The European Court of Justice (Fourth Chamber) ruled that art. 15(2) of Council Directive 77/388 (the sixth directive) did not preclude a member state from granting an exemption from VAT on the supply of goods for export to a destination outside the European Community, where the conditions for such an exemption were not met, but the taxable person was not able to recognise, even by exercising due commercial care, that they were not met, because the export proofs provided by the purchaser had been forged.

Facts

From 1992 to 1998 the taxpayer (‘N’), which operated several discount supermarkets in Germany, refunded to its customers several thousand German marks which they had paid in the form of VAT. It had decided to make those reimbursements to nationals of non member countries if they were able to show proof of export outside the Community of goods bought on the occasion of non-commercial trips, with such proof consisting, first, of the impression of the customs stamp half on the voucher and half on the customs form and, second, of the foreign national presenting his passport.

In 1998 the taxpayer asked the Customs authorities to check the authenticity of certain Customs documents which were found to be falsified. Subsequently, the tax investigation office found that, between 1993 and 1998, a substantial proportion of the proofs of export of goods had been counterfeited by Polish nationals with the help of forged customs forms or that the alleged proofs of export had been marked with a forged customs stamp. By this means, Polish nationals claimed reimbursement of VAT from the taxpayer, which the latter refunded to them.

In 1999 the Finanzamt assessed the taxpayer to payment of the additional VAT due for the years 1993 to 1998, corresponding to the turnover actually generated during those years. The Finanzamt refused the taxpayer's request for exemption from the VAT retrospectively demanded for those years.

The Finanzamt upheld the taxpayer's objection in part and granted exemption for the years 1993 and 1994, on the basis that the tax assessments for those years could no longer be amended, and remitted the interest for the years 1993 to 1997. The objection was rejected in relation to the other years on the basis that the taxpayer should have examined the genuineness of the proofs of export earlier and, by showing proper care, could have prevented a fraud lasting for years. In addition, the fact that the taxpayer had contributed to elucidating the facts did not affect the amount of VAT payable by it.

The Finance Court (Finanzgericht) rejected the taxpayer's challenge to that refusal but the taxpayer appealed to the Federal court (Bundesfinanzhof), submitting that the Finanzgericht should have considered the supplies of goods to Polish purchasers to be exempt, by applying the national rule on the protection of legitimate expectations which applied to intra-Community supplies. Having regard to the principle of the protection of legitimate expectations, the Bundesfinanzhof decided to stay the proceedings and refer to the ECJ for a preliminary ruling on the proper interpretation of art. 15 of the sixth directive.

Issue

Whether under Community law export supplies from the Community could be exempt from VAT if the operator making the supply was unable, even by exercising due commercial care, to recognise that the export proofs provided by the purchaser had been falsified, even where the conditions of exemption of an export supply were objectively absent because, as in this case, the documents submitted as bearing proof of export had been forged.

Decision

The ECJ (Fourth Chamber) (ruling accordingly) said that it was clear from the first part of the first sentence of art. 15 of the sixth directive that it was for the member states to lay down the conditions for the application of the exemption for the supply of goods for export to a destination outside the Community for the purpose ‘of preventing any evasion, avoidance or abuse’. In doing so, the member states had to respect the general principles of law that formed part of the Community legal order, which included, in particular, the principles of legal certainty and proportionality and the principle of protection of legitimate expectations.

In particular, in accordance with the principle of proportionality, the member states had to employ means which, whilst enabling them effectively to attain the objectives pursued by their domestic laws, caused the least possible detriment to the objectives and principles laid down by the relevant Community legislation. Therefore, whilst it was legitimate for the measures adopted by the member state to seek to preserve the rights of the public exchequer as effectively as possible, such measures must not go further than was necessary for that purpose.

In the field of VAT, suppliers acted as tax collectors for the state and in the interest of the public exchequer and were liable to payment of VAT even though VAT, as a tax on consumption, was ultimately borne by the final consumer. That was why the objective of preventing tax evasion referred to in art. 15 sometimes justified stringent requirements as regards suppliers’ obligations. However, any sharing of the risk between the supplier and the tax authorities, following fraud committed by a third party, had to be compatible with the principle of proportionality. However, that would not be the case if a tax regime imposed the entire responsibility for the payment of VAT on suppliers, regardless of whether or not they were involved in the fraud committed by the purchaser. It would clearly be disproportionate to hold a taxable person liable for the shortfall in tax caused by fraudulent acts of third parties over which he had no influence whatsoever. On the other hand, it was not contrary to Community law to require the supplier to take every step which could reasonably be required of him to satisfy himself that the transaction which he was effecting did not result in his participation in tax evasion. Accordingly, the fact that the supplier acted in good faith, that he took every reasonable measure in his power and that his participation in fraud was excluded were important points in deciding whether that supplier could be obliged to account for the VAT after the event.

Likewise, it would be contrary to the principle of legal certainty if a member state which had laid down the conditions for the application of the exemption of supplies of goods for export to a destination outside the Community by prescribing, among other things, a list of the documents to be presented to the competent authorities, and which had accepted, initially, the documents presented by the supplier as evidence establishing entitlement to the exemption, could subsequently require that supplier to account for the VAT on that supply, where it transpired that, because of the purchaser's fraud, of which the supplier had and could have had no knowledge, the conditions for the exemption were in fact not met.

It followed that a supplier must be able to rely on the lawfulness of the transaction that he carried out without risking the loss of his right to exemption from VAT, if he was in no position to recognise, even by exercising due commercial care, that the conditions for the exemption were in fact not met, because the export proofs provided by the purchaser had been forged. Moreover, the case law of the ECJ in the field of customs law could not be transposed to the specific situation of a taxable person under the common system of VAT put in place by the sixth directive, because of the differences in structure, object and purpose between such a system and the Community regime on the levying of customs duties.

European Court of Justice (Fourth Chamber).

Judgment delivered 21 February 2008.