If goods are sold and supplied by a VAT taxable person in EU Member State X to a VAT taxable person in EU Member State Y, such a supply normally qualifies as an intra-community transaction that is exempted for VAT. In the case of successive supplies of goods or triangular transactions, the question is which, if any, transaction is recognized as the (exempted) intra-community transaction and which transaction(s) are the domestic (taxed) transactions. Determining the VAT consequences in the case of successive or triangular transactions can be fairly complicated. The impact of incorrect qualifications could be financial damages, e.g. additional VAT assessments.

Case law of the European Court of Justice (ECJ) confirms that the actual VAT implications of successive and triangular transactions can be determined only after carefully reviewing all circumstances concerning a transaction. One of the key questions is which party makes the decisions concerning the cross boarder transport of the goods. In other words, which party expresses his intention to transport the goods to another Member State?

The ECJ recently ruled on the VAT consequences of successive supplies of goods in the following case. A Dutch company (company A) sold consignments of tires under the condition “ex warehouse” to two customers in Belgium (companies B and C). Company A is VAT registered in the Netherlands. Companies B and C are VAT registered as taxable persons in Belgium. The “ex warehouse” condition means that the goods are delivered at the Dutch warehouse of A and the transport from the warehouse facility to the destination of the goods is on behalf of and at the risk of B and C. The Belgian purchasers B and C informed A that the tires will be transported to Belgium. A recognized the sale to B and C as an intra-community supply. Such a supply is VAT exempted (in the Netherlands subject to the VAT zero rate).

Before A delivered the tires to B and C, these companies sold the tires to another Belgian company: Company D. The transport of the tires to D is on behalf and at the risk of B and C.

In practice, the tires are collected at the Dutch warehouse facility of A on behalf of B and C after which the tires are directly transported to D. At each collection, the truck drivers supplied A with a signed declaration stating that the tires will be transported to Belgium.

The Dutch VAT inspector and a Dutch court conclude that the intra-community transport between the Netherlands and Belgium occurred in the context of the supply from B/C to D instead of in the transaction A – B/C. Therefore, A is not entitled to apply the VAT exemption (i.e., zero rate) when invoicing B/C. A should have invoiced B/C 19% Dutch VAT since the A – B/C concerns a domestic transaction. The Dutch tax authorities raised an additional assessment to A to collect the 19% VAT on A’s sales to B/C.

Company A appealed the decision of the court with the Dutch Supreme Court. The Dutch Supreme Court referred the case to the ECJ.

In a previous case, the ECJ decided that in the case of two successive supplies of the same goods, the cross boarder dispatch or transport can be linked to only one of the two supplies. This means that only one transaction can qualify as the exempted intra-community transaction. The Dutch Supreme Court referred the case of A to the ECJ since it believes that the ECJ did not specify how one should determine to which of the two supplies the transport should be ascribed.

In the case at hand the ECJ rules that the question to which supply the intra-community transport should be ascribed can only be answered when doing an overall assessment of all the specific circumstances from which it is possible to determine which supply fulfils all the conditions relating to an intra-community supply. This means that all transaction related documents will have to be reviewed, e.g., invoices, shipping documents, contracts, purchase orders and the applied terms and conditions.

Besides a number of other important considerations and conclusions, in the case at hand the ECJ ruled that if the first purchaser who obtained the right to dispose of the goods as owner in the Member State of the first supply expresses his intention to transport those goods to another Member State and presents his VAT identification number by that other Member State, the intra-community transport should be ascribed to the first supply, on the condition that the right to dispose of the goods as owner has been transferred to the second person acquiring the goods in the Member State of destination of the intra-community transport.

In the case at hand, it seems that the A – B/C transaction can qualify as an intra-community transaction, since, besides other circumstances, B/C expressed their intention to transport the goods to Belgium. Furthermore, the “ownership right” from B/C to D has been transferred in Belgium. The B/C – D transaction does not result in any cross boarder transport. Therefore, it makes sense to qualify the B/C – D transaction as a domestic supply.

However, in a previous judgment of the ECJ in a case that was almost identical to the case at hand, the B/C – D transaction was the intra-community transactions since the circumstances were slightly different.

We conclude that even after various case law from the ECJ, it is still complicated to determine the exact VAT treatment of successive transactions. An overall assessment of all circumstances is required. Based on the outcome of such an assessment, the VAT consequences can be determined. It is important that all parties “are on the same page” and that they all ensure compliance, e.g., the invoicing requirements, paper trail and VAT returns. This will limit the chances that companies will be confronted with additional VAT assessments.