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Can the distance selling scheme apply if the transport of the goods is set up contractually to the buyer?

What rules come into force when EU Member States interpret a cross border transaction differently?

Selling goods online is big business. For VAT purposes, in pursuance of the so-called distance selling scheme, distance sales (e-commerce supplies) are subject to VAT in the EU Member State where the transport of the goods ends, if said goods were dispatched or transported ‘by or on behalf of the supplier’.

The Court of Justice of the EU recently ruled in the KrakVet Marek Batko case (no. C-276/18) on VAT and e-commerce, which centred on the question: Does the distance selling scheme also apply if the transport of the goods is set up contractually by the buyer?


KrakVet is a company registered and established in Poland. It has no establishment, office or warehouse in Hungary.

KrakVet sells products for animals, mainly food for dogs and cats, in neighbouring Member States, notably through its various ‘zoofast’ websites. It has numerous clients in Hungary who effect their purchases through the Hungarian version of this website. The goods are supplied to the private individuals from Poland.

Through KrakVet’s website, customers can opt to use the transport services of Polish transport company KBGT, with whom KrakVet regularly works and recommends. However, KrakVet is not a party to the transport agreements closed between KBGT and the customers. KBGT organises the transport of the goods from Poland to Hungary.

The Polish Tax Administration takes the standpoint that the distance selling scheme is not applicable and KrakVet is liable to pay Polish VAT. However, the Hungarian Tax Administration is of the opinion that the scheme is applicable and KrakVet is therefore liable to pay Hungarian VAT (ie the country of destination). The Hungarian court referred questions to the European court for a preliminary ruling.

Ruling of the Court of Justice of the EU

Previously, Advocate-General Sharpston concluded that the distance selling scheme only applies if the goods are dispatched or transported by or on behalf of the supplier. This implies that the supplier must be involved directly in the dispatch or the transport of the goods.

The Court of Justice of the EU notes that the consideration of the economic and commercial realities forms a fundamental criterion for the application of the common VAT system. For the distance selling scheme to apply, the role of the supplier must be predominant in terms of initiating and organising the essential stages of the transport of the goods. In this respect it is important whether the transport is specific to the commercial practice of the supplier and what the payment terms comprise. In addition, it plays a role who bears the risk of transport and who makes the choices regarding the transport method and conditions. The Court indicates that transport by or on behalf of the supplier cannot be inferred on account of the mere fact that the contract concluded by the customers for the purposes of delivering those goods is concluded with a transport company which collaborates with that supplier for activities other than the sale of the latter’s goods.

Changes VAT rules for e-commerce (2021)

In the context of this ruling, the VAT rules for e-commerce will change significantly in 2021. Originally, the date of entry into force of the changes was 1 January 2021 but due to the COVID-19 crisis this will probably be delayed.

In view of the ruling of the European Court in the KrakVet case we note that the new VAT rules also contain a provision about the transport of goods in the context of distance sales. Yet to be implemented article 5a of the VAT Regulation (no. 282/2011) enumerates a number of situations where the goods are deemed to have been transported by or at the expense of the supplier. One of these situations is when the supplier promotes by any means the delivery services of a third party or puts the customer and the third party in contact.

Consequences for your business

The ruling of the European court in the KrakVet cases underlines the importance of the correct VAT handling of cross-border e-commerce transactions. It is crucial to establish clearly whether the goods are transported by or at the expense of the supplier. An incorrect application of the distance selling scheme may result in additional assessments and fines in multiple Member States. In addition, the new VAT rules shall have significant consequences for the VAT handling of cross-border distance sales. It is recommended to already take preparatory measures to safeguard a smooth transition.

This article was first published on on 23 June 2020 and has been republished with the authors’ permission.

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