Case C 368/21) - is import VAT automatically due when a customs debt upon import arises?

A recent European judgment (Case C 368/21) confirms once again that the chargeability of import VAT does not automatically arise from a customs debt. As opposed to customs, for the chargeability of VAT it is important to know, in which country, the goods are introduced into the economic circuit of the EU.
1- Facts

The facts of this case were as follows.
In January 2019, RT, based in Germany, purchased, and registered a vehicle in Georgia.

In March 2019, RT travelled in the same vehicle from Georgia to Germany, via Turkey, Bulgaria, Serbia, Hungary, and Austria respectively.

The vehicle was not declared at a customs office of importation. An assessment for customs duties and import VAT was imposed on RT for failing to present the vehicle at the first customs office in the EU, in breach of its obligation under Article 139 of Regulation No 952/2013.

It was asserted that the vehicle had been imported into the customs territory in breach of the legislation, thereby giving rise to a customs debt on import (Article 79(1)(a)). Therefore, it was also claimed that import VAT was mutatis mutandis due on the basis of this customs infringement.

RT has appealed against this assessment. The referring court considers that it is beyond dispute that the customs debt was incurred. However, it doubts whether Germany is competent to also impose import VAT.

2- Question

In this case, the question arose in which country import VAT had to be paid.

More specifically, is the place of importation the Member State where the customs infringement was committed (Bulgaria), or in the Member State where the vehicle is destined to be used (Germany)?

3- Judgment

First of all, the Court points out that, where imported goods are subject to customs duties, the Member States may link the chargeable event and the chargeability of the import VAT to that of the customs duties.

Therefore, a VAT debt may arise from a customs debt where, on the basis of the conduct which gave rise to the customs debt, it can be presumed that the goods concerned have entered the economic circuit of the EU and could have been the subject of consumption.

However, this presumption can be rebutted if it is established that, despite the customs infringements (which lead to the incurrence of a customs debt in the Member State where those customs infringements were committed), goods have been introduced into the economic circuit via another Member State. In which case the chargeable event for VAT on importation takes place in that other Member State (i.e. where the goods are intended for consumption).

In the present case, the Court of Justice noted that the vehicle travelled through several Member States on its journey from Georgia to Germany. The owner, RT, was resident in Germany, where he used the vehicle upon arrival.

Referring to previous case law, the Court of Justice ruled that it must be assumed that this vehicle, notwithstanding its first use and physical entry into the territory of the EU via Bulgaria, was actually intended for use in Germany.

Since the vehicle entered the EU economic circuit in the latter Member State, its importation took place in Germany in accordance with Articles 30 and 60 of the VAT Directive.

This conclusion is not contradicted by the fact that the first use of the vehicle took place in Bulgaria. Under previous case law (C-26/18 Federal Express Corporation Deutsche Niederlassung), goods, even if they have physically entered a Member State, can be deemed to have entered the EU economic circuit on the territory of another Member State. This is the case when those goods were "intended for consumption" in the last Member State. In such a case, the goods concerned are deemed to have entered the economic circuit of the EU in the Member State of their final destination and the import VAT is due in that Member State.

4- Comment

The VAT authorities have the reflex to reclaim VAT on imports each time a customs debt incurs.

The reasoning is that the chargeability of VAT on imports is linked to customs regulations.

Under the provisions of the VAT legislation, customs duties and import VAT are also linked. However, EU case law adds further nuance to this “automatic” link and only allows such link if the goods have been brought into the economic circuit of the European Union via the Member State. In this case, infringements under customs law were not sufficient grounds for establishing a debt of import VAT.

This case makes it again very clear that the customs and VAT rules cannot be applied on 'one-to-one' basis.