The Contents of Highlights & Insights on European Taxation Issue 8, 2025

Giorgio Beretta (Editor) (Amsterdam Centre for Tax Law (ACTL) of the University of Amsterdam) and Dennis Weber (Editor) (Amsterdam Centre for Tax Law (ACTL) of the University of Amsterdam; Loyens & Loeff)

Highlights & Insights on European Taxation

Please find below a selection of articles published this month (August 2025) in Highlights & Insights on European Taxation, plus one freely accessible article.

Highlights & Insights on European Taxation (H&I) is a publication by Wolters Kluwer Nederland BV.

The journal offers extensive information on all recent developments in European Taxation in the area of direct taxation and state aid, VAT, customs and excises, and environmental taxes.

To subscribe to the Journal's page, please click HERE

Year 2025, no. 8      

TABLE OF CONTENTS 

INDIRECT TAXATION, LEGISLATION

– Ministers adopted Council’s negotiating position (general approach) on simplifying CBAM

(comments by Tatiana Falcao) (H&I 2025/253)

INDIRECT TAXATION, CASE LAW

– Bulgarian posts (C-785/23). VAT exemption on supplies of postal services. Court of Justice

(comments by Marta Papis-Almansa) (H&I 2025/254)

– Palmstrale (C-125/24). VAT exemption follows the customs exemption – Opening the door to the substance-over-form approach in customs case law?

(comments by John Gruson & Nikhil Mediratta) (H&I 2025/251)

CUSTOMS AND EXCISE

– Questions and answers on the EU-US Joint Statement on Transatlantic Trade and Investment

(comments by the Editorial Board) (H&I 2025/250)

– Joint Statement on a United States-EU Framework Agreement

(comments by the Editorial Board) (H&I 2025/249)

 MISCELLANEOUS

– Questions and answers on the trade deal between the European Union and the United States. European Commission

(comments by the Editorial Board) (H&I 2025/239)

– President Donald Trump announced trade deal with European Union. White House

(comments by the Editorial Board) (H&I 2025/238)

– Statement by President von der Leyen on the deal on tariffs and trade with the United States. European Commission

(comments by the Editorial Board) (H&I 2025/237)

FREE ARTICLE

– Palmstrale (C-125/24). VAT exemption follows the customs exemption – Opening the door to the substance-over-form approach in customs case law?

(comments by John Gruson & Nikhil Mediratta) (H&I 2025/251)

Introduction

The Court of Justice of the European Union (hereinafter: 'CJ) has established that there is a parallelism between customs duties and import VAT. This means that the collection of both taxes is coordinated to enhance efficiency and controllability. Ideally, customs duties and import VAT liabilities are imposed at the same location and time, arising from the same taxable event, and are applicable to the same taxable subject. In recent years, the CJ has consistently examined the parallelism of customs duties and VAT, particularly in cases where non-Union goods are introduced into the EU in breach of the customs legislation.

For more background to this case law, see F. Nellen, The Economic Network Doctrine of the CJEU in EU VAT and Customs Law, EC Tax Review, Issue 3, 2024, pp. 126-135. The current case, however, appears to us to be the first regarding an exemption.

The Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) (hereinafter: ‘the VAT Directive’) provides for an exemption from VAT under Article 143(1)(e) for transactions resulting in the reimportation, by the person who exported them, of goods in the State in which they were exported, where those goods are exempt from customs duties.

Regulation (EU) No. 952/2013 of the European Parliament and of the Council of 09 October 2013 laying down the Union Customs Code (hereinafter: ‘the UCC’), under Article 203, provides for relief from import duties in case of returned goods. The said article provides for compliance with certain conditions (discussed in the latter part of this article) to be entitled to relief from customs duties for non-Union goods which, having been exported as Union goods from the customs territory of the Union, are returned and declared for free circulation in the customs territory of the Union.

We will now delve into the brief facts of the case, our analysis of the provisions under the UCC and the VAT Directive dealing with exemptions upon reimportation, and the decision of the CJ.

Facts of the case and basis for reference to the CJ

Ms AA owns horses that she uses in competitions. Two of her horses were exported from Sweden to Norway and later brought back to Sweden. It is important to mention that Norway is not part of the EU Customs Union or of the EU VAT Union. This means the movement of the horses involved an export and reimport, rather than an intra-EU transaction. When MS AA returned the horses to Sweden, she neither declared them to customs nor presented them to customs officials upon their arrival. Ms. AA was stopped by a road patrol in Sweden.

In the view of the Swedish customs authority, the horses were not subject to import duty pursuant to Article 203 of the UCC. However, they were subject to VAT as the conditions for VAT exemption under Article 143(1)(e) of the VAT Directive had not been met, specifically, the horses had not been presented or declared to the customs authorities. The case eventually reached the Swedish Supreme Administrative Court, which decided to stay the proceedings and refer the matter to the CJ. The main issue concerned how to interpret Articles 86 and 203 of the UCC read together with Article 143(1)(e) of the VAT Directive. In essence, the question centred around the applicability of the VAT exemption, which was dependent on the availability of the customs exemption. Further, the validity of the customs exemption was brought into question as the formal condition (horses being declared/ presented to customs) had not been met.

Analysis of the provisions around customs and VAT exemption upon re-importation of goods

Article 79(1)(a) of the UCC, inter alia, states that a customs debt arises for goods that are liable to import duty in the event of non-compliance with any of the obligations laid down in the UCC concerning the introduction of non-Union goods into the customs territory. One such obligation relevant to this case is laid down under Article 139(1) of the UCC. This article requires that goods brought into the customs territory must be presented to customs immediately upon their arrival at the designated customs office by the person who brought the goods into the customs territory of the Union. Therefore, in instances where goods are not presented to customs immediately upon arrival, as is the case here, a customs debt will be incurred under Article 79(1)(a) of the UCC.

