VAT alert: Judgment by the European Court of Justice in the "Facet Trading case"

This notification provides VAT information that is of significance to: enterprises involved in cross-border chain / triangulation transactions

Judgment by European Court of Justice in Facet Trading

in brief…

The European Court of Justice has recently passed an important judgment on the right to deduct VAT in case of the intra-community acquisition of goods originating from another EU country. This decision has consequences in particular for enterprises involved in chain/triangulation transactions. In the press, the matter was referred to as the "Facet Trading case".

In the judgment in question, the European Court of Justice determined that if goods are acquired under the VAT identification number of an EU Member State other than the Member State where the goods are actually delivered, the declared acquisition VAT can in principle not be deducted via the standard VAT return. In that case, a separate request for refund of this acquisition VAT must be submitted to the EU Member State that issued the VAT identification number. The acquisition VAT is subsequently exclusively refunded if the enterprise can prove that acquisition VAT was indeed levied in the EU Member State of arrival.

An example: a Dutch enterprise buys goods from a German supplier and has these goods delivered directly to its client in Spain. In the current practice in the Netherlands, the Dutch enterprise passes on its Dutch VAT identification number to the German company and subsequently declares the acquisition VAT in the Netherlands, which is then deducted as input tax in the same tax return. The enterprise then declares an intra-community supply to Spain, charged with 0% VAT. The Spanish recipient takes receipt of the goods in Spain and pays Spanish VAT on the acquisition.

Consequences of the "Facet Trading case"

As a result of the Facet judgment, the Dutch enterprise involved in the above triangulation transaction can no longer automatically deduct the acquisition VAT in the standard VAT return. It is expected that the Tax Authorities will exclusively grant a refund of acquisition VAT if the Dutch enterprise can prove that acquisition VAT has actually been paid on receipt of the goods in the EU Member State of arrival.

Advice

Especially in those cases that enterprises serve as the link in a chain or triangulation transactions, it is important to verify that all conditions are met for the refund of acquisition VAT in the Netherlands. If your company is involved in transactions of this kind, we advise that you take appropriate measures to limit the possible risks involved.

For more informations about Mazars TAX services
For further information or assistance, please do not hesitate to contact the VAT Group of Mazars.

Secretariate VAT & Customs Group:
P.O. Box 23123 - 3001 KC Rotterdam - The Netherlands
Tel: +31 10 2771677
Fax: +31 10 4360584
Cell: +31 653 955800