Finanzgericht: No import turnover tax without consumption in Germany

In its express decision 7 V 2256/17 of 26.06.2018, the Hessian Finance Court (FG) commented on the place of import and on the occurrence of import turnover tax in the event of the unexplained whereabouts of goods placed under the external transit procedure.

The FG dealt in detail with the question of whether the failure to present goods within the presentation period gives rise to a customs debt pursuant to Art. 203 or Art. 204 of the Customs Code (CC) and which regulations actually govern the place of importation of goods for import turnover tax. This much may be anticipated: in this respect the FG has not followed the previous jurisdiction of the Federal Finance Court (BFH) and considers the way of the BFH to be inadmissible.

This is an urgent procedure followed by a main action procedure. The legal provisions of the FG are already very important for entrepreneurs who are not entitled to deduct input tax (e.g. forwarders and customs agents).

Unclear whereabouts of the goods – what causes the customs debt?

Specifically, the Hessian Fiscal Court had to decide whether the unexplained whereabouts of goods placed under the external transit procedure automatically led to the creation of the VAT and, if so, according to which provisions the creation of the VAT is then specifically determined.

The special feature of the case underlying the Decision was that, despite the burden of establishing the situation and despite detailed investigations, it was no longer possible for the customs administration to determine exactly where the goods had actually entered the economic cycle of the European Union and what the act of withdrawal would be. Nevertheless, the German customs issued an import duty notice against the forwarding agent years after the transport.

In the specific case, this involved an authorised consignor declaring goods for the transit procedure and wishing to have them transported by a freight forwarder. The recipient of the goods was a company in a city in Russia, while the destination country was the Czech Republic. The identity of the goods had been secured by a room lock. The external Community transit procedure had not been completed by 16 April 2008, and the whereabouts of the goods could no longer be clarified. An import duty notice was issued to the consignor of the goods and the consignor lodged an objection against it.

During the objection procedure, however, the freight forwarder was heard as a witness to the case. He commented on the shipping process to the effect that he had parked his trailer with the goods at a customs office in the Czech Republic and had passed the goods together with documents on to a Czech forwarding agent.

Senate doubts the applicability of Art. 203 para. 1 CC

The Senate of the FG emphasizes that it is not possible to determine by which act or omission the seizure actually took place. In any event, failure to present the goods within the recovery period would not lead to such withdrawal and the fiction of withdrawal of non-Community goods from customs supervision would not exist within customs debt law. Accordingly, the customs debt arising under Art. 203 (1) CC does not apply to the Hessian Fiscal Code.

Rather, however, the Senate recognises that failure to present a customs debt at the office of destination within the specified time limit gives rise to a customs debt for breach of duty pursuant to Art. 204 (1) (a) CC. Accordingly, the customs duties were rightly levied by the German customs authorities, even if the FG justified this differently from the customs authorities.

Doubts as to the legality of the EUSt determination

First of all, the FG doubts that the import turnover tax was incurred. This is because the ECJ has already ruled that the import turnover tax only arises as excise duty if the goods are consumed domestically. This is the case when the goods enter the economic cycle of the Union.

Subsequently, the Hessian FG had to deal with the question of the responsibility for the collection of the EUSt. While the BFH applies the Customs Code on the place of customs debt collection accordingly in import turnover tax law, the Hessian FG considers this inadmissible and refers to the provisions of Art. 60, 61 of the VAT Directive. Customs law stipulates that the Member State of departure is responsible for the transit procedure if the place where the customs debt was incurred cannot be determined.

The Value Added Tax Act provides for the analogous application of the customs regulations for the EU VAT. Whether the application of the rules is analogous is again determined by the rules of the VAT Directive (VAT Directive). Only if the application of the customs rules to the VAT leads to results which are in line with the VAT Directive can the application of the customs rules be analogous.

However, the VAT Directive requires the goods to be “imported” in order to be eligible for VAT, the import being considered as the introduction into the Community of goods which are not in the free circulation of a Member State. The EUSt of the Member State in which the object was brought into the Community shall then be created. In addition, importation under VAT law presupposes at least the risk of the goods entering the Union’s economic cycle. The Customs Code applied by the BFH does not presuppose this.

In the present case, it has not been possible to establish where the consignment has remained. The forwarder stated that the goods had already been loaded onto a Russian lorry in the Czech Republic, so that there are many indications that the goods had actually been transported on to Russia. This would not, however, have created any risk of the goods entering the economic cycle of the Union.

Since the condition “entry into the economic cycle” could not be proven here and the Customs Code ignored this condition, the FG considers it not applicable to the EUSt.

The Court therefore ordered the suspension of enforcement in respect of the EUSt.

Significance for other procedures

The Decision emphasises once again that the EU tax presupposes consumption and does not automatically follow customs. This decision makes it possible in many cases to argue against the levying of the EUSt if the risk of consumption of the goods in Germany cannot be proven.

Whether other courts will follow the view of the Hessian FG remains to be seen. There are certainly good reasons for this.

Entrepreneurs who are not entitled to deduct input tax, such as forwarders, carriers and customs agents, should therefore have it checked whether they can defend themselves against an EUSt assessment.

We are at your disposal for appeals against import sales tax assessments. Tell us your case now.

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Lawyer Dr. Tristan Wegner

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