ECJ Ruling on Triangular Transactions Involving Four Parties: Case T‑646/24 Explained

ECJ Case T‑646/24 revolves around an atypical triangular transaction that, in reality, included four parties. The central role in this case was played by MS, a Slovenian VAT-registered commercial company, and the Slovenian Tax Authority, which, following the findings of the Danish Tax Administration, claimed that the transaction cannot be treated as a triangular transaction.

The main reason for this decision was that more than two supplies were included in a single transport from Germany to Denmark. Based on these findings and the tax audit, the Slovenian Tax Authority held that MS was responsible for paying a total of EUR 1,8 million in VAT.

Background of the Case 

MS carried out a cross-border trading of goods within the EU in 2015 and 2016, purchasing soya seed, rapeseed presscakes, and rapeseed oil from a German VAT-registered supplier, using its Slovenian VAT identification number. These goods were later resold to three Danish VAT-registered customers. Also, MS arranged and paid for transport, and the goods were shipped directly from Germany to Denmark, without physically entering Slovenia.

Due to this setup, MS treated these transactions as part of a triangular trade, declaring both the acquisitions and the onward supplies in its Slovenian VAT return and recapitulative statement. Additionally, the company issued invoices to its Danish customers stating a reverse charge.

The Slovenian Tax Authority requested that the Danish Tax Administration verify whether the Danish companies to which MS had resold the goods had correctly declared the intra-Community acquisitions, accounted for and paid the VAT due, and actually received the goods. The Danish Tax Administration replied that companies had not done so, adding that, based on their findings, they had not acquired the goods, had not declared or paid the corresponding VAT, and did not have any warehouses or business premises in Denmark.

As a result of these findings, the Danish Tax Administration classified these companies as missing traders. Additionally, this meant that the VAT due on intra-Community acquisitions was not paid in either Denmark or Slovenia, resulting in a complete loss of VAT revenue on those transactions.

The Danish Tax Administration determined that the goods purchased by MS were delivered, under MS’s transport organization, to storage or mixing facilities in Denmark, where they were collected by various companies acting on behalf of ANC Group. This Danish company was the ultimate customer of the three Danish companies previously mentioned. Thus, the supply chain included four parties acting in three EU countries: the German supplier, MS in Slovenia, a Danish company that purchased from MS, and finally ANC Group.

As a consequence of these findings, the Slovenian Tax Authority conducted a tax audit of MS covering 2015 and 2016. It determined that the company owes a total of EUR 1,8 million in VAT for those two years, reflecting unpaid VAT obligations linked to these cross-border transactions. The Tax Authority determined that MS was not entitled to apply the triangular transaction because a single transport operation involved more than two supplies of goods. The Ministry of Finance later upheld such a decision in the MS appeal proceedings.

MS further appealed to the Administrative Court of Slovenia, seeking annulment of the Tax Authority’s decision, arguing that the requirements of Article 141 of the VAT Directive are met in this case. Moreover, the MS claimed that in the EU countries where the third party in the chain is VAT-registered, the goods are ultimately delivered to a fourth party, which does not prevent the transaction from being classified as a triangular transaction.

Due to many uncertainties and specifics of this case, the Administrative Court decided to pause the proceeding and request a preliminary ruling from the Court of Justice of the European Union (ECJ).

Main Questions from Request For Ruling

The Administrative Court raised three questions before the ECJ. The first question asks whether Article 141(c) of the EU VAT Directive should be interpreted as satisfied when the goods are supplied under a single transport operation directly to the customer of the person acquiring the goods, rather than to the third person in the transaction chain, provided that the final customer is VAT-registered in the same EU country as the third person.

With the second question, the Court sought clarification on whether the awareness of the subsequent supply by the person claiming the triangular transactions simplification, in this case, MS, is relevant to satisfying the condition in Article 141(c).

Depending on the answers to the first two questions, the Administrative Court, with its third question, requested an interpretation of the first paragraph of Article 41 of the EU VAT Directive. More specifically, the Court sought to determine whether VAT may be accounted for in Slovenia when a taxable person knew or should have known that they were participating in transactions constituting an abuse of the VAT system, and whether the taxable amount can still be reduced.

Applicable EU VAT Directive Article

In addition to Articles 41 and 141, which were directly mentioned in the referred question, other relevant articles for this case include Article 14(1), which establishes what supply of goods means, and Article 20(1), which defines intra-Community acquisition of goods. Additionally, Title V of the Directive, which addresses the place of taxable transactions, specifying that the place of an intra-Community acquisition is generally where the transport of the goods ends, was also noted as relevant to this case.

Furthemore, the ECJ interpreted Article 197, which specifies that the person receiving the goods is liable for VAT when the conditions of Article 141 are satisfied, including that the goods are dispatched directly to the person for whom the subsequent supply is intended, that person is VAT-registered, and designated as liable for VAT under Article 197, and the invoice is issued correctly. Finally, Article 226, which sets out the invoice requirements, was interpreted to resolve this dispute.

