In a judgment handed down on 10 July 2019 (C-273-19, SIA Kuršu zeme), the European Court of Justice (“ECJ”) ruled that, in case of a chain of successive supplies of goods, the fact that the final purchaser acquired possession of the goods in the warehouse of a person forming part of the chain that does not appear on the invoice as the supplier, is not in itself sufficient to conclude that the transaction is abusive. The underlying factual situation concerned goods sold by a Lithuanian company, Baltfisher, to two Latvian companies. The same goods were then sold to another Latvian company and finally acquired by the plaintiff, Kuršu zeme (the“Buyer”). The Buyer arranged for transport of the goods from Lithuania to its factory in Latvia. Not having been able to find any logical explanation for that chain of transactions, the Latvian tax authorities considered them as a sham. They therefore concluded that the Buyer had in practice acquired the goods at issue directly from Baltfisher and treated the acquisitions at issue as intra-Community acquisitions. As a consequence, deduction of the input VAT paid by the Buyer to the Latvian intermediary supplier was denied.
In its judgment, the ECJ first recalls the fundamental nature of the input VAT deduction right. Further, the ECJ points out that, by way of exception, VAT authorities may refuse the right of deduction, if they establish, on the basis of objective evidence, that the right of deduction is invoked in a fraudulent or abusive manner. The tax authorities must thus establish that, (i) despite the formal application of the conditions laid down in the VAT legislation, the taxable person obtains a tax advantage, contrary to the objective pursued by the VAT legislation and that, (ii) on the basis of objective elements, the essential purpose of the transaction constitutes the obtaining of that tax advantage.
In the present case, the ECJ concludes that the Latvian VAT authorities had not established the tax advantage that Kuršu zeme or any other entity involved in the transaction chain would have received. In the absence of any such evidence, the input VAT deduction right could not be denied to the taxpayer.
Finally, the ECJ recalls that in case of a chain of supplies involving a single intracommunity transport, only one supply will qualify as an exempt intracommunity supply of goods. The national jurisdictions should determine which of the successive supplies must be treated as an exempt intracommunity supply on the basis of the factual circumstances. In case the last supply qualifies as intra-Community transaction, the final purchaser will not be able to deduct any VAT unduly charged by and paid to the supplier. Nonetheless in such circumstances, the purchaser must be able to claim a refund of the unduly paid VAT from his supplier or, if reimbursement by the supplier is impossible or excessively difficult, from the tax authority to which the VAT has effectively been paid.