A company that sells goods for export may benefit from the exemption of VAT on its sale (« export sale ») where it establishes that the good has physically been dispatched or transported outside the territory of the European Union.

In practice, the question that arises is whether the VAT exemption still applies where the goods have not been immediately exported that is to say if there is a time-limit between the moment the goods are delivered and the date the said goods have physically left the customs territory of the European Union. That happens frequently where the goods are sold with an « EXW » clause (« ex-works ») i.e. the purchaser collects the goods at the gates of the vendor’s premises.

The Court of Justice has just delivered an interesting judgment on the issue. It confirms that the Member States may fix a reasonable time-limit for export with the aim of combatting tax evasion and avoidance. After that period, the Member States are entitled to consider that the evidence that the goods have effectively been dispatched is not provided and that the supply has to be taxed.

However, exceeding that time-limit may not result in the definitive loss for the vendor of the right to exemption in relation to that sale. The Member States must provide a right to have VAT already paid as a result of failing to comply with that time-limit reimbursed once the vendor provided evidence that the goods have left the customs territory of the European Union. In those circumstances, there no longer exists, in principle, a risk of tax evasion or loss of tax which could justify the transaction concerned being taxed.

A large number of Member States (e.g. the United Kingdom, Hungary, etc.) provide in their domestic laws a fixed time-limit (e.g. three months) for dispatch of goods outside the customs territory of the European Union in order to enable taxable persons making an export sale to benefit from VAT exemption. Once this deadline has expired, the local tax authorities are entitled to make a tax adjustment and impose administrative fines and interest for late payment.

The Court points out that it is not prohibited for a Member State to fix a reasonable time-limit so as to make sure that the goods have effectively left the European Union with the aim of combatting tax evasion and avoidance. Nevertheless, it may not be an absolute limitation period. Companies providing evidence that the goods have effectively been transported outside the European Union after expiration of that time‑limit shall be entitled to have VAT already paid reimbursed.