The Court of Justice of the European Union (CJUE) issued judgment (C-696/20) in a Polish case concerning chain transactions.
The dispute concerned the company (B) from the Netherland registered to VAT in Poland. B purchased the goods from the Polish company registered to Polish VAT (A). The purchased goods were sold to the entities from other EU countries. The goods were transported from the company A to the last entities from other EU countries. B company acted as the intermediary between the supplier (A) and the recipient (the last company in this chain). The transactions between A and B have been qualified as domestic sale and taxed with 23% VAT rate. The transaction between B and the entities from other EU countries have been defined as intracommunity transactions (for B- intracommunity delivery taxed with 0% VAT rate). The domestic transactions between A and B resulted in VAT refund for B company.
The Polish tax authorities determined that the company B incorrectly classified its transactions. In the view of the tax authorities, the transactions between A and B should be qualified as intracommunity transactions (A- intracommunity deliveries, B- intracommunity acquisitions). Additionally, that the supplies of goods from B to the contractors established in other EU countries should be taxed as supplies made within the territory of the Member States of completion of the shipment of goods. In case of the transactions between A and B, the Polish tax authorities considered that B should be registered for VAT purposes in the territories of the EU Members of completion of the dispatches the goods and these transactions should be classified as intracommunity acquisitions.
Moreover, the tax authorities stated that since B indicated its Polish VAT number for those supplies, which was the number assigned by a EU Member other than the Member State where the transport of the goods was completed, it was obliged, pursuant to art. 25 p. 2 p. 1 PL VAT Act, for VAT invoicing also in Poland. A, having issued invoices indicating the incorrect amount of VAT, was obliged to invoice VAT at the of 23%rate , while B was refused the right to deduct VAT based of these invoices. As a consequence, company B was subjected to an actual VAT burden of 46%.
The CJUE considered that the art. 41 of EU VAT Directive 2006/112/EU should be interpreted in this way that it does not preclude the Member State’s regulations pursuant to which an intracommunity acquisition of goods is deemed to have been made in the territory of that Member State where that acquisition, which is the first step in a chain of successive transactions, has been wrongly classified as a domestic transaction by taxpayers who, for this purpose, provided their VAT number assigned by that Member State, and a subsequent transaction that was incorrectly classified as an intracommunity transaction was subject to VAT as an intracommunity acquisition by buyers of goods in the Member State where the goods transported. Considered in the light of the principles of proportionality and fiscal neutrality, however, this provision precludes those provisions of a Member State where the intercommunity acquisition of goods deemed to have been made in the territory of that Member State results from an intracommunity supply that has not been made in that Member State considered to be an exempt transaction.
The chain transactions are very risky in case of VAT taxation. The above judgement is important for domestic practice.