Import VAT: ECJ forbids forwarding agents to deduct import tax

The European Court of Justice decided in a current judgement that forwarding agents under certain circumstances are not entitled to deduct VAT on imports. The judgement of the Court of Justice of 25th June 2015 (case C-187/14) will be of special importance for many forwarders now already.

Goods under transit procedure

Basis of the judgement of the Court of Justice was the legal action of a Danish forwarder who had to transport 148 and 703 packages electronical products from the free port of Copen-hague (Denmark) to Jönköping (Sweden) under the external transit procedure. As the consignee in Sweden refused to take delivery, the goods were transported back to Denmark. During this transport the goods were not presented to the customs orderly. Later the goods were again transported to Sweden and were delivered to the consignee. The European Court of Justice inter alia expressed its views to the question whether the second transit operation would cure the first transit procedure which was not done correctly.

In this respect the European Court of Justice stated that there is no removal of the goods from customs supervision as long as goods are brought back to the initial free port from where they came without being presented to the customs at destination or the customs of the free port. A precondition is, however, that it must be proved that the same goods were transported on the second transit to the same destination. As this was not the case here for part of the goods, customs duties partly arose.

No deduction of VAT on imports for forwarding agents

According to Danish law on turnover tax the forwarding agent or the carrier, who are neither owner nor importer of the goods, are not entitled to deduct the import turnover tax. This is what the plaintiff, the forwarding agent, was claiming for. The plaintiff argued that this would offend against the Value Added Tax Directive.

The European Court of Justice was of the opinion that the Value Added Tax Directive was not applicable in this case anyway. For, according to article 168 point e of the Value Added Tax Directive the right to deduct turnover tax is only applicable as far as the imported goods are used for the purposes of taxed transactions of the taxpayer. This is not the case for a forwarding agent, as the value of the goods is not mentioned in the freight invoices.

The European Court of Justice, therefore, did not object to the Danish procedure and thus the forwarding agent is not entitled to deduct turnover tax according to Danish law.

Pending court action of the Financial Court of Hamburg concerning import VAT

Another lawsuit is currently pending before the European Court of Justice which is dealing with the question whether a forwarding agent can deduct the imports turnover tax. The Fiscal Court of Hamburg was of the opinion that this should be possible. The case is now pending at the Federal Fiscal Court. How the Court will decide this in the light of the above judgement is a question of wait and see.

Rechtsanwalt Dr. Tristan Wegner

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