European Union: CJEU criterion on certain disputes arising from supply chain transactions

European Union: CJEU criterion on certain disputes arising from supply chain transactions

In brief

On 7 July 2022, the Court of Justice of the European Union (CJEU) issued its judgment in case C-696/20 (B. v. Dyrektor Izby Skarbowej w W.). The case relates to a supply chain involving the movement of goods from Poland to a different member state, in which three parties were involved. The parties incorrectly classified the first supply in the chain as a domestic supply, when it should have been classified as an intra-community supply (ICS) because the transport was assigned to the first supply.

The effect attributed by the Polish Tax Authorities (PTA) is that the first transaction represents an ICS, but the VAT exemption applicable to an ICS could not be applied because the intermediary provided a Polish VAT number rather than a VAT number in another Member State. In addition, as the acquisition must be taxed as an intra-community acquisition in Poland under article 41 of the EU VAT Directive (“Article 41“) (as it was not declared in the destination country), there was effective double taxation (i.e., 23% Polish VAT paid twice, 46%).


  1. CJEU judgment of 7 July 2022 (Case C-696/20)
  2. Comment
  3. Recommended actions

However, the CJEU found that the principles of proportionality and fiscal neutrality prevent a double taxation (i.e., a non-exempt ICS and a non-deductible intra-community acquisition). As a result, the member state where both the ICS and the intra-community acquisition takes place cannot levy VAT on the latter. However, the taxpayer is still confronted with non-deductible VAT on a non-exempt ICS.

We provided a news update on this important judgment in July 2022. This alert provides an overview of the impact this judgment may have in several EU jurisdictions.

Even though the decision of the CJEU cannot be simply extrapolated to situations that are different than the one analyzed, and the principle of neutrality requires legislation to be drafted and enacted narrowly,1 it is a positive decision to defend against the risk of double taxation in situations similar to the one described above (for example, situations where the transport was incorrectly allocated by the taxpayer).

CJEU judgment of 7 July 2022 (Case C-696/20)

The following facts were considered by the court:

  • Company B (“Company“) is a Dutch entity that is VAT registered in Poland and acted as an intermediary between the supplier and the recipient in chain transactions.
  • The goods were transported by the supplier (“BOP“) from Poland directly to the last operator in the chain, in a different member state.
  • The parties classified the supplies made by BOP to the Company as domestic deliveries. Therefore, those supplies were not exempted, and the Company provided its Polish VAT number. At the same time, the deliveries made by the Company to its clients in other member states were exempted as intra-community deliveries from Poland.
  • The director of the Polish tax audit office (PTA) identified the first delivery made by BOP as an intra-community supply of goods in Poland, but determined that it could not be exempted because the Company provided a Polish VAT number. In addition, the PTA considered that the Company undertook the subsequent intra-community acquisition of goods in Poland rather than the Member State of delivery, pursuant to Article 41 (i.e., the anti-avoidance rule, as the intra-community acquisition was not taxed as such in the destination country).
  • The CJEU analyzed if the regularization made by the PTA was contrary to the VAT Directive and the principles of proportionality and neutrality, considering that the intra-community acquisition was already taxed in the same territory (pursuant to Article 41); and the actions of the parties did not involve any tax fraud. Rather, they were the result of an incorrect designation of supplies in chain transactions, for which the intermediary’s Polish VAT identification number was provided.

The CJEU concluded that Article 41 does not preclude national legislation under which an intra-EU acquisition of goods is deemed to be located in the territory of a member state — the one where the transport of the goods begins, which is the state in which the purchaser is identified — when that acquisition has been erroneously classified as a domestic transaction by the taxable persons involved. This is irrespective of whether the subsequent transaction, which was erroneously classified as an intra-community transaction, has given rise to a taxable intra-community acquisition in the member state of the goods’ arrival, as the VAT on this intra-EU acquisition corresponds to the next purchaser of the goods, not to the intermediate purchaser.

However, this provision, interpreted in light of the principles of proportionality and fiscal neutrality, is contrary to the aforementioned rules when that intra-community acquisition derives from an intra-EU supply that has not been treated as an exempt transaction in that member state, thus giving rise to double taxation of the transaction.


Since the reforms that took place with effect from 2020 (known as “Quick Fixes“) were introduced, in order to apply the exemption relating to intra-community supplies of goods (i.e., article 138 of the EU VAT Directive) it is required on the one hand (i) that the recipient of the transaction for whom the supply is made is identified for VAT purposes in a member state other than that in which the dispatch or transport of the goods begins and has indicated this VAT identification number to the supplier (“Counterparty VAT ID“); and on the other hand (ii) that the dispatcher correctly submits its EC Sales Lists (“Recapitulative Statement“). The Quick Fixes also introduced rules to assign the transport to the relevant supplies in a chain supply.

Such requirements could imply that in case of failure to comply, there could be a potential double taxation, as the intra-community supply could be taxed in the member state of origin and in the member state of destination, as an intra-community acquisition of goods (additionally, article 16 of EU Regulation 282/2011 permits that the member state in which the dispatch or transport ends exercises its power of taxation, irrespective of the VAT treatment applied to the transaction in the member state in which the dispatch or transport began). It should be also considered that article 4 of EU Directive 2008/92 does not permit recovery of input VAT charged in an intra-community supply that might be exempted, so this provision does not preclude the double taxation matter. To date, there are no EU legislative measures implemented to mitigate or eliminate this risk.

