In recent years, attention has been drawn to the increasing fraudulent use of the VAT exemption on importation. The VAT exemption on importation is provided for by the VAT Directive[1] which stipulates in Article 143(d) that an exemption from VAT on importation is applicable when this importation is followed by an intra-Community supply or transfer of the imported goods to a taxable person in another Member State. Fraudsters in the EU have been using the VAT-exemption in order to commit EU cross-border fraud which is known as “VAT missing trader intra-Community fraud” (“MTIC fraud”).  

In order to combat the rise of the fiscal fraud inside the internal market, the European Commission (“EC”) adopted on 1 December 2008 a Communication presenting a short term action plan, comprising three categories of future legislative measures to prevent or detect VAT fraud (in particular MTIC fraud) and to recover taxes. A first category aims at preventing potential fraudsters from abusing the VAT system, a second one aims at enhancing the tools for the detection of VAT fraud, and a third category aims at improving the possibilities for the collection of tax lost as a result of fraud and the punishment of fraudsters.

Acting within the framework of the first category, the EC also adopted on 1 December 2008 a proposal, containing two measures, amending the current VAT Directive. The first aims to prevent MTIC fraud. The second measures encompass a provision for the possibility of EU Member States to make the supplier of goods, who is not established on their territory, jointly and severally liable for the VAT due on the intra-Community acquisition of these goods by his missing customer when certain obligations have not been fulfilled. The proposed measures are further discussed below.

Proposed anti-MTIC fraud measure

The proposed anti-MTIC fraud measure specifies additional conditions that should apply for a certain exemption upon importation provided for in Article 143(d) of the VAT Directive. The VAT exemption shall apply only if at the time of importation the importer has clearly indicated to the competent authorities of the EU Member State of importation all the following information:

  1. his VAT identification number or the VAT identification number of his fiscal representative in the EU Member State of importation;
  2. the VAT identification number of the customer to whom the goods are supplied in another EU Member State, or his own VAT identification number in the EU Member State of arrival of the goods when the goods are subject to a transfer from the EU Member State of importation in accordance with the conditions laid down in Article 138(2)(c) of the VAT Directive;
  3. proof that the imported goods will be transported or dispatched from the EU Member State of importation to another EU Member State.  

Therefore, the importer has to prove that the above mentioned conditions are fulfilled in order to benefit from the import-VAT exemption for intra Community supplies.

At this stage, the proposal still needs to be adopted by the EU Council which is expected to do this before the end of this year. Accordingly, the EU Member States will have to adopt these measures into national legislation by 31 December 2009 at the latest.

Joint and several liability

The other measure proposed by the EC is to create a joint and several liability of the supplier for VAT loss created in intra-Community transactions by his “missing” customer in another EU Member State. This occurs if the supplier did not submit or submitted late his recapitulative statement or submitted a recapitulative statement not containing all the information to his intra-Community supply. This leads to the fact that the EU Member State where the intra-Community acquisition is located is not informed that goods arrived on its territory which implicitly contributes to VAT-loss.

The proposed measure modifies the current Article 205 of the VAT Directive providing the EU Member States with an additional legal base which allows them to recover VAT loss from non-established traders. This means that the use by EU Member States of the joint and several liability rule is no longer limited to domestic transactions but extended to intra-Community transactions.

However, the supplier will only risk being held jointly and severally liable insofar as the acquirer has not submitted his VAT return to the intra-Community acquisition. In addition, the proposed measure foresees that the supplier can refute the presumption of liability by duly justifying his shortcoming to the competent tax authorities.


The additional three conditions proposed by the anti-MTIC fraud measure are only inserted to assist the EU Member States in adopting a harmonised approach to control the practical application of the VAT exemption. The information the importer has to submit is not different to the information that is already currently comprised in the VAT exemption due upon importation. The importer must simply show that the import is followed by an exempt intra-Community supply or transfer of the goods to another EU Member State and he must declare this in his recapitulative statement. The actual success of these conditions will eventually rely on the quickness of the EU Member States to put the conditions into practice in an effective manner.

On the other hand, the proposed modification of Article 205 of the VAT Directive is to increase the supplier’s obligation to report his intra-Community transactions considering that he can be held jointly and severally liable for VAT loss occurred in the EU Member State. This means that the EU Member State can take action if the relevant information regarding the intra-Community transaction is missing. Therefore, Article 205 of the VAT Directive will empower EU Member States to use the joint and several liability rule to intra-Community transactions in relation to the supplier.