VAT exemption for exports: Actual circumstances are decisive.

In its judgment of 1 August 2025 in Case C-602/24, the European Court of Justice (ECJ) addressed the conditions for VAT exemption on the export of goods under VAT Directive 2006/112/EC. The Court clarified that supplies originally declared by the supplier as intra-Community supplies, but subsequently delivered by the purchaser to locations outside the EU without the supplier's knowledge, can also qualify for VAT exemption. The Court thus reaffirmed that the actual circumstances alone are decisive for VAT exemption, and the taxpayer's intentions and beliefs are irrelevant. Formal requirements under national law must not preclude this. As in all cases of this kind, this does not apply if the taxpayer acts in bad faith. Continuing its previous case law, the ECJ emphasizes the principle of fiscal neutrality, the importance of good faith, and the irrelevance of formal violations if the substantive requirements for VAT exemption are met. Background of the decision: Export of apples. The judgment deals with the interpretation of Article 146(1)(b) of VAT Directive 2006/112/EC on VAT exemptions for exports. According to this provision, Member States generally exempt from VAT transactions on the supply of goods that are dispatched or transported by, or on behalf of, a purchaser not established in their territory to places outside the EU. The decisive question was whether this VAT exemption can also apply if the supplier did not intend to export and was unaware of the export, but it was only discovered by the tax authorities. The initial proceedings concerned a Polish company that declared the delivery of apples to a Latvian company (the purchaser) as a tax-exempt intra-Community supply in its VAT return. According to the transport documents, the apples were to be transported from Poland to Lithuania. The transport was organized by the purchaser. However, the Polish tax authorities determined that the purchaser had exported the apples directly from Poland to Belarus and, lacking the conditions for a tax-exempt intra-Community supply, classified the delivery as a domestic supply in Poland, subject to a VAT rate of 5%. The authorities also imposed sanctions. The decision was based on the fact that the Polish company had not properly verified the destination of the goods but had relied on the transport company's formal confirmation of delivery to Lithuania. After the legal dispute had gone through several instances, the Polish Supreme Administrative Court referred the matter to the CJEU. The CJEU has repeatedly ruled that goods are considered to have been "dispatched" within the meaning of Article 146(1)(b) of VAT Directive 2006/112/EC if the following three criteria are met: First, the right to dispose of the goods as owner must have been transferred to the acquirer. Second, the supplier must prove that the goods have been dispatched or transported to a place outside the Union. Third, the goods must have physically left the territory of the European Union as a result of the dispatch or transport. These three criteria must be objectively met. Further subjective criteria, such as the taxpayer's perceptions or intentions, are irrelevant. Building on this, the ECJ now clarifies that it is immaterial whether the parties originally agreed on an intra-Community supply that ultimately did not take place. It is equally irrelevant whether the supply to locations outside the EU occurred without the supplier's knowledge. With regard to the second criterion, it is also sufficient that it has been established that the item in question was dispatched or transported to a location outside the Union, regardless of who makes this determination. In particular, this can also be done by the national tax authorities. Furthermore, the supplier has no further obligation to verify whether the delivery was carried out in accordance with the agreement between him and the purchaser if the right to dispose of the goods in question as owner has already been transferred to the purchaser. No conflicting formal requirements under national law. If these conditions are met, formal requirements of national law must not preclude the tax exemption. For example, Polish VAT law stipulates that the taxable supplier must receive a document confirming the export of the goods to locations outside the EU. This provision serves to protect against tax evasion. Regulations to protect against tax evasion, avoidance, or the abuse of advantageous arrangements are generally permissible under EU law, but only to the extent necessary to ensure this protection. The national provision, according to the ECJ, went beyond what was permissible because it essentially made the right to VAT exemption dependent on compliance with formal obligations, without taking into account the fulfillment of the three substantive criteria. The ECJ held that exceptions exist only in two cases: Firstly, a breach of a formal requirement can lead to the denial of VAT exemption if it prevents conclusive proof that the substantive requirements have been met. Secondly, the exemption can be denied if a taxable person has intentionally participated in tax evasion that jeopardizes the functioning of the common VAT system. If a taxpayer knew, or should have known, that the transaction he effected was linked to tax evasion by the purchaser, and did not take all reasonable measures to prevent it, he must be denied the right to VAT exemption. Practical Significance: The judgment confirms the view previously held by the ECJ that the actual circumstances alone are decisive for VAT exemption on exports. The decision is particularly important for companies that supply goods to third countries or whose customers forward goods to third countries. It confirms that VAT exemption is also possible if the supplier was unaware of the actual export. However, this only applies if the supplier did not act in bad faith. Companies should therefore ensure that they take all reasonable measures to prevent tax evasion and do not intentionally participate in such activities. Furthermore, the ruling clarifies that formal requirements of national law must not preclude VAT exemption if the substantive requirements are met. This is particularly relevant for companies operating in different EU Member States and subject to varying national requirements. Conclusion: The ECJ ruling confirms the established case law on VAT exemption for exports. It clarifies that only the actual circumstances are decisive for tax exemption and that formal requirements of national law must not exceed the provisions of EU law. Companies should therefore ensure that they take all reasonable measures to prevent tax evasion and do not intentionally participate in such activities.