The Advocate General opinion in Case C-276/18: KrakVet involved the place of supply rules for goods. The basic rule is that where goods are dispatched or transported by the supplier, the place of supply is where the place of transport begins. There is a derogation to the basic rule whereby, in certain circumstances, the place of supply is where the customer is if the goods are dispatched or transported by or on behalf of the supplier. The taxpayer, a Polish company (KrakVet) sold goods (pet food) to customers in Hungary via its website. KrakVet offered customers the option of arranging transport with another Polish company connected to KrakVet (the two companies were owned by brothers). Alternatively, the customer could make use of the services of any other transporter. The taxpayer did not itself offer to transport the goods. KrakVet sought a binding ruling from the Polish tax authorities that the place of supply was Poland and not Hungary on the grounds that its supplies fell within the basic rule as it did not itself transport the goods. On the basis of the reply that it received from the Polish tax authorities, the taxpayer accounted for Polish VAT (at the reduced rate of 8%) instead of paying VAT in Hungary (at the rate of 27%). The taxpayer however received a demand for Hungarian VAT from the Hungarian tax authorities on the basis that the place of supply was in Hungary as it had intervened in the transport.

The Advocate General noted that the relevant place of supply rules had been considered by the EU VAT Committee after some tax administrations had noticed business arrangements which had split the supply of goods from their transport and delivery with a view to avoiding VAT in the Member State of destination. Against that background, the VAT Committee had (in 2015, after the tax year relevant to the taxpayer’s case), adopted guidelines which said that the place of supply should also be the Member State of destination where the supplier intervened “directly or indirectly” in dispatch or transport. The Advocate General also noted that the place of supply rule was due to change with effect from 1 January 2021 to include cases where the supplier intervenes indirectly in the transport of goods to the customer. However, the Advocate General decided that neither the VAT Committee guidelines nor the change to the rule – due to take effect next year – were relevant in interpreting the basic place of supply rule which was confined to cases where goods are dispatched or transported by or on behalf of the supplier and indirect intervention by the supplier was not relevant. The Advocate General offered her own interpretation of the terms dispatch and transport and set out a list of factors for the national court to consider when deciding whether, in reality, the pet food was dispatched or transported by or on behalf of the supplier.

The AG also rejected the suggestion that KrakVet had entered into abusive practices; the taxpayer had prudently sought guidance from the competent Polish authorities and those authorities reached a legitimate conclusion, based on full disclosure, in circumstances which did not resemble the kind of artificial arrangement classically caught by the abuse doctrine. According to the Advocate General, it would run counter to the principle of cooperation among Member States (and probably the principle of legitimate expectation) if the Hungarian tax authorities were allowed to treat as abusive, conduct which had been treated as legitimate by another Member State tax authority.

DLA Piper comment: Although the distance selling rules are due to change with effect from 1 January 2021, this opinion is of interest for its elucidation of the terms dispatch and transport as well as its discussion of the concepts of abuse, legitimate expectation and cooperation among Member States. If the Court follows the opinion, tax authorities may need to consider their own internal guidance on the distance selling rules and whether, if it reflects the VAT Committee guidelines, it needs to be changed, as indirect intervention in the transport of goods does not currently give rise to a supply of goods “by or on behalf of the supplier.”