Slovenia National VAT Rules 

Regarding the national VAT rules, the ECJ noted that the EU VAT Directive was incorporated into Slovenian law through the 2006 VAT Law and its accompanying Implementing Regulation. The most relevant articles for this case, as highlighted by the ECJ, were Articles 23, 48(2), 76(1)(4) of the VAT Law, and Article 27 of the Implementing Regulation.

Importance of the Case for Taxable Persons

Considering the importance of the EU's Single Market and triangular transactions as key drivers of trade within the EU, the ECJ's interpretation in this case clarifies their applicability to complex, cross-border situations, especially when more than the usual three parties are involved. Additionally, the case sheds light on two key points: the flexibility of administrative simplifications for triangular transactions, and the severe consequences for taxable persons who knowingly participate in VAT fraud.

Analysis of the Court Findings

Under established case law, the triangular transaction occurs when a VAT-registered supplier supplies goods in one EU country to an intermediary in a second EU country, who then supplies the goods to a final customer in a third EU country, with the goods transported directly from the first to the third EU country.

This exemption from the general rule, which typically subjects intra-Community acquisitions to VAT in the EU country where the goods are received, allows the second party to apply the simplification and shift VAT obligations to the final customer under the conditions set out for triangular transactions. 

However, the ECJ noted that in this case the transaction differs from a standard triangular transaction, which typically involves only three parties. In the present case, the supply chain includes four VAT-registered taxable persons, operating in three EU countries. Additionally, the final transaction between two Danish companies occurs within the same EU country, Denmark.

Since the subsequent supply was not made to the third party in the chain, but directly to that party’s customer, a fourth party, the core issue is whether such a delivery structure is compatible with the triangular transaction simplification. Therefore, the primary focus was on how the concept of “the person to whom the subsequent supply is to be made” should be interpreted.

The ECJ started the interpretation by stating that the EU VAT Directive defines a supply of goods as the transfer of the right to dispose of tangible property as owner. However, the established case law does not limit the notion to a formal transfer of legal ownership under national law. As a result, the definition covers any situation in which tangible property is transferred in such a way that the recipient is able, in practice, to dispose of it as if they were the owner. 

Therefore, the VAT Directive does not require the recipient to physically take possession of the goods or to have the goods physically transported to or received by that person. What is essential is the ability to dispose of the goods as the owner, not actual physical control or delivery. 

Furthermore, the ECJ clarified that the fact that goods are not received directly from the person issuing the invoice does not automatically indicate fraud, and that it is a usual situation when, like in this case, there are two successive sales of the same goods and the goods are transported directly from the first seller to the final acquirer. Notably, the first acquirer need not have obtained legal ownership of the goods at the time of transport.

Regarding the second question, the ECJ stated that, in light of its reasoning on the first question, the awareness of the taxable person applying the triangular transaction simplification of the fact that goods were not supplied to the person for whom the subsequent supply was formally carried out, but instead delivered directly to that person’s customer, is irrelevant.

In addressing the third question, the ECJ recalled its settled case-law that EU law cannot be relied upon for an abusive or fraudulent purpose, adding that combating tax evasion, avoidance, and abuse is a fundamental objective of the EU VAT Directive. Nonetheless, it is up to national authorities and courts to deny the benefits conferred by the EU VAT Directive when those benefits are claimed fraudulently or abusively, regardless of whether the right concerns a deduction, an exemption, or a VAT refund for intra-Community supplies.

The same logic applies not only when the taxable person directly engages in tax evasion, but also when the taxable person knew, or should have known, that the transaction involved participation in VAT evasion by the supplier or another party elsewhere in the supply chain.

Courts Final Decision

The ECJ ruled that Article 141(c) must be interpreted to mean that in a triangular transaction, the condition set out in that provision is satisfied even if the goods are not physically delivered to the person for whom the subsequent supply is made, but are instead delivered directly to that person’s customer. However, the final customer must be VAT-identified in the same EU country as the reseller.

Furthemore, the fact that the operator benefiting from the triangular transaction simplification is aware that the goods are delivered directly to the customer, rather than the intermediary, does not affect compliance with triangular transaction provisions.

And finally, the EU VAT Directive allows the EU countries' authorities and courts that issued the VAT identification number to deny a taxable person the benefits of the triangular transaction scheme and the reduction in the taxable amount, if the taxable person knew or should have known that the transaction involved participation in VAT fraud within the supply chain.

Conclusion

By confirming that triangular transaction simplifications can still apply even when goods are delivered directly to the customer rather than the intermediary, as long as the customer is VAT-registered in the same EU country as the intermediary, the ECJ interpretations bring important clarity for businesses engaged in cross-border trade within the EU. 

Additionally, the ruling reinforces that taxable persons must exercise due diligence and cannot exploit these rules to participate in VAT fraud, as national authorities have the power to deny the benefits of the scheme and any related reductions in taxable amounts.

Source: Case T‑646/24 - MS Ključarovci d.o.o., in liquidation v Republic of Slovenia, EU VAT Directive