ECJ C-582/20 (SC Cridar Cons SRL) – Judgment – Refusal of VAT deduction without disposing of objective information about VAT fraud

On Fabruary 24. 2022, the ECJ issued its decision in the case C-582/20 (SC Cridar Cons SRL).

Context: Reference for a preliminary ruling — Common system of value added tax — Directive 2006/112/EC — Articles 167 and 168 — Right of deduction — Refusal — Tax evasion — Taking of evidence — Stay of proceedings on an administrative complaint relating to a notice of taxation refusing a right to deduct, pending the outcome of criminal proceedings — Procedural autonomy of the Member States — Principle of fiscal neutrality — Right to good administration — Article 47 of the Charter of Fundamental Rights of the European Union European

Articles in the EU VAT Directive

Articles 167, 168 and 178 of the EU VAT Directive 2006/112/EC). Article 47 of the Charter of Fundamental Rights of the European Union.

Article 167 (Right to deduct VAT)
A right of deduction shall arise at the time the deductible tax becomes chargeable.

Article 168 (Right to deduct VAT)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18 (a)and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

Article 178 (Rules Governing Exercise of the Right of Deduction)
In order to exercise the right of deduction, a taxable person must meet the following conditions:
(a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI;
(b) for the purposes of deductions pursuant to Article 168(b), in respect of transactions treated as the supply of goods or services, he must comply with the formalities as laid down by each Member State;
(c) for the purposes of deductions pursuant to Article 168(c), in respect of the intra-Community acquisition of goods, he must set out in the VAT return provided for in Article 250 all the information needed for the amount of VAT due on his intra-Community acquisitions of goods to be calculated and he must hold an invoice drawn up in accordance with Sections 3 to 5 of Chapter 3 of Title XI;
(d) for the purposes of deductions pursuant to Article 168(d), in respect of transactions treated as intra-Community acquisitions of goods, he must complete the formalities as laid down by each Member State;
(e) for the purposes of deductions pursuant to Article 168(e), in respect of the importation of goods, he must hold an import document specifying him as consignee or importer, and stating the amount of VAT due or enabling that amount to be calculated;
(f) when required to pay VAT as a customer where Articles 194 to 197 or Article 199 apply, he must comply with the formalities as laid down by each Member State.

Facts

The company Cridar Cons SRL, which carries out construction works for roads and motorways, was the subject of a tax inspection conducted by the Administrația Județeană a Finanțelor Publice Bistrița-Năsăud Departmental
Administration for Public Finances, Bistrița-Năsăud) concerning its value added tax (VAT) obligations relating to the period 1 January 2011 to 30 April 2014. In a tax inspection report and a notice of assessment dated 15 July 2014, the tax authority found that the substantive and formal requirements for recognition of the right to deduct VAT had been met and raised no objection regarding transactions that had been alleged to be fictitious.
In early 2015, the Office of the Public Prosecutor attached to the Curtea de Apel Cluj (Court of Appeal, Cluj) (‘the Curtea de Apel’) opened a criminal investigation file in which accusations of tax evasion were made against a number of persons, including the company director of Cridar Cons SRL. In that context, in early 2016, that Public Prosecutor’s Office requested the Direcția Generală Regională a Finanțelor Publice Cluj-Napoca (Regional Directorate-General for Public Finances, Cluj-Napoca) to carry out a fresh tax inspection of Cridar Cons SRL, as there was evidence that, between 1 January 2011 and 31 December 2015, that company had made fictitious purchases from various other companies.
The requested fresh tax inspection was carried out in October 2016 by the Administrația Județeană a Finanțelor Publice Cluj (Departmental Administration for Public Finances, Cluj). It concerned solely the VAT relating to the period 1 January 2011 to 30 April 2014. In a tax inspection report and a notice of assessment dated 3 November 2016, that authority refused to grant the right to deduct VAT in relation to all purchase transactions carried out by Cridar Cons SRL with five companies named by the Public Prosecutor’s Office, and imposed additional tax liabilities on the company in the sum of 2 103 272 Romanian Lei (RON) (VAT and corporation tax).
The decision to refuse the right to deduct was based on a series of irregularities detected upstream, concerning the five suppliers to the appellant, the tax authority concluding that there were reasonable grounds to suspect that the purchases from those five suppliers were fictitious and that there was no real substance to the purported subsequent supplies made by them to the appellant. This meant that a number of artificial situations had arisen, the purpose of which was to create the necessary conditions for the company that was the subject of the inspection artificially to increase its costs and to deduct VAT in the absence of any real economic transaction justifying the same.
Following the issue of those fiscal acts, the tax authority referred the matter to the Public Prosecutor’s Office on 3 November 2016, notifying it of the commission of acts constituting tax evasion in relation to the transactions analysed. Those same acts were already the subject of the abovementioned criminal investigation.
On 15 November 2016, the appellant challenged the notice of assessment of 3 November 2016. It subsequently applied to the Curtea de Apel, in accordance with Article 14 of Law No 554/2004, for suspension of that notice of assessment pending the decision of the court ruling on the merits. The Curtea de Apel granted the application for suspension and, following the dismissal of the tax authority’s appeal, that decision became final on 17 January 2019.
By a [‘decizie de soluționare a contestației’ (‘decision resolving a complaint’)], dated 16 March 2017, the Regional Directorate-General for Public Finances, ClujNapoca, suspended the examination of the tax complaint, pursuant to Article 277(1)(a) of the Tax Procedure Code. It stated that ‘the authority entrusted with examining the complaint may not rule on the merits of the dispute prior to the conclusion of the criminal proceedings either confirming or refuting the suspicions of the review authority relating to the existence of the transactions carried out by the complainant’ with the five trading partners.
On 29 June 2017, the appellant company brought an action against that decision before the Curtea de Apel seeking the annulment, on procedural grounds, of the decision resolving a complaint and the notice of assessment and, in the alternative, the annulment of the decision resolving a complaint and an order requiring the tax authority to reach a decision on the merits of that complaint. That action was dismissed on 29 September 2017, the Curtea de Apel finding that the tax authority could lawfully decide to suspend the administrative tax complaint proceedings in order to avoid reaching potentially contradictory decisions relating to the same legal situation, and also that there were no grounds for suspending enforcement of the notice of assessment, in that the decision on the application made under Article 14 of Law No 554/2004 did not have the authority of res judicata in the context of the examination of an application made under Article 15 of that law.
Cridar Cons SRL brought an appeal on a point of law against the judgment of the Curtea de Apel before the Înalta Curte de Casație și Justiție (High Court of Cassation and Justice), the referring court.

