Flashback on ECJ/CJEU cases C-332/15 (Astone) – No right to deduct VAT in case of failure to submit returns

On July 28, 2016, the ECJ issued its decision in the case C-332/15 (Astone).

Context: Reference for a preliminary ruling — Common system of value added tax — Directive 2006/112/EC — Articles 167, 168, 178 to 182, 193, 206, 242, 244, 250, 252 and 273 — Right to deduct VAT — Substantive requirements — Formal requirements — Limitation period — National provisions excluding the right to deduct where there is a failure to comply with the formal requirements — Tax evasion

Article in the EU VAT Directive

Articles 167, 168, 178 to 182, 193, 206, 242, 244, 250, 252 and 273 of the EU VAT Directive 2006/112/EC

Facts

In the course of a tax audit conducted on 4 July 2013, the Guardia di Finanza (tax and financial police, Italy) found that, for the tax years 2010, 2011, 2012 and 2013, Mr Astone, in his capacity as the authorised representative of the company Del Ferro, was unable to produce the accounts or the VAT register. That tax audit also revealed, first, that for the tax year 2010 Del Ferro had issued invoices for a taxable amount of EUR 320 205, but because it had failed to submit the related VAT return it had evaded VAT in the amount of EUR 64 041 and, secondly, that Del Ferro had also failed to submit a tax return for VAT for the subsequent tax years. The tax audit also revealed that Del Ferro had not complied with the registration obligation in respect of the invoices issued.
In relation to the failure to submit a VAT return for the 2010 tax year, Mr Astone, acting as the authorised representative of Del Ferro, is charged in criminal proceedings before the Criminal Chamber of the Tribunale di Treviso (District Court, Treviso, Italy) with the infringement under Article 5(1) of Legislative Decree No 74.
During those proceedings before the referring court, Mr Astone produced invoices issued in the 2010 tax year by third party undertakings to Del Ferro, invoices which were paid, inclusive of VAT, but were not entered into that company’s accounts. On the basis of those invoices, it was calculated that VAT amounting to EUR 30 590 was deductible. Mr Astone contends that those invoices should be taken into account, in accordance with the case-law of the Court relating to the right to deduct VAT paid on inputs by a taxable person. Taking into account that amount of VAT deductible and a previous tax credit, the amount of tax evaded would not exceed the EUR 30 000 threshold laid down in Article 5(1) of Legislative Decree No 74 and, consequently, there would no longer be any infringement which could be punished under that provision. Mr Astone claims that he should, therefore, be acquitted. The Public Prosecutor also seeks Mr Astone’s acquittal.
The referring court states that the Italian legislation makes the right to deduct VAT contingent on compliance with formal obligations relating in particular to the submission of the relevant returns, when the taxable person claims the tax credit, and to the fact that the invoices concerned have been recorded in the respective register, with the result that the taxable person is, in the view of the referring court, not entitled to deduct input VAT which has not been recorded in accordance with the law, even though it has been paid.
Referring to Article 5(1) of Legislative Decree No 74, the referring court states that, according to Italian law, where no VAT return has been filed, tax evaded means the entire tax due without it being possible to take into account, as regards VAT, the VAT paid to suppliers if the formal obligations provided for by law have not been complied with. In the present case, the ‘tax due’, including for the purposes of determining whether criminal proceedings may be brought under that provision, is therefore, in the referring court’s view, that resulting from the invoices issued. The referring court considers that the possibility of taking into account the VAT paid as input tax presupposes that the right to deduct has been exercised when the annual return was made and is only in respect of the purchase invoices which were recorded in the relevant register.
The referring court notes that EU law also makes the exercise of the right to deduct contingent on compliance with certain obligations and refers in that regard to Articles 167, 168, 178 to 181, 244 and 250 of the VAT Directive. It also observes that in accordance with the judgments of 8 May 2008 in Ecotrade (C‑95/07 and C‑96/07, EU:C:2008:267), and 30 September 2010 in Uszodaépítő (C‑392/09, EU:C:2010:569), the principle of fiscal neutrality requires deduction of input value added tax to be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements. Those judgments do not, however, specify the requirements in question and in particular which formal obligations must be discharged in each case in order for the taxable person to be able to enjoy his right to deduct. Since Mr Astone has not satisfied any formal obligation, an answer from the Court is necessary in order to rule on his criminal liability.

Questions

(1) Do the provisions of Directive 2006/2012/EC of 28 November 2006, ¹ as interpreted by the Community case-law recalled in the grounds of this order, preclude Member State rules — such as those set out above and in force in Italy (Article 19 of Presidential Decree 633/1972) — which exclude the possibility, including for the purposes of criminal law, of exercising the right to deduct where there has been a failure to file VAT returns, in particular, the return for the second year after the year in which the right to deduct arose?

(2) Do the provisions of Directive 2006/2012/EC of 28 November 2006, as interpreted by the Community case-law recalled in the grounds of this order, preclude Member State rules — such as those set out above in force in Italy (Articles 25 and 39 of Presidential Decree 633/1972) — which exclude the possibility, including for the purposes of criminal law, of taking account, for the purposes of the deduction of VAT, of purchase invoices which the taxable person has completely failed to register?

AG Opinion

None

Decision

1. Articles 167, 168, 178, the first paragraph of Article 179, and Articles 180 and 182 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that they do not preclude national legislation which provides for a limitation period for exercising the right to deduct, such as the limitation period at issue in the main proceedings, provided that the principles of equivalence and effectiveness are observed, which it is for the referring court to ascertain.

2. Articles 168, 178, 179, 193, 206, 242, 244, 250, 252 and 273 of Directive 2006/112 must be interpreted as meaning that they do not preclude national legislation, such as that at issue in the main proceedings, which allows the tax authorities to refuse a taxable person the right to deduct value added tax when it is established that that person has fraudulently failed to fulfil most of the formal obligations incumbent upon him in order to be able to benefit from that right, which it is for the referring court to ascertain.

Summary

The right to deduct input tax may be refused due to failure to meet formal obligations, if the taxpayer presents purchase invoices in the procedure, but has not submitted VAT returns at all, has not kept a VAT register, accounting books and has not paid VAT.

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