ECJ Case C-442/22 (P Sp. z o.o.) – Judgment – Employee who issued empty invoice is responsible to report them

On January 30, 2024, the ECJ isued the Judgment in the case C-442/22 (P Sp. z o.o.).

Article in the EU VAT Directive

Article 203 in the EU VAT Directive 2006/112/EC.

Article 203 (Persons liable for payment of VAT to the tax authorities)
VAT shall be payable by any person who enters the VAT on an invoice.

Facts

From 2001 to 2015, the appellant – the company P Sp. z o.o. – was in the business of selling fuel, property development, publishing and leasing commercial pace. It kept full accounts and was registered as a VAT taxable person with an average of 14 employees and one person working under a contract of mandate.
As a result of a cross audit conducted by the Tax Office, it was determined that between January 2010 and April 2014, the appellant company issued 1 679 fraudulent VAT invoices (not reflecting actual sales of goods) for a total VAT amount of PLN 1 497 847 to entities that subsequently accounted for the VAT shown in those invoices in their tax settlements. The fraudulent invoices were not recorded in the appellant company’s sales register, and the output VAT shown therein was neither paid to the central budget nor accounted for by the appellant company.
The issuance of the fraudulent invoices was linked to actual sales made at a petrol station, which were recorded by the appellant company using cash registers. To that end, copies of the fraudulent VAT invoices were accompanied by cash register receipts actually related to transactions carried out with entities other than those indicated in the VAT invoices.
As a result of the findings of the tax audit, the chair of the board of the appellant company conducted an internal investigation into the matter, which revealed that the fraudulent VAT invoices had been issued and sold by P.K., an employee of the company, without the knowledge or consent of the company’s board.
P.K. was employed as the manager of a petrol station owned by the appellant company from 25 November 2005 until 24 May 2014, when her employment was terminated on the grounds of misconduct under Article 52 of the Labour Code. Her duties included operating the cash register, making out invoices and preparing documents for the chief accountant.
According to P.K.’s statements, from 2010 she issued summary invoices for receipts collected by employees of the petrol station she managed. The receipts were found in rubbish bins, and all the employees who collected them benefited financially. The receipts for each invoice, segregated by year, were kept in the boiler room, which was meant to ensure that the invoices issued were not fraudulent, and the entire practice was not meant to cause damage to the appellant company. The fraudulent invoices were saved on a computer in the office, in a file that was invisible until unlocked. P.K. issued those invoices in a format which differed from that of the correct invoices, and did so only when her deputy was absent. She did not print copies of the invoices so as not to create a paper trail since they were invoices that accompanied cash register receipts, she did not submit them to the accounting department either. She used the details of the appellant company, indicating it as the issuer of the invoice and using its tax identification number. The invoices bore P.K.’s signature and stamp, and from 2014 a computer-generated signature with no stamp. All the cooperating employees received financial benefits. They received sums equivalent to the amount of fuel indicated in the provided receipts that were used to issue the fraudulent invoices.
As a result of the findings of the audit, the Head of the Tax Office in P. issued a decision determining, with respect to the appellant company, the amount of VAT
due in connection with the practice of issuing fraudulent invoices between January 2010 and April 2014.
In appeal proceedings, the Dyrektor Izby Skarbowej (Director of the Tax Chamber) in Warsaw upheld that decision by way of a decision of 31 October 2017.
On the basis of the established facts, both tax authorities found, and the parties did not deny, that the fraudulent invoices documented supplies of goods and services that had not been actually made. Those invoices simulated actual transactions for the purpose of obtaining undue tax refunds. The tax authorities found that the employer had failed to exercise due diligence in preventing the issuance of the fraudulent VAT invoices. P.K. did not possess a precisely defined written job description. Her broad responsibilities included the issuance of VAT invoices for receipts outside the BOS computer system in Excel format without the employer’s additional approval. Since the chair of the appellant company’s board of directors was aware that invoices which accompanied receipts were issued at the petrol station, without accounting checks, he could and should have foreseen that this facilitated the issuance of fraudulent invoices. It was due to the lack of proper supervision and organisation that the chair of the company only discovered the practice in question after a cross audit conducted by the tax authority.
According to the tax authorities, P.K. was not a third party in relation to the appellant company. She was the manager of a petrol station owned by that company, an employee who was authorised to issue invoices and who was in charge of a team of other employees.
Furthermore, the authorities found that despite the measures taken to exclude the counterparties who used the fraudulent VAT invoices from settlements, the loss of tax revenue was not prevented in a timely manner, and therefore Article 108(1) of the Law on VAT was applicable to the case.
In its judgment of 23 February 2018, the Regional Administrative Court dismissed the appellant company’s appeal against the decision of the Director of the Tax
Administration Chamber in Lublin, accepting the arguments of the appeal body.

Questions

1. Must Article 203 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) … be interpreted as meaning that in a situation where an employee of a VAT taxable person has issued a fraudulent invoice showing VAT, on which he or she has included the employer’s details as the taxable person, without that employer’s knowledge and consent, the person who enters the VAT on the invoice and who is thus liable to pay the VAT is to be considered:
– the VAT taxable person whose details were unlawfully used in the invoice; or
– the employee who unlawfully entered VAT on that invoice using the details of the VAT taxable person?
2. In connection with the question of who is to be considered, within the meaning of Article 203 of the aforementioned Council Directive 2006/112/EC, the person who enters VAT on the invoice and is thus liable to pay VAT in the circumstances described in Question 1, is it relevant whether the VAT taxable person that employs the employee who unlawfully entered that taxable person’s details on a VAT invoice may be considered to have failed to exercise due diligence in supervising that employee?

AG Opinion

Article 203 of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the ostensible issuer of an invoice for fictitious transactions is liable to pay the VAT entered on them only if (1) the recipient of the invoice could not be refused deduction of input tax, (2) the issuing of the invoice by a third party is to be attributed to him or her on account of particular responsibility (or proximity) and (3) he or she did not act in good faith. Good faith can be ruled out only where the ostensible issuer is himself or herself at fault. In the case of a taxable person, the culpably deficient selection or supervision of that person’s employees can also constitute such fault.

Decision

Article 203 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

must be interpreted as meaning that, where an employee of a taxable person for value added tax (VAT) purposes has issued a fake invoice showing VAT using the employer’s identity as a taxable person, without that employer’s knowledge or consent, that employee must be considered to be the person who enters the VAT, within the meaning of Article 203, unless that taxable person did not exercise the due diligence reasonably required to monitor the conduct of that employee.

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