On July 9, 2015, the ECJ issued its decision in the case C-183/14 (Salomie and Oltean).
Context: Reference for a preliminary ruling) — Value added tax (VAT) — Directive 2006/112/EC — Articles 167, 168, 179 and 213 — Reclassification by the national tax authority of a transaction as an economic activity subject to VAT — Principle of legal certainty — Principle of protection of legitimate expectations — National legislation making the exercise of the right of deduction subject to the identification of the trader concerned for VAT purposes and to the filing of a tax return in respect of that tax
Articles in the EU VAT Directive
Articles 167, 168, 179, 213 of the EU VAT Directive 2006/112/EC
Facts
- In the course of 2007, Mr Salomie and Mr Oltean entered into a partnership with five other natural persons to carry out a project for the construction and sale of four buildings in Romania. That partnership had no legal personality and was not declared or identified as being subject to VAT.
- In 2008 and 2009, out of the 132 apartments constructed on land belonging to the personal assets of one of those persons, 122 were sold, for a total value of 10 902 275 Romanian lei (RON), as were 23 car-parking spaces. Those sales were not subject to VAT.
- In the course of 2010, following an audit carried out by the tax authority, the latter took the view that those transactions constituted a continuous economic activity and that VAT ought therefore to have been paid on them from 1 October 2008, given that the resulting turnover had, as from August 2008, exceeded the threshold of EUR 35 000 below which economic activities are exempt from VAT in Romania.
- Consequently, the tax authority sought payment of the VAT due on the transactions carried out during 2009, together with default interest, and issued separate tax demands to that effect.
- It also follows from the order for reference that the sales of immovable property carried out during 2008 and 2009 were made subject to the tax on the ‘transfer of immovable property belonging to personal assets’ provided for in Article 77a of the Tax Code.
- Mr Salomie and Mr Oltean brought actions before the Tribunalul Cluj (Cluj District Court) seeking partial annulment of those tax demands. That court dismissed those actions as being unfounded.
- The Curtea de Apel Cluj (Cluj Court of Appeal), before which an appeal has been brought, is unsure whether the tax demands drawn up by the tax authority are consistent with the principle of legal certainty inasmuch as, first, the Romanian legislation laid down the provisions for implementing the rules governing the application of VAT to property transactions only as from 1 January 2010 and, second, the tax authority’s practice, up to that date, had rather been not to make that type of transaction subject to VAT. Moreover, sufficient information had, according to the referring court, been available to that authority for it to conclude that Mr Salomie and Mr Oltean had had taxable person status since 2008, inasmuch as the authority had been informed of the sales which those two persons had carried out, if only because those transactions had been taxed pursuant to Article 77a of the Tax Code.
- The referring court also expresses doubts as to whether the right to deduct the input VAT paid provided for by Romanian law, pursuant to which a person belatedly identified as a taxable person for VAT purposes may exercise the right to deduct VAT only after regularising his situation through identification for the purposes of that tax and the filing of a tax return, is compatible with Directive 2006/112.
Questions
May a natural person who enters into a partnership contract with other natural persons, a partnership without legal personality that is not declared or registered for tax purposes, intended for the execution of future works (building) on a site forming part of the personal assets of some of the contracting parties be regarded, in the light of the circumstances of the main case, as a taxable person for VAT purposes within the meaning of Article 9(1) of the VAT Directive, 1 where, under the fiscal rules, the tax authorities initially treated the transfer of ownership of the buildings on the site forming part of the personal assets of some of the contracting parties as sales falling within the scope of the management of the private wealth of such persons?
In the light of the circumstances of the main case, must the principles of legal certainty and the protection of legitimate expectations, and the other general principles relating to VAT, as laid down in Directive 2006/112, be interpreted as precluding a national practice whereby, after initially levying on a natural person tax on the income deriving from the transfer of ownership of properties forming part of his personal wealth, the tax authorities — without there having been any substantial amendment of primary law — review the position after a period of two years on the basis of the same facts and classifies the same transactions as economic activities subject to VAT, calculating the incidental charges retroactively?
Must Articles 167, 168 and 213 of the VAT Directive, considered in the light of the principle of fiscal neutrality, be interpreted as precluding, in the circumstances of the main case, the tax authorities from refusing a taxable person the right to deduct the VAT owed or paid on goods or services used for the purposes of taxable transactions simply because he was not registered as a taxable person for VAT purposes at the time when the supplies in question were carried out?
In the light of the circumstances of the main case, may Article 179 of [Directive 2006/112] be interpreted as precluding national legislation under which a taxable person to whom the special exemption scheme is applied and who has belatedly applied for registration for VAT purposes is under an obligation to pay the tax that should have been levied, but has no right to subtract the amount of tax deductible for each tax period, it being the case that that right of deduction will be exercised subsequently on the basis of the tax return submitted after registration of the taxable person for VAT purposes, which may have repercussions for calculation of the incidental charges?
AG Opinion
None
Decision
1. The principles of legal certainty and of the protection of legitimate expectations do not preclude, in circumstances such as those of the dispute in the main proceedings, a national tax authority from deciding, following a tax audit, to subject transactions to value added tax and to impose the payment of surcharges, provided that that decision is based on clear and precise rules and that that authority’s practice has not been such as to give rise, in the mind of a prudent and well-informed trader, to a reasonable expectation that that tax would not be levied on such transactions, this being a matter for the referring court to determine. The surcharges applied in such circumstances must comply with the principle of proportionality.
2. Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax precludes, in circumstances such as those of the dispute in the main proceedings, national rules under which the right to deduct input value added tax, due or paid on goods and services used in the context of taxed transactions, is refused to the taxable person, who must nevertheless pay the tax that he ought to have recovered, for the sole reason that he was not identified for value-added-tax purposes when he carried out those transactions, so long as he has not been duly identified for value added tax purposes and the tax return for the tax due has not been filed.
Comments
- ECJ has held that a tax authority can act retrospectively without breaching EU principles such as legal certainty and protection of legitimate expectation.
- However it must set off unclaimed input VAT immediately against underpaid output VAT, and cannot first demand the output VAT without crediting the input VAT
- At the hearing, the German Government pointed out that the postponement of the right to deduct VAT to the year in which the invoice has been corrected, is a penalty. In order to reduce the non-compliance with the formal conditions to be penalised are however, penalties other than refusal of the right to deduction of the tax for the year in which the invoice is issued drawn up, imaginable, such as a fine or a pecuniary penalty proportionate to the seriousness of the infringement (see in those sentence of the judgment of 9 July 2015 in Case C 183/14 Salomie and Oltean, EU:C:2015:454, point 63). In addition, the postponement implies of that duty, in accordance with the rules applicable in the main proceedings, in any event and irrespective of the circumstances which necessitate the correction of the invoice originally issued the Commission’s proposal, which goes beyond what is necessary to achieve the objectives set out in the previous point of this opinion.
Source
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