Palmstråle case shows that VAT exemption may still apply despite customs error

July 3, 2025 Insights

On 12 June 2025, the EU Court of Justice (ECJ) made a big decision (Case C-125/24, Palmstråle AG) that’s good news for businesses re-importing goods into the EU.

What happened in the case?
Palmstråle AG, a Swedish company that transports horses to international competitions, exported several horses to Norway for a competition.

Under EU VAT law, goods that are re-imported into the EU within three years of export – in the same condition and by the original exported – can qualify for an import VAT exemption. This requires selecting the correct customs procedure when re-importing (usually using a specific customs code) and keeping appropriate documentation to prove the goods are the same.

When Palmstråle re-imported the horses back into Sweden, they did so without following all the required customs steps. As a result, the Swedish customs authorities said this meant the company had to pay Swedish import VAT, even though the horses were originally exported from Sweden and were simply being returned back to Sweden.

Palmstråle disagreed, arguing the return should qualify for the VAT exemption for re-imported goods and took the case all the way to the ECJ.
What did the ECJ decide?
The ECJ ruled in Palmstråle’s favour. The Court said that businesses can still benefit from VAT exemptions on re-imported goods even if they’ve made mistakes in the customs process, provided:

  • The goods are genuinely being re-imported; and
  • There’s no fraud or abuse involved.
    What’s the key takeaway?
    This ECJ ruling confirms that substance matters more than form in VAT law. If your intention is honest and the goods are the same, the tax system is not out to punish you for small administrative mistakes. If you’re re-importing goods and make a paperwork mistake, you don’t automatically lose your VAT exemption as long as it was an honest error.

However, rather than ending up in a legal dispute, it’s always best to:

  • Keep clear records showing it’s the same goods coming back.
  • Follow customs rules carefully to support your VAT exemption claim from the start.

If you’d like support reviewing your import and re-import procedures in terms of VAT, or ensuring your VAT processes are correct, our team is here to help.

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