HM Revenue and Customs Brief 61/07
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Issued 08 October 2007
Teleos and others (VAT Ė Intra-Community trade)
The European Court of Justice (ECJ) gave its judgement in this case
(reference C-409/04) on 27 September 2007.
The key points in the decision are:
- goods must physically leave the territory of the Member State of supply to
qualify for zero rating;
- If a supplier:
- acts in good faith and submits evidence establishing a right to
zero-rate an intra Community transaction; and
- has no involvement in tax evasion and takes every reasonable measure in
their power to ensure that the transaction did not lead to their
participation in tax evasion,
- then the Member State cannot hold the supplier to account for the VAT on
those goods if the information relied on subsequently proves to be false.
This case involved the purported removal of mobile phones to a VAT registered
customer in Spain. No VAT is due in the UK on such transactions provided the
supplier meets certain conditions set by HMRC. The principal conditions are that
the supplier must obtain their customer's VAT registration number and they must
obtain proof that the goods have been removed to another Member State.
Teleos treated all their supplies in this case as intra-EC transactions and
did not account for any VAT (referred to as zero-rating for VAT purposes in the
UK). To support their claim for VAT zero-rating they relied on commercial road
transport documents as proof that the goods had been removed to another Member
State. The documents subsequently proved to be false so HMRC disallowed VAT
zero-rating and assessed. The ECJ decision is in response to a reference from
the High Court following an application by Teleos (and others) to review the
Commissioners decision on zero rating.
Impact in this case
The case will go back to the administrative court to consider the taxpayerís
application in the light of the ECJís ruling. The Commissioners are examining
their decision in that case and the case of the other parties to the litigation.
Wider implications of the decision
The Court ruled that EC law on intra-Community supply and intra-Community
acquisition are rules governing the physical movement of goods from one Member
State to another. Consequently, to obtain the exemption, physical movement of
goods from the supplying Member State to another Member State must be
established. This accords with the United Kingdomís submissions, and it remains
for the supplier of the goods to furnish the proof that the conditions for zero
rating are fulfilled. The conditions in UK law and in public notices will
continue to govern the entitlement to zero rating.
The Courtís decision also limits the Commissionersí ability to recover from
the supplier, tax lost through incorrect zero rating in the circumstances of the
Teleos case. In restricting the ability to assess in such cases, the court was
balancing the benefit of legal certainty for suppliers who act in good faith
with the need to have stringent conditions to prevent fraud and abuse. The good
faith of the supplier, the steps they took, and whether they are established as
not participating in fraud are critical factors in deciding whether they can be
obliged to account for VAT after the event.
Indeed, the judgement makes it clear that it is not contrary to Community law
to require the supplier to take every step which could be reasonably required of
them to satisfy themselves that the transaction which they are effecting does
not result in his participation in tax evasion. The judgement is therefore
consistent with the line of ECJ cases which underpin HMRCís approach to MTIC
fraud and underlines that rights under EC VAT law cannot routinely be enjoyed
where the taxpayer in question knew or could have known that they were
participating in tax evasion.
Cases on all fours
HMRC expect few cases to be on all fours with Teleos. Anyone who considers
that an assessment for zero rating falls on the basis of the Teleos decision in
the ECJ should make a claim subject to the time limits for such claims. Further
information about making claims can be found in Public Notice 700/45 How to
correct VAT errors or make adjustments or claims and Business Brief 28/04.
About the Author
© Crown Copyright 2007.
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Article Published/Sorted/Amended on Scopulus 2007-10-10 17:13:19 in Tax Articles