In the current edition of our News Flash, we would like to present an interesting case decided by the European Court of Justice (ECJ) in judgment of the Court 29 February 2024 in Case C-676/22 B2 Energy s.r.o., which concerns the exemption of goods supplied to another EU member state, where the actual recipient of the goods was a person other than the customer stated on the invoice.

The dispute in the main proceedings

In 2015, the company B2 Energy with registered seat in the Czech Republic, supplied rapeseed oil to Poland. According to the national court, this product was not delivered to the recipient stated on the invoice but to other companies in Poland, some of whom confirmed receipt of the goods through signed delivery notes or CMR. After conducting a tax audit at B2 Energy, the tax authority concluded that the company had not proven that the conditions for VAT exemption on the basis of an intra-community supply were met. The tax authority did not dispute that the delivery of the goods took place, but according to them, the company did not prove that the right to dispose with the goods as an owner was transferred to the person stated on the invoice, nor that the goods were delivered to a person registered for VAT purposes in another member state. The tax authority concluded that B2 Energy did not fulfill the conditions for tax exemption when supplying goods to another member state.

The company filed a cassation complaint against this judgment, claiming that the evidence submitted confirms the actual receipt of the goods in Poland by companies other than those listed on the invoices, and that this information is sufficient to prove the identity of the recipients to whom the right to dispose of the goods as an owner was transferred. The dispute was on whether it is possible to deny VAT exemption on the supply of goods to another member state if the supplier has not proven that the goods were delivered to a recipient who qualifies as a taxable person, even though the facts and information provided to the tax authority clearly show that the tax authority possesses the necessary data to verify that the persons to whom the goods were delivered had this status and acted as such.

Analysis of the ECJ

The Court of Justice of the EU stated in its decision that for a supply to be considered a delivery within the EU, it is adequate to meet substantive legal conditions, such as the status of taxable persons, the transfer of the right to dispose of goods as an owner, and the physical movement of goods from one Member State to another. It is not necessary to fulfill additional conditions; however, it is important to highlight that the delivery of goods took place at a time when the recipient’s VAT identification number was not part of the substantive conditions for VAT exemption. These conditions do not imply that the goods must be physically delivered to the person listed on the invoice as the recipient.

The principle of tax neutrality requires that exemption from VAT should be recognized if the material conditions are met, even if some formal requirements have not been fulfilled. There are only two cases where failure to meet formal conditions can lead to the loss of the right to VAT exemption.

1. If a taxable person intentionally participated in tax fraud or knew that their performance was part of tax fraud and did not take measures to prevent it.
2. If the violation of a formal requirement prevents the demonstration of compliance with substantive legal conditions. However, the tax authority cannot impose additional conditions that could obstruct the exercise of the right to exemption from tax if it has the necessary data to verify compliance with substantive legal requirements.

The Court of Justice of the EU also stated that the tax authority had the necessary information to verify whether the actual recipients had the status of taxable persons at the time of the transaction. Based on the principle of tax neutrality, a taxable person cannot be required to prove the recipient’s status as a taxable person in every case if the factual circumstances clearly indicate that the recipient had such status.

Exemption from VAT must only be denied to a taxable person if, considering the factual circumstances and despite the evidence provided by that taxable person, there is no information available to verify the fulfillment of the conditions under Article 138(1) of the VAT Directive, and the tax authority is not required to prove that the taxable person was involved in VAT fraud.

How did the ECJ decide?

Article 138(1) of Council Directive 2006/112/EC is to be interpreted in such a way that the exemption from value-added tax (VAT) in the case of a supplier established in one member state who has delivered goods to another member state is to be refused if that supplier has not demonstrated that the goods were delivered to a recipient who is a taxable person in that other member state. In light of the factual circumstances and evidence provided by the supplier, the necessary data for verifying that the recipient had such status is absent. In practice, this means that the supplier must be able to provide adequate evidence for the tax authorities to verify that the recipient in another member state is indeed a taxable person. If such evidence is absent, the supplier is not entitled to the VAT exemption, even if the goods have physically left the country of origin.

Andrej Dopjera

Senior Tax Consultant | Accace Slovakia

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