German Federal Fiscal Court ruled that the principles of the ECJ-decisions „Italmoda, R, etc.“ are not applicable to the case using the tax exemption for exports into non-EU-countries

Note to: BFH, decison of 12.03.2020, V R 20/19

In former rulings, the Federal Court of Finance in Germany has ruled that the principles established by the ECJ relating to intentional participation in tax evasion leads to the refusal of the exemption of intra-Community supplies and the deduction of input VAT. It is crucial that the supplier knew or ought to have known about a fraudulent transaction in the supply.

In a current important ruling (court decision V R 20/19), the German Federal Fiscal Court ruled that these principles of the ECJ-decisions „Italmoda, R, etc.“ are not applicable to the case using the VAT exemption for exports into non-EU-countries.

In the case decided by the German Court the supplier was accused of having actively participated in an evasion of import duties in a third country by issuing incorrect invoices which had been declared correctly in Germany.

However, the tax authorities refused to grant the tax exemption for the export supply with reference to the (alleged) tax fraud in the country of destination.

The Federal Court of Finance stressed that it is not possible to compare the tax exemption of the intra-Community supply and the corresponding intra-Community acquisition with the tax exemption of the export supply and the subsequent import into a third country. Therefore, the case law of the ECJ on not acting with good faith by misusing the tax exemption (ECJ Italmoda, R, etc.) could not be applied to the case decided.  Among other things, the Federal Finance Court based its decision on the ECJ decision Unitel (EU:c:2019:876), in which the ECJ decided what effect possible tax evasion committed in the territory of a non-Member State might have on the applicability of the right to exemption from VAT. The decision is well worth reading and therefore contradicts the new administrative opinion in Germany (BMF letter dated 25.06.2020).

It was a pleasure for us as legal representatives to clarify this legal question.