Source Curia
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On 4 June 2020, the European Court of Justice gave its judgment in the Romanian case C‑430/19 CF SRL. The case deals with the question if tax authorities can refuse the deduction of input VAT if the taxpayer only has the invoice from the supplier as evidence.
Article in the EU VAT Directive
Right to deduct VAT
Facts (simplified):
CF is a Romanian trading company that is active in exploitation of forests. In a tax audit report, the tax authorities explained that the commercial transactions between CF and two of its suppliers were fictitious because these two suppliers – both micro-companies for which the tax rate of 3% of turnover applies – did not have the technical and logistical equipment to perform the services they invoiced to CF.
According to the Romanian tax authorities, CF’s liability results from the unlawful tax conduct of its suppliers. According to these authorities, the fictitious nature of the commercial transactions between CF and these suppliers stemmed from the fact that CF was unable to provide evidence other than the VAT invoice. However, in accordance with Romanian regulations, the invoice is the only proof that the taxpayer must provide in order to exercise the right to deduct both VAT and corporate tax.
The Tribunal Cluj decided to refer the following questions to the Court for a preliminary ruling:
(1) Can and must be annulled, in accordance with the principle of respect for the rights of the defense, as defined in the case-law of the Court…, of an administrative measure adopted in respect of a private person if the private person does not have access has had the information on the basis of which the fiscal administrative act concerning him was adopted, despite the fact that this act refers to some information in the administrative file?
2) Do the principles of neutrality, proportionality and equivalence preclude the exercise of the right to deduct both VAT and corporate tax if a company that has consistently fulfilled all of its tax obligations is not allowed to deduct this right? exercise due to the tax behavior of suppliers that is suspected to be unlawful on the basis of data such as the absence of personnel and the lack of means of transport, while the tax authority has not taken any steps to investigate the tax / criminal liability of those suppliers?
3) Is a national practice according to which the exercise of the right to deduct both VAT and corporate tax is subject to the condition that the taxable person holds, in addition to the invoice, other evidence, such as a quotation or progress report, while these additional evidence are not clearly and specifically identified in the national tax scheme, compatible with Union law?
4) In the light of the judgment of 17 December 2015, WebMindLicenses (C ‑ 419/14, EU: C: 2015/832), can a tax fraud be deemed to exist if a taxable person acquires goods and services from a taxable person who uses a different tax regime
Question
In light of the principle of respect for the rights of the defence, as outlined to date in the case-law of the Court of Justice (Solvay, Sopropé ‒ Organizações de Calçado Lda and Ispas), may or must an administrative fiscal document issued to an individual be declared null and void if that individual has not been allowed access to the information on the basis of which that document was issued, notwithstanding the fact that reference is made in that document to certain information on the administrative file?
Do the principles of neutrality, proportionality and equivalence preclude the exercise of the right to deduct VAT and corporation tax in the case of a company the conduct of which with regard to fiscal matters is beyond reproach and which has been denied the right to deduct corporation tax on account of the fiscal conduct of its suppliers, which is alleged to be improper on the basis of factors such as a lack of human resources or a lack of means of transport, in the case where, in addition, the tax authority has adduced no evidence of any activity that suggests fiscal and/or criminal liability on the part of those suppliers?
Is a national practice inconsistent with EU law if, pursuant to that practice, the right to deduct VAT and corporation tax is subject to the possession of other supporting documents in addition to the tax invoice, such as estimates of expenditure or reports on the progress of works, even though such additional supporting documents have not been clearly and precisely defined in the national tax legislation?
In light of the judgment in WebMindLicenses, can the situation in which a taxable person purchases goods and services from a taxable person which benefits from a different tax regime from that of the taxable person in question constitute tax evasion?
Decision
1. The general EU law principle of observance of the rights of the defence must be interpreted as meaning that where, in the context of national administrative procedures for inspection and for determining the taxable amount for value added tax purposes, a taxable person has not been allowed access to the information in the administrative file that was taken into consideration when an administrative decision imposing additional tax liabilities on that taxable person was adopted, and where the court hearing the case finds that, in the absence of that irregularity, the outcome of the procedure might have been different, that principle requires that that decision be annulled.
2. The principles governing the application by the Member States of the common system of value added tax (VAT), in particular the principles of fiscal neutrality and legal certainty, must be interpreted as precluding, in the event that a national tax authority merely has uncorroborated doubts about whether the economic operations giving rise to the issue of a tax invoice were actually carried out, the taxable person to which that invoice is addressed from being refused the right to deduct VAT where he is unable to produce, in addition to the invoice, other evidence that the economic operations were actually carried out.
Summary – background
In brief, the right to deduct input VAT was refused to company CF due to an allegedly inadequate behavior of its suppliers. CF did not have any underlying documents other than the invoices received from the suppliers.
According to the tax authorities, CF’s suppliers lacked the technical and logistical capacity to provide the services they invoiced CF.
Tax authorities denied CF’s request to access the information/documents in the administrative file which were taken into account by the tax authority when it adopted its decision.
Main conclusions
In order to deduct the VAT:
- if the only evidence confirming the actual nature of the transaction is an invoice and
- the suspicions of the tax authorities are unsubstantiated
- the company remains the right to deduct VAT
- The buyer is not bound to assess whether the supplier has the goods and means to supply them
In other words, under the principle of fiscal neutrality and legal certainty across the EU, a taxable person cannot be refused the right to deduct VAT provided they produce a valid VAT invoice. The production of additional documentation to support a claim is not required under Article 178 of the EU VAT Directive.
Source: Curia (unofficial translation)
Author: Madalin Ispas
See for the Question to ECJ www.vatupdate.com
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