct input VAT for purchases for which the VAT treatment is incorrect.
In the above case, a company established in Germany (hereinafter “the Supplier”) sold goods to a company established in Austria (hereinafter “the Buyer-Reseller”), which endeavoured to transport the goods from Germany to Austria. Without informing the Supplier, the Buyer-Reseller resold those goods to its final customer, also established in Austria (hereinafter “Kreuzmayr”), which actually transported the goods from Germany to Austria. The right of disposal of the goods as owner was transferred from the Buyer-Reseller to Kreuzmayr prior to the intra-Community transportation of the goods.
The Supplier treated the supply made to the Buyer-Reseller as an intra-Community supply of goods, VAT exempt with credit, while the Buyer-Reseller treated the supply to Kreuzmayr as a local supply of goods, without transportation. The Buyer-Reseller charged Austrian VAT, which Kreuzmayr deducted.
The Austrian tax authorities rejected Kreuzmayr’s VAT deduction right related to the acquisitions made from the Buyer-Reseller on the grounds that Kreuzmayr was in charge of the intra-Community transportation of the goods and the right of disposal of the goods as owner was transferred from the Buyer-Reseller to Kreuzmayr prior to that intra-Community transportation of the goods. As such, the authorities held that the acquisitions by Kreuzmayr should not have qualified as local purchases of goods (but rather an intra-Community acquisition of goods) and should not have been invoiced with Austrian VAT.
As Kreuzmayr disagreed with the tax authorities’ approach in this respect and could not recover the input VAT from the Buyer-Reseller, the Court was asked to rule on this. It confirmed that the second supply of goods qualified as a VAT exempt intra-Community supply of goods and that the output VAT charged by the Buyer-Reseller is non-deductible for Kreuzmayr (a conclusion which is not contrary to the principle of legitimate expectation).
The decision reiterates that VAT incorrectly charged is non-deductible for beneficiaries and that they can recover such amounts only commercially, from the suppliers which issued incorrect invoices. In order to avoid such situations, beneficiaries must ensure that the VAT treatment applied by their business partners is in accordance with the law.