Flashback on ECJ Cases C-131/13 (Schoenimport “Italmoda” Mariano Previti), C‑163/13 (Turbu.com BV) and C‑164/13 (Turbu.com Mobile Phone’s BV ) – No right for VAT deduction and VAT exemption in case of evasion of VAT committed in the context of a chain of supplies

Context: References for a preliminary ruling — VAT — Sixth Directive — Transitional arrangements for trade between Member States — Goods dispatched or transported within the Community — Tax evasion carried out in the Member State of arrival — Evasion taken into account in the Member State of dispatch — Refusal of the benefit of rights to deduction, exemption or refund — Absence of provisions in national law

Article in the EU VAT Directive

• Article 17(2)(a) and (d) and (3)(b) of the Sixth Directive, in the version resulting from Article 28f(1) of that directive, provides:
  • 2.      In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:
    • (a)      [VAT] due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person;
    • (d)      [VAT] due pursuant to Article 28a(1)(a).
  • 3.      Member States shall also grant to every taxable person the right to the deduction or refund of the [VAT] referred to in paragraph 2 in so far as the goods and services are used for the purposes of:
    • (b)      transactions which are exempt pursuant to Article … 28c(A) …’
• Article 28a of the Sixth Directive provides:
  • 1.      The following shall also be subject to [VAT]:
    • (a)      intra-Community acquisitions of goods for consideration within the territory of the country by a taxable person acting as such or by a non-taxable legal person where the vendor is a taxable person acting as such who is not eligible for the tax exemption provided for in Article 24 and who is not covered by the arrangements laid down in the second sentence of Article 8(1)(a) or in Article 28b(B)(1).
  • 3.      “Intra-Community acquisition of goods” shall mean acquisition of the right to dispose as owner of movable tangible property dispatched or transported to the person acquiring the goods by or on behalf of the vendor or the person acquiring the goods to a Member State other than that from which the goods are dispatched or transported.
  • 5        Article 28b(A) of that directive, entitled ‘Place of the intra-Community acquisition of goods’, states:
    • 1.       The place of the intra-Community acquisition of goods shall be deemed to be the place where the goods are at the time when dispatch or transport to the person acquiring them ends.
    • 2.      Without prejudice to paragraph 1, the place of the intra-Community acquisition of goods referred to in Article 28a(1)(a) shall, however, be deemed to be within the territory of the Member State which issued the [VAT] identification number under which the person acquiring the goods made the acquisition, unless the person acquiring the goods establishes that that acquisition has been subject to tax in accordance with paragraph 1.
    • If, however, the acquisition is subject to tax in accordance with paragraph 1 in the Member State of arrival of the dispatch or transport of the goods after having been subject to tax in accordance with the first subparagraph, the taxable amount shall be reduced accordingly in the Member State which issued the [VAT] identification number under which the person acquiring the goods made the acquisition.
    • For the purposes of applying the first subparagraph, the intra-Community acquisition of goods shall be deemed to have been subject to tax in accordance with paragraph 1 when the following conditions have been met:
      • –        the acquirer establishes that he has effected this intra-Community acquisition for the needs of a subsequent supply effected in the Member State referred to in paragraph 1 and for which the consignee has been designated as the person liable for the tax due in accordance with Article 28c(E)(3),
      • –        the obligations for declaration set out in the last subparagraph of Article 22(6)(b) have been satisfied by the acquirer.’
• Article 28c(A) of that directive provides:
  • Without prejudice to other Community provisions and subject to conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions provided for below and preventing any evasion, avoidance or abuse, Member States shall exempt:
    • (a)      supplies of goods, as defined in Article 5, dispatched or transported by or on behalf of the vendor or the person acquiring the goods out of the territory referred to in Article 3 but within the Community, effected for another taxable person or a non-taxable legal person acting as such in a Member State other than that of the departure of the dispatch or transport of the goods.

Facts

Case C‑131/13

• Italmoda, a company governed by Netherlands law, trades in shoes. At the time of the facts underlying the dispute in the main proceedings, that is to say during 1999 and 2000, it also carried out transactions relating to computer hardware. That hardware, which was acquired by Italmoda in the Netherlands and in Germany, was sold and supplied to customers subject to VAT in Italy. The goods originating in Germany were purchased by Italmoda under the Netherlands VAT identification number of that company, these being acquisitions subject to VAT in the Member State which issued the VAT identification number, within the meaning of Article 28b(A)(2) of the Sixth Directive, but those goods were transported directly from Germany to Italy.
• With regard to the goods acquired in the Netherlands, Italmoda made all the necessary declarations and deducted input tax from its VAT returns. By contrast, for the goods originating in Germany, Italmoda did not declare either their intra-Community supply in that Member State or their intra-Community acquisition in the Netherlands, even though that transaction had been exempted in Germany. In Italy, none of those intra-Community acquisitions was declared by the purchasers concerned and VAT was not paid. The Italian tax authorities refused those purchasers the right to deduct and proceeded with recovery of the tax due.
• As the Netherlands tax authorities took the view that Italmoda had knowingly participated in fraudulent activity designed to evade VAT in Italy, they refused that company the right to exemption in respect of the intra-Community supplies effected in that Member State, the right to deduct input tax and the right to a refund of the tax paid in respect of the goods originating in Germany, and consequently issued three additional assessments to Italmoda.

