Litdana QAB v Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos (Lithuanian Tax Inspectors), Case C624/15,
This case examines the obligations for a taxable person when operating the Margin Scheme where they acquire goods from a supplier in another jurisdiction on the understanding that the goods were originally supplied in accordance with the Margin Scheme by the supplier.
Background
Litdana, a Lithuanian business, is in the trade of selling second-hand vehicles. During 2012, Litdana acquired 25 second-hand vehicles from a Danish company which Litdana then resold. All the invoices involved in the sale of the second hand vehicles from the Danish company reference Danish VAT Law and indicated that the vehicles being sold were exempt from VAT (section 69–71 of Danish VAT law). Litdana then applied the Margin Scheme (Article 314 of the VAT Directive) when the vehicles were resold.
During a tax inspection, the tax inspector found that Litdana should not have applied the margin scheme since the Dutch company had not applied the Margin Scheme to the vehicles sold. The Tax Disputes Commission stated that Litdana, acting with care, should have contacted the Dutch company to confirm that the vehicles were sold under the Margin Scheme, or asked the Danish tax authorities whether that company had transmitted the data on the supply of the vehicles at issue to the electronic database of the VAT Information Exchange System.
Litdana was therefore assessed, in their country, for the full VAT that would or should have arisen on their sale of the vehicles rather than just on their margin.
It transpired that the invoices received by Litdana from the Dutch company included references to both the Margin Scheme and the exemption from VAT. Contained on the invoice were details relating to the date of issue, the VAT identification number under which the Dutch company supplied the goods, the full name and address of that company, the quantity and nature of the goods supplied, the unit price, the ‘Total DKK’ price, the amount of VAT, corresponding to ‘0’, and the ‘Total DKK incl. VAT’ amount – the details ‘Sections 69–71’ and ‘Free of VAT’.
The Court had to consider whether Article 314 of the VAT Directive must be interpreted as precluding the competent authorities of a Member State from denying a taxable person the right to apply the Margin Scheme where he received an invoice that includes references relating both to the Margin Scheme and to exemption from VAT if it is apparent from a subsequent check carried out by those authorities that the taxable dealer supplying the second-hand goods had not actually applied that scheme to the supply of those goods.
Judgment
The Court held that “it is not obvious that the double reference should arouse the suspicions of a prudent trader who is not a VAT expert as to the existence of an infringement or fraud committed by a trader at an earlier stage.”
The Court therefore decided that a tax authority cannot deny a taxable person acting in good faith the right to use the Margin Scheme where he receives an invoice that refers to both the Margin Scheme and a VAT exemption.
Position in Ireland
Time will tell how the Irish Revenue and HMRC will interpret the decision in this case where Irish and UK dealers who are not VAT experts act in good faith.
The full judgement is available at
