FedEx ECJ Case: Customs Violations and VAT Implications

As one of the largest international courier companies, Federal Express (FedEx), found itself in a dispute with the German Principal Customs Office concerning the importation of goods into the EU. The case revolves around 18 lots of goods imported from non-EU countries, which are then transferred from one EU country to another during the process. Due to alleged breaches of customs procedures, the German Principal Customs Office imposed import customs duties and VAT on FedEx.

Background of the Case 

In January 2008, FedEx transported goods from three non-EU countries, Israel, Mexico, and the US, liable to import duties, to various recipients in Greece. The goods were first transported by air to Frankfurt, Germany, in 18 separate lots before continuing to Greece, also by air. In October 2008, the Greek Customs Authority informed German authorities that the goods forwarded to Greece violated customs regulations.

Consequently, the German Principal Customs Office (GPCO) determined that 14 of the 18 lots had not been adequately presented to German customs, as required by the EU Customs Code. Moreover, the GPCO concluded that such an action constituted an unlawful entry into the EU customs territory. Therefore, the GPCO found that a customs debt had arisen on four lots due to the improper introduction of these goods to the EU market.

For three of the 18 lots, the GPCO determined that the goods arrived in temporary storage at Frankfurt airport but were forwarded to Athens, Greece, without being placed under the required Community external transit procedure. Therefore, goods were moved from storage without proper authorization. Regarding the final lot, for which the external transit procedure had been correctly completed from Paris to Frankfurt, the goods were still moved from Frankfurt storage without necessary authorization.

As a consequence, on November 30 and December 1, 2010, the GPCO issued five notices to FedEx, demanding payment of import customs duties for all 18 lots. Moreover, it determined that import VAT was also due, applying the same rules as those for customs duties, as outlined in the German VAT Law.

FedEx paid customs duties and import VAT as requested by the GPCO. However, in November 2011, FedEx submitted a refund request, stating that it paid the taxes twice, contrary to EU law. The company added that the goods were released for free circulation in Athens, where Greek authorities collected the corresponding import duties and VAT. However, the GPCO rejected these refund applications.

Following FedEx's complaints, the GPCO adjusted the tax rates in two of the five original notices and issued a partial refund. Nevertheless, FedEx decided to take legal action against the GPCO before the Finance Court in Hesse, Germany, and to challenge all five notices. Ultimately, FedEx claimed that, since the goods were forwarded to Greece without entering the German economy, there is no liability for German import VAT.

After determining all the facts of the case and applying established case law, the Finance Court was uncertain whether import VAT had been validly incurred in Germany for the goods in question. Therefore, the Finance Court paused the procedure and referred two questions to the European Court of Justice (ECJ).

Main Questions from Request For Ruling

Given the legal uncertainty on the definition of importation for VAT purposes, the Finance Court asked whether, under EU VAT Directive, specifically Articles 2(1)(d) and 30, importation requires that goods introduced into the EU enter its economic network, or whether the mere risk of such entry is sufficient to trigger VAT liability.

If the ECJ determines that importation is subject to the condition that goods must enter the economic network of the EU, the second raised question asks whether goods automatically enter the economic network when they are not placed under a proper customs procedure or are later removed from one due to unlawful conduct, or whether a further presumption is needed, such as that the goods may have been consumed or used in the fiscal territory of the EU country where the customs violation occurred.

Applicable EU VAT Directive Article

The ECJ interpreted relevant provisions from both the EU Customs Code and EU VAT Directive to address the raised questions. More specifically, the ECJ interpreted Articles 40, 50, 91(1)(a), 202(1) and (2), and 203(1) and (2) for the Customs Code.

Regarding the EU VAT Directive, ECJ considered Article 2(1)(d), which establishes that the importation of goods is subject to VAT, and Article 30, which defines importation as the entry into the EU of goods not in free circulation, with an extension to certain goods coming from third territories within the EU customs area. Additionally, Articles 60 and 61, which state that the place of importation is the Member State where the goods enter the EU, and provide an exception to this rule, respectively, were also interpreted.

Furthermore, Article 70 clarifies that VAT becomes chargeable when goods are imported, and Article 71 further defines this, stating that if goods are under specific customs arrangements when entering the EU, VAT becomes chargeable only once those arrangements end. Therefore, in cases where customs duties apply, VAT is charged at the same time those duties become due. In contrast, when no duties apply, EU countries must follow the rules governing customs duties to determine when VAT is chargeable.

