On January 15, 2009, the ECJ issued its decision in the case C-502/07 (K-1).
Context: VAT – Irregularities in the tax declaration submitted by a taxable person – Additional tax
Article in the EU VAT Directive
Artciles 2, 10(1)(a), 10(2), 27(1) of the Sixth VAT Directive (Articles 62-66, 394, 395 of the EU VAT Directive 2006/112/EU)
Article 62 (chargeable event)
For the purposes of this Directive:
(1) ‘chargeable event’ shall mean the occurrence by virtue of which the legal conditions necessary for VAT to become chargeable are fulfilled;
(2) VAT shall become ‘chargeable’ when the tax authority becomes entitled under the law, at a given moment, to claim the tax from the person liable to pay, even though the time of payment may be deferred.
CHAPTER 2
Supply of goods or services
Article 63
The chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.
Article 64
1. Where it gives rise to successive statements of account or successive payments, the supply of goods, other than that consisting in the hire of goods for a certain period or the sale of goods on deferred terms, as referred to in point (b) of Article 14(2), or the supply of services shall be regarded as being completed on expiry of the periods to which such statements of account or payments relate.
2. Continuous supplies of goods over a period of more than one calendar month which are dispatched or transported to a Member State other than that in which the dispatch or transport of those goods begins and which are supplied VAT-exempt or which are transferred VAT-exempt to another Member State by a taxable person for the purposes of his business, in accordance with the conditions laid down in Article 138, shall be regarded as being completed on expiry of each calendar month until such time as the supply comes to an end.
Supplies of services for which VAT is payable by the customer pursuant to Article 196, which are supplied continuously over a period of more than one year and which do not give rise to statements of account or payments during that period, shall be regarded as being completed on expiry of each calendar year until such time as the supply of services comes to an end.
Member States may provide that, in certain cases other than those referred to in the first and second subparagraphs, the continuous supply of goods or services over a period of time is to be regarded as being completed at least at intervals of one year.
Article 65
Where a payment is to be made on account before the goods or services are supplied, VAT shall become chargeable on receipt of the payment and on the amount received.
Article 66
By way of derogation from Articles 63, 64 and 65, Member States may provide that VAT is to become chargeable, in respect of certain transactions or certain categories of taxable person at one of the following times:
(a) no later than the time the invoice is issued;
(b) no later than the time the payment is received;
(c) where an invoice is not issued, or is issued late, within a specified time no later than on expiry of the time-limit for issue of invoices imposed by Member States pursuant to the second paragraph of Article 222 or where no such time-limit has been imposed by the Member State, within a specified period from the date of the chargeable event.
The derogation provided for in the first paragraph shall not, however, apply to supplies of services in respect of which VAT is payable by the customer pursuant to Article 196 and to supplies or transfers of goods referred to in Article 67.
Article 394
Member States which, at 1 January 1977, applied special measures to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance may retain them provided that they have notified the Commission accordingly before 1 January 1978 and that such simplification measures comply with the criterion laid down in the second subparagraph of Article 395(1).
Article 395
1. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.
Measures intended to simplify the procedure for collecting VAT may not, except to a negligible extent, affect the overall amount of the tax revenue of the Member State collected at the stage of final consumption.
2. A Member State wishing to introduce the measure referred to in paragraph 1 shall send an application to the Commission and provide it with all the necessary information. If the Commission considers that it does not have all the necessary information, it shall contact the Member State concerned within two months of receipt of the application and specify what additional information is required.
Once the Commission has all the information it considers necessary for appraisal of the request it shall within one month notify the requesting Member State accordingly and it shall transmit the request, in its original language, to the other Member States.
3. Within three months of giving the notification referred to in the second subparagraph of paragraph 2, the Commission shall present to the Council either an appropriate proposal or, should it object to the derogation requested, a communication setting out its objections.
4. The procedure laid down in paragraphs 2 and 3 shall, in any event, be completed within eight months of receipt of the application by the Commission.
Facts
- By decision of 17 August 2005, the Director of the Pierwszy Urząd Skarbowy w Toruniu (First Tax Office, Toruń) found in respect of K‑1 that VAT declared as input tax had exceeded output tax for May 2005 and fixed an additional tax liability for that month. The tax authority questioned the deduction of tax contained in an invoice of 29 April 2005 relating to the purchase of developed immovable property in Toruń. As that immovable property constituted second‑hand goods, its purchase was exempt from VAT and the corresponding invoice could not therefore form the basis for a reduction of the tax due or for repayment of a tax difference in respect of VAT or an amount of tax paid as input tax. As a result of the overstatement of input tax, an additional tax liability was imposed on the company pursuant to Article 109(5) and (6) of the Law on VAT.
