On 21 March, the Department of Administrative Cases of the Supreme Court stayed the proceedings in the case in which the Administrative Regional Court rejected the application of the applicant for the annulment of the decision of State Revenue Service, imposing on the applicant additional value added tax obligations. Proceedings in the case are suspended until the coming into force of a preliminary ruling by the European Court of Justice.

According to the Section 311 (1) 1) of the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, ‘second-hand goods’ means movable tangible property that is suitable for further use as it is or after repair, other than works of art, collectors' items or antiques and other than precious metals or precious stones as defined by the Member States. The Supreme Court addressed the following question to the European Court of Justice - whether the provision of the directive may be interpreted in meaning that used goods containing precious metals or precious stones purchased by the trader (as in the present case), which are resold mainly for extraction of precious metals or precious stones, can be recognized as second-hand goods? If the answer to this question is yes then – whether, when restricting the application of a special regime, the merchant’s awareness of further buyer intentions in relation to extraction of precious metals or precious stones from articles containing precious metals or precious stones has to be taken into account, or it is the objective characteristics of the transaction that has decisive role (volume of goods, legal status of counterparty, etc.)?

Applicant SIA "E Lats" is a company liable for payment of value added tax that provides collateral loans to individuals who are not value-added tax payers; individuals pledge precious metals and articles as collateral (gold and silver articles - chains, pendants, rings, wedding rings, spoons, dental materials, etc.). Unredeemed pledge or bought up precious metals (the products), sorted by purity and type, are resold by applicant by weight to other merchants –also taxable persons. When carrying out transactions, the applicant applied the specific value added tax regime, thus paying value added tax on precious metals’ purchase and sales price difference.

The State Revenue Service performed value added tax audit and concluded that the applicant resold articles of precious metals as scrap and not as second-hand goods and thus the specific provisions of Section 138 of the Value Added Tax Act 138 do not apply. With the decision of 25 May 2015 the State Revenue Service enforced additional value added tax obligations on applicant.

The applicant submitted an application for repeal of an administrative act.

Having examined the case under appellate procedure, Regional Administrative Court with the judgment of 14 November 2016 rejected the applicant’s application. The Court held that applicant misapplied the Section 138 of the Value Added Tax Law when carrying out transactions, since the purchased gold and silver items etc. were resold as scrap and not as second-hand goods.

The decision of the Supreme Court is available here.


Information prepared by Baiba Kataja, the Press Secretary of the Supreme Court

Tel.: +371 67020396; e-mail: baiba.kataja@at.gov.lv