Luxury Trust Automobil ECJ Case: Intra-Community Triangular Transactions and VAT Rules

The Luxury Trust Automobile case involves the interpretation of the EU VAT rules for the intra-Community triangular transactions. The main point of dispute between the company and the Austrian Tax Authority was the Tax Authority's rejection of a triangular transaction scheme due to invoicing deficiencies, specifically the absence of the required “Reverse charge” phrase on invoices.

In this case, the ECJ delved deep into not only the wording but also the broader context of applicable EU VAT Directive provisions to clarify the strict conditions for applying triangular transaction exemptions.

Background of the Case 

Luxury Trust Automobile (Luxury Trust) is an Australian-based company engaged in luxury vehicles brokerage and sales across the EU and outside the EU. In 2014, the company bought vehicles from a UK-based supplier and sold them to M s.r.o. (M), a Czech-based company. 

For these transactions, all three companies used VAT numbers of their respective countries. Additionally, Luxury Trust issued three invoices in March 2014, which included its Austrian VAT number, and VAT numbers of the Czech buyer and the UK supplier. Accordingly, in its recapitulative statement, the Luxury Trust identified the transactions as exempt intra-Community triangular transactions.

However, during a tax inspection, the Austrian Tax Authority determined that the triangular transaction scheme could not be applied to these transactions, as the invoices did not meet the specified requirements of the Austrian VAT Law. More specifically, the invoices did not include a statement relating to the transfer of tax liability.

Consequently, the transactions were classified as failed triangular transactions. They could not be corrected retrospectively, resulting in the transactions being categorized as intra-Community acquisitions that occurred in Austria. Therefore, the Tax Authority issued a decision on April 25, 2016, imposing VAT on the company for 2014.

Nevertheless, the company corrected the invoices on May 23, 2016, and included a reference to the transfer of liability to the M. However, the company did not prove that those invoices had ever been delivered to the Czech buyer. To further complicate the situation, the Czech Tax Authority classified M as a missing trader because it was unable to establish contact with the company.

Following the Tax Authority's decision, Luxury Trust appealed. However, the Baden Mödling Tax Office denied the company's claims, leading to the appeal before the Austrian Federal Finance Court. The Federal Finance Court underlined that applying the rules on triangular transactions is not compulsory in situations like the one involving Luxury Trust. 

It further added that when the scheme is used, an invoice must be issued that includes the details specified in the VAT Law, especially the statement that the VAT liability falls on the final customer. Since the company failed to do so, the transaction must be assessed under general VAT rules. Therefore, the transactions must be treated as intra-Community acquisitions of goods. The exemption would apply if a company could prove that the acquisition was taxed in the Czech Republic, which it did not do.

Unwilling to accept the outcome of the dispute, Luxury Trust appealed to the Austrian Supreme Administrative Court. During the proceedings, the Supreme Administrative Court underlined that the central issue was whether VAT is payable under the second sentence of Paragraph 3(8) of the Austrian VAT Law. The stated article imposes additional taxation on an intra-Community acquisition that is deemed to have occurred simply because an Austrian VAT identification number was used in the transaction.

Additionally, the Supreme Administrative Court recognized and highlighted three specific legal complexities that arise from the situation in question. After elaborating on those three key issues, the Supreme Administrative Court decided to pause the proceedings and refer three questions for a preliminary ruling to the European Court of Justice (ECJ).

Main Questions from Request For Ruling

The first referred question was whether Article 42(a) of the EU VAT Directive, when read together with Article 197(1)(c), should be understood to mean that the recipient of a supply can be considered as designated liable for VAT if the invoice includes the phrase “Exempt intra-Community triangular transaction.”

The second question is closely related to the first one. If the answer to the first question is negative, the Supreme Administrative Court inquired whether the invoice can be amended to retroactively include a proper reference, such as an intra-Community triangular transaction. Additionally, it raises the question of whether this correction is only valid if the customer receives the amended invoice. Lastly, if such a change to the invoice is valid, will it have a retroactive effect from the original invoice date?

With its final question, the Supreme Administrative Court asked whether Article 219a of the EU VAT Directive should be interpreted to mean that the applicable invoicing rules are determined based on the EU country whose laws would apply if the customer has not yet been designated as the person liable for VAT on the invoice. Alternatively, the Court sought to determine whether the invoicing rules should instead follow the laws of the EU country that would apply if the designation of the customer as VAT-liable were considered valid. 

Applicable EU VAT Directive Article

The most relevant articles from the EU VAT Directive for this case were Articles 2(1)(b)(i), Articles 40 to 42, 141, 197(1), 219a, 226. Article 2(1)(b)(i) identifies that transactions relating to intra-Community acquisition of goods for a fee are taxable. 

Articles 40 and 41 define the general rules for determining the place of taxation for intra-Community acquisitions, as well as the secondary rule, which states that the acquisition is deemed to occur in the EU country that issued the VAT ID used by the acquirer, unless VAT has been applied in the destination EU country. Article 42 provides exemptions under which the deemed acquisition rule of Article 41 does not apply.

