A taxpayer headquartered in Germany applied for an individual ruling from the Director of the National Tax Information Office (Interpretation dated October 30, 2024, ref. no. 0114-KDIP1-2.4012.453.2024.1.GK).
Factual Background
The applicant is a distributor of compressors, i.e., mechanical compressors, for European markets, including Poland. Initially, the applicant purchases compressors from another entity in the group, B. Co., Ltd., headquartered in China, and subsequently resells them to final recipients in Poland. The mechanical compressors are physically transported directly from China to Poland.
Responsibility for organizing transportation from China to Poland lies with B. Co., Ltd.. Legal title and risk pass from B. Co., Ltd. to the applicant under the Incoterms FOB terms, i.e., upon loading the goods onto the vessel at the port of departure in the third country. Legal title and risk then transfer from the applicant to the final recipient upon delivery of the compressors to bonded warehouses in Poland, prior to their release for circulation (import) in Poland.
Upon arrival in Poland, the compressors are placed in bonded warehouses located in Poland, where they are subject to the customs warehousing procedure for storage purposes (the warehouses are owned either by the final recipients or third parties operating public bonded warehouses). After arrival in Poland, the products are not released for circulation (i.e., not subject to direct import) but are covered by a special customs procedure, during which the payment of customs and tax duties associated with bringing the compressors into Poland is deferred until actual importation. The final recipients act as importers of the compressors (as reflected in customs documents) and are responsible for paying the customs and tax duties associated with importing the compressors into Poland.
Question
The applicant sought clarification on whether the deliveries of compressors covered by the customs warehousing procedure—i.e., deliveries made by the applicant to final recipients prior to the release of goods for circulation in the EU—are subject to VAT in Poland.
Analysis
According to the Incoterms rules applied, the delivery between the applicant and the final recipients under DAP terms occurred in Polish territory. These terms stipulate that the seller organizes the transport of goods to a designated location, and upon delivery, the right to dispose of the goods as an owner passes to the buyer.
Based on the described facts, the applicant argued that the transaction between them and the final recipients is not subject to VAT in Poland, relying on the interpretation of Article 22(4) of the VAT Act. This interpretation is based on the literal wording of the provision, which states that:
Where the place of dispatch or transport of goods is in a third country, the supply of goods made by a taxpayer, who is also the taxpayer for import or re-import of the goods, is deemed to occur in the Member State where the import or re-import takes place.
By logical extension (a contrario), all deliveries taking place before importation are not subject to VAT in Poland.
Thus, the applicant concluded that, regardless of the applied Incoterms, deliveries made in chain transactions before goods are released for circulation (imported) in the EU would not be subject to VAT in Poland. In the case of import chain transactions, determining the entity responsible for paying customs duties and acting as the VAT taxpayer for import is crucial. The first transaction subject to VAT in Poland would be the import conducted by the VAT taxpayer for import, while all prior deliveries remain outside the scope of VAT in Poland.
Necessary Steps
First, it is essential to analyze the provisions governing the type of transaction and the location of goods delivery, as this determines the VAT location.
Under Article 22(2) of the VAT Act:
When the same goods are the subject of successive deliveries and are dispatched or transported directly from the first supplier to the final recipient, the shipment or transport is attributed solely to one delivery.
The facts presented in the application align with the hypothesis of this legal norm. The goods are shipped directly from the first supplier to the final recipient, with three entities successively transferring ownership rights to the goods, i.e., performing successive deliveries. Importantly, the final recipient is already known at the time of dispatch from the third country.
However, as the goods' dispatch starts in a third country, Articles 22(2a-2e) of the VAT Act, which apply to intra-EU transportation and transportation to third countries, do not apply to this case, as this case involves transportation from a third country.
Similarly, Article 22(3) of the VAT Act, which states:
- For deliveries preceding the dispatch or transportation of goods, the delivery is deemed to occur where the dispatch or transportation begins;
- For deliveries following the dispatch or transportation of goods, the delivery is deemed to occur where the dispatch or transportation ends;
does not apply, as the provision refers to situations involving intra-EU or third-country transportation, unlike the case at hand.
KR Group Opinion
If this provision were applied here due to its relevance to chain transactions, and the applicant’s delivery occurred after the goods were dispatched, the applicant would need to tax their sales to the final recipient, leading to the final recipient being taxed twice: once upon purchasing from the applicant and again upon incurring the customs debt when importing into Poland. Such double taxation contradicts fundamental VAT principles, especially the principle of neutrality, which ensures VAT is collected only once at each transaction stage.
Incoterms FOB
Under the presented facts, the first delivery was made under Incoterms FOB, meaning ownership of the goods transferred from the first entity to the applicant upon loading onto the ship. Since Articles 22(2a-2e) of the VAT Act do not apply and no specific provisions govern determining the delivery location in chain transactions where dispatch begins in a third country, it can be inferred that the actual dispatch occurred after the first delivery. The second entity acquired ownership rights before transportation commenced, regardless of whether the applicant transferred ownership to the final recipient in the third country or in Poland.
Thus, the transaction between the applicant and the final recipients should be taxed under Article 22(1)(1) of the VAT Act in the location where the goods were dispatched, i.e., in the third country.
This interpretation aligns with Article 22(4) of the VAT Act, which governs transactions involving goods dispatched from a third country to an EU Member State.
In conclusion, the Director of the National Tax Information Office correctly confirmed the applicant’s position that their delivery to the final recipient is not subject to VAT in Poland, though the interpretation lacked detailed legal explanation.
