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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.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

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Article Published/Sorted/Amended on Scopulus 2007-10-10 17:13:19 in Tax Articles

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