The Queen, on the application of Teleos plc and Others v Commissioners of Customs & Excise.
Date: 2007-09-27
21. At the outset, it is appropriate to note that the questions referred by the national court arise in the context of the transitional arrangements for VAT applicable to intra-Community trade established, for the purpose of the abolition of internal frontiers on 1 January 1993, by Directive 91/680. Since that date, the imposition of tax on imports and the remission of tax on exports in trade between Member States were definitively abolished (second and third recitals in the preamble to that directive).
22. The Community legislature, after stating that conditions could not yet be brought about that would permit the principle of the taxation in the Member State of origin of goods supplied to be implemented without prejudicing the principle that tax revenue from the imposition of tax at the final consumption stage should accrue to the benefit of the Member State in which the final consumption takes place, introduced, under Title XVIa of the Sixth Directive, transitional arrangements for the taxation of trade between Member States, based on a new chargeable event, namely the intra-Community acquisition of goods (7th to 10th recitals in the preamble to Directive 91/680).
23. In that regard, the intra-Community supply of goods and their intra-Community acquisition are, in fact, one and the same financial transaction, even though the latter creates different rights and obligations both for the parties to the transaction and for the tax authorities of the Member States concerned.
24. Thus, any intra-Community acquisition that is taxed in the Member State where the dispatch or intra-Community transport of goods ends under the first subparagraph of Article 28a(1)(a) of the Sixth Directive has, as a corollary, an exempted supply in the Member State in which that dispatch or transport began under the first subparagraph of Article 28c(A)(a) of that directive (Case C‑245/04 EMAG Handel Eder  [2006] ECR I‑3227, paragraph 29).
25. It follows that the exemption of an intra-Community supply corresponding to an intra-Community acquisition enables double taxation and, therefore, infringement of the principle of fiscal neutrality inherent in the common system of VAT, to be avoided.
The first and second questions
27. The conditions which must be fulfilled for a transaction to be capable of description as an intra-Community acquisition and subject to VAT are laid down in Article 28a of the Sixth Directive. As well as the conditions as to the capacities of the vendor and purchaser, laid down in paragraph 1(a) of that article, the first subparagraph of paragraph 3 thereof makes intra-Community acquisition subject to two requirements; first, the transfer to the purchaser of the right to dispose as owner of movable tangible property and, second, the dispatch or transport of those goods to the person acquiring them by or on behalf of the vendor or person acquiring them ‘to a Member State other than that from which the goods are dispatched or transported’.
28. The transaction constituting the corollary of the intra-Community acquisition, that is to say the intra-Community supply, is exempt from VAT if it satisfies the conditions laid down in Article 28c(A)(a) of the Sixth Directive. By contrast to the conditions required for intra-Community acquisitions, that provision requires that, to be entitled to exemption as an intra-Community supply, the goods must be dispatched or transported ‘out of the territory referred to in Article 3 but within the Community’, that is to say that the dispatch or transport must be effected from a Member State forming part of the territory of the Community where the common system of VAT is in force to another Member State thereof.
33. Admittedly, whilst it is true that, on a literal interpretation, the expression ‘dispatched or transported … to a Member State’ in the first subparagraph of Article 28a(3) of the Sixth Directive seems to focus on the start of the process of dispatch or transport, as Teleos and Others submit, the fact remains that, as most of the Member States which submitted observations to the Court argue, the expression ‘dispatched or transported … out of the territory [of the Member State]’, in the first subparagraph of Article 28c(A)(a) of that directive, necessitates the goods actually leaving the Member State of supply.
34. In those circumstances, in view of the necessary correlation between intra-Community supply and acquisition, the two provisions mentioned in the preceding paragraph must be interpreted in such a way as to confer on them identical meaning and scope.
35. If there are several possible literal interpretations of an expression it is necessary, in order to determine its scope, to have recourse to the context in which it is used, taking account of the aims and scheme of the Sixth Directive (see, to that effect, Case C‑185/89 Velker International Oil Company  [1990] ECR I‑2561, paragraphs 16 and 17; Case C‑2/95 SDC  [1997] ECR I‑3017, paragraph 22; and Case C‑455/05 Velvet & Steel Immobilien  [2007] ECR I‑0000, paragraph 20).
