During the years 2010-2012 Euro Tyre has invoiced exempt intra-Community supplies from Portugal to a Spanish distributor, that was registered as a business in Spain but not (yet) registered as an intra-Community trader in Spain (RICO) and therefore also not included in VIES (VAT Information Exchange System). Those businesses dealing with Spanish customers are probably well aware of the Spanish situation where a businesses should also be included in the Register of intra-Community Traders (RICO) before the VIES registration is done by the Spanish Tax Administration. Euro Tyre was aware that the Spanish distributor was not (yet) registered in VIES but expected this to take place with a retrospective date. The RICO registration was finalized in March 2013 and backdated to July 2012.
For the supplies made during 2010-2012, Euro Tyre applied the VAT exemption in Portugal for the supplied made from Portugal to Spain. However the Portuguese Tax Office claimed Euro Tyre did not fulfill the requirements to apply the exemption as the Spanish distributor was not registered in RICO nor VIES and assessed Euro Tyre for VAT.
Based on article 138 of the EU VAT Directive ‘Member States shall exempt the supply of goods dispatched or transported to a destination outside their respective territory but within the Community, by or on behalf of the vendor or the person acquiring the goods, for another taxable person, or for a non-taxable legal person acting as such in a Member State other than that in which dispatch or transport of the goods began.’
The Regime do IVA das Transações Intracomunitárias (Intra-Community Trade VAT Rules; ‘RITI’) transposes the rules on intra-Community transactions arising from the VAT Directive into Portuguese law. According to Article 14(a) of the RITI, the following are exempt from VAT:
‘Supplies of goods by a taxable person referred to in Article 2(1)(a), dispatched or transported by or on behalf of the vendor or the person acquiring the goods, from the national territory to another Member State, to the person acquiring the goods, where the latter is a natural or legal person registered for value added tax in another Member State, who has used the respective tax identification number to make the purchase and who comes under a system of taxation on intra-Community acquisitions of goods.’
So in Portugal the conditions for the exemption of intra-Community supplies are that the buying company is registered for intra-Community acquisitions in the other EU Member State and included in VIES. The question at hand is whether these conditions are allowed.
The Court rules
The Court rules that the Spanish distributor was registered for (domestic) VAT in Spain under an identification number, which was also mentioned on the sales invoices as issued by Euro Tyre BV. Furthermore, it was clear that there was no indication of fraud.
It is settled case-law that the VAT exemption in respect of the intra-Community supply of goods becomes applicable only when the right to dispose of the goods as owner has been transferred to the purchaser, the vendor establishes that those goods have been dispatched or transported to another Member State and, as a result of that dispatch or that transport, they have physically left the territory of the Member State of supply. In this Case the material conditions for an intra-Community supply were fulfilled. The exemption from VAT was refused on the sole ground that the purchaser was neither registered at the time of the sales at issue in the main proceedings for intra-Community transactions in Spain nor entered in the VIES system. Neither the acquisition by the purchaser of a VAT identification number valid for the purpose of carrying out intra-Community transactions nor the inclusion of that number in the VIES system constitute substantive conditions for exemption from VAT of an intra-Community supply. Those are merely formal requirements which cannot undermine the vendor’s entitlement to exemption from VAT where the substantive conditions for an intra-Community supply are met.
The principle of fiscal neutrality requires that an exemption from VAT be allowed if the substantive conditions are satisfied, even if the taxable person has failed to comply with some of the formal requirements. Accordingly, the Court ruled that the authorities of a Member State cannot in principle refuse to grant an exemption from VAT for an intra-Community supply merely on the ground that the recipient is neither registered in the VIES system nor comes under a system of taxation on intra-Community acquisitions.
Exemption from VAT
There are however two situations in which the failure to meet a formal requirement may result in the loss of entitlement to an exemption from VAT. In the first place, the principle of fiscal neutrality cannot be invoked for the purposes of an exemption from VAT by a taxable person who has intentionally participated in tax evasion which has jeopardized the operation of the common system of VAT. In the present case, the sole fact that Euro Tyre BV was aware of the fact that at the time of the transactions the purchaser was neither registered in the VIES system nor comes under a system of taxation on intra-Community acquisitions and, on the other hand, believed that the purchaser would subsequently be registered as an intra-Community operator with retroactive effect, cannot be grounds for the national tax authority to refuse to grant an exemption from VAT. It was clear from the documents submitted by the referring Court that there was neither tax evasion nor tax avoidance on the part of Euro Tyre.
In the second place, non-compliance with a formal requirement may lead to the refusal of an exemption from VAT if that non-compliance would effectively prevent the production of conclusive evidence that the substantive requirements have been satisfied. In the present case, the material conditions for an intra-Community supply within the meaning of Article 138(1) of the VAT Directive have been fulfilled.
So in summary, if the material conditions for an intra-Community supply are met, it is not required that the customer is registered in VIES. We believe this will help a lot of businesses when invoicing to customers in Portugal or Spain that are not yet registered in VIES.
Source: European Court of Justice 09-02-2017, C-21/16