EU: VAT impact of movement of own goods across EU borders - impact of EC Sales Lists for VAT-exemption

In brief

Since 2020, the VAT exemption for cross-border sales of goods within the EU, including movements of own goods (MOOG), "shall not apply where the supplier has not complied with the obligation" to submit correct EC Sales Lists ("recapitulative statement" / Art. 138 Abs. 1a EU VAT Directive). Some member states have taken very strict approaches, resulting in MOOGs recently being subjected to final VAT cost in the member state of origin. This result is often perceived as justifiable under the new law since 2020, based on the notion that in order to have a (fictitious) 0% MOOG, you need the counterparty VAT ID and list in EC Sales Lists, which have to be submitted timely and correctly. Many member states understand these as 'substantive conditions' for the VAT exemption. There is a controversy in many member states, however, as to whether VAT charged for an MOOG could be recovered as input VAT or not, so a final VAT burden can remain.


Contents

In view of this discussion, the German Ministry of Finance (MoF) has announced that the VAT exemption could be sustained (retroactively) if the correct EC Sales List is submitted at a later point in time (until the filing period is statute barred). There is, however, still a controversy with the criminal law impact of VAT filing for MOOG as VAT exempt in the absence of a correct EC Sales List.

There is a compelling legal argument in our view that an MOOG should hardly ever trigger VAT in the member state of origin (unless the movement involves VAT fraud). There are also very good arguments (mainly under EU law) that the submission of a timely and correct EC Sales List should in a strict sense not even be understood as a "'substantive'" requirement for the VAT exemption of an MOOG in the first place (as ultimately, the courts would need to decide). Nevertheless, given the many controversies around this topic (e.g., certain criminal law implications that we explain further below), and given the lack of official guidance in many EU member states, taxpayers with MOOG across EU borders should ideally plan ahead or take risk-reducing steps, to limit those cases in which they fail to comply with VAT filing obligations for MOOG in the member states of destination.

Key takeaways

When faced with a sale of goods across EU borders (IC supplies of goods) including MOOG, taxpayers should keep in mind that the timely and correct submission of EC Sales Lists (with reference to the required VAT ID) has been made a general requirement for VAT exemption under EU law, with EU Member States implementing this laws with varying degrees of strictness. The following key takeaways should be taken into account:

  • If possible, submit correct and complete EC Sales Lists on time.
  • In case of failure to submit EC Sales Lists correctly and on time, there are good arguments under EU law that the VAT exemption for the related MOOG could still be justified.
  • This issue is controversial, however, and not accepted in current practice among most EU tax authorities. In some countries, the tax authorities may insist on treating such MOOG across EU borders as taxable (at least once the filing deadline for the EC Sales List filing has passed without a correct and complete submission of the required EC Sales Lists).
  • The German MoF has been particularly strict and refused to allow retroactive VAT exemption for the MOOG in case of later submission of the EC Sales Lists. They have since changed their position. The ministry now allows for retroactive VAT exemption if the EC Sales Lists can be submitted before the assessment period for the MOOG is time-barred.
  • If the MOOG is declared as VAT exempt before the EC Sales Lists are finally submitted correctly, individual tax authorities might even consider raising criminal allegations. Criminal judges in Germany have contributed articles to technical journals explaining that in such cases, the (alleged) tax fraud (by prematurely declaring the cross-border sales or MOOG as VAT exempt) could generally not be avoided retroactively by later submitting EC Sales Lists -- even though this may retroactively allow the VAT exemption for VAT purposes. There are a number of technical defense arguments against such a position.
  • However, in view of the aforementioned risks, taxpayers will need individual compliance or defense strategies in relevant scenarios. As a general guideline, in critical cases, consider filing the MOOG as taxable first or informing the tax authorities (about the VAT-exempt filing prior to the submission of corrected EC Sales Lists) to avoid criminal accusations in the first place.

Please keep in mind that the issue remains in a state of flux, so tax authorities are likely to further refine their approaches or even change their minds, and case law might emerge at some point in time whether at European or member state level. If in doubt, please reach out to your local Baker McKenzie contact so we can review the potential VAT impact and the recommended course of action or individualized defense strategy.

In more detail

Sales of goods across EU borders are generally exempt from VAT in the member state of origin, i.e., where the shipment of the goods begins (intra-community supplies of goods/IC supplies). Similarly, a MOOG across EU-borders is treated as deemed IC supplies and exempted from VAT in the member state of origin. Since 2020, the VAT exemption has not applied where the supplier / owner has failed to comply with the obligation to submit the EC Sales List correctly, completely and on time (unless the supplier can duly justify their failure to the satisfaction of the competent authorities).

The VAT exemption is critical to avoiding final VAT cost. In many scenarios, the entrepreneur will not be able to submit an EC Sales List immediately when the MOOG actually occurs and it must, under the letter of the law, be declared in EC Sales Lists in the member state of origin. The submission of an EC Sales Lists requires a VAT ID in the destination country. Such a VAT ID cannot yet be in place if an entrepreneur had so far no VAT filing obligation in the destination member state. This can typically be the case if the MOOG is preceded by a period where the goods had been shipped to the destination member state under a so-called 'preliminary use' exemption (so that no VAT registration was required and no VAT ID has been issued). The same issue can arise if the MOOG is preceded by a period where the goods had been stored under a consignment relief in the destination member state (so that no VAT registration was required and no VAT ID has been issued). In many cases, the issue can also arise when an entrepreneur realizes only later (i.e., long after the MOOG and the filing deadline for EC Sales Lists) that the MOOG had to be filed for VAT purposes as deemed IC supply in the member state of origin.