36. It follows from the purpose of the transitional arrangements under Title XVIa of the Sixth Directive, namely the transfer of the tax revenue to the Member State in which final consumption of the goods supplied takes place (see EMAG Handel Eder , paragraph 40), that those arrangements were established to govern, in particular, the movement of goods within the Community.
37. Since, as noted in paragraph 21 of the present judgment, they replaced the system of imports and exports between the Member States, those arrangements clearly differ from those which govern transactions effected within a country. The condition precedent to the application of such arrangements is the intra-Community nature of a transaction and, in particular, the physical movement of goods from one Member State to another. That condition relating to the crossing of frontiers between the Member States is a necessary element of an intra-Community transaction which distinguishes it from that which occurs within a country.
38. Furthermore, just like other expressions which define taxable transactions for the purposes of the Sixth Directive (see Joined Cases C‑354/03, C-355/03 and C‑484/03 Optigen and Others  [2006] ECR I‑483, paragraph 44, and Joined Cases C‑439/04 and C‑440/04 Kittel and Recolta Recycling  [2006] ECR I‑6161, paragraph 41), the meanings of ‘intra-Community supply’ and ‘intra-Community acquisition’ are objective in nature and apply without regard to the purpose or results of the transactions concerned.
39. Contrary to Teleos and Others’ argument that the supplier’s and purchaser’s intention to effect an intra-Community transaction is sufficient for its classification as such, it is clear from the Court’s case-law that requiring the tax authorities to carry out inquiries to determine the intention of the taxable person would be contrary to the objectives of the common system of VAT of ensuring legal certainty and facilitating the measures necessary for the application of VAT by having regard, save in exceptional cases, to the objective character of the transaction concerned (see Case C‑4/94 BLP Group  [1995] ECR I-983, paragraph 24; Optigen and Others , paragraph 45; and Kittel and Recolta Recycling , paragraph 42).
40. Consequently, it is necessary that the classification of intra-Community supplies and acquisitions be made on the basis of objective matters, such as the physical movement of the goods concerned between Member States.
42. In the light of the foregoing considerations, the reply to the first and second questions referred must be that the first subparagraph of Article 28a(3) and the first subparagraph of Article 28c(A)(a) of the Sixth Directive are, having regard to the term ‘dispatched’ in those two provisions, to be interpreted as meaning that the int ra-Community acquisition of goods is effected and the exemption 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 and the supplier establishes that those goods have been dispatched or transported to another Member State and that, as a result of that dispatch or that transport, they have physically left the territory of the Member State of supply.
The third question
44. First of all, even if the intra-Community supply and acquisition of goods are subject to the objective condition of physical transfer of the goods out of the Member State of supply, as is clear from the reply given to the first two questions, it is difficult for the tax authorities, because of the abolition of frontier checks between the Member States, to satisfy themselves that the goods have or have not physically left the territory of that Member State. As a result, it is principally on the basis of the evidence provided by taxable persons and of their statements that the tax authorities so satisfy themselves.
45. As is clear from the first part of the sentence in Article 28c(A) of the Sixth Directive, it is for the Member States to lay down the conditions for the application of the exemption of intra-Community supplies of goods. It is important to note, however, that when they exercise their powers, Member States must comply with the general principles of law which form part of the Community legal order, which include, in particular, the principles of legal certainty and proportionality (see, to that effect, Joined Cases C‑286/94, C‑340/95, C‑401/95 and C‑47/96 Molenheide and Others  [1997] ECR I‑7281, paragraph 48, and Case C‑384/04 Federation of Technological Industries and Others  [2006] ECR I‑4191, paragraphs 29 and 30).
