ECJ C-270/24 (Granulines Invest) – Questions – Right to deduct VAT based on formal correctness, rather than the economic result

The ECJ issued the preliminary ruling in the case C-270/24 (Granulines Invest).

Context:

Summary

The case involves a trading company, Granulines Invest Kft, which ordered a chopper from a reseller and took out a loan for the purchase.
The tax inspectorate conducted an inspection and denied the company’s right to a VAT refund, citing various issues with the invoice, including inflated prices, incorrect execution date, and involvement of a wrongly included party in the distribution chain.
The company appealed the tax authority’s decision, questioning whether the EU legislature intended to exclude the right to deduct VAT based on formal correctness alone, rather than the economic result.
The referring court raises questions about the compatibility of the tax authority’s practice with EU law, including the principles of fiscal neutrality, proportionality, effectiveness, and the right to an impartial tribunal.
The court seeks clarification on whether the tax authority’s denial of VAT refund based on invoice irregularities is in line with the VAT Directive and the right to a fair trial recognized in the Charter of Fundamental Rights of the European Union.

Articles in the EU VAT Directive

Articles 167, 168(a), 178(a), 219, 220, 226(6) and 7, and 273 of the EU VAT Directive 2006/112/EC

Charter of Fundamental Rights of the European Union: Article 47

Facts & Background

The applicant is ‘Granulines Invest Kft’, a trading company active in the waste trade. She ordered a chopper from a reseller, a machine for carrying out her activities. She took out a loan to purchase this machine. The tax inspectorate carried out an inspection and determined that the applicant was not entitled to a VAT refund and that the issuer of the invoice was wrongly included in the distribution chain. There was also an incorrect execution date on the invoice, and the price of the machines had been inflated. The tax authority subsequently imposed a fine on the applicant, which it appealed.

Consideration:
The referring court doubts whether the EU legislature intended, by adopting the VAT Directive, to exclude the taxable person’s right to deduct VAT even where the economic activity stated on the invoice is proven and recognized. The referring court states that the right to VAT refund is not based on the formal correctness of the invoice, but on the economic result. He also states that an error in the invoice cannot be a ground for refusing the right to a VAT refund, because the transactions were carried out in accordance with the contract terms. Finally, the referring court wonders whether the tax authority’s conduct is contrary to EU law, taking into account the principles of fiscal neutrality and effectiveness.

Questions

1. Is a practice of the tax authorities whereby the taxable person is denied the right to VAT refund on the grounds that, although the supply of goods has actually taken place and an invoice and other accounting supporting documents exist, the invoice is fictitious because the economic transactions mentioned therein did not actually take place and the transactions were therefore not carried out between the parties mentioned in the invoice, because (a) the taxable person was the one who negotiated with the manufacturers on all matters and only after expressing itself transaction, the issuer of the invoice established in the national territory intervened in order to meet the credit conditions, (b) the machinery was supplied directly by the manufacturer to the taxable person, (c) the date of execution indicated on the invoice is incorrect, (d) ) the price on the invoice has been inflated, (e) the issuer of the invoice has only partially and late fulfilled his obligation to pay [VAT], consistent with Article 167, Article 168(a), Article 178(a) , and Article 226 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (hereinafter: ‘the VAT Directive’) and the right to an impartial tribunal which is a general principle of law recognized in Article 47 of the Charter of Fundamental Rights of the European Union (‘the Charter’), as regards the principles of fiscal neutrality, proportionality, effectiveness and legal certainty?
2. Must Article 178(a) of the VAT Directive be interpreted as precluding the national tax authorities from refusing the right to a VAT refund solely on the ground that the taxable person has an invoice that does not comply to the conditions laid down in Article 226(6) and (7) of this Directive, even though the tax authorities have all the necessary documents and information to enable them to verify whether the substantive conditions laid down by law for the exercise of this right are met met? a) If the second question referred is answered in the affirmative, does the condition for the taxable person to correct the invoice constitute a condition for VAT refund? b) If the second question referred for a preliminary ruling is answered in the negative, it is proportionate in such a case, also taking into account the principles of fiscal neutrality and proportionality, to impose on the taxpayer a tax penalty of 200%, namely the fine that can be imposed in case of concealment of income or falsification and destruction of supporting documents, accounting documents and reports?
3. Is a practice of the tax authorities whereby the taxable person is denied the right to a VAT refund for the reasons mentioned in the first preliminary question and considered objective by the tax authorities, even though the economic transaction mentioned in the invoice has actually taken place and on the basis that the invoice is fictitious in nature; whereby he establishes ex officio, without any other investigation, that the actions of the taxpayer are contrary to the requirements of the lawful exercise of the right and, on the basis of that action and without expressly examining the knowledge element, that the taxpayer refuses the payment of the has deliberately avoided VAT by means of the fabricated transactions mentioned in the invoice, compatible with the aforementioned provisions of the VAT Directive, with the right to a fair trial recognized in Article 47 of the Charter and with the principles of effectiveness, proportionality and fiscal neutrality ?

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