Case: VAT relief permitted where business was unwittingly connected to a fraud
European Court of Justice (Ninth Chamber),
J Jürimäe (Rapporteur), President of the Chamber, C Lycourgos, C Vajda Judges,
Judgement delivered 25 October 2018
Value added tax — Directive 2006/112/ECC —Article 143(1)(d) — Exemption from import VAT – Importation followed by intra-community supply – Risk of tax evasion – Good faith of the taxable importer and supplier – Assessment – Duty of care of the taxable importer and supplier
Milan Božičevič Ježovnik v Republica Slovenija  BVC 47
Mr Ježovnik is a Slovenian business man who traded bananas which he imported into the EU from third countries. Article 143(1)(d) of the Principle VAT Directive allows imports to be exempted from VAT if the goods are immediately the subject of an intra-community dispatch to a VAT registered customer in another EU Member State.
Mr Ježovnik imported bananas into Slovenia with the intention of immediately dispatching them to VAT registered customers in Romania. He obtained his customer’s VAT registration and EORI numbers, which he checked on the VIES system, and completed the necessary paperwork for the import to be exempt from VAT, including obtaining evidence that the bananas had been removed from Slovenia.
When undertaking post-clearance examination of the documentation the Slovenian authorities found that the Romanian customers had deregistered for VAT before receiving the bananas. They also noted that the documentation provided was not legible, and the price and weight of the bananas was not consistently reported. Further investigations with the Romanian authorities revealed that the sale of the imported bananas was connected with fraud.
The Slovenian tax authority assessed for import VAT on the basis that Mr Ježovnik ‘did not act with due care, failed to carry out the basic checks of the customers and disregarded the indications of VAT fraud’ (para 20).
The ECJ ruled that the Slovenian authorities could not assess for import VAT after the goods had cleared Customs unless it could be established that ‘in the light of objective evidence, that the taxable person knew or should have known that the supplies subsequent to the imports at issue were involved in fraud committed by the customer and that he did not take all reasonable steps in his power to avoid that fraud’ (para 50).
The ECJ’s conclusion is unsurprising and follows the reasoning employed in previous cases where a taxpayer’s transactions are connected to a fraud not committed by them. Although there were deficiencies in his paperwork the Slovenian authorities did not present any evidence before the court to suggest that Mr Ježovnik either knew that his customers were committing fraud or that he should have known this.
For commentary on the approach taken by the courts where fraud is alleged see Indirect Tax Reporter at ¶19-002.