Citations: Cartrans Spedition Srl v. Romania; C-495/17
Advocate General Eleanor Sharpston in Cartrans Spedition Srl v. Romania, C-495/17, called on the Court of Justice of the European Union to find that articles 146(1)(e) and 131 of the EU VAT Directive (2006/112/EC) preclude Romania from requiring the production of specific documents affirming the road transport of goods to a point outside the EU to qualify for a VAT deduction for transport services associated with exported goods.
Cartrans Spedition Srl v Regional Public Finance Regional Direction Ploiesti – Prahova County Public Administration, Regional Public Finance Directorate Bucharest – Tax Administration for Medium Contributors
OPINION OF ADVOCATE GENERAL
By this request for a preliminary ruling the Law Court Prahova (Law Court, Prahova, Romania) seeks guidance on the interpretation of Council Directive 2006/112/EC.2 The referring court wishes to ascertain whether national rules which require a taxpayer to provide specific documents in order to obtain the benefit of exemption from VAT on the supply of services (including transport), where these are directly connected with the export of goods outside the territory of the European Union, are compatible with the VAT Directive. Where such goods are conveyed under cover of an international road transport carnet in accordance with the system established by the Customs Convention on the international transport of goods under cover of TIR carnets, the referring court asks whether such documents constitute evidence proving that the goods concerned were indeed exported.
EU legal framework
The VAT Directive
Article 131 is in Title IX entitled ‘Exemptions’ and states, ‘the exemptions provided for in Chapters 2 to 9 shall apply without prejudice to other Community provisions and in accordance with conditions which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse’. Article 146 is to be found in Title IX Chapter 6 (‘Exemptions on exportation’). Article 146(1)(e) lists amongst those exemptions ‘the supply of services, including transport and ancillary transactions, but excluding the supply of services exempted in accordance with Articles 132 and 135, where these are directly connected with the exportation or importation of goods. Pursuant to Article 153, Member States are to ‘exempt the supply of services by intermediaries, acting in the name and on behalf of another person, where they take part in the transactions referred to in Chapters 6, 7 and 8, or of transactions carried out outside the [European Union]’.
The Customs Code
The Customs Code established by Council Regulation (EEC) No 2913/923 set the legal framework for customs rules and procedures in the EU customs territory. Article 4(16)(b) and (h) stated respectively that the term ‘Customs procedure’ covered transit and exportation. Pursuant to Article 4(17), ‘Customs declaration’ meant the act whereby a person indicated in the prescribed form and manner a wish to place goods under a given customs procedure. In accordance with Article 59, goods placed under a customs procedure were to be covered by a declaration for that procedure. Goods declared for, inter alia, export or transit were subject to customs supervision from the time of acceptance of the customs declaration ‘until such time as they leave the customs territory of [the European Union] or are destroyed or the customs declaration is invalidated’. Article 91(1)(a) and (b) provided, respectively, that the external transit procedure allowed movement from one point to another within the customs territory of non-EU goods and EU goods. Where goods moved as described in Article 91(1) under cover of a TIR carnet, that was a permitted movement for the purposes of Article 91(2)(b) provided that such movement: (i) began or was to end outside the EU; (ii) related to consignments of goods which had to be unloaded in the customs territory and were conveyed with goods that were to be unloaded in a third country; or (iii) were effected between two points in the European Union through the territory of a third country. Article 161 was entitled ‘Export’. Article 161(1) provided that the export procedure allowed EU goods to leave the customs territory. Article 161(2) stated that all EU goods intended for export were to be placed under the export procedure, except for goods placed under the outward processing procedure or a transit procedure. In accordance with Article 163(1), the internal transit procedure allowed the movement of EU goods from one point to another within the customs territory passing through a third country without any change in their customs status. Movement of that type could take place, inter alia, under cover of a TIR carnet (Article 163(2)). In accordance with Article 182a(1), goods leaving the customs territory had to be covered either by a customs declaration or, where such a declaration was not required, by a summary declaration.4 Pursuant to Article 182b(1), where such goods were assigned to a customs approved treatment or use for the purpose of which a customs declaration was required, any such declaration had to be lodged at the customs office of export before the goods concerned were removed from the customs territory. Article 183 provided that goods leaving the customs territory were subject to customs supervision.
