Context
Services related to the import of goods, the value of which is included in the import tax base, are exempt from VAT in accordance with Article 144 of the VAT Directive (in Belgium: Article 41, § 1, first paragraph, 2° of the VAT Code).
Furthermore, Article 86 of the VAT Directive stipulates that the transport costs of imported goods to their first destination must be included in the taxable amount upon importation (Article 34, § 2, first paragraph, 2° of the VAT Code). This applies even if the destination is in another Member State (provided that this destination is known at the time of importation).
There is a certain logic behind the exemption for transport upon import: if transport is included in the tax base upon importation, VAT has already been paid on the transport (unless the import is exempt from VAT, of course). This raises the question of whether transport costs to the first destination are automatically exempt from VAT (because they are legally included in the tax base upon importation) or whether it must be demonstrated that transport is actually included in the import tax base in order to invoke the VAT exemption.
In practice, it is not easy to prove that transport costs have been included in taxable amount of the imported goods at the time of clearance. This is even more challenging when the logistics service provider is not involved in the import clearance or when the import declaration is based on an estimate (a flat-rate calculation of costs, as is often the case in Belgium).
This raises the question of whether the VAT exemption can be used conditional on the requirement that the logistics service provider must be able to demonstrate that the costs have been included in the taxable amount upon import clearance?
The Cartrans Preda Case (C-461/21)
The case at hand concerns a logistics service provider based in Romania that provides road transport services for goods. A dispute arose regarding the transport conducted after the importation of goods. The transport involved a route between the port of Rotterdam (Netherlands), where the transported goods entered the Union, and Cluj-Napoca (Romania).
Cartrans Preda received a VAT assessment from the Romanian tax authorities after an audit. VAT was assessed because (i) no documents were submitted to prove that the transported goods had been imported into the Union, and (ii) Cartrans Preda could not demonstrate that the value of the transport services had been included in the basis for assessment of the imported goods.
In response, Cartrans Preda argued that upon entry into the territory of the European Union, the transport costs to the final destination must be mandatorily included in the basis on which import VAT must be paid. As evidence of importation, Cartrans Preda referred to the "Cargo Movement Requirement" (CMR consignment note) and the simplified customs declaration for customs transport, for which they had received a so-called "master identification number" (MRN), indicating the recipient of the goods in Cluj-Napoca.
The Romanian tax authorities maintained their position and argued that Cartrans could not provide documents demonstrating that the disputed transport services were directly related to the importation of the respective goods and that the value of these services had been included in the taxable basis for the imported goods. Romanian law requires that proof be provided through a set of specific documents in such cases. According to the Romanian tax authorities, it is irrelevant that (i) other relevant documents accompanying the importation (in this case: the simplified customs declaration and the CMR consignment note indicating the delivery to the recipient) were submitted and (ii) there were no indications casting doubt on the authenticity and reliability of the simplified customs declaration or the CMR consignment note.
The referring court asked whether this Romanian practice is compatible with the provisions of Articles 144 and 86, paragraph 1, point (b), and paragraph 2 of the VAT Directive and posed the following questions:
• Must Article 86 of the VAT Directive be interpreted in such a way that the registration of an import activity automatically implies that the freight rate is included in the customs value, and does this also apply to MRNs without indications of fraud?
• Do Articles 144 and 86 of the VAT Directive prevent a Member State from automatically refusing VAT exemption for transport services related to importation into the Union when strict formal proof is lacking that transport rates are included in the customs value, even if other relevant documents have been provided and there is no doubt about their authenticity and reliability?
Court's Assessment
Question 1 - Is a summary import declaration by means of allocation of an MRN/import registration sufficient?
The Court ruled that the transport costs, as referred to in Article 86 of the VAT Directive, are not necessarily included in the customs value of imported goods. If these costs have not already been included in the customs value, they must be included in the basis on which VAT is levied for the imported goods in accordance with Article 86, paragraph 1, point (b) of the VAT Directive. Inclusion in the basis for assessment is crucial; otherwise, Article 86 would lose its useful effect.
Therefore, it cannot be assumed that the mere registration of an import activity automatically means that transport costs are included in the calculation basis for import VAT. Even the existence of an MRN does not automatically prove that all costs mentioned in Article 86, paragraph 1, points (a) and (b), are included in the basis for VAT on imported goods.
Although this should have been addressed in the second question, the Court also emphasized that documents such as the CMR consignment note, the accompanying document for customs transport, the invoice, and the transport contract must be taken into account when assessing whether there is a right to VAT exemption for transport services related to the importation of goods, unless there are concrete reasons to doubt their authenticity or reliability (paragraph 35).
In conclusion, the registration of an import activity does not automatically lead to the inclusion of transport costs in the VAT calculation basis for imported goods, and other documents must be considered unless there is doubt about their authenticity.
Question 2 - Can a Member State automatically refuse VAT exemption in the absence of specific documents?
The Court began with its established position that the EU VAT Directive does not contain specific requirements regarding the evidence that taxpayers must provide to qualify for VAT exemptions. It is up to the Member States to establish the conditions under which they grant exemptions to prevent fraud and ensure the correct and straightforward application of these exemptions. However, in exercising their powers, Member States must take into account general legal principles, such as the principle of legal certainty and the principle of proportionality.
According to the Court, a national measure goes too far if the right to VAT exemption is primarily made conditional on compliance with formal obligations without considering the substantive conditions that must be fulfilled. This would be contrary to the principle of proportionality. There are only two situations in which non-compliance with a formal requirement can lead to the loss of the right to VAT exemption:
• When a taxpayer has intentionally participated in VAT fraud and thereby endangered the common VAT system.
• If non-compliance with a formal requirement has prevented the provision of convincing evidence of compliance with the substantive conditions.
As in this case, two substantive conditions are relevant for the VAT exemption: first, the services must relate to the importation of goods, and second, the value of the transport must be included in the taxable amount of the imported goods.
The Court concluded that VAT exemption cannot be used dependent on the submission of specific documents according to national regulations, to the exclusion of all other means of proof. This would be contrary to the principle of proportionality. The Court emphasized that tax authorities can examine all available data to assess whether the substantive conditions have been met. Only if there is insufficient data to determine whether the value of the transport is included in the VAT base upon importation can VAT exemption be denied.
In summary, the answer to question 2 is that the EU VAT Directive prevents a Member State from automatically refusing VAT exemption for transport services related to the importation of goods based on the absence of specific national documents when other documents have been provided demonstrating their authenticity and reliability and that the conditions for VAT exemption have been met. Tax authorities must make a reasonable assessment based on available data and may not solely rely on specific documents to deny VAT exemption.
Commentary
It is remarkable that these important questions were not addressed by an Advocate General, which would typically have provided more insight into the intentions of the Court. Nevertheless, the stakes in this case were significant. In the logistics sector, there is indeed much uncertainty about the circumstances under which the VAT exemption for transport services may apply.
The Court seems to make this VAT exemption conditional on the requirement that the transport costs are included in the tax base upon clearance (taxable amount upon importation).
There is some flexibility in terms of the burden of proof, as the tax authorities cannot prescribe specific documents. However, as long as evidence cannot be provided that the transport services are genuinely related to importation and that the value of the transport is included in the basis for VAT on the imported goods, and there is no reason to doubt the authenticity of these documents, VAT exemption can be called into question.
In our view, the Court adopts a strict and overly theoretical approach to VAT exemption! The practical question of how proof will be provided that transport costs are included in the basis for assessment upon importation remains unanswered. Until this practical issue is clarified, there will be a great deal of uncertainty surrounding the application of this VAT exemption.