Flashback on ECJ Cases – C-527/11 (Ablessio) – Refusal VAT number requires strong suspicion of fraud

On March 14, 2013, the ECJ issued its decision in the case C-527/11 (Ablessio).

Context: VAT — Directive 2006/112/EC — Articles 213, 214 and 273 — Identification of taxable persons subject to VAT — Refusal to assign a VAT identification number on the ground that the taxable person is not in possession of the material, technical and financial resources to carry out the declared economic activity — Legality — Countering tax evasion — Principle of proportionality

Article in the EU VAT Directive

Articles 213, 214 and 273 of the EU VAT Directive 2006/112/EC.

Article 213 (identification)
1. Every taxable person shall state when his activity as a taxable person commences, changes or ceases.
Member States shall allow, and may require, the statement to be made by electronic means, in accordance with conditions which they lay down.
2. Without prejudice to the first subparagraph of paragraph 1, every taxable person or non-taxable legal person who makes intra-Community acquisitions of goods which are not subject to VAT pursuant to Article 3(1) must state that he makes such acquisitions if the conditions, laid down in that provision, for not making such transactions subject to VAT cease to be fulfilled.

Article 214
1. Member States shall take the measures necessary to ensure that the following persons are identified by means of an individual number:
(a) every taxable person, with the exception of those referred to in Article 9(2), who within their respective territory carries out supplies of goods or services in respect of which VAT is deductible, other than supplies of goods or services in respect of which VAT is payable solely by the customer or the person for whom the goods or services are intended, in accordance with Articles 194 to 197 and Article 199;
(b) every taxable person, or non-taxable legal person, who makes intra-Community acquisitions of goods subject to VAT pursuant to Article 2(1)(b) and every taxable person, or non-taxable legal person, who exercises the option under Article 3(3) of making their intra-Community acquisitions subject to VAT;
(c) every taxable person who, within their respective territory, makes intra-Community acquisitions of goods for the purposes of transactions which relate to the activities referred to in the second subparagraph of Article 9(1) and which are carried out outside that territory;
(d) every taxable person who within their respective territory receives services for which he is liable to pay VAT pursuant to Article 196;
(e) every taxable person, established within their respective territory, who supplies services within the territory of another Member State for which VAT is payable solely by the recipient pursuant to Article 196.
2. Member States need not identify certain taxable persons who carry out transactions on an occasional basis, as referred to in Article 12.

Article 273 (Miscellaneous provisions)
Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.
The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.

Facts

Ablessio, a Latvian company with limited liability, applied to the VID to be entered on the register of taxable persons subject to VAT. By decision dated 15 November 2007, confirmed following an objection by a decision dated 27 November 2007, the VID refused registration, stating that this company did not have the material, technical and financial capacity to carry out the declared economic activity, namely providing construction services.
It can be seen from the order for reference that, for the purposes of adopting those refusal decisions, the VID relied upon the findings, first, that Ablessio had no fixed assets, and no agreement had been concluded to lease such fixed assets. Next, an occupational lease had been concluded to rent an office with a non-residential area of only 4m². Finally, the company was not registered in the Register of Construction Companies, it had not carried out any actual commercial activities since it was established, and the company’s only employee was the apparently unremunerated chairman of the board of directors.
Ablessio made an application to set aside those decisions refusing registration in the register of taxable persons subject to VAT before the administratīvā rajona tiesa (District Administrative Court), which granted the application by a decision dated 20 October 2009 and ordered the VID to enter the company in the register. That court held that Ablessio had provided the VID with the information concerning its capacity to carry on the economic activity declared and that the accuracy of that information was not contested. Therefore, in the opinion of that court, the conditions provided for by law enabling the VID to refuse to enter an economic operator in that register had not been fulfilled.
Ruling on the appeal brought by the VID, the Administratīvā apgabaltiesa (Regional Administrative Court), by a judgment dated 13 December 2010, upheld the decision of the court of first instance and found also that the Law on VAT does not authorise the VID to assess whether a person who wishes to be entered in the register of taxable persons subject to VAT is capable of carrying out an economic activity. In that regard, it held that it is irrelevant that that person has already applied for and obtained the registration of several undertakings which immediately after that registration were transferred to other persons who did not possess sufficient revenue to provide the share capital, since the Law on VAT does not provide that such circumstances constitute a ground for refusing to register a person in the register. In order to avoid any potentially unlawful act by the taxable person in the payment of VAT, the legal procedure provides that the VID is required to carry out inspections of the taxable person, and if it finds any infringements of national provisions, the VID must calculate an additional tax and penalties.
The VID brought an appeal on a point of law before the referring court against the decision of the Administratīvā apgabaltiesa maintaining that the latter court committed an error of law in its interpretation of Article 3(1-1), second paragraph, of the Law on VAT. In the opinion of the VID, that provision obliges it to verify whether a person is capable of carrying on the economic activity declared.
Referring to the judgment in Case C-385/09 Nidera Handelscompagnie [2010] ECR I-10385, the national court expressed doubts as to the interpretation, in particular, of Articles 213, 214 and 273 of Directive 2006/112.

Questions

1. Is Directive 2006/112 … to be interpreted as prohibiting refusal of the individual registration number that identifies a taxable person, on the basis that the holder of the taxable person’s shares previously obtained on various occasions an individual number for other undertakings which did not carry out any real economic activity, and the shares of which were transferred by the holder to other persons immediately after obtaining the individual number?

2. Is Article 214, in conjunction with Article 273, of Directive [2006/112] to be interpreted as permitting the tax authority, before assigning the individual number, to verify the capacity of the taxable person to carry out the activity that is subject to tax, where this verification is intended to ensure correct collection of the tax and prevent tax evasion?

AG Opinion

None

Decision

Articles 213, 214 and 273 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 tax authority of a Member State may not refuse to assign a value added tax identification number to a company solely on the ground that, in the opinion of that authority, the company does not have at its disposal the material, technical and financial resources to carry out the economic activity declared, and that the owner of the shares in that company has already obtained, on various occasions, such an identification number for companies which never carried out any real economic activity, and the shares of which were transferred immediately after obtaining the individual number, where the tax authority concerned has not established, on the basis of objective factors, that there is sound evidence leading to the suspicion that the value added tax identification number assigned will be used fraudulently. It is for the referring court to assess whether that tax authority provided serious evidence of the existence of a risk of tax evasion in the case in the main proceedings.

Summary

Refusal to grant VAT identification number because VAT payer does not have material, technical and financial resources to carry out the declared economic activity – Combating tax fraud

It is not permitted for the tax authorities of a Member State to refuse to grant a company a VAT identification number on the sole ground that, according to the tax authorities, it does not have the material, technical and financial resources to carry out the declared economic activity and the holder of the shares in the capital of that company has already been given such a number on several occasions for companies which have never actually engaged in an economic activity and whose capital shares were transferred shortly after that number was assigned, without the relevant tax authorities having established on the basis of objective evidence that there are serious indications that suggest that the assigned identification number will be used for VAT fraud.

It is for the referring court to assess whether that tax authority has provided serious indications that there is a risk of fraud in the main proceedings.

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