On January 31, 2013, the ECJ issued its decision in the case C-643/11 (LVK).
Context: Taxation – VAT – Directive 2006/112/EC – Principle of fiscal neutrality – Right of deduction – Refusal – Article 203 – Entering of the VAT on the invoice – Chargeability – Existence of a taxable transaction – Identical determination in respect of the issuer of the invoice and its recipient – Necessity)
Article in the EU VAT Directive
Article 203 of the EU VAT Directive 2006/112/EC.
Article 203
VAT shall be payable by any person who enters the VAT on an invoice.
Facts
- LVK, an agricultural producer, deducted in September and October 2007 input VAT resulting from several invoices relating to the supply of goods, issued respectively by REYA – 96 OOD (‘REYA’) and SITI GRUP 76 DZZD (‘SITI GRUP’) which, since that time, have ceased to be registered as taxable persons for VAT. All those invoices were paid in cash and recorded in LVK’s accounts. It is also not disputed that the supplies concerned are entered in the sales ledgers of those suppliers.
- The tax authorities carried out cross-checks on the two suppliers. During those checks, they required the submission of a number of documents concerning, in particular, the origin of the goods delivered and performance of the delivery. The suppliers did not reply within the prescribed time-limit.
- Following a request of the tax authorities to provide evidence that the supplies of goods at issue had actually been carried out, LVK submitted delivery notes, weight certificates and consignment notes, which, however, contained mistakes.
- The tax authorities concluded that it was not established that the invoiced supplies had been carried out, and therefore the VAT had been improperly entered on the invoices at issue. They therefore sent LVK a tax adjustment notice dated 20 December 2010 refusing the deduction of the VAT resulting from those invoices (‘the tax adjustment notice at issue’).
- Following confirmation of the tax adjustment notice at issue by the Direktor na Direktsia ‘Obzhalvane i upravlenie na izpalnenieto’ – Varna pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite by decision of 18 February 2011, LVK brought an action before the Administrativen sad Varna (Administrative Court, Varna), submitting that the invoices at issue corresponded to actual supplies of goods and that there was thus no basis for refusing the right of deduction.
- During the main proceedings, two tax adjustment notices addressed to REYA and SITI GRUP respectively were placed in the case file. Those notices were drawn up prior to the tax adjustment notice at issue and relate to the period in question in the main proceedings. It is apparent from those notices that the tax authorities found that there was no need to adjust the basis of assessment and the VAT invoiced for the supplies carried out by REYA and SITI GRUP.
- The referring court points out that it needs to determine whether the existence of the chargeable event for the input VAT is sufficiently established, given that the tax authorities based the refusal of the right of deduction on the fact that LVK’s suppliers did not submit the documents required and that, in the documents submitted by LVK as recipient of the supplies at issue, certain information was either missing or entered incorrectly. In order to make that determination, the referring court wishes to ascertain, from the point of view of European Union law, what the significance is of the tax adjustment notices addressed to LVK’s suppliers and whether it is possible to infer from them that the tax authorities acknowledged that the invoices at issue corresponded to taxable transactions which were actually carried out.
Questions
Does Article 203 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax cover all cases of incorrectly charged VAT, including cases in which an invoice showing VAT was issued without a chargeable event having occurred? If the answer to that question is in the affirmative, do Articles 203 and 273 require the Member States to lay down express rules to the effect that VAT shown on an invoice in respect of which no supply has taken place is payable, or is it sufficient for them to transpose the general rule in the Directive to the effect that that tax is payable by any person who enters it on an invoice?
In the light of recital 39 in the preamble to Directive 2006/112 and with a view to ensuring the accuracy of deductions, do Articles 73, 179 and 203 of Directive 2006/112 require that, where VAT is shown on an invoice without a chargeable event having occurred, the revenue authorities must correct the tax base and the tax charged?