Article 203 of the UCC provides relief from import duty for non-Union goods that were originally exported as Union goods, but are later returned to the territory of the Union and declared for release for free circulation. This relief depends on two key substantive conditions: (i) the goods are returned within three years, and (ii) the goods are returned in the same state in which they were exported. In addition to these, Article 203 also prescribes the formal (procedural) condition that the goods must be declared for free circulation by the person concerned. In Ms AA’s case, the latter condition was not fulfilled as the horses were neither presented to customs nor declared for free circulation. Consequently, the referring court had doubts as to whether failure to meet this formal condition should prevent Ms AA from claiming the exemption under the UCC, and, by extension, the VAT exemption under the VAT Directive.

Article 86(6) of the UCC provides that where relief from import duty is granted, including pursuant to Article 203 of the UCC, such relief shall also apply despite the incurrence of a customs debt pursuant to Article 79 of the UCC. However, this is subject to the condition that the failure resulting in the incurrence of the customs debt does not constitute an attempt at deception. This, in our view, would essentially mean that if the goods are not presented to customs as required by Article 139(1), resulting in a customs debt under Article 79(1)(a), the exemption under Article 203 would continue to be available in view of Article 86(6) of the UCC. Any contrary interpretation would make the explicit reference to Article 79 within Article 86(6) of the UCC redundant. The only exception to the application of Article 86(6) of the UCC arises in circumstances where the customs debt (for example, Article 79(1)(a) of the UCC) has been incurred as a result of an attempt at deception.

When it comes to the VAT Directive, Article 143(1)(e) provides that Member States must exempt from VAT the reimportation of goods by the person who originally exported them, provided those goods are in the state in which they were exported and are exempt from customs duties. This exemption has been implemented in the Swedish VAT law [Mervärdesskattelagen (1994:200)]. A bare perusal of this provision shows that the VAT exemption depends on the goods also being exempt from customs duties. In other words, the application of the VAT exemption is directly linked to and contingent upon the availability of the exemption from customs duties, such as that provided under Article 203 of the UCC (as discussed above). Accordingly, the availability of an exemption under the UCC is essential for the VAT exemption applying under both the VAT Directive and Swedish VAT law.

Opinion of the Advocate General

Before reverting to the observations and the decision of the CJ, we should like to briefly mention the observations from the Opinion of Advocate General Kokott (hereinafter ‘the AG’).

The AG approached this case by first examining the objectives behind the levy of customs duty and import VAT, as well as the respective exemptions for returned goods. The AG also considered how the intertwined relationship between these levies should be interpreted, considering the previous case law from the CJ.

While acknowledging that both exemptions from customs duty and VAT can be claimed simultaneously when filing a customs declaration, the AG noted that treating this practicable process as sufficient to establish an accessory relationship between the two levies could yield perplexing results. In this specific case, despite no customs debt having been established (as the horses attracted 0% customs duty), the infringement of a customs procedure would lead to the establishment of a VAT debt, although there was no increase in the value of the returned horses.

The AG concluded that compliance with a customs procedure (i.e., presentation of goods and filing of a customs declaration, as in the present case) is not required for exemption from import VAT under Article 143(1)(e) of the VAT Directive. Instead, it would be sufficient if the substantive requirements for the customs relief (i.e., Article 203 of the UCC, in the present case) are satisfied. Ultimately, according to the AG, it is not the role of the VAT legislation to ensure compliance with customs procedures.

Decision of the CJ

The Swedish referring court asked the CJ whether failure to comply with the formal (procedural) conditions under Article 203 of the UCC, specifically the non-presentation of goods to customs, would result in the loss of the VAT exemption under the VAT Directive, as implemented in the Swedish VAT law.

Accordingly, for answering the said question, the CJ first considered the availability of the customs exemption, given that, as we mentioned above, the VAT exemption is dependent on the applicability of the corresponding customs duty relief under the UCC.

Before examining the exemption under Article 203 of the UCC, the CJ took note that, based on the information available on record, there was no dispute that the substantive conditions of the said article had been met. The only issue concerned non-compliance with the formal (procedural) condition, that the horses, upon reimportation, had neither been declared nor been presented to the customs authorities for release for free circulation in Sweden.

The CJ expressly observed that Article 86(6) of the UCC extends relief from customs duty even in cases where the customs debt has been incurred pursuant to Article 79 of the UCC. Therefore, an interpretation that denies the exemption under Article 203 solely because the formal (procedural) condition of presenting the goods was not met would significantly undermine the purpose of Article 86(6) of the UCC. The only exception to the application of Article 86(6) of the UCC is where failure leading to the customs debt constitutes an attempt at deception.

When it comes to exemption from customs duties, the CJ ruled that, unless there is evidence of an attempt at deception, the failure to present the returned goods to customs, as required by Article 139(1)(a) read in conjunction with Article 79(1)(a) of the UCC] or to declare them for free circulation does not restrict the customs relief under Article 203 of the UCC, following the provisions under Article 86(6) of the UCC. The CJ, however, left it to the referring Swedish court to establish whether Ms AA’s failure to comply with the formal (procedural) condition was a result of mere negligence or constituted an attempt at deception.

With regard to the VAT exemption, the CJ ruled that, in light of the clear wording of Article 143(1)(e) of the VAT Directive, the availability of a customs relief automatically entails the availability of a corresponding VAT exemption.

John Gruson & Nikhil Mediratta