In the absence of a legal link with the consignor or the consignee, the standard rate of value added tax shall be applicable to the service related to transit procedure

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29 August 2017

On August 29, the Department of Administrative Cases of the Supreme Court left unamended the judgment of the Administrative Regional Court which dismisses the application for the annulment of the decision of the State Revenue Service in the part where the applicant had been charged additional value added tax payment. The Supreme Court acknowledges that in the case of a service provided by the applicant there is no direct connection with the consignor or the consignee, therefore the conclusion of the court of appeal is based on the fact that the exemption from value added tax included in Section 7, Paragraph one, Clause 2 of the Law "On Value Added Tax" could not be applied and the service provided by the applicant is subject to the standard rate of value added tax applicable during the period in question.

The Supreme Court reviewed the case in connection with the cassation complaint of the individual merchant “L.Č.” in a case in which it was decided whether the 0% rate of value added tax for the transport service related to the transit of goods shall be applicable (Section 7, paragraph one, Clause 2 of the Law “On Value Added Tax”), if the actual carrier has not been licensed for international transportation.

Last May, the Supreme Court decided to address the European Court of Justice with a preliminary question and stayed the proceedings. As was found by the European Court of Justice, and there is no doubt in the case, the services provided by the applicant are indispensable for the actual performance of the transactions in question. However, these services are provided not directly to the consignee or the consignor, but to their trading partner SIA “Atek”. The European Court of Justice has recognized that such services do not fall within the scope of the application of the exemption from tax provided for by that provision.

According to the judgment of the European Court of Justice of 29 June 2017 in case no. C-288/2016, the Supreme Court acknowledged that the exemption from value added tax contained in Section 7, Paragraph one, Clause 2 of the Law "On Value Added Tax" applies in cases where both the actual connection of a service with the export, import or transit of goods is established, as well as the legal link (contractual relationship) between the provider of the service in question and the consignor or consignee of the goods is established. This means that the services involved in the export, import and transit of goods in the context of that provision are not only those which  are strictly necessary for the performance of those transactions but are also supplied directly to the consignor or the consignee. Since exemption from value added tax is to be interpreted strictly, then in the absence of such a legal link with the consignor or the consignee the service is to be subject to the standard rate of value added tax applicable during the period in question.

 

Information prepared by Baiba Kataja, the Press Secretary of the Supreme Court

Tel.: +371 67020396; e-mail: baiba.kataja@at.gov.lv