Top EU Court Blocks Double Taxation of Improper Exports

In a 25-year-old case involving the export of Italian ethanol to Greece, EU judges held that products improperly exported within the bloc cannot be taxed by two different countries.

A man walks by the European Court of Justice in Luxembourg. (AP Photo/Geert Vanden Wijngaert, File)

LUXEMBOURG (CN) — European Union member states cannot pursue taxes on improperly exported goods if another has already collected them, the EU’s top court ruled Wednesday.

The European Court of Justice found that allowing both the country of import and country of export to charge taxes on goods that cross national borders without the proper paperwork would result in illegal double taxation. 

The Italian Supreme Court referred the case to the Luxembourg-based EU court, asking whether two member states could pursue excise taxes for the same irregularly exported products. The Court of Justice found they cannot.

“It is hard to imagine that the instrument permitting enforcement of the claim would be enforced in the member state in which the requested authority is situated if that enforcement were liable to lead to a situation in which the excise duties on essentially the same transactions regarding the same products are levied twice,” the ruling states. “In order to prevent such a situation arising, it is necessary to allow the competent authority of that member state to refuse to enforce that instrument.”

The 25-year-old dispute involves the improper export of ethanol from Italy to Greece. Italian ethanol manufacturer Silcompa sold ethanol to several Greek companies in 1995 and 1996 without charging custom duties. 

While the EU generally allows free movement of goods between countries, some products, including alcohol, are an exception. In 1992, the EU passed legislation allowing alcohol that had been denatured – that is, made unfit for human consumption – to be exempted from the regulations. However, goods lacking the proper paperwork can still be subjected to taxes. 

A 2000 check by the Italian tax office found that Silcompa lacked the proper paperwork for the earlier cross-border sales and sent the company a tax bill for 6 million euros ($7.5 million.)  In 2005, the Greek government opened an investigation into the same Silcompa shipments and demanded 10 million euros ($12 million) in taxes.

Silcompa appealed both cases and ultimately settled with Italy for 1.5 million euros ($1.8 million). Greece, however, continued to pursue its demand for taxes and requested assistance from Italy in recovering the money. 

Oral arguments in the case were scheduled to take place before the Court of Justice in March 2020 but the hearing was canceled due to Covid-19 and the parties instead submitted written arguments.

Greece argued in its written submissions that the taxes it was charging were based on its claim that Silcompa had sold improperly labeled ethanol in Greece, rather than forging export paperwork, as Italy had claimed in its case.

The Court of Justice found such a situation could result in the double recovery of excise duties, in violation of EU law, but left it to the Italian court to decide if the Greek transgressions were a separate matter.

“The unlawful marketing on Greek territory of ethyl alcohol shipped by Silcompa must indeed be regarded as an offence or irregularity in respect of the products in question, but it could also be considered to be only a consequence of the offence or irregularity previously committed in Italy, which is a matter for the referring court to determine,” the court wrote. 

Silcompa did not respond to a request for comment. 

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