Additionally, Article 141 outlines conditions for exempting an intra-Community acquisition from VAT in a triangular transaction. Furthermore, Article 197(1) shifts VAT liability to the recipient of a supply, that is, the customer, when the transaction meets the conditions of Article 141, and the supplier is not established in the EU country of supply.

Finally, Articles 219a and 226 determine which EU countries' invoicing rules apply and specify that invoices must include the phrase “Reverse charge” when the customer is liable for VAT, respectively.

In addition to these EU VAT Directive articles, the ECJ interpreted Recital 7 of Directive 2010/45, which underlines the rationale behind changes made to the EU VAT Directive regarding invoicing requirements.

Austria National VAT Rules

Regarding Austrian national legislation, Articles 3(8) and 25 of the Law on Turnover Tax are the most relevant. While Article 3(8) establishes the rules for determining the place of an intra-Community acquisition, Article 25 defines and regulates triangular transactions.

Importance of the Case for Taxable Persons

Considering that the matter of triangular transactions may be complex in practice, the case between the Luxury Trust and the Austrian Tax Authority provides a much-needed clarification of applicable rules. 

More specifically, the ECJ's interpretation of regulations and established case law is helpful for taxable persons involved in triangular transactions, as it elaborates on key conditions and requirements, such as VAT liability designation, invoice correction, and applicable invoicing rules under the EU VAT Directive.

Analysis of the Court Findings

Firstly, the ECJ underlined that a triangular transaction involves three parties in different EU countries: a supplier in one EU country, an intermediary in another, and a final customer in a third. Additionally, goods move directly from the first to the third country. 

This structure would typically impose VAT duties on the intermediary’s intra-Community acquisition. However, since the EU VAT Directive provides a derogation from the rule, VAT liability is shifted to the final customer in the third EU country.

More specifically, Article 40 establishes that an intra-Community acquisition is taxed in the EU country where the transport of goods ends. Article 41 includes an additional safeguard, stating that if the acquirer cannot prove that VAT was applied in the EU country of arrival, the acquisition is deemed to have taken place in the EU country that issued the VAT number used for the transaction.

However, Article 42 creates a specific derogation from this mechanism for triangular transactions, providing that the acquisition is not taxed in the EU country of the VAT number used if two conditions are met. The first condition is that the intermediary proves that the acquisition is for a subsequent supply in the destination country and that the final customer has been designated as liable for the VAT. Additionally, the intermediary must comply with the reporting obligations for recapitulative statements.

Therefore, to answer the first question, it is necessary to consider the broader legal context in which Article 42 appears, the purpose behind the rules it supports, and the established case law of the ECJ. The ECJ underlined that Article 42 provides an exemption from the general rules, and its application depends on meeting two stated cumulative conditions. 

Secondly, Article 42 complements and elaborates on the requirements of the simplification rule found in Article 141, which outlines conditions for exempting an intra-Community acquisition from VAT in a triangular transaction. Both Articles 42 and 141 are linked to Article 197, which itself mandates adherence to the invoicing rules in Article 226, which requires that the invoice explicitly states “Reverse charge”.

Finally, the ECJ emphasized that the purpose of these provisions is to exempt the intermediary acquiring the goods from the obligation to register and declare VAT in the EU country where the goods are delivered, while ensuring that VAT is correctly paid by the final customer and preventing double taxation. 

The Advocate General, in its Opinion, added that the key responsibility is to inform the recipient about the tax treatment of the transaction, which is especially important when the issuer indicates that the recipient, rather than the issuer, is liable for the VAT.

Notably, the invoice is the critical component of these transactions. In that regard, the ECJ noted that in previous cases it had held that while VAT neutrality requires allowing input VAT deduction or refund even if formal requirements are not fully met, this is conditional on the substantive requirements being fulfilled. Consequently, it is not possible to correct an invoice by adding a mandatory element. The Advocate General noted that it is vital to fulfill the requirements when the invoice is issued for the first time, and that issuance cannot be retroactive.

Courts Final Decision

The ECJ ruled that, according to the case law, the wording and broader context of the stated Articles indicate that, in a triangular transaction, the final customer is not validly designated as liable for VAT if the invoice issued by the intermediary acquiring the goods does not include the phrase “Reverse charge”.

Additionally, not including the phrase “Reverse charge” on an invoice cannot be later corrected by adding a statement indicating that the invoice relates to an intra-Community triangular transaction and that the tax liability has shifted to the person receiving the supply.

Regarding the third question, the ECJ did not answer it because, based on the answers to the first two questions, the explanation for the third question does not affect the case’s outcome.

Conclusion

Under the ECJ ruling, the Luxury Trust Automobil did not meet the strictly specified invoicing conditions, and the later issued corrected invoice cannot be accepted as valid for the transaction in question. Since the rule in question is an exemption to the general rules, all conditions must be fulfilled at the time of invoice issuance. 

Even though the company later issued corrected invoices, their application cannot be retroactive, which means that they do not affect transactions from 2014. Therefore, the ECJ decision highlights the fulfilment of the mandatory elements of invoices in a triangular transaction.

Source: Case C‑247/21 - Luxury Trust Automobil GmbH v Tax Office, Austria, EU VAT Directive, Directive 2010/45