Flashback on ECJ Cases C-576/15 (Маya Маrinova ET) – Taxable amount for the sale of goods can be based on factual information

On October 5, 2016, the ECJ issued its decision in the case C-576/15 (Маya Маrinova ET). This case relates to the determining the taxable amount in case of VAT evasion.

Context: Reference for a preliminary ruling — Taxation — Value added tax — Directive 2006/112/EC — Article 2(1)(a) — Article 9(1) — Article 14(1) — Articles 73, 80 and 273 — Principles of fiscal neutrality and proportionality — Tax evasion — Anomalies in accounting — Concealment of supplies and revenue — Determination of the taxable amount

Article in the EU VAT Directive

Article 2(1)(a), Article 9(1) Article 14(1) and Articles 73 and 273 of the Council Directive 2006/112/EC

Article 2
1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;

Article 9
1. “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.

Article 14
1. “Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.

Article 73
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Article 273
Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.
The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.

Facts

MM is a sole-trader business owned by Ms Maya Vasileva Marinova, a Bulgarian national registered as a sole trader within the meaning of Bulgarian law. The business sells by retail food and non-food products to end consumers in a shop in the municipality of Troyan (Bulgaria).
MM was the subject of a tax inspection following which the Territorial Directorate of the Natsionalna agentsia po prihodite (National Revenue Agency, ‘the Bulgarian tax authorities’) issued an additional assessment to VAT on 5 June 2014 in the amount of BGN 30 545.73 (approximately EUR 15 618) increased by BGN 16 442.85 (approximately EUR 8 407) in interest.
During that inspection, in taking investigative action in relation to MM’s commercial partners, who were registered for the purposes of VAT, the Bulgarian tax authorities found that several of them had issued invoices to MM with regard to tobacco products and food products which had been supplied to MM. Those invoices were recorded in the accounts of their issuers but not in those of MM, which had not deducted the VAT referred to in those invoices.
The Bulgarian tax authorities took the view that MM had in fact received those goods and they presumed, on the basis of the absence of those goods from the warehouse of that business and their nature, that MM had sold them at retail level to unknown third parties during the tax years in which those invoices had been drawn up. Finding that MM had accounted neither for the supplies of the goods by the suppliers nor their subsequent sale, the Bulgarian tax authorities concluded that that business had concealed those supplies and the revenue from their resale.
In addition, the Bulgarian tax authorities found that, from 1 May 2008 to 26 April 2010, MM did not appear on the register of persons liable to VAT on the ground that its turnover had not exceeded the threshold of BGN 50 000 (approximately EUR 25 000) laid down in the national legislation from which such registration is mandatory. However, the tax authorities took the view, on the basis also of the invoices issued by that business’s suppliers, that, from 1 May 2007 to 30 April 2008, the actual turnover of MM was above that threshold and that, accordingly, MM was required to request entry onto the register of persons liable to VAT from 1 May 2008, although it did so only on 26 April 2010.
Consequently, the Bulgarian tax authorities calculated an additional assessment to VAT and issued the tax adjustment notice at issue in the main proceedings. It determined the taxable amount of the presumed retail sales of the products indicated in the invoices drawn up by the commercial partners of MM and the taxable amount of the sales effected by MM in the period from 1 May 2008 to 26 April 2010. In order to determine that taxable amount, pursuant to the national legislation, the Bulgarian tax authorities added a profit margin to the price of the goods appearing on those invoices, determined according to the prices ordinarily applied by MM to the corresponding products.
MM lodged an administrative objection to that notice with the Director. As that objection was dismissed by decision of 15 August 2014, MM brought judicial proceedings against that notice before the Administrativen sad Veliko Tarnovo (Administrative Court, Veliko Tarnovo, Bulgaria).
MM claims that there is no basis for the determination ‘by analogy’ of a taxable amount under the procedure provided for by the national law at issue in the main proceedings. In that regard, it submits that the fact that invoices for the sale of goods are recorded in the accounts of suppliers does not mean that the goods referred to in those invoices have actually been supplied and that it concealed the supply of those goods. There is evidence neither of the receipt of those goods by MM nor of their subsequent resale by MM.

Questions

Must Article 273, Article 2(1)(a), Article 9(1) and Article 14(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, taken together, having regard to the principles of fiscal neutrality and proportionality, be Interpreted as meaning that a Member State is to be entitled to treat the actual absence of goods which were transferred to a taxable person by way of taxable supplies as subsequent taxable supplies of those goods for consideration by that taxable person, without the recipient of those goods being identified, where the aim is to prevent VAT evasion? Must the provisions referred to in Question 1, having regard to the principles of fiscal neutrality and proportionality, be interpreted as meaning that a Member State is to be entitled to treat the failure by a taxable person to record tax-relevant documents relating to taxable supplies received in the manner described above, where this serves the same aim? Must Article 273, Article 73 and Article 80 of Directive 2006/112/EC, taken together, having regard to the principles of equal treatment and proportionality, be interpreted as meaning that Member States are to be entitled, on the basis of national provisions which do not serve to transpose the VAT Directive, to determine taxable amounts for supplies of goods by a taxable person in a way which diverges from the general rule provided for in Article 73 of the VAT Directive and the exceptions expressly provided for in Article 80 of that directive, where the aim is, first, to prevent VAT evasion and, secondly, to determine a taxable amount for the transactions concerned that is a reliable as possible?

AG Opinion

None

Decision

Article 2(1)(a), Article 9(1) Article 14(1) and Articles 73 and 273 of the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and the principle of fiscal neutrality must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, under which, where goods are not in the warehouse of the taxable person to whom they have been supplied and the tax documents of relevance to those goods have not been recorded in the accounts of that taxable person, tax authorities may presume that the taxable person subsequently sold those goods to third parties and determine the taxable amount of the sale of those goods according to the factual information at hand pursuant to rules not provided for in that directive. It is, however, for the referring court to ascertain whether the provisions of the national legislation go further than is necessary to ensure the correct collection of value added tax and to prevent evasion.

Summary

Hiding deliveries and receipts – Accounting irregularities

If the goods delivered to a taxable person are not in his warehouse and the related tax documents are not entered in the taxable person’s accounts, the tax authorities may assume that this taxable person has subsequently resold these goods to third parties.

The tax authorities may then determine the taxable amount for the sale of these goods on the basis of the factual information at its disposal. It is, however, for the referring court to determine whether the provisions of that national legislation do not go beyond what is necessary to ensure that VAT is charged correctly and to prevent fraud.

Source