Individual member states haven taken different views or practical approaches as to the significance of the EC Sales Lists for the VAT exemption.

Germany is a country with a particularly strict view on the matter. The German MoF has published that a trader does not fulfil the conditions for the VAT exemption unless they submit the relevant EC Sales Lists correctly, completely and on time. The MoF has initially taken a very strict approach, based on which many individual tax offices have started to challenge VAT exemptions for MOOG — with potentially harsh consequences and ultimately a final VAT cost for the taxpayers.

In a recent tax decree (published end of May 2022) the MoF changed its strict opinion and now at least provides that a later submission of the EC Sales Lists (before the assessment period for the MOOG is time-barred) should retroactively allow the VAT-exemption for the MOOG.

It is currently not clear if the taxpayer would need to change its (initially VAT exempt) VAT filing to taxable (under a filing correction obligation under the general tax code, i.e., once the original filing deadline has passed without submission of a correct and complete EC Sales List), or whether the VAT filing may remain VAT-exempt in expectation of a future submission of a correct EC Sales Lists (and only the tax authorities could decide to review and deny the VAT exemption in the meantime).

In this context, the MoF maintains that the correct EC Sales List is a substantive requirement for the VAT exemption of an MOOG. On this basis, a German criminal judge has published an article explaining that presumably, once the original filing deadline for the EC Sales List has passed, a sustained (and deliberate) VAT filing as VAT-exempt would be a (standard) criminal offence that could not be avoided retroactively. This means the later submission of the correct EC Sales List would only have retroactive effect for VAT purposes (according to the MoF) and enable the VAT exemption, but it would not help to avoid criminal allegations for a tax offense committed before the final submission of the correct EC Sales List. If the MOOG remains declared as VAT exempt after the filing deadline for the EC Sales Lists has passed, individual tax authorities might consider raising criminal allegations.

In our opinion, this strict viewpoint is questionable and accused taxpayers may defend themselves against any such criminal allegations. There are good arguments that the submission of correct EC Sales Lists is in fact a mere formal requirement for the VAT exemption of an IC Sale, and is not even a requirement for the VAT exemption of the MOOG (this point is very controversial in German technical literature, however). The key point, in our view, is that the MOOG is a mere intra-corporate transfer (and not a sale to another business), and as such the MOOG should not at all be taxable in the member state of origin (the legal fiction of the VAT taxability with VAT exemption of an MOOG in the member state of origin is targeted at allowing the taxpayer's full input VAT deduction and is thus meant to serve the taxpayer's benefit and not the taxpayer's criminalization). Consequently, the VAT exemption of an MOOG should (arguably) never be denied (save for cases of actual involvement in tax-fraudulent schemes). On this basis, there would at least be a technical argument against successful criminal allegations if a taxpayer treats an MOOG as VAT exempt — even if the related EC Sales List is not filed correctly on time.

Given the controversy surrounding these issues, and the divergent albeit unclear opinion of the MoF, in order to avoid criminal accusations in the first place, as a precaution taxpayers should consider filing the MOOG as taxable in the first instance, or informing the tax authorities about the VAT-exempt filing prior to the submission of corrected EC Sales Lists.

In the Netherlands, it is mandatory to include MOOG in the EC Sales List. The Dutch tax authorities have taken the position that filing the EC Sales List is a material requirement for claiming the VAT exemption for MOOG. The Ministry of Finance and the Dutch Tax Authorities have not given indications that the submission of a timely and correct EC Sales List would only be considered optional for claiming the VAT exemption for MOOG. EC Sales Lists may therefore lead to a rejection of the VAT exemption and administrative penalties but in principle not to criminal charges. A late/retroactive submission of the EC Sales List will usually not lead to rejection of the VAT exemption, but will likely lead to (minor) administrative penalties. Penalties may increase when the taxpayer systematically fails to timely or correctly submit the EC Sales List. We therefore always advise filing a timely and correct EC Sales List, even though failing to do so may not automatically lead to rejection of the VAT exemption for ICS (and therefore MOOG).

Other member states such as France have adopted a more lenient approach so far. To sustain VAT exemption for intra-EU supplies, the tax authorities remind taxpayers to file correct and complete EC sales listings. In line with the underlying EU law, sellers are allowed to justify omitted or delayed filings and can then obtain VAT exemption if they submit the VAT filing correctly. French tax law also does not provide for a criminal offense in standard conditions with these types of filing mistakes, so the key risk would typically be restricted to moderate administrative penalties for delayed filing of the EC Sales Listing. (In contrast, in Germany, conscious filing as VAT-exempt in the absence of the conditions for the exemption can be treated as intentional fraud — at least based on the opinions that consider the EC Sales Lists as substantive (and not only formal) conditions for the VAT-exemption; see details below.) Even in France, it is more prudent for taxpayers to submit EC Sales Lists on time and otherwise manage the situation right away before the tax authorities need to remind them.

In other member states, such as Spain, the tax authorities have likewise confirmed that the VAT number and the EC Sales Lists are material and substantive requirements to apply the exemption for both EU sales and MOOG. However, there appear to be no controversies so far, and no additional guidelines about the retroactive effects of filing a correct EC Sales List at a later stage have been made available. In critical cases, taxpayers should seek individual guidance to ensure they can avoid final VAT cost or even penalties.


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