 Case C‑163/13

• Turbu.com, a company governed by Netherlands law, operates a wholesale business dealing in computer hardware, communications equipment and software.
• During the period between August and December 2001, Turbu.com made a number of intra-Community supplies of mobile phones, applying the exemption envisaged in that respect and deducting input VAT.
• Following an investigation by the Netherlands Fiscal Information and Investigation Service, the Netherlands tax authorities, having formed the view that Turbu.com had wrongly considered that those supplies benefited from the VAT exemption, sent that company a notice of additional assessment. Furthermore, criminal proceedings were initiated against, among others, the director of Turbu.com for VAT fraud, which resulted in his conviction, in 2005, for forgery and filing of an incomplete and inaccurate tax return.
• As regards the additional assessment sent to Turbu.com, following proceedings brought by that company, that additional assessment was confirmed at first instance by the Rechtbank te Breda (District Court, Breda) and subsequently on appeal by the Gerechtshof te ’s-Hertogenbosch (Regional Court of Appeal, ’s-Hertogenbosch) in a judgment of 25 February 2011. In that judgment, the Gerechtshof held that it was plausible that the supplies concerned were not, in reality, intra-Community supplies and that Turbu.com had intentionally and knowingly participated in VAT evasion.
• Turbu.com brought an appeal on a point of law against that judgment before the Hoge Raad der Nederlanden. That court states, inter alia, that if it is determined, after referral to the appellate court, that the supplies concerned formed part of a series of transactions designed to circumvent the VAT rules and that Turbu.com knew, or should have known, that that was the case, questions of interpretation of EU law will then arise. In that regard, the Hoge Raad is unsure, in particular, whether the application of the VAT exemption must be refused in the event of VAT evasion, even though national law does not provide any legal basis for such a refusal.

Case C‑164/13

• TMP, a company governed by Netherlands law, trades in mobile phones.
• During July 2003, it made intra-Community supplies of mobile phones, applying the exemption provided for in that regard and requesting a refund of the input VAT paid in respect of the acquisition of those phones from undertakings established in the Netherlands.
• After the Netherlands tax authorities had identified several irregularities in the declarations made by TMP with regard to both the input transactions carried out and those intra-Community supplies, they refused to grant the requested refund. The decision refusing to refund TMP was annulled by the Rechtbank te Breda in a ruling which was itself set aside by the Gerechtshof te ’s-Hertogenbosch by judgment of 25 February 2011. In that judgment, the Gerechtshof held that TMP could not deduct the input VAT, essentially on the ground that that company knew, or should have known, that VAT evasion was being committed.
• TMP brought an appeal on a point of law against that judgment before the Hoge Raad der Nederlanden. That court states in particular, that if it is determined, after referral to the appellate court, that the supplies concerned formed part of a series of transactions designed to circumvent the VAT rules and that TMP knew, or should have known, that that was the case, questions of interpretation of EU law will then arise. In that regard, it noted, inter alia, that in the financial year concerned Netherlands law did not make the right to deduct VAT subject to the condition that the taxable person was not knowingly involved in VAT avoidance or evasion.

Questions

AG Opinion

 In the light of the foregoing considerations, I propose that the Court declare the requests for a preliminary ruling in Cases C‑163/13 and C‑164/13 inadmissible and answer the questions posed in Case C‑131/13 as follows:

(1)      The provisions of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995, must be interpreted to the effect that the national authorities must refuse to grant a taxable person which knew, or should have known, that it was participating in fraud the right to deduct input tax, the right of exemption for intra-Community supplies and the right to a reduction of the taxable amount under the mechanism provided for in the second subparagraph of Article 28b(A)(2) of that directive, and any right to a possible related refund, even in the absence of express provisions to that effect in national legislation.

(2)      The fact that the fraud took place in a Member State other than that which has the power to refuse the taxable person the rights mentioned in paragraph 1 does not have any bearing on the national authorities’ obligation to issue such a refusal.

Decision

1.      The questions referred for a preliminary ruling by the Hoge Raad der Nederlanden in Cases C‑163/13 and C‑164/13 are inadmissible.

2.      Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995, must be interpreted as meaning that it is for the national authorities and courts to refuse a taxable person, in the context of an intra-Community supply, the benefit of the rights to deduction of, exemption from or refund of value added tax, even in the absence of provisions of national law providing for such refusal, if it is established, in the light of objective factors, that that taxable person knew, or should have known, that, by the transaction relied on as a basis for the right concerned, it was participating in evasion of value added tax committed in the context of a chain of supplies.

3.      Sixth Directive 77/388, as amended by Directive 95/7, must be interpreted as meaning that a taxable person who knew, or should have known, that, by the transaction relied on as a basis for rights to deduction of, exemption from or refund of value added tax, that person was participating in evasion of value added tax committed in the context of a chain of supplies, may be refused the benefit of those rights, notwithstanding the fact that the evasion was carried out in a Member State other than that in which the benefit of those rights has been sought and that taxable person has, in the latter Member State, complied with the formal requirements laid down by national legislation for the purpose of benefiting from those rights.

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Source

• Curia

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