On 28 February 2018, the European Court of Justice (ECJ) passed a judgment concerning the exemption of VAT on goods supplied outside of the EU in the personal luggage of traveller.
A telecommunication equipment trader, Stanislaw Pieńkowski supplied goods mainly to customers outside of the EU. The Tax Authorities of Biała Podlaska, Poland notified Stanisław Pieńkowski that he qualified as a ‘vendor’ for exercising the right of VAT deduction. When Pieńkowski’s VAT returns were analysed for the tax year 2009 and 2010, the Authorities concluded that he had not supplied information to show that a VAT refund agreement with an authorised person was in place nor was he allowed to make VAT refunds to travellers personally, or through an employee.
Under these circumstances, Pieńkowski’s turnover didn’t allow him to make VAT refunds to travellers personally or through an employee, or to apply a zero VAT rate for the tax years 2010 and 2011.
Pieńkowski challenged this decision in the Regional Administrative Court, Lublin, Poland. The court suggested that minimum turnover constitutes a substantive condition on which the option for the vendor to refund the tax directly depended.
Pieńkowski appealed to the Supreme Administrative Court, Poland and pointed out that the provisions of the Law on VAT were incompatible with the provisions of the VAT Directive and with the principles of proportionality and fiscal neutrality. The court clarified that provisions of the VAT Directive do not require a taxable person to have attained a certain turnover threshold during the preceding tax year to apply the VAT exemption to goods carried in the personal luggage of travellers. However, Member States may impose other obligations they consider essential to ensure VAT compliance.
The court decided to stay the proceedings and submitted question to the ECJ for a preliminary ruling.
The ECJ concluded that if the supply of goods for export is to be carried in the personal luggage of travellers, the vendor must be a taxable person. Also, s/he must have attained a minimum level of turnover in the preceding tax year or have concluded an agreement with a person authorised to refund VAT to travellers.
In this case, Pieńkowski’s failure to meet one of these conditions resulted in the definitive loss of the exemption in relation to that supply.
Click here for the the detailed proceedings of the court
How does this affect your business?
If you are an EU business that exports goods by personal travellers, you are eligible to claim the VAT back if you are a taxable person and your business has earned at least the minimum turnover in the previous tax year or have an agreement with an authorised person and refund the charged VAT to the travellers.