Import VAT: Formal errors do not preclude tax exemption
The European Court of Justice (ECJ) has ruled that formal errors in the re-importation of goods—such as missing presentation to customs or missing customs declaration – do not preclude VAT exemption, provided there is no attempt at deception (Case C-125/24).
The case focused on the return of competition horses without proper customsformalities. The ECJ emphasized the primacy of substantive conditions andprotects good-faith economic operators from tax disadvantages in cases of merenegligence. The ruling strengthens legal certainty in EU customs law beyond theindividual case.
ImportVAT: Formal Errors Do Not Preclude Tax Exemption
The ECJ recently ruled that failure to meet formal obligations does not prevent import VAT exemption, provided there is no attempt at deception. Negligent breaches of formal obligations by good-faith economic operators should not block tax exemption. In the case at hand, the goods were neither presented to customs nor declared for release for free circulation.
Background: Re-importation of Competition Horses
The ruling interprets Article 143(1)(e) of the VAT Directive 2006/112/EC and Articles86(6) and 203 of the Union Customs Code (UCC). The key issue was whether the re-importation of goods—specifically competition horses—into the EU customs territory could be VAT-exempt if certain formal customs obligations were not fulfilled. The case originated in Sweden, where the owner of two horses exported to Norway and later re-imported them into the EU without proper presentation to customs and without a customs declaration. Swedish courts had ruled that VAT was due because the formal requirements for customs and VAT exemption were not met. Sweden’s Supreme Administrative Court referred the question to the ECJ: does failure to meet such formal obligations exclude VAT exemption if there is no intent to deceive?
Legal Assessment: Relationship Between Substantive and Formal Requirements
The ECJ clarified that VAT exemption for re-imported goods under Article 143(1)(e) ofthe VAT Directive is linked to customs exemption under Article 203 UCC for returned goods. Article 203 UCC includes both substantive and formal requirements: substantively, the goods must be re-imported within three years in the same condition as when exported. A formal obligation is that they must be declared for release for free circulation and presented to customs. In this case, the substantive requirements were met, as the horses were unquestionably returned to the customs territory unchanged. However, the formal requirements—especially presentation and declaration—were not fulfilled.
The ECJ referred to Article 86(6) UCC, which allows for customs exemption even if a customs debt arises due to formal errors under Article 79 UCC, provided there is no attempt at deception. This provision protects good-faith economic operators and aims to mitigate the consequences of mere negligence. The ECJ emphasized that a narrow interpretation would undermine the effectiveness of this rule. Instead, it is specifically intended for cases where formal obligations are not met without fraudulent intent.
The ECJ concluded that failure to meet formal obligations—such as presentation or declaration for release for free circulation—does not preclude VAT exemption under Article 143(1)(e) of the VAT Directive, provided there is no attempt at deception. This interpretation is supported by Recital 38 of the UCC, which protects the good faith of the parties involved.
Significance Beyond Re-importation
The ruling increases legal certainty for importers and their representatives and underscores the importance of good faith in EU customs law. It clarifies that formal errors should not automatically lead to tax disadvantages if the substantive conditions are met and there is no fraudulent intent. The Court’s reasoning can be applied beyond re-importation to various situations where companies negligently breach formal requirements for tax exemption, while all substantive conditions are fulfilled.
