Flashback on ECJ Cases – C-563/11 (Forvards V) – Right to deduct if Invoice issued by a company considered to be fictitious

On February 28, 2013, the ECJ issued its decision in the case C-563/11 (Forvards V).

Context: Article 99 of the Rules of Procedure — Taxation — VAT — Sixth Directive — Right of deduction — Refusal — Invoice issued by a company considered to be fictitious

Article in the EU VAT Directive

Article 17(2)(a) of the Sixth VAT Directive (Article 168(a) of the EU VAT Directive 2006/112/EC).

Article 168
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

Following an overall tax audit relating to the financial years 2005 and 2006, the VID found, by a decision of 8 October 2007, the existence of a VAT debt against Forvards and imposed on the latter a fine, considering that it did not benefit from a right of deduction for the deliveries of spare parts and other products for automobiles carried out, according to the delivery slips, by Ogma SIA (hereinafter ” Ogma”). The VID disputed that these deliveries had actually been made by this company.
By judgment of 25 November 2009, the administratīvā rajona tiesa (district administrative court) dismissed the action for annulment brought by Forvards against that decision of 8 October 2007, on the ground that the property in respect of which the exercise of the right deduction was requested had not been delivered by the taxable person named on the delivery slips. It emerged, in fact, from the explanations given by a member of Ogma’s management that the latter had had no intention of carrying on a commercial activity or of establishing, as a manager of this company, legal relations with other operators, including Forvards. Therefore, said delivery slips could not be considered as documents confirming the existence of a taxable transaction.
By judgment of 13 November 2010, the Administratīvā apgabaltiesa (Regional Administrative Court) dismissed the appeal brought by Forvards. It endorsed the reasoning adopted by the court of first instance, adding that this company had not provided proof of the actual performance, with Ogma, of the disputed transactions. Even supposing that Forvards acquired goods, these would not come from Ogma.
Forvards appealed in cassation against this judgment before the Augstākās tiesas Senāts (Senate of the Supreme Court), arguing that the Administratīvā apgabaltiesa had wrongly considered that the existence of a taxable transaction was subject to the signature of the member of management of the supplier and that it was his responsibility to prove that he had received the goods delivered directly from Ogma. Forvards also argues that it checked in the register that Ogma was subject to VAT, and it considers that the statement by the manager of Ogma that he did not carry out economic transactions does not cannot constitute a reason for limiting the right to deduct VAT.
The Augstākās tiesas Senāts points out that Forvards and Ogma formally fulfill the conditions laid down by the law relating to VAT in order to benefit from the right to deduct input tax. Forvards and Ogma are registered with the VID as liable for VAT and Forvards received an invoice from Ogma which it paid. The VID would not dispute the fact that Forvards received the goods, but it would consider that they did not come from the person mentioned on the invoice.
That conclusion of the VID was, according to that court, based on the following circumstances. First, at Ogma’s declared address, no economic activity is carried out and that company has no registered structure or technical installations. Secondly, the details of the transaction in question, such as the place of the disputed delivery and the means of transport used, are not known. Thirdly, the owner and manager of Ogma allegedly explained that he had assumed this situation at the request of a third party and that neither this company nor himself carried out any economic activity, while admitting to having signed various documents including, where applicable, disputed invoices.
The VID would not have investigated who was responsible for delivering the goods. The referring court states in that regard that it is seized of several similar cases, which present similar factual circumstances. In some of these cases, the products mentioned on the invoice and possibly delivered would be substitutable products, for which only the category and quantity would be indicated and which it would not be possible to identify by means of a given invoice.

Questions

(1) Is it appropriate to interpret Article 17(2)(a) of the Sixth Directive as meaning that a taxable person who satisfies all the essential conditions for the deduction of VAT paid to purchase of goods, and without evidence of abusive behavior on his part, may be refused the right to make this deduction when the other party to the transaction, due to legal or factual circumstances, does not was unable to deliver the products (this other party is fictitious or its manager excludes the existence of an economic activity or a concrete operation and does not have the means to perform the contract)?

2) The circumstance that it is established that the other party to the operation (the person mentioned in the invoice) is considered fictitious (that is, the purpose of his activity is not an activity economic) is it, in itself, such as to justify a refusal of the right to deduct VAT? In such a case, can the right to deduct the input tax paid be refused even if no abusive practice on the part of the party wishing to assert this right has been established?

AG Opinion

None

Decision

Article 17 (2) (a) of Sixth Council Directive 77/388 / EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – System common value added tax: uniform base, as modified by Council Directive 95/7 / EC of 10 April 1995, must be interpreted as meaning that it precludes the recipient of a invoice is refused the right to deduct upstream value added tax, on the grounds that, taking into account fraud or irregularities committed by the issuer of this invoice, the operation corresponding to the latter is considered as n ‘that has not actually been carried out, unless it is established,in the light of objective elements and without requiring the recipient of the said invoice to carry out verifications which are not his responsibility, that this recipient knew or should have known that the said transaction was involved in value added tax fraud, which is for the referring court to verify.

Summary

Refusal of right to deduct – Invoice issued by a company considered to be fictitious

The recipient of an invoice may not be denied the right to deduct input VAT on the ground that, in view of fraud or irregularities committed by the issuer of this invoice, the transaction corresponding to this invoice is deemed not to have actually been carried out, unless it is demonstrated on the basis of objective data, without the recipient of this invoice being required to carry out checks which he is not required to carry out, that this recipient knew or should have known that this transaction was part of VAT fraud, which the referring court should verify.

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