3.8.2 A total legal prohibition on importation and marketing in the EU

The CJEU has decided on several occasions that even if a supply is made within the territory of a Member State, for consideration by a taxable person acting as such, this supply cannot be subject to VAT if that transaction is subject to a total legal prohibition on importation and marketing in the EU. Examples of such transactions from CJEU case law are:

The reason that the CJEU provides for keeping these transactions to be outside the scope of VAT is as follows: the EU VAT Directive is based on Articles 99 and 100 of the EEC Treaty and its objective is the harmonization or approximation of the legislation of the Member States on turnover taxes 'in the interest of the common market'. Since the harmfulness of narcotic drugs is generally recognized, there is a prohibition in all the Member States on marketing them, with the exception of strictly controlled trade for use for medical and scientific purposes. Such drugs are, therefore, wholly alien to the provisions of the EU VAT Directive and, in consequence, to the provisions on the origination of a turnover tax debt.3

This means that as soon as there is some form of competition with legal goods or services, illegal transactions regarding the supply goods or services are (also) subject to VAT. Examples of these kind of transactions as found in CJEU case law are: