On 10 July 2019, the European Court of Justice (ECJ) delivered the judgment in Case C-26/18, FedEX v. HZA Frankfurt a.M. In its judgment, the European Court of Justice follows the Opinion of the Advocate General to a large extent and thus perpetuates its case law on the separate evaluation of import VAT and irregular customs debt. The effects of the judgment are of great economic importance in certain cases of irregular customs debt incurrence.
The facts on which the ECJ had to decide were based on irregularities in connection with air transport of third-country consignments via Frankfurt am Main Airport to Greece. Some of the goods were not presented to customs and were therefore unlawfully introduced into the territory of the Union. Some of the goods were presented to customs but were not included in the manifest, so that the goods were transported from Germany to Greece without being placed under the external Community transit procedure. In both cases, which are certainly not atypical errors in the provision of logistics services, the (formal) infringements pursuant to Article 202 CC or Article 203 CC (now Article 79 para. 1 lit. a UCC) are followed by the (irregular) incurrence of customs debts.
Until 2016, it was established case law that, if a customs debt arose, the import VAT debt would inevitably follow, irrespective of the reason for the incurrence of the customs debt, but this has changed significantly as a result of a paradigm shift in the case law of the ECJ. In the proceedings Eurogate Distribution/DHL Hub Leipzig (C-226/14 and C-228/14) and Wallenborn Transports (C-571/15) the ECJ loosened the bond between customs debt and import VAT. Since then - so the general understanding - it required a case-by-case assessment, whether due to the irregularities the risk existed that the goods introduced may enter the economic network of the European Union.
Uncertainties in answering the question as to whether the mere risk of goods entering the economic network is sufficient for the incurrence of the import VAT if it is proven that the risk has not been realised - in the presented case the goods had demonstrably (only) entered the economic network of the Union in Greece - prompted the Hessian Finance Court to refer the matter to the ECJ in November 2017.
In its judgment of 10 July 2019, the ECJ followed the Opinion of the Advocate General, which has already been reported on here. The ECJ is of the opinion that, in addition to the customs debt, the import VAT also incurs if it can be assumed on the basis of the misconduct which led to the customs debt being incurred that the goods in question have entered the economic network of the Union and could therefore be consumed. In the event of an irregular introduction or withdrawal from customs supervision, the assumption is in principle justified. However, such a presumption may be rebutted if it is established that, despite the misconduct, an object entered the Union's economy in the territory of another Member State in which it was intended for consumption. In that case, import VAT incurs in that other Member State. The misconduct under customs law therefore only gives rise to a rebuttable presumption that import VAT also incurs.
The decision has far-reaching consequences. In the case of irregularities with regard to customs procedures, it must be assessed on a case-by-case basis whether the goods have actually entered the economic network and not elsewhere or - for example in cases of re-export or destruction - not at all. In this respect, the economic operators bear the burden of proof. It is to be expected that economic operators will in future argue with the customs authorities over the standards that are to be applied to the evidence. Despite the significant improvement in the situation of economic operators as a result of the judgment of the European Court of Justice, the issue will keep economic operators busy for a long time.
Dr Hartmut Henninger, Attorney