Can the special measures provided for in Article 395 of Directive 2006/112 consist in a tax practice such as that in the main proceedings, whereby, for the purposes of verifying deductions, the revenue authorities check only the deduction made, while the tax on the output supplies is regarded as being necessarily payable solely because it was shown on an invoice? If that question is answered in the affirmative, is it permissible under Article 203 of Directive 2006/112 – and, if so, in what circumstances – for VAT on the same transaction to be collected once from the provider of the goods or services, because he entered the tax on an invoice, and a second time from the purchaser of the goods or recipient of the services, inasmuch as he is refused the right to deduct?
Is a tax practice such as that in the main proceedings – whereby the purchaser of taxable goods or the recipient of taxable services is refused the right to deduct on the ground that there is ‘no evidence that the supply took place’, without any account being taken of findings already made to the effect that a right to claim tax has accrued against the provider of the goods or services and that tax is payable by him, bearing in mind that, up to the point at which the accrual of the right to deduct was evaluated, the tax assessment notice in question had not been adjusted and no reason to adjust it in the manner prescribed by the State had emerged or been established – in breach of the non-cumulative nature of VAT and at odds with the principles of legal certainty, equal treatment and fiscal neutrality?
Is it permissible under Articles 167 and 168(a) of Directive 2006/112 for the purchaser of taxable goods or the recipient of taxable services who fulfils all the conditions laid down in Article 178 of the Directive to be refused the right to deduct after a tax assessment notice which was issued to the provider of the goods or services and has become final did not correct the VAT charged on that supply because ‘no chargeable event occurred’, but, rather, the right to claim tax was recognised as having accrued and was taken into consideration in determining the net tax due for the tax period in question? Is it relevant to the answer to that question that the provider of the goods or services did not submit any accounting documents during the tax assessment and that the net tax due for that period was determined solely by reference to the information given in the VAT declarations and in the sales and purchase books?
Depending on the answers to the above questions, are Articles 167 and 168(a) of Directive 2006/112 to be interpreted as meaning that, in circumstances such as those in the main proceedings, the neutrality of VAT requires that a taxable person must be able to deduct the tax charged on supplies made to him?
AG Opinion
None
Decision
1. Article 203 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that:
– the value added tax entered by a person on an invoice is payable by him regardless of whether a taxable transaction actually exists;
– it cannot be inferred from the mere fact that the tax authorities did not correct, in a tax adjustment notice addressed to the issuer of that invoice, the value added tax declared by the latter that those authorities have acknowledged that the invoice corresponded to an actual taxable transaction.
2. European Union law must be interpreted as meaning that Articles 167 and 168(a) of Directive 2006/112 and the principles of fiscal neutrality, legal certainty and equal treatment do not preclude the recipient of an invoice from being refused the right to deduct input value added tax because there is no actual taxable transaction even though, in the tax adjustment notice addressed to the issuer of that invoice, the value added tax declared by the latter was not adjusted. However, if, in the light of fraud or irregularities, committed by the issuer of the invoice or upstream of the transaction relied upon as the basis for the right of deduction, that transaction is considered not to have been actually carried out, it must be established, on the basis of objective factors and without requiring of the recipient of the invoice checks which are not his responsibility, that he knew or should have known that that transaction was connected with value added tax fraud, a matter which it is for the referring court to determine.
Summary
A person owes the VAT stated on an invoice, whether or not a taxable transaction has actually been performed.
It cannot be inferred from the mere fact that the tax authorities did not revise the VAT declared by the issuer of that invoice in an amendment notice addressed to him that the tax authorities acknowledged that that invoice corresponds to an actual taxable transaction.
The recipient of an invoice may be denied the right to deduct input tax on the ground that no taxable transaction has actually been performed, even if the VAT declared by the issuer of this invoice has not been revised in the amendment notice addressed to him.
However, where the transaction relied on as the basis for the right to deduct is deemed not to have been actually performed because the issuer of the invoice committed fraud or irregularities or because fraud or irregularities were committed at a stage prior to that transaction , it must be established, on the basis of objective data and without requiring the recipient of the invoice to carry out checks which he is not obliged to carry out, that that recipient knew or should have known that this transaction was part of VAT fraud. It is for the referring court to verify this.
Source:
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