We are considering a case in which the Senate has evaluated the application of a 0% rate of value added tax (VAT) to deliveries of new vehicles to other European Union (EU) member states.
The essence of the matter
On March 17, 2022, the Senate passed a judgment in the case SKA-334/2022 on the application of a 0% VAT rate to vehicle deliveries in the EU. In order for the 0% VAT rate to be correctly applied, a new vehicle must be exported from one Member State and delivered to the final consumer in another Member State where VAT will be paid. Such a transaction will prevent double taxation of the goods with VAT, which is in accordance with Directive 2006/112/EC on the common VAT system. Referring to the submitted cassation, the Senate considered a case in which abusive use of the VAT system was suspected.
A company engaged in the supply of vehicles, in a cassation complaint, asked for a re-examination of the case related to the decision taken by the State Revenue Service, which, in its opinion, suspected unfair use of the VAT system by issuing invoices with 0% VAT applied to companies in Lithuania without supplying the specific goods. Accordingly, the Senate examined the compliance of the transaction with the provisions of the Value Added Tax Law (VAT Law).
The final consumer must be specified
The Senate concluded - in order for the 0% VAT rate to be applicable to deliveries of new vehicles to other EU member states in accordance with the VAT law and for there to be no suspicion of abuse of the VAT system, there must be evidence that the product was exported from one EU member state and delivered to a specific end consumer in another member state, where the end consumer is it will be paid by VAT.
In order to apply a 0% VAT rate to supplies, Section 43, Part 4 of the VAT Law should be applied, which provides that the supplier must specify the company to which the goods will be delivered for final consumption, according to the Senate. Without specifying the end consumer of the company, there is no right to use this VAT relief.
The Senate relied on the judgment of the Court of Justice of the European Union (CJEU) of November 18, 2010 in case C-84/09, from which it follows that VAT must be paid only to the final consumer or, in this case, only to the final consumer in the country where the new vehicle will be used. By collecting VAT in only one Member State, double taxation is avoided. References related to the collection of VAT in only one member state can be found in the CJEU judgment of 14 June 2017 in case C-26/16, which stipulates that the seller must have evidence that the goods were delivered in another EU member state and the buyer has ownership rights to the goods in order to be able to apply tax relief.
Accordingly, in order to avoid suspicion of illegal application of VAT, the company should have prepared documents in accordance with the law "On accounting" (editor's note: the judgment assessed a transaction at the time when the old law "On accounting" was in force) in such a way that a qualified third party could verify and prove, that all legal actions have been taken and it would be possible to make sure that the 0% VAT rate was applied correctly.
The Senate, in its findings on the application of the CJEU judgment in case C-84/09, also states that the seller should have made sure that the buyer has evidence that the goods will be exported to another EU member state, that they will be delivered to a specific place and that the buyer will be both the final consumer and the owner. In this regard, the seller must have evidence that the goods will be used for the above-mentioned purposes in order to meet the legal criteria for VAT relief.
The address must be specified on the invoice
In addition, the CJEU found that the company could not also rely on Section 43, Part 6 of the VAT Law, which provides that a 0% VAT rate can be applied to transactions in which the vehicle has been transported to the final consumer in another EU member state. In addition, there must be evidence that would dispel the suspicion of illegal application of VAT interest.
Although Article 125, Part 1 of the VAT Law and the Cabinet of Ministers' Regulations No. 585 "Regulations on Bookkeeping and Organization" in Clause 35.11 indicate that it is necessary to indicate the address on the invoice, but it is not stipulated by the regulatory enactments that it must be the final address. Referring to this, the CJEU recognized that, although the final address is not formally defined in the regulatory acts, the material legal requirements must also be taken into account, which stipulate that the final address must be indicated in the issued invoice, and in this case it is not enough to indicate the address where the goods will be sent, because then it cannot be considered that the product will have been used at the place of final consumption. If the final address is not indicated on the invoice, it will not be possible to use VAT benefits.
In its findings, the Senate is based on the judgment of the CJEU dated December 11, 2014 in case C-590/13, which gave an opinion on input tax deduction cases, namely: "materialistic requirements are those that determine the very basis and scope of this right". Although the said findings refer to input tax deduction cases, they also contain reference to the functioning of the VAT system. In accordance with Section 43, Part 4 of the VAT Law and the findings of the CJEU on the substantive legal requirements for the application of the 0% VAT rate, the substantive legal requirements indicate how the final address should be indicated on the invoice in order to have a basis for applying the VAT relief. According to the opinion of the Senate, if there was no requirement for the sender of the goods to indicate the delivery address as the destination, then it would not be possible to make sure that the goods will be delivered to the final address and that the material legal requirements have been met in order to have a basis for applying the VAT relief.
There must be evidence
In the cassation complaint, the company pointed out that the court did not provide any evidence that would allow to accept the claim that the plaintiff was involved in abusive use of the tax system. The Senate, evaluating this argument, relied on the decision of the Senate's action session of May 9, 2016 in the case SKA-974/2016. In it, the Senate recognized that it is not necessary to prove a set of facts additionally if these facts have already been substantiated. With a body of indirect evidence, the court pointed out that the applicant deliberately engaged in an illegal system of VAT incentives. The Senate said that any evidence must be reasonable and meet the probative features. It is also important to point out that any information has been verified and that all evidence is not pre-determined to have the same force or principle of reliability. In addition to that, the court pointed out that any information about the existence or non-existence of facts can be used to verify the facts, and the verification is carried out by both direct and indirect methods. In this regard, the Senate decided that the totality of the facts indicated the applicant's involvement in activities related to tax evasion.
The Senate pointed out that, in order to avoid the suspicion of unfair use of VAT 0%, the company should have submitted evidence disputing the facts that it knew about the abusive involvement in the activity.
The Senate's references to factual evidence can also be found in the Senate's judgment of March 12, 2021 in the case SKA-49/2021, from which it follows that it is not prohibited to use indirect evidence that can indicate the existence of certain evidence that the company was involved in the use of VAT tax .
The Senate decided to reject the applicant's cassation complaint on the basis that it did not fulfill all the conditions necessary to be able to apply the VAT 0% rate to the delivery of a new vehicle to another EU member state. In addition, she had no evidence that the goods were delivered to the final consumer and there was evidence that it abused the benefits of the VAT system.
Source: iFinanses