The TIR Convention
Under the auspices of the United Nations Economic Commission for Europe (UNECE), the TIR transit system was developed after the Second World War to help to revitalize the economies of post war Europe. The Customs Convention on the international transport of goods under cover of TIR carnets (TIR Convention), concluded at Geneva on 14 November 1975, was approved on behalf of the then European Economic Community by virtue of Council Regulation (EEC) No 2112/78 and is therefore directly applicable.The TIR Convention entered into force as regards what is now the European Union on 20 June 1983.6 Each EU Member State and the European Union itself is a contracting party. A consolidated version of the text of that Convention was published in the Annex to Council Decision 2009/477/EC.7. Article 1 of the TIR Convention defines the term ‘TIR transport’ as the transport of goods from a Customs office of departure to a Customs office of destination under the TIR procedure. The ‘holder’ of a TIR carnet is the person to whom a TIR carnet has been issued in accordance with the relevant provisions of the Convention and on whose behalf a Customs declaration has been made in the form of a TIR carnet indicating a wish to place goods under the TIR procedure at the Customs office of departure.Article 2 states that the Convention applies to the transport of goods, without intermediate reloading, across one or more frontiers between a Customs office of departure of one Contracting Party and a Customs office of destination of another or of the same Contracting Party, provided that some portion of the journey between the beginning and the end of the TIR transport is made by road. Pursuant to Article 3(b), transport operations must be guaranteed by associations approved in accordance with Article 69 and must be performed under cover of a TIR carnet. Article 4 provides that goods carried under the TIR procedure are not to be subjected to the payment or deposit of import or export duties and taxes at Customs offices en route.
The TIR transit manual
The Commission’s transit manual10 states that ‘the TIR carnet is a customs declaration for transport of goods. It provides proof of the existence of the guarantee. TIR carnets are distributed by the International Organisation (currently the International Road Transport Union (IRU)) to national guaranteeing associations. A TIR carnet customs declaration is valid for one TIR transport only. It is taken into use in the country of departure and enables customs control in the Contracting Parties of departure, transit and destination’ (see the third subparagraph of paragraph 1.2 in Part IX — the TIR Procedure).
The referring court states in its order for reference that under national law transport services which are directly connected with the export of goods are exempt from the payment of VAT. That court indicates that, in accordance with the rules in force at the material time, transport services were exempt from VAT only if the taxpayer concerned was able to demonstrate that the goods transported were indeed exported by producing the following documents in support of a request for exemption: an invoice issued by the carrier, a contract of carriage drawn up with the beneficiary of the service, specific documents of carriage and documents showing that the goods transported were exported.
Facts, procedure and the questions referred
Cartrans Spedition SRL (‘Cartrans’), a road transport services broker, the head office of which is located in Romania, supplied services relating to the transport of goods on three occasions in Turkey in the period from March to May 2012, twice in Georgia in August 2012, once in Iraq in February 2013 and on one occasion in Ukraine in April 2014. On 13 August 2014 the Romanian competent authorities issued a tax inspection report and a tax assessment notice requiring Cartrans to pay 16 203 Romanian lei (RON) (approximately EUR 3 650). The competent authorities maintained that Cartrans had failed to demonstrate that the goods transported had in fact been exported, as Cartrans had not produced any of the following documents: a contract of carriage drawn up with the beneficiary of the service, specific documents of carriage and documents showing that the goods transported were exported, in accordance with national rules. Cartrans had merely demonstrated that it had supplied certain transport services abroad to exporters. Cartrans challenged that assessment. In support of its request for exemption from VAT it produced TIR carnets and CMR consignment notes certified by customs officials of the countries to which Cartrans had transported the goods concerned for export for each of the seven invoices subject to VAT assessment.11 Cartrans claimed that the TIR carnets contained references to both the goods transported and the certifications by the customs authorities concerning the export of the goods to the respective countries and that the TIR carnet clearly therefore had evidential value, since it was the document certifying customs transit from a customs office of departure to a customs office of destination.
The referring court considers that an interpretation of the provisions of the VAT Directive concerning exemptions on export and for the supply of services by intermediaries is necessary in order to resolve the main proceedings. It has therefore referred the following questions to the Court for a preliminary ruling:
(1) For the purposes of the VAT exemption for transport operations and services relating to the export of goods, in accordance with Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, does a TIR carnet certified by the customs authorities of the country of destination constitute a document which proves that the goods transported were indeed exported, taking into account the procedure for such a customs transit document laid down in the Transit Manual (TIR procedure) No TAXUD/1873/2007 by the Customs Code Committee — Transit section, Directorate-General Taxation and Customs Union of the European Commission??
(2) Does Article 153 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax preclude a tax practice which requires a taxpayer to prove that goods transported were exported exclusively by means of a customs export declaration, with the result that the right to deduct VAT for transport services in respect of goods exported will be refused in the absence of that declaration, even if a TIR carnet certified by the customs authorities of the country of destination exists?’ Written observations were submitted by Cartrans, the Romanian Government and the European Commission. No hearing was requested and none was held.
