The Court of Justice of the EU ruled that the exemption from VAT concerning importation of goods intended for intra-EU supplies may not be automatically denied where importer acts in good faith. [Milan Božičevič Ježovnik v. Republika Slovenija, 25/10/2018, C‑528/17].
Where an importation of goods is followed by an intra-EU supply (or a deemed one) of the same goods, no import VAT is due at the time of customs clearance as a result of a special exemption laid down in Article 143(1)(d) of the VAT Directive. That exemption is subject to a substantive requirement [goods are dispatched to another EU Member State as a result of an intra-EU supply] and to several formal requirements [inter alia the VAT registration of the acquirer in the EU country of destination must be reported in the import document].
In that ECJ Case, it turned out that the acquirer in the EU country of destination didn’t report any intra-EU acquisition and that the shipment from the country of importation to another EU Member State was uncertain (acquirer being a “missing trader”).
In the context of intra-EU supplies, the Court already ruled that a supplier who, in good faith and having taken every step which could reasonably be required of him, carries out a transaction which is, without his knowledge, connected with a fraud committed by the customer cannot be required to pay VAT on the supply. That principle also applies to the scheme for exempting the importation of goods followed by intra-EU supply.
Where the importer acts in good faith and takes every step which could reasonably be asked of him to avoid any participation in tax evasion, the VAT exemption of the importation may not be rejected by Tax Authorities even if a fraud would be committed by customers of the importer.
If, by contrast, it is proven that the importer participates in tax evasion or fails to act diligently in order to avoid that participation, Tax Authorities may deny the exemption and assess import VAT. This is the case if the importer knew, or should have known, that the subsequent supplies were involved in fraud by the customer and that he did not take all reasonable steps in his power to avoid participation in that fraud.
Again the European Court focuses on the need to share the burden of proof that the conditions for applying an exemption are met between the taxable person and the Tax Authorities. In this respect, the good faith of the taxable person plays a crucial role.