- K‑1 appealed against that decision to the Dyrektor Izby Skarbowej w Bydgoszczy. In its appeal, K‑1 claimed that the additional tax liability imposed by the contested decision was incompatible with Article 27 of the Sixth VAT Directive. By decision of 9 November 2005, the Dyrektor Izby Skarbowej w Bydgoszczy rejected K‑1’s arguments and upheld the contested decision.
- K‑1 thereupon brought an action contesting that decision before the Wojewódzki Sąd Administracyjny w Bydgoszczy (Administrative Court, Bydgoszcz Region). By judgment of 31 May 2006, that court held that Article 33(1) of the Sixth VAT Directive did not rule out the imposition of additional tax liability on the grounds laid down in the Law on VAT and dismissed K‑1’s action. It found that the additional tax lacked the fundamental characteristics of VAT and did not give rise, in trade between Member States, to formalities connected with the crossing of frontiers. The Wojewódzki Sąd Administracyjny w Bydgoszczy also did not accept the argument that the additional tax constituted a special measure within the meaning of the Sixth VAT Directive. It furthermore took the view that there had been no need to initiate the procedure provided for in Article 27 of that directive.
- K‑1 lodged an appeal on a point of law against that judgment. In the grounds of that appeal, K‑1 argued that the mandatory imposition of additional tax liability under Article 109(5) of the Law on VAT was incompatible with the provisions of Community law, more specifically with the provisions of the Sixth VAT Directive.
Questions
- Do the first and second paragraphs of Article 2 of First Council Directive 67/227/EEC 1 of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes, in conjunction with Articles 2, 10(1)(a) and 10(2) of Sixth Council Directive 77/388/EEC 2 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, rule out the possibility of imposing an obligation on a taxable person for the purpose of tax on goods and services to pay an additional tax liability within the terms of Article 109(5) and (6) of the Ustawa o Podatku od Towarów i Usług (Law on the tax on goods and services) of 11 March 2004 (Dz. U. No 54, pos 535 with amendments) in the event that it is established that the taxable person for the purpose of tax on goods and services indicated in the tax declaration submitted an amount of the tax difference to be repaid or the input tax to be repaid which is greater than the amount due?
- Can ‘special measures’ within the terms of Article 27(1) of the 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, consist, having regard to their character and purpose, in the possibility of imposing on a taxable person for the purpose of tax on goods and services an additional tax liability fixed by a decision of the tax authority where it is established that the taxable person has declared an overstated amount of the tax difference to be repaid or an overstated amount of input tax to be repaid?
- Does the power provided for by Article 33 of the 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, encompass the right to introduce the additional tax liability laid down in Article 109(5) and (6) of the Ustawa o Podatku od Towarów i Usług of 11 March 2004 (Dz. U. No 54, pos 535 with amendments)?
AG Opinion
None
Decision
1. The common system of value added tax, as defined in the first and second paragraphs of Article 2 of First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes and in Articles 2 and 10(1)(a) and (2) 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 2004/66/EC of 26 April 2004, does not preclude a Member State from providing in its legislation for an administrative penalty which may be imposed on persons liable to value added tax, such as the ‘additional tax’ provided for in Article 109(5) and (6) of the Ustawa o podatku od towarów i usług (Law on the taxation of goods and services) of 11 March 2004.
2. Provisions such as those in Article 109(5) and (6) of the Law on the taxation of goods and services of 11 March 2004 do not constitute ‘special measures for derogation’ for preventing certain types of tax evasion or avoidance within the meaning of Article 27(1) of Sixth Directive 77/388, as amended.
3. Article 33 of Sixth Directive 77/388, as amended, does not preclude the maintenance of provisions such as those in Article 109(5) and (6) of the Law on the taxation of goods and services of 11 March 2004.
Summary
The common VAT system, as defined in the first and second subparagraphs of Article 2 of the First Directive and in Articles 2 and 10(1)(a) and (2) of the Sixth Directive , does not preclude a Member State from providing in its legislation that an administrative sanction can be imposed on VAT payers.
Such provisions do not constitute ‘special […] derogation measures’ aimed at preventing certain forms of tax evasion or avoidance within the meaning of Article 395 VAT Directive.
Art 401 VAT Directive does not preclude the enforcement of such provisions.
Source:
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