The Court of Justice of the European Union (CJEU) is currently examining a case concerning the interplay between customs regulations and VAT. The Swedish Supreme Administrative Court (Högsta förvaltningsdomstolen) has submitted a preliminary question that could significantly affect the interpretation of VAT exemptions on the re-importation of goods into the European Union.

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Sport horses at the center of the legal controversy

The proceedings before the CJEU concern an individual who owns horses that had participated in sporting competitions held outside the EU customs territory, specifically in Norway. Following the conclusion of the events, the horses were transported back into the EU via a border crossing between Norway and Sweden.

During a road inspection conducted by the Swedish Customs Authority (Tullverket), it was established that the owner had failed to fulfil certain procedural requirements, namely:

  • The goods (horses) were not presented to the customs authorities,
  • No customs declaration was submitted,
  • No application for release for free circulation or exemption from customs duties was filed.

Consequently, the customs authorities issued a decision assessing import VAT in the amount of SEK 41,178 (approximately EUR 3,500). Notably, no customs debt was established, as the authorities acknowledged that the horses, in substance, met the conditions for classification as returning goods and therefore qualified for a customs exemption.

Procedural formalities and VAT exemption

This led to the submission of a preliminary question to the CJEU: ‘Must Article 143(1)(e) of the VAT Directive and Articles 86(6) and 203 of the Union Customs Code be interpreted as meaning that both the substantive and the procedural conditions laid down in Article 203 must be fulfilled in order for relief from import duty – and thus exemption from VAT – to be granted on re-importation where a customs debt under Article 79 of the Union Customs Code has been incurred through non-compliance with the presentation obligation laid down in Article 139(1) of the Union Customs Code?’

In essence, the Swedish authorities seek clarification as to whether the failure to comply with customs formalities — such as lodging a customs declaration or presenting goods to customs — automatically precludes entitlement to VAT exemption, even where the substantive criteria for exemption are satisfied.

Divergence in national case law

The Administrative Court in Karlstad dismissed the horse owner’s appeal, ruling that the failure to present the horses to customs and to submit a customs declaration upon re-entry into the EU resulted in the incurrence of a customs debt and an obligation to pay import VAT.

The court emphasised that entitlement to a VAT exemption requires that the goods be declared for release for free circulation and that an application for customs duty relief be lodged. As neither of these actions occurred, the exemption could not be granted.

Opinion of the Advocate General

On 6 March 2025, Advocate General Juliane Kokott delivered her opinion in Case C-125/24 AA v. Allmänna ombudet hos Tullverket, proposing the following interpretation:

‘Article 143(1)(e) of the VAT Directive only requires that the substantive conditions laid down in Article 203 of the Customs Code are fulfilled. In so far as a customs debt under Article 79 of the Customs Code has only been incurred through non-compliance with the customs declaration obligation under Article 158(1) of the Customs Code and the presentation obligation under Article 139(1) of the Customs Code or the lack of an application for relief from customs duty under Article 203 of the Customs Code, the re-importation of returned goods within the meaning of Article 203 of the Customs Code is exempt from VAT. For that reason, it is irrelevant for the import VAT exemption under Article 143(1)(e) of the VAT Directive whether the requirements for a relief under Article 86(6) of the Customs Code (on account of the lack of an attempt at deception) are fulfilled.’

The Advocate General further provided several key arguments in support of this position:

1. Distinct objectives of customs and VAT legislation

Customs law aims to protect the internal market from third-country competition, whereas VAT is a consumption tax levied on goods introduced into the economic circuit of the European Union. In the case of returning goods originating from the EU, no taxable consumption arises.

2. No subordinate relationship between VAT and customs law

Although both legal frameworks govern similar situations, they are not mutually dependent. While earlier case law highlighted the similarities between customs and VAT law, more recent rulings refer merely to a ‘connection’ or ‘link’ between the two.

3. Administrative practicalities

Although import VAT and customs duties are commonly assessed and collected together for practical reasons, administrative convenience alone does not justify treating the two legal regimes as interdependent.

4. Structural and legal distinctions

Customs legislation is more formalised than VAT law. Pursuant to Article 79(1) of the UCC, a breach of procedural obligations gives rise to a customs debt. VAT, by contrast, is a tax on consumption, levied on the expenditure incurred by the final consumer.

Implications for importers and exporters

Adopting the interpretation proposed by the Advocate General could have far-reaching implications for businesses involved in the temporary export of goods outside the EU:

  1. It would allow import VAT to be waived in cases where customs formalities were inadvertently omitted or could not be fulfilled, provided there was no fraudulent intent.
  2. It would promote a more flexible application of VAT exemption rules to returning goods, particularly where substantive conditions are met.
  3. It would mitigate the risk of double taxation of goods originating in the EU that have not undergone substantial transformation while abroad.

Awaiting the judgment of the CJEU

Although the Advocate General’s opinion is not binding, it often influences the final decision of the Court. The forthcoming CJEU judgment is expected to have a material impact on the application of customs and VAT law throughout the EU.

For importers and exporters, a favourable ruling could significantly ease compliance burdens in cases involving procedural lapses, while also clarifying the broader interpretative approach to the interplay between customs and tax regulations.

Should you require further information on procedures relating to the re-importation of goods or wish to assess the implications of this case for your business operations, we encourage you to consult our team of customs and tax law experts.

 

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