On February 21st, 2018, the European Court of Justice (ECJ) passed a judgment concerning Kreuzmayer’s (a manufacturing company registered for VAT in Austria) right to deduct input VAT on cross-border chain transactions carried out in 2008.
A British Petroleum affiliate in Germany (BP) sold petroleum products to BIDI Ltd (an Austrian VAT registered company). As BIDI had agreed to transport the goods to Austria, BP marked the transaction as intra-community trade and zero-rated the transaction.
Unknown to BP, BIDI resold the goods to Kreuzmayer, the third company in the chain transaction who was not entrusted to pick up the goods from Germany. On learning this, BP corrected the invoice and charged German VAT on the transaction with BIDI. However, Kreuzmayer had already paid Austrian VAT charged by BIDI.
When Kreuzmayer requested the VAT refund from the Austrian tax authorities, it was discovered that BIDI never paid the VAT to the authorities and therefore the refund request was rejected. By this time, Kreuzmayer couldn’t do anything as BIDI had gone into insolvency.
As Kreuzmayer got ownership of the goods before they were transported, the second supply is considered to be exempt of VAT based on the fact that it was an intra community dispatch.
The Federal Finance Court in Austria referred the case to the ECJ, which after the preliminary hearing passed the judgement. Since the VAT was charged incorrectly, Kreuzmayer is not entitled to receive a VAT refund on this transaction from the tax authorities.
How does this affect your business?
For any business in the EU, this case serves as a warning to be more vigilant regarding the physical location of goods in a chain transaction and the accuracy of the VAT charged and paid, as incorrectly charged VAT cannot be recovered and penalties could be imposed.