In its judgment of 12 June 2025, case C-125/24 (Palmstråle), the Court of Justice of the European Union (CJEU) addressed the issue of applying VAT exemption in cases of reimportation of goods into the territory of the European Union.
The case concerned a Swedish entity that exported horses it owned to Norway—thus, outside the EU. However, this export was not intended as a sale. The horses were later reimported to Sweden. Crucially, the reimportation was not declared under any customs procedure. The Swedish authorities argued that, because not all formalities were fulfilled during reimportation, a customs debt arose, and VAT became due.
As a result, a preliminary ruling was requested from the CJEU to determine whether Article 143(1)(e) of the VAT Directive and Articles 86(6) and 203 of the Union Customs Code should be interpreted as requiring both substantive and formal conditions to be met for the VAT and customs duty exemptions to apply in cases of reimportation where a customs debt arises due to failure to present the goods.
A key aspect of the case was the Opinion of Advocate General Juliane Kokott, delivered on 6 March 2025, which emphasized the lack of accessory character between VAT and customs law. According to the Advocate General, these systems differ in their structure and level of formalization. A customs debt may arise solely due to procedural violations, whereas VAT liability requires more than just a breach of customs formalities—highlighting the non-accessory nature of these levies.
The CJEU ruled that, under Article 143(1)(e) of the VAT Directive, reimported goods are eligible for exemption if they are brought back in the same condition in which they left the EU and by the same person.
According to the judgment, the EU legislator deliberately linked VAT exemption rules to customs duty exemption rules. This means that the conditions for VAT exemption are aligned with those for customs exemptions and must meet both substantive and procedural requirements when goods are reimported into the EU.
Under Article 203 of the Union Customs Code, goods previously exported from the EU customs territory may benefit from customs duty relief upon reimportation, provided that specific conditions are met: the goods must return within three years, remain unaltered, and be duly declared for release for free circulation at the request of the party concerned.
In the case at hand, the substantive conditions were met—the horses returned to the EU customs territory in the same state. However, the procedural conditions were not fulfilled: the goods were not presented to customs, and no customs declaration was submitted. Nevertheless, Article 86(6) of the Union Customs Code allows for an extension of the exemption when the breach is not committed with the intention to commit fraud.