Vat and tax-free shopping. Overview of the the exemptions on exportation of non-commercial goods

The VAT exemption on the exportation of goods and services has the purpose of avoiding double taxation of the same transaction – the first time with the application of European VAT and the second time with application of the sales tax imposed in the country where those goods and services are sold. In accordance with this principle, Article 146, paragraph 1, sub- paragraph (b), and Article 147 of Directive 2006/112/EC provide that the exportation of non- commercial goods by travellers whose permanent address or habitual residence are not located in Europe must be exempted from the value added tax. In this specific type of exemption, which is commonly known by the term “tax-free shopping”, the exportation, at the very moment when it occurs, must “not impact” on the traveller from outside the EU (a “downstream” person) and “eliminate” the liability towards the tax authorities of the European merchant (the “upstream” person). Therefore, a “tax advantage” has to be realised for the taxable persons (European merchants) and for the exporters (non-EU travellers), and the lost tax revenue has to be a “negative value” borne only by the European system. Legal theory has never closely studied the legal effects generated by this particular impediment to the recoupment of VAT, applied by the taxable person to the non-EU exporter. The Court of Justice of the European Union has had only minor opportunities to rule on this issue. The paradoxical result of this situation is that the current tax treatment of tax-free exports is regulated by a disparate patchwork of national regulations issued by the tax and customs administrations of the Member States. Consequently, various forms of private agreements between European merchants, VAT intermediaries, and travellers from outside the EU have proliferated, whose contents do not appear faithful to the principles that govern the common value added tax system. Therefore, the absence of a common European regulation on tax-free transactions is severely restricting, on the one hand, the right of European sellers not to be held liable for the VAT applied as recoupment on the sale of non- commercial goods and, on the other hand, the right of the non-EU buyer to obtain a tax relief, which is provisionally paid to the seller, after those goods are actually exported.