The referring court’s questions are put on the premiss that Cartrans seeks exemption from VAT on the basis that it supplied services as an intermediary acting on behalf of another person for the purposes of Article 153 of the VAT Directive.12 The order for reference describes Cartrans as ‘a road freight transport services broker’. However, the referring court does not indicate whether Cartrans’ request for exemption from VAT is based on the grounds that it supplied transport and ancillary services itself under Article 146(1)(e) of the VAT Directive or whether it simply acted as an intermediary as set out in Article 153 of that directive.
The word ‘intermediary’ is not defined in Article 153 of the VAT Directive. The ordinary meaning construed in accordance with the purpose of the VAT Directive indicates that an intermediary is a person who acts between parties. In the context of road transport services, that might include providing logistical support to coordinate the movement of the seller’s goods to the buyer, as well as but not necessarily also providing services to ensure the physical transport of goods from the point of departure to the destination. The supply of transport services by an intermediary benefits from a specific exemption from tax where the person concerned transported goods to a destination outside the European Union by or on behalf of another under Article 153 of the VAT Directive. In the absence of any information in the order for reference as to Cartrans’ exact role, it will be for the referring court to verify whether Cartrans acted as an intermediary on behalf of another person or whether it transported the goods concerned itself in the context of the main proceedings.
In any event, Article 153 applies where the taxpayer concerned takes part in transactions referred to in, inter alia, Chapter 6 of the VAT Directive. Here, the relevant provision in Chapter 6 is Article 146(1)(e). I shall therefore examine the questions referred in the light of that provision.
Questions 1 and 2
The referring court seeks to ascertain, in circumstances where a taxpayer seeks the benefit of an exemption from VAT on the grounds that it has supplied services connected with the transport of goods for export from the European Union, whether Member States are able to introduce conditions requiring the taxpayer to submit certain specific documents in order to prove that the goods concerned were indeed exported or whether the TIR carnets constitute such proof. As the two questions referred are facets of the same issue I shall examine them together.
The Romanian Government is of the view that the VAT Directive permits Member States to reject requests for exemption from tax under Article 146(1)(e) of the VAT Directive in circumstances such as those in the main proceedings. Cartrans and the Commission contest that view.
I also disagree with the Romanian Government.
There are two points of common ground between the parties. First, in so far as it is clear that Article 146(1)(e) of the VAT Directive concerns exemption from tax for exports from the European Union, it is in conformity with the general principle of international tax law that tax should be imposed on the consumption of goods and services at the place of destination. Thus, all operations concerning exports are generally exempt from tax. Second, since that provision permits an exemption from tax it should be interpreted strictly.The exemptions provided for in Chapter 6 of the VAT Directive (‘Exemptions on exportation’) are mandatory. Thus, where a taxpayer is able to demonstrate the supply of transport and ancillary services within the meaning of Article 146(1)(e), the exemption provided must be granted. In the absence of express provision Member States do not retain a discretion to introduce additional substantive conditions. The Court’s case-law makes it clear that there must be a direct link between the transport of goods to a destination outside the European Union and the relevant services in order for the exemption provided for in Article 146(1)(e) of the VAT Directive to apply. In other words, the services must be supplied directly to (as the case may be) the exporter, the importer or the consignee of the goods referred to in that provision. Those are matters for the referring court to assess in its examination of the facts and circumstances of the case at issue.
The order for reference makes plain that under national rules transport relating to the export of goods is a service that is exempt from VAT only if the taxpayer concerned is able to produce the following documents as proof: an invoice issued by the carrier, a contract of carriage drawn up with the beneficiary of the service, specific documents of carriage and documents showing that the goods transported were exported (‘the required documents’). It seems to me that a national practice which requires a taxpayer to prove that the transported goods were indeed exported is not compatible with EU law. Article 146(1)(e) of the VAT Directive does not contain any such requirement. Rather, that provision lays down the condition that the supply of services including transport is to be directly connected with the exportation of goods. Moreover, I agree with the Commission that there is no provision in the VAT Directive imposing a condition that a taxpayer is to furnish specific evidence in order to benefit from the exemption provided for in Article 146(1)(e).
From the referring court’s description of the national regime, it appears clear that the domestic rules at issue introduce purely formal requirements. However, such requirements regarding the form in which a taxpayer demonstrates eligibility for the exemption cannot undermine an entitlement to exemption from VAT under EU law where the substantive conditions for triggering Article 146(1)(e) of the VAT Directive are met.
Pursuant to Article 131 of the VAT Directive, the exemptions provided for in, inter alia, Article 146(1)(e) apply without prejudice to other provisions of EU law and in accordance with the conditions laid down by Member States for the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse. In exercising that discretion, the Member States are subject to the general principles of EU law, in particular the principles of legal certainty and proportionality. The principle of legal certainty requires that the effect of a legal provision must be clear and predictable to those persons who are subject to it. In accordance with the Court’s settled case-law, that principle is applied rigorously in instances where the legislation concerned introduces fiscal charges. In that context the Court has ruled that a taxpayer’s obligations as regards evidence should be governed by express conditions under national law and the rules established for similar transactions.
