The ECJ has ruled that a taxpayer who fulfils its obligations in relation to requisite proof and who has acted in good faith cannot be held liable for the VAT in the Member State of supply in circumstances where purchaser has committed tax fraud.

Under the VAT Directive, the sale in a Member State of goods dispatched or transported to a destination in another Member State, for a purchaser liable to VAT in a Member State other than that in which dispatch or transport of the goods began, is exempt from VAT. In such cases, it is the purchaser which is liable for VAT in the country of destination.

In the Case C-273/11 Mecsek-Gabona Kft v Nemzeti Adó- és V·mhivatal Dél-dun·nt?li Region·lis Adó Foigazgatós·ga, the Court of Justice was asked to determine what constitutes satisfactory evidence that a tax-exempt supply of goods has taken place.

Mecsek-Gabona, a Hungarian company, sold goods to a company established in Italy in August 2009. The Italian company provided its VAT identification number and proof that the goods had been transported to a destination outside Hungary. Mecsek-Gabona issued two invoices in respect of that transaction. In the belief that the operation was an intra-community transaction exempt from VAT in Hungary, Mecsek-Gabona did not invoice the VAT to the purchaser and did not pay it to the Hungarian tax authority.

However, the Italian tax authority discovered that the purchasing company could not be found and that it had never paid VAT in Italy. Consequently, in January 2010, the Italian company's VAT identification number was removed from the register with retroactive effect from 17 April 2009. The Hungarian tax authority accordingly took the view that the goods sold by Mecsek-Gabona had never been transported to another Member State and that, as a consequence, the transaction in question was not a VAT-exempt intra-Community supply of goods. For that reason, the Hungarian tax authority ordered Mecsek-Gabona to pay the VAT in respect of that transaction and imposed on it a fine and a late-payment penalty.

The ECJ in delivering its judgement stated that a vendor may not be granted the VAT exemption attaching to an intra-Community transaction if it knew or should have known that the transaction was part of a tax fraud committed by the purchaser and had not taken every step which could reasonably asked of it to prevent that fraud from being committed.

Equally, if the company has produced the requisite proof and acted in good faith, it cannot be refused the VAT exemption on the ground that the purchaser did not transport the goods to a destination outside the Member State of dispatch.

The Court also stated that a taxpayer could not be refused the right to a VAT exemption as a result of the retrospective deregistration of a VAT identification number.

For full details on the case see http://curia.europa.eu