On May 16, 2013, the ECJ issued its Order in the case C-444/12 (Hardimpex).
Context: Taxation – VAT – Directive 2006/112/EC – Principle of fiscal neutrality – Right of deduction – Refusal – Suspicious transactions – Fraud committed upstream – Burden of proof
Article in the EU VAT Directive
Article 168(a) of the EU VAT Directive 2006/112/EC.
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;
Facts
- In 2006 and 2007, Hardimpex engaged in the wholesale trade of computer equipment and spare parts.
- On the basis of Articles 32(1)(a) and 35(1)(a) of the Law on VAT, the tax authorities refused Hardimpex the right to deduct the VAT mentioned in invoices issued by its main supplier, Cryp‑Tech Kft. (hereinafter “CT”), on the grounds that the said invoices were not proof of their content.
- The tax authorities relied in this respect on the result of checks carried out on companies that intervened upstream, arguing that the goods mentioned in the invoices issued by CT were of unverified origin, since they were placed in trade illegally in Hungary, since the main supplier of CT, M2 Data Kft., which had procured the computer equipment partly in a third State, had not fulfilled its reporting and tax obligations related to the import, while the supplier of M2 Data Kft. in Hungary, company P, did not exercise any economic activity at its registered office. The tax authorities also based their refusal to recognize said right to deduct VAT on the fact that, when acquiring the goods concerned,
- The tax authorities did not dispute, however, that CT had delivered computer equipment to Hardimpex and that the latter had made available to the tax authorities the documentation establishing the purchase of the goods in question.
- Following the rejection of its complaint against the decision of the tax authorities refusing the right to deduct VAT, Hardimpex brought an action before the referring court, claiming that the right to deduct VAT cannot be refused due to the unverified origin of the goods. In order to establish the reality of the economic transaction in question, Hardimpex relied on the invoices as well as the documentation establishing the purchase of the goods, consisting of a serial number and a guarantee certificate, which it had kept at the disposal of the tax authorities during the control.
Questions
1) Should the provisions of Directive 2006/112 relating to the supply of goods be interpreted as meaning that the constituent elements of the concept of supply of goods are not met when the taxable person issuing the invoice delivers to the other taxable person goods of unverified provenance?
2) If the answer to the first question is in the negative, do the provisions of Directive 2006/112 relating to tax neutrality [and] the deduction of tax preclude the tax administration refuses the taxable person the right to deduct the VAT due or paid for a supply of goods made in his favor on the sole ground that the goods which were the subject of the operation at the origin of the right to deduction was of unverified origin, without it having been established to the requisite legal standard that the recipient of the invoice had a direct or indirect relationship with economic operators who intervened upstream in the supply chain, or that he knew or should have known of the tax evasion committed by the operators in question?
3) Should the provisions of Directive 2006/112 relating to the deduction of tax be interpreted as meaning that they preclude the tax authorities from refusing the taxable person the right to deduct the VAT on the grounds that the latter may be accused of having failed to check or ensure that the origin of the goods appearing in the invoice sent to him is duly verified, that they have been legally placed on the market in Hungary, and how did the issuer of the invoice or the taxable person acting upstream in the supply chain obtain the goods delivered? Can this behavior of the taxable person be considered as an objective element implying that the recipient of the invoice knew or should have known that he was participating in an operation intended to evade tax?
AG Opinion
None
Decision
Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that it precludes a tax authority of a Member State from refusing a taxable person the right to deduct from the amount of VAT which it owes the amount of VAT paid or to be paid on a supply of goods to it, because an earlier transaction in the chain of supply was irregular under the VAT legislation or because that taxable person can be criticised for having failed to check the origin of the goods featuring in the invoices issued by its supplier, without the tax authority demonstrating to the requisite legal standard that the taxable person knew or should have known of that irregularity.
Summary
The tax authorities of a Member State may not refuse to allow a taxable person to deduct the VAT due or paid on the goods supplied to him from the VAT due by him because a transaction earlier in the supply chain was irregular under the VAT rules, or he can be accused of failing to ascertain the origin of the goods on the invoice issued by his supplier, without it being established to the requisite legal standard that the taxable person was or should have been aware of that irregularity.
Source:
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