The referring court states in its order for reference that Romanian law contains no legal basis which expressly stipulates what types of document(s) constitute evidence that goods transported have been exported. From that court’s description, the national rules at issue appear to be derived from a combination of legislative provision and administrative practice. It will be for that court to assess whether those rules are sufficiently clear and precise to satisfy the general principle of legal certainty.
As regards proportionality, the Court has ruled that Member States must employ means which, whilst enabling them effectively to attain the objectives pursued by their domestic laws, cause the least possible detriment to the objectives and principles laid down by the relevant EU legislation.21 Thus, national rules should not go beyond what is necessary to preserve or safeguard the public purse. In a context in which a tax authority refused to allow exemption for an intra-EU supply because the relevant accounting evidence was belatedly produced and took no account of the fact that the substantive conditions had been met, the Court has ruled that national rules went further than was necessary to ensure the correct levying and collection of the tax. In my view that reasoning should apply to the circumstances of the present case. Thus, if a taxpayer meets the substantive conditions laid down in Article 146(1)(e) of the VAT Directive, those conditions cannot be displaced by mere formal requirements set out in national law.
Those national requirements may therefore not be used in such a way as to have the effect of undermining the neutrality of VAT, which is a fundamental principle of the common system of VAT established by the relevant EU legislation. The principle of fiscal neutrality requires that exemption from VAT must be granted if the substantive conditions are met, even if the taxpayer has not complied with certain formalities. There are only two instances in which the failure to comply with formal requirements has led to losing a right to exemption from VAT. One is in cases of fraud. The second is where exemption is refused if the breach of the rules at issue has the effect of preventing proof that certain substantive conditions have been met being brought to the competent authorities’ attention.
It is not disputed in the main proceedings that Cartrans did supply services within the meaning of the VAT Directive and that those services were supplied outside the territory of the European Union. Given that context, a national practice which means that the competent authorities will not examine evidence indicating that the goods at issue were delivered to a buyer (or consignee) situated in a third country operates in a manner akin to a presumption that the exemption cannot be granted.
It seems to me that the national rules at issue go beyond what is necessary to ensure the correct collection of tax for the following reasons. First, the referring court states that where a taxpayer is unable to provide the required documents in support of a claim for exemption, a claim will be refused. That outcome is incompatible with the principle of fiscal neutrality inasmuch as VAT will not be imposed at the destination of the goods, but instead at a point where they are in transit.29 Second, the national rules at issue are applied in a manner which means that the competent authorities do not even consider whether the substantive conditions for exemption on the basis of Article 146(1)(e) of the VAT Directive are in fact satisfied if the formal requirements are not met. Third, nothing in the order for reference suggests that a failure to meet the formal requirements necessarily gives rise to an instance of fraud or that breach of the rules at issue has the effect of preventing the competent authorities from establishing whether the substantive conditions were met. It follows that the authorities of a Member State cannot in principle refuse to grant an exemption from VAT without examining whether the substantive conditions laid down by the applicable provisions of EU law have been met merely on the ground that the taxpayer concerned has not furnished certain specific documents to prove that the goods at issue were indeed exported.
Should the TIR carnet be regarded as definitive proof that the goods concerned were exported?
There is here some common ground between the parties, in that all three are of the view that under the Customs Code the export and transit regimes are distinct.
Cartrans argues that a taxpayer which supplies transport services should not be required to produce an export declaration as proof that the goods concerned were exported. That is because the person supplying transport services will only have access to proof of transit by virtue of the TIR regime. The Romanian Government submits that the fact that a customs office has certified a TIR carnet does not prove of itself that the goods concerned were transported and exported outside the European Union. The Commission states that the TIR system confirms that goods have been transported to their destination. Against that background the TIR carnet cannot replace the customs export declaration which shows that the goods concerned were placed under the export regime.
It seems to me that the parties are right in observing that it follows from the Customs Code that the transit and export regimes are distinct.
In his Opinion in BGL, Advocate General Léger31 set out a helpful overview of the TIR Convention which is part of the EU legal order by virtue of Decision 2009/477. As he explained, the Convention facilitates the international carriage of goods by road vehicle: it simplifies and harmonizes the administrative customs formalities that are to be fulfilled at borders. Consignments of goods are subject to a single inspection at the customs office of departure to the exclusion of any other examination by customs offices en route or of destination (subject to suspicion of an irregularity). A significant feature is that such goods are not subject to the payment or deposit of import or export
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