The intra community triangulations are back to the front stage with a new decision of the CJEU dated of July 27, 2017 (1). Such Court cases are all the more expected because the VAT directive (2006/112) is silent on this matter apart from a provision known as simplification measure (2)
The intra community triangulation refers to two consecutive supplies of goods subject to only one direct transport from one country to another one within the European Union. This is the simplest chain transaction because only three taxable persons are involved. The “very first supplier”, VAT registered in the ship from country makes the sale known as the first supply. A second business often called the “first buyer” buys and sells the goods, thereby making the second supply (3). The third business is the “final purchaser”, VAT registered in the country where the goods are transported to from the country of the initial supplier.
For VAT purposes, the two supplies are supposed to follow each other in time. Only the supply the transport is ascribed to is VAT exempt as intra community delivery, the other supply being considered as a taxable domestic supply (4).
How the intra community transport is ascribed to one of the two supplies is crucial. If the transport is ascribed to the first supply that is consequently VAT exempt, the first buyer must VAT register in the ship to country (5) unless the simplification measure can be implemented (2). If, however, the second supply is VAT exempt, the first buyer will have to VAT register in the ship from country without any access to the measure of simplification. Furthermore, he will have to run the refund of the VAT credit including uncertainties (prior audit, late reimbursement…). In addition, the burden of proving the transport to justify the VAT exemption of the intra community supplies performed will be borne by this first buyer even though transport is out of his control (6).
In the case of July 2017, the Court rules again on how to assign the transport to one of the two supplies and does it in the framework of a triangulation involving three taxable businesses instead of two. “Toridas”, a company VAT registered in Lithuania was selling frozen fish to a business VAT registered in Estonia. Both agreed that the Estonian business will arrange the transport to outside Lithuania. However, the Estonian business sold the fish to final client set up in other EU countries immediately after it was bought from “Toridas”. The Lithuanian Tax Authorities considered that “Toridas should have charged VAT on the first supply because the transport had to be allocated to the second one.
In a decision of December 16, 2010 (7), the Court specified that the issue to ascribe the transport to one of the two supplies was to determine “which supply fulfils all the conditions relating to an intra community supply”. However the main focus was where the transfer of the right to dispose of the goods as owner was located. Considering that this right was transferred to the first acquirer in the ship from country, the transport could be ascribed to the first supply if this right was transferred to the final acquirer in the ship to country. The reasoning in the present case is consistent with the logic developed in the decision of 2010 and the Court mostly focuses on the operational process with the view to locate the transfer of right compared to when the intra-community transport takes place. If the transfer of the right to dispose of the good as owner related to the second supply takes place prior to the transport, such a transport cannot be ascribed to the first supply.
The Court does not give more information on how to identify and locate this transfer of the right to dispose of the goods as owner. In this respect, the solution may be surprising as it gives a certain role to the information that the first acquirer could give to the initial supplier. Indeed, the Court answers the first question (8) that the first supply cannot be VAT exempt as intra community delivery when “prior to entering into that supply transaction , the person acquiring the goods informs the supplier that the goods will be resold immediately to a taxable person established in a third Member State, before he takes them out of the first Member State and transports them to that third taxable person…” We can wonder whether the release of such information is sufficient by itself to consider that the right to dispose of the goods is transferred to the final acquirer prior to their transport.
Anyway, as underlined by the Court, the need is to entirely assess all the “specific circumstances”. The businesses should check possible participations to triangulations as initial supplier or first buyer and ensure of the VAT treatment applied especially if they have no or limited control on the transport. This requires among others the analysis of all facts and documents that can materialize the transfer of the right to dispose of the goods as owner for each of the two deliveries. The Court does not seem to consider the conditions of transport as a key element to identify the transfer of the right to dispose of the ggods. This confirms in this manner the difference of approach as compared to the practice of some Member states that ascribe the transport to one supply in accordance with who is liable for transporting the goods (8). However, there is no reason not to consider transport (and the related transfer of risk) as one of the “specific circumstances” to take into account. In this respect, it will be interesting to read the following decision of the Court related to triangulation whose the transport seems to be arranged by the final client (9).
(1)”Toridas” UAB. C-386/16
(2) The simplification provided by article 141 of the directive allows a Member state that VAT is not charged on the intra community acquisition of goods within its territory made for the purpose of subsequent supplies. This simplification that can be only implemented in the frame work of triangulation involving 3 taxable businesses VAT registered in three different EU countries avoids to get vat registration in the ship to country. The final client is liable for VAT on the supply instead of the seller.
(3) The first buyer is in general VAT registered in a third EU countries. If it is registered in the ship to country , the triangulation consequently involves two EU countries only.
(4) Principles stated in a decision of the CJUE dated of April 6, 2006 (EMAG, C-245/04)
(5) The first buyer makes an intra community acquisition and a domestic supply taxable in the ship to country.
(6) The first buyer makes a intra-community delivery (from country where the transport begins) of goods previously bought with VAT from the initial supplier.
(7) CJUE, Euro Tyre Holding, C-430/09
(8) The court had also to answer a second question on the impact that the transformation of the goods before transport could have on the VAT treatment of the triangulation.
(9) When the initial supplier is liable for transport, the transport can be reasonably ascribed to the first supply the initial supplier is involved in. Conversely, the transport organized by the final client cannot be ascribed to the first supply in which he is not involved and the transport will be allocated to the second supply. However, this criteria is not really relevant for triangulations where the transport is arranged by the first buyer…
(10) Request for a preliminary ruling from Austria on December 5, 2016. Case C-628/16.