46. It is also clear from the Court’s case-law on the recovery of VAT after the event that the measures which the Member States may adopt in order to ensure the correct levying and collection of the tax and for the prevention of fraud may not be used in such a way as to undermine the neutrality of VAT (see, to that effect, Joined Cases C‑110/98 to C‑147/98 Gabalfrisa and Others  [2000] ECR I‑1577, paragraph 52; Case C‑454/98 Schmeink & Cofreth and Strobel  [2000] ECR I‑6973, paragraph 59; and Case C‑255/02 Halifax and Others  [2006] ECR I‑1609, paragraph 92).
48. As regards, first, the principle of legal certainty, it must be observed all the more strictly in the case of rules liable to entail financial consequences, in order that those concerned may know precisely the extent of the obligations which such rules impose on them (see Case 326/85 Netherlands  v Commission  [1987] ECR 5091, paragraph 24, and Halifax and Others , paragraph 72). It follows that it is necessary, as Teleos and Others and the Commission correctly observe, that taxable persons be aware, before concluding a transaction, of their tax obligations.
49. In the main proceedings, it is clear both from the contents of the Court’s file and from the observations submitted to the Court that there appears to be no tangible evidence either to support the conclusion that the goods concerned were transferred out of the territory of the Member State of supply or to exclude the possibility of manipulation and fraud. It is nevertheless necessary, in order to ensure the correct and straightforward application of the exemptions, that the national authorities lay down the conditions under which they exempt intra-Community supplies of goods.
50. Accordingly, it would be contrary to the principle of legal certainty if a Member State which has laid down the conditions for the application of the exemption of intra-Community supplies by prescribing, among other things, a list of the documents to be presented to the competent authorities, and which has accepted, initially, the documents presented by the supplier as evidence establishing entitlement to the exemption, could subsequently require that supplier to account for the VAT on that supply, where it transpires that, because of the purchaser’s fraud, of which the supplier had and could have had no knowledge, the goods concerned did not actually leave the territory of the Member State of supply.
51. To oblige taxable persons to provide conclusive proof that the goods have physically left the Member State of supply does not ensure the correct and straightforward application of the exemptions. On the contrary, that obligation places them in an uncertain situation as regards the possibility of applying the exemption to their intra-Community supplies or as regards the need to include VAT in the sale price.
52. Secondly, as regards the principle of proportionality, it must be recalled that the Court held, in paragraph 46 of its judgment in Molenheide and Others , that, in accordance with that principle, the Member States must employ means which, whilst enabling them effectively to attain the objectives pursued by their domestic laws, cause the least possible detriment to the objectives and principles laid down by the relevant Community legislation.
53. Accordingly, whilst it is legitimate for the measures adopted by the Member States to seek to preserve the rights of the public exchequer as effectively as possible, such measures must go no further than necessary for that purpose (see Molenheide and Others , paragraph 47, and Federation of Technological Industries and Others , paragraph 30).
54. The United Kingdom and Italian Governments submit in that regard that, in the main proceedings, the case-law according to which it is neither disproportionate nor contrary to the general principles of law which the Court is required to uphold to require an importer who has acted in good faith to pay customs duties payable on the importation of goods in respect of which the exporter has committed a customs offence, where the importer has played no part in that offence, is applicable to this case (see Joined Cases C‑153/94 and C‑204/94 Faroe Seafood and Others  [1996] ECR I‑2465, paragraph 114, and Case C‑97/95 Pascoal & Filhos  [1997] ECR I‑4209, paragraph 61).
55. That argument cannot be accepted.
56. As Teleos and Others and the Commission correctly maintain and as the Advocate General observed in points 78 to 82 of her Opinion, the application of customs duties to imports from outside the European Union and the imposition of VAT on intra-Community acquisitions are not comparable transactions.
57. The regime applying to intra-Community trade lays down the division of powers in tax matters in the internal market and permits the tax authorities to resort to both the supplier and the purchaser to obtain payment of the VAT, whereas, under the common customs regime, duties are recoverable only from the importer. It follows that the case-law cited in paragraph 54 of the present judgment is not applicable to the case which is before the national court.