The position of the tax authorities in different EU member states varies. In certain countries such as Germany or Poland, the competent authorities are very strict and actively pursue taxation in the manner asserted by the Polish authorities in the present case, while in other member states the authorities tend to be more flexible and directly apply the principles of proportionality and fiscal neutrality.

In Germany, the tax authorities are quite strict. In general, there is a risk that – if a comparable case would occur in Germany (i.e., chain transaction between A, B and C; A and B are resident in Germany and B uses its German VAT ID), the German authorities could asses acquisition VAT against B. This would be in line with the German VAT guidelines for the tax administration (compare Sec. 3.14 Para. 13, Example 1) which clearly state that in such a case, B owes acquisition VAT in Germany due to the use of its German VAT ID until he can demonstrate that he has reported acquisition VAT in the country of destination. In addition, the authorities could assess VAT against A due to the issuance of an invoice with VAT (Sec. § 14c UStG). Usually, in the case of an incorrect VAT invoice, A could correct the invoice, repay the VAT to B, and then claim a refund of the remitted VAT from its tax office. In the case at hand, the tax authorities could, however, deny a refund of the VAT and argue that the material requirements for the VAT exemption of the intra-community supply are not met since B did not use a VAT ID of the country of destination and A did not properly declare the intra-community supply in its European Sales Lists. In order to remedy this, it might be possible for A to retroactively collect a VAT ID of the country of destination from B (if the authorities of the country of destination issue VAT IDs with a retroactive effect) and to correct its respective European Sales List by including the intra-community supply to B within a certain time period. If such corrections are not possible, from a mere technical perspective, the tax authorities might assess German VAT against A and German acquisition VAT against B. We would, however, assume that if the tax authorities would actually double-assess VAT, this could be successfully challenged since they should take into account the principles of proportionality and fiscal neutrality. However, even if the authorities would only assess VAT once, they would likely deny an input VAT deduction right on the level of B, so that there would still be a VAT burden for B.

In Italy, the approach of the Authorities could also be rigid. Following the implementation of the provisions of the Quick Fixes, there have been no clarifications from the tax authorities on chain transactions, apart from a mere indirect reference in Answer to the Ruling No. 101 from 10 March 2022.

Therefore, even at the Italian level, in the context of chain transactions, there may be concrete operational difficulties to which the taxable persons are exposed. In this regard, during tax audits, the Italian tax authorities’ approach can be rigid and, therefore, the risks of a challenge cannot be excluded.

Hence, in the case where (i) the departing member state is Italy and (ii) there are doubts about the qualification of a transaction, a viable solution to avoid risks such as those covered by the CJEU judgment under comment is to evaluate a ruling request with the tax authorities.

On the contrary, there are other member states that adopted a more flexible approach, for example the Czech Republic. Here, based on our experience, the tax authorities do not follow the principles of proportionality and fiscal neutrality in cases involving fraud, but do tend to follow them in situations where a wrong assessment of transactions was made unintentionally. In addition, in the Czech Republic, the taxpayer can confidently rely on CJEU case law.

Further, in respect of the Czech Republic, although it is not possible to receive a binding ruling from the Czech tax authorities relating to correct taxation of chain transactions, it is possible to arrange an unofficial discussion to seek their opinion on what the correct taxation would be. It should be noted that such an opinion would not be binding, and taxpayers should not rely on it completely. However, it may decrease the audit risk and would prove that the intention of the taxpayer was good or that the taxpayer acted in good faith.

In Spain, in general terms the position of the Authorities about this matter is also flexible. They are open to arguments about principles of proportionality and fiscal neutrality when there is no fraud in the chain, but it is true that they could issue assessments where there is double taxation based on the literal wording of the law. In such situations, the taxpayer would be forced to seek redress via the courts. In addition, it is possible to request a binding ruling with respect to the VAT classification of the transactions, but the authorities will not analyze specific means of evidence suggested by the taxpayer to prove the facts.

It is known that uniform and clear legislation at EU level in this regard is desirable, so the best scenario for legal certainty would be an EU legal package to address the potential cases of double taxation in instances where there is no evidence of fraud.

In any case, this is a positive decision in defense of the position that no double taxation may take place in situations such as those arising from the implementation of the Quick Fixes, even though the CJEU’s decision does not address these situations in general terms, leaving taxpayers open to continuing challenge by those tax authorities that adopt a strict approach, as outlined above. In addition, the principle of neutrality requires legislation to be drafted and enacted, which requires secondary community legislation.3

Recommended actions

Given the above, a VAT-sanity check of current and contemplated chain transactions is advisable, including the review of the treatment applied to intra-community transactions in the EU field and to ensure that the requirements to apply VAT exemptions are met (not only from a theoretical perspective but also diving deep on the documentary requirements). Our VAT experts can assist you with this and can identify and minimize VAT exposure.


Content is provided for educational and informational purposes only and is not intended and should not be construed as legal advice. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee similar outcomes. For more information, please visit:

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