German National VAT Rules

In addition to paragraphs 1, 13(2), and 21(2) of the German VAT Law, the ECJ also referenced Paragraph 14 of the Federal Regulation on the Exemption from Import Tax as the most relevant provision for this case. The paragraphs from German VAT Law outline that the importation of goods into German territory is subject to import tax, which is chargeable at the same time as customs duties. 

Additionally, paragraph 14 specifies that import turnover tax must be refunded or remitted in cases outlined in Articles 235 to 242 of the EU Customs Code, with those provisions and their implementing rules also applying by analogy.

Importance of the Case for Taxable Persons

Since the case addresses the issue of when and where VAT becomes due on imported goods, particularly in cases involving transit through multiple EU countries, it may be critical for courier, logistics, and e-commerce companies operating across the EU. The case clarifies whether the mere violation of customs formalities in a transit country automatically triggers VAT liability, which is particularly helpful for businesses managing complex supply chains and international deliveries.

Analysis of the Court Findings

Regarding the first question, the ECJ noted questions referred by national courts are presumed relevant, and it will only decline to answer if the request is clearly unrelated to the case or lacks sufficient legal or factual context. 

The ECJ added that the EU VAT Directive clearly states that the importation of goods is subject to VAT, and importation means the entry into the EU of goods not in free circulation. Additionally, under established case law, VAT is intended to apply only to goods that actually enter the EU’s economic network and are capable of being consumed within it.

According to the presented facts, the ECJ concluded that it is evident from the Federal Court’s statement that the goods in question were ultimately transported to Greece, where they were consumed. This fact confirms that the goods entered the economic network of the EU, as defined by the EU VAT Directive. Because the goods were consumed within the EU, the hypothetical nature of the question renders it inadmissible according to the ECJ’s established criteria for preliminary rulings.

However, the ECJ did not reject the second question as inadmissible, and noted that while Article 60 of the EU VAT Directive defines the place of importation as the EU country where goods are physically located when they enter the EU, Article 61 provides a derogation. Therefore, if goods not in free circulation are placed under specific customs arrangements, such as external transit or temporary importation with full duty exemption, upon entry, the place of importation shifts to the EU country where those arrangements end.

Furthermore, the ECJ highlighted the importance of Article 71(2), which defines that when imported goods are subject to customs duties, agricultural levies, or similar charges under EU policy, VAT becomes chargeable at the same time those duties become due. It is apparent from well-established case law that import VAT and customs duties share similar fundamental characteristics: they both arise from the act of importing goods into the EU and their subsequent movement into the economies of EU countries.

Based on the facts of the case, the ECJ clarified that when goods subject to import duties are removed from customs supervision in a free zone and are no longer located there, it is generally presumed that those goods have entered the EU’s economic network. Considering that the goods were unlawfully introduced into the EU customs territory, specifically in Germany, it can be presumed that they entered the EU's economic network in Germany.

A similar principle applies to goods that were lawfully introduced but then removed from customs supervision while still in Germany. These goods are considered to have entered the EU’s economic network in Germany, where they ceased to be under customs control.

However, the Advocate General underlined that this presumption can be overturned if it can be demonstrated that, despite customs violations and the resulting customs debt in Germany, the goods entered the EU’s economic network in another EU country, such as Greece, where they were ultimately consumed. In that case, the import VAT is due in that EU country.

Therefore, while the goods were subject to customs law violations in Germany, they were merely transferred between aircraft within German territory. The violations resulted in the GPCO losing supervision of the goods, specifically the ability to track their movement. Nevertheless, throughout the process it was determined that the goods were transported to Greece, where they were consumed.

Courts Final Decision

While the ECJ declared that the first question is inadmissible, it concluded that violations of customs rules in one EU country, which result in customs debt, are not enough to conclude that goods entered the EU’s economic network in that EU country.

Since it has been proven that the goods were transported to and consumed in another EU country, in this case Greece, that country is considered the final destination and the point of entry into the EU’s economic network. Consequently, import VAT is due solely in Greece.

Conclusion

The ECJ ruling reinforces the principle that VAT on importation must reflect economic reality, not just procedural errors, and emphasizes that VAT becomes chargeable only in the EU country where the goods are ultimately consumed. Such a decision ensures that tax liability is not unfairly duplicated across borders due to logistical missteps or customs irregularities. 

Source: Case C-26/18 - Federal Express Corporation Deutsche Niederlassung v German Principal Customs Office, EU VAT Directive, Council Regulation (EEC) No 2913/92 - Customs Code