Judgment in a case concerning value added tax

The Supreme Administrative Court has in a case concerning value added tax applied the principle that rules of EU-law cannot be relied on for abusive or fraudulent ends.

In conjunction with the sale of goods which will be subject to value added tax, it is, as a rule, the seller who is to pay the tax. In the event the goods are sold to a company in another EU country and are transported there, however, it is instead the buyer who, under certain circumstances, is to pay tax for the acquisition in the buyer’s country (so-called reverse charge procedure). The sale will then be exempt for the seller.

As a starting point, the seller’s right to exemption is not dependent on the buyer in the other EU country actually fulfilling its obligation to pay tax there. Through case law from the European Court of Justice, however, it has been made clear that a seller who knew or should have known that the seller, by virtue of the sale, became involved in tax evasion by the buyer is to be refused exemption.

In this case the Administrative Court of Appeal in Jönköping found that tax evasion exists only if a final, actual loss of value added tax occurred within the context of the supply chain. The administrative court of appeal therefore considered that a seller can be denied an exemption from tax liability only if the Swedish Tax Agency shows that no tax has been paid in the other country and that it will also not be possible to collect the tax there. The Supreme Administrative Court stated that such an approach is not supported by the case law of the European Court of Justice. The Supreme Administrative Court also stated that if the principle of abuse is given such limited scope, it would lead to value added tax in many cases not being charged in any country notwithstanding that it is clear that fraudulent acts have occurred within the context of the supply chain and that the individual knew or should have known of it. Against this background, the court found that it could not be required that there had been a final, actual loss of value added tax in order for it to be a tax evasion.

Read the judgment here: