- General introduction
In the EU, one of the main purposes of customs duties is to protect EU producers of goods from foreign competition (i.e. goods from non-EU countries) by levying a tax on imported goods (so-called protective duties); such a tax is therefore not levied on goods manufactured in the EU.
Customs duties are therefore only levied once – when goods are imported from non-EU countries. The purpose of generating revenue (so-called financial duties) is, however, secondary for the Member States, since 75% of the duties levied go to the EU budget and 25% to the Member State levying them.
Another important aspect of the European customs tariff is the EU’s ability to conclude preferential agreements with third countries in order to achieve mutual reductions in customs duties and economic integration (free trade and customs union agreements). In addition, the EU grants autonomous tariff suspensions and tariff quotas for goods required by EU producers (and which are not available in the EU or are not available in sufficient quantities), as well as autonomous tariff preferences for developing countries (trade instead of aid). All this would not be possible without the existence of a customs tariff for goods from non-EU countries.
Another additional purpose of customs law is to protect the security of the international supply chain. For this purpose, in particular, the institute of the “Authorized Economic Operator (AEO)” was created and risk analysis and risk management were implemented in customs law.
The purpose of VAT and special excise duties, on the other hand, is to generate revenue for the public budget. In the case of customs duties and VAT, this applies to all goods, in the case of special excise duties only to certain goods. In addition, VAT also covers services.
- Accrual of customs duties and VAT
In customs law, import is not associated with the creation of a customs debt; Rather, non-Union goods are subject to customs supervision when they are brought across the border. Only the customs debt definition of unlawful entry into the customs territory of the Union in Article 201 of the Customs Code (hereinafter: “CC”) refers the import to the customs claim of the state, which according to the economic customs concept is linked to the immediate or imminent entry of goods into the economic cycle.
Article 203 CC regulates the removal of non-Union goods from customs supervision. According to the prevailing opinion in Germany and Austria, the VAT always follows the customs debt, even in the case of an unlawful customs debt. Accordingly, the VAT is a type of customs duty. However, this traditional view is not tenable, since the import of goods represents a transaction within the meaning of the VAT Directive and the import must be taxable in the sense of actual domestic use. This results from the excise nature of VAT, which does not provide for customs supervision or security, which is characteristic of customs law. Import is the release of goods for free circulation in the sense that the goods have actually entered the economic cycle for domestic use.
- Input tax deduction on import
According to Article 15 Paragraph 1 No. 2 UStG or Article 12 Paragraph 1 No. 2 lit. a) UStG, the right to input tax deduction requires that the sales tax has been paid. This is contradicted by Article 168 lit. e) VAT Directive, because according to this, only the import sales tax must be owed. In the ruling in the Veleclair case (ECJ of March 29, 2012, C-414/10), the ECJ ruled that the German (and Austrian) requirement to pay VAT contradicts the VAT Directive and is therefore inapplicable.
The VAT Directive does not require that import sales tax must be paid before it can be reclaimed by way of input tax deduction. The core message of the directive is as follows: “The provisions on the deduction of VAT on imports are intended to exempt economic operators entirely from the VAT due or paid in the course of their economic activities. The common system of VAT therefore ensures the complete neutrality of the tax burden on all economic activities, whatever their purpose and results, provided that those activities are themselves subject to VAT. In the light of the foregoing, the answer to the question referred is that Article 17(2)(b) of the Sixth Directive must be interpreted as not allowing a Member State to make the right to deduct VAT on imports conditional on the actual prior payment of that tax by the taxable person, where that person is also entitled to deduct it.” The system of deduction of input tax is intended to avoid a burden – even if only temporary – which would arise if import VAT could only be deducted as input tax after it had been paid.
This ruling prompted the German legislature to amend Section 15 Paragraph 1 Sentence 1 No. 2 of the VAT Act and to adapt it to the case law of the ECJ. Since, in the opinion of the court in the main proceedings, there is no tax evasion or attempted tax evasion, the sanction of requiring a renewed payment of the VAT already paid without this second payment giving rise to a right to deduct input tax on import cannot be considered to be compatible with the principle of tax neutrality.
- Import VAT deduction depending on the right of disposal
According to current practice, an entrepreneur can only deduct VAT as input tax if the third-country goods are to be used to carry out their own sales in the country after they have been released for free circulation under customs and tax law, which requires a right of disposal at the time of import, i.e. when the third-country goods are released for free circulation.
This view contradicts EU law, which does not base VAT on the object of delivery or on the authority to dispose of it. According to the ruling of the Hamburg Finance Court 5 K 302/09 of December 19, 2012, the taxable entrepreneur is generally granted the right to deduct input tax if he is liable for the VAT and this is proven by the import duty notice.