Questions

Are Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and Article 47 of the Charter of Fundamental Rights of the European Union to be interpreted as precluding national legislation pursuant to which the tax authorities, after issuing a notice of assessment refusing to grant a right to deduct input VAT, are permitted to suspend the examination of an
administrative complaint pending the outcome of criminal proceedings that could provide additional objective evidence of the taxable person’s involvement in tax fraud?
Would the answer given by the Court of Justice of the European Union to the first question be different if, during the period for which examination of the administrative complaint is suspended, the taxable person benefits from provisional measures which suspend the effects of the refusal of the right to deduct VAT?

AG Opinion

None

Decision (Unofficial translation)

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and Article 47 of the Charter of Fundamental Rights of the European Union must be interpreted as meaning that they do not preclude national legislation which allows the national tax authorities to stay the proceedings on an administrative complaint against a tax assessment notice denying a taxable person the right to deduct input tax on account of that taxable person’s involvement in a tax fraud in order to obtain additional objective evidence of that involvement, provided, first, that such a stay does not have the effect of delaying the outcome of the administrative complaint procedure beyond a reasonable period of time, second, that the decision ordering the stay is reasoned in law and in fact and is subject to judicial review and thirdly, that, if it is ultimately found that the right to deduct has been denied in breach of Union law, the taxable person may obtain repayment of the corresponding sum within a reasonable period and, where appropriate, interest on late payment. Under these conditions, it is not required that, during this stay of proceedings, the said taxable person benefit from a stay of execution of this notice, except, in the case of serious doubt as to the legality of the said notice, if the granting of a stay of execution of the same notice is necessary to avoid serious and irreparable damage to the interests of the taxable person.

Summary

The Romanian SC Cridar Cons SRL is building roads and motorways. An investigation by the Public Prosecution Service establishes that an artificial situation has been created in order to fictitiously increase Cridar’s expenditure and to deduct VAT, without in fact an economic transaction taking place. The Romanian Tax Authorities adopt a tax assessment denying the right to VAT deduction for all Cridar purchases from five companies designated by the Public Prosecution Service. Cridar disagrees, because it is not established that it is involved in the VAT fraud. The Romanian court is asking preliminary questions in this case.

The EU Court of Justice has ruled that it is not contrary to EU law that the Romanian tax authorities may suspend the processing of an objection to a tax assessment in order to collect data on a taxpayer’s involvement in VAT fraud. In that case, various conditions apply. For example, such a suspension should not delay the objection procedure for an unreasonably long time. The decision ordering suspension must also be substantiated factually and in law and must be subject to judicial review. Furthermore, if it is established that the deduction was wrongly refused, the refund must be made within a reasonable period of time. If these conditions are met, suspension of the enforcement of the tax assessment is in principle not necessary.

Source

Curia

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ECJ C-582/20 (SC Cridar Cons SRL) – Judgment – Refusal of VAT deduction without disposing of objective information about VAT fraud

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