Belgian Court of Appeal overturns the tax administration’s strict interpretation of VAT exemption for exports

On November 26, 2024, the Antwerp Court of Appeal issued a remarkable ruling on the application of the VAT exemption for exports (Article 39, §1, 2° of the VAT Code). The key issue was whether a temporary stay and use of goods within the EU before their export could prevent the exemption. The Court ruled that the Belgian tax administration had wrongfully imposed conditions without a legal basis.

Case: €262,500 VAT reassessment for a horse trader

This case centered on X… B… BV, a company specializing in the trade, training, and sale of horses. In 2019, the company sold two horses to Swiss clients. Ownership was transferred in March and June 2019, while the actual export to Switzerland did not take place until February 2020. The Belgian tax authorities denied the VAT exemption, arguing that too much time had elapsed between the sale and export and that the horses had been used within the EU for training and competitions in the meantime.

As a result, the tax authorities imposed a VAT reassessment of €262,500, along with a €26,250 fine and additional interest charges. The Court of First Instance initially upheld this decision, but X… B… BV appealed and ultimately won the case before the Court of Appeal.

Court of Appeal: Strict interpretation by the tax authorities does not hold

The Court of Appeal overturned the first-instance ruling, concluding that the tax administration had wrongly imposed additional conditions without a legal basis. In its judgment, the Court emphasized the following points:

1. No legal deadline for export There is no statutory timeframe within which export must take place to qualify for the VAT exemption. Neither Article 39, §1, 2° of the VAT Code nor Royal Decree No. 18 sets a maximum period. The tax authorities relied on Administrative Notice No. E.T.97.794 of March 1, 2001, but this document has no legal force. The only decisive criterion is that the goods actually leave the European Union.
2. No prohibition on temporary use within the EU before export The law does not require goods to leave the EU immediately or prohibit their use before export. As long as the actual export can be demonstrated with transport documents and customs evidence, the exemption remains applicable.
3. EU case law prioritizes actual export over timing The Court pointed out that European case law focuses on the fact of export, not the timing of it. In the BDV Hungary Trading case (C-563/12), the European Court of Justice (ECJ) confirmed that the VAT Directive does not impose a specific deadline for exports. Member states may apply reasonable time limits, but these must not be so strict that they unnecessarily restrict the right to exemption. The key factor is that the goods leave the EU, even if they were temporarily used within the EU beforehand.
4. Tax authorities’ reliance on ECJ case law rejected The tax administration referred to the ECJ ruling of November 18, 2010 (C-84/09) to justify its strict interpretation of the VAT exemption. That ruling determined that classifying a transaction as an intra-Community supply could not depend on a fixed timeframe for transport initiation or completion. However, there had to be a temporal and material link between the supply and transport, with continuity in the transaction’s execution. The Court of Appeal dismissed this argument, as the cited case concerned intra-Community supplies of vehicles rather than exports to non-EU countries.

Commentary

The burden of proof for the VAT exemption rests entirely with the taxpayer. They must demonstrate why VAT was not charged and prove that all legal conditions have been met. In the context of exports, customs validation is generally the most important proof. However, in practice, such evidence is not always readily available, leading to disputes and VAT reassessments.

The Belgian tax authorities may adopt a strict and impractical approach when assessing exemption conditions. They frequently base their position on administrative guidelines, such as circulars, which do not have legal force and cannot be used against taxpayers.

Regarding exports, the Court of Appeal confirmed that temporary storage or use of goods within the EU before export does not jeopardize the VAT exemption, as long as the final export to a third country is clearly established and properly documented. This ruling sets an important precedent, providing businesses with additional legal grounds to challenge unjustified VAT reassessments on export transactions.