58. Admittedly, the objective of preventing tax evasion sometimes justifies stringent requirements as regards suppliers’ obligations. However, any sharing of the risk between the supplier and the tax authorities, following fraud committed by a third party, must be compatible with the principle of proportionality. Furthermore, rather than preventing tax evasion, a regime imposing the entire responsibility for the payment of VAT on suppliers, regardless of whether or not they were involved in the fraud, does not necessarily safeguard the harmonised VAT system from evasion and abuse by purchasers. The latter, were they exempted from all responsibility, could, in effect, be encouraged not to dispatch or not to transport the goods out of the Member State of supply and not to declare the goods for VAT purposes in the envisaged Member States of destination.
59. As regards, thirdly, the principle of fiscal neutrality, it must be recalled that that principle precludes, in particular, treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (see Case C‑240/05 Eurodental  [2006] ECR I-11479, paragraph 46).
60. If the suppliers involved in the main proceedings were themselves required to account for the VAT after the event, that principle would be infringed, since suppliers who effect transactions within a country are never liable to pay output tax, given that it is an indirect tax on consumption. Therefore, taxable persons effecting an intra-Community transaction, in circumstances such as those of the main proceedings, would be in a less advantageous position than that of taxable persons effecting an internal transaction (see, to that effect, as regards the right to deduct, Eurodental ,  paragraph 47).
61. As regards, fourthly, Teleos and Others’ argument that the measures adopted by the United Kingdom authorities interfere with the free movement of goods, first, it is clear from the Court’s case-law that preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive (see Joined Cases C‑487/01 and C-7/02 Gemeente Leusden and Holin Groep [2004] ECR I‑5337, paragraph 76, and Kittel and Recolta Recycling , paragraph 54), which can, in certain circumstances, justify restrictions on the free movement of goods.
65. Moreover, according to the Court’s settled case-law, which is applicable to the main proceedings by way of analogy, it would not be contrary to Community law to require the supplier to take every step which could reasonably be required of him to satisfy himself that the transaction which he is effecting does not result in his participation in tax evasion (see, as regards ‘carousel’ type fraud, Federation of Technological Industries and Others , paragraph 33, and Kittel and Recolta Recycling , paragraph 51).
66. Accordingly, the fact that the supplier acted in good faith, that he took every reasonable measure in his power and that his participation in fraud is excluded are important points in deciding whether that supplier can be obliged to account for the VAT after the event.
67. By contrast, as the Commission observes, once the supplier has fulfilled his obligations relating to evidence of an intra-Community supply, where the contractual obligation to dispatch or transport the goods out of the Member State of supply has not been satisfied by the purchaser, it is the latter who should be held liable for the VAT in that Member State.
68. The reply to the third question referred must therefore be that the first subparagraph of Article 28c(A)(a) of the Sixth Directive is to be interpreted as precluding the competent authorities of the Member State of supply from requiring a supplier, who acted in good faith and submitted evidence establishing, at first sight, his right to the exemption of an intra-Community supply of goods, subsequently to account for VAT on those goods where that evidence is found to be false, without, however, the supplier’s involvement in the tax evasion being established, provided that the supplier took every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in such evasion.
The fourth question
71. In the context of the transitional arrangements for intra-Community supplies and acquisitions, it is necessary, in order to ensure the proper collection of VAT, that the competent tax authorities check, independently of each other, whether the conditions for intra-Community acquisition and for the exemption of the corresponding supply are satisfied. Therefore, even if presentation by the purchaser of a tax return relating to an intra-Community acquisition may be evidence of the actual transfer of the goods out of the Member State of supply, such a return does not however constitute conclusive evidence for the purpose of proof of an exempt intra-Community supply of goods.
72. It follows that the reply to the fourth question referred must be that the fact that the purchaser made a declaration concerning intra-Community acquisition, such as that in question in the main proceedings, to the tax authorities of the Member State of destination may constitute additional evidence tending to establish that the goods have actually left the territory of the Member State of supply, but it does not constitute conclusive proof for the purposes of the exemption from VAT of an intra-Community supply.
Costs