The ECJ released the facts & questions in the case C-501/24 (Klinka-Geo Trans).
Context: Challenge to the administrative rulings refusing the deduction of input value added tax (VAT) on a series of accepted invoices.
Articles in the EU VAT Directive 2006/112/EC
Articles 167, 168(a) and 178(a) of the VAT Directive
Facts
The tax authority conducted an ex-post inspection of the VAT returns of Klinka-Geo Trans Földmunkavégző Ipari, Kereskedelmi és Szolgáltató Kft. (referred to as “the applicant”) for December 2011. Based on the inspection, the tax authority found that the applicant had wrongly claimed a refund of input VAT on three invoices. The tax authority denied the refund, imposed a late payment surcharge, and imposed a tax penalty on the applicant.
- Regarding one of the invoices issued by Intellisec Kft. for private security services, a separate inspection of that company revealed irregularities in subcontracting and the recording of services, making it difficult to verify the details of the services provided.
- For the invoice issued by Magyar Beton Gyártó Kft. for the transport and laying of reinforced concrete foundation slabs, the representative of the company did not appear during the inspection and did not provide any documentation despite being requested to do so by the tax authorities. The new owner of the company stated that the invoice had been issued to conceal another transaction, which had not been included in the company’s tax return, and a complaint had been filed regarding this matter.
- Regarding the invoice issued by Double Two Kft. for personnel transport services, no information or documents could be obtained from the company’s representative during the inspection. Double Two Kft. also failed to fulfill its tax obligations, and its tax identification number was eventually cancelled.
The tax authority justified its findings by stating that it was not possible to verify the services provided in the case of the Intellisec invoice, and in the cases of the Magyar Beton and Double Two invoices, it was not proven that the services were provided at all. Therefore, the tax authority concluded that the applicant knew or should have known that it was involved in tax evasion and was not entitled to a refund of input VAT for those invoices.
The applicant appealed the tax authority’s decision, and the case went before the referring national court. The referring court found that the tax authority had not clearly stated the nature of the tax evasion of which the applicant should have been aware. Additionally, the court concluded that the tax authority expected the applicant to verify information that was either unknown to it due to business secrets or not required to be checked. The court also found that the circumstances in question were unrelated to the services provided.
The Hungarian Supreme Court later set aside the judgment of the referring court and ordered new proceedings. The Supreme Court disagreed with the referring court’s reliance on the case-law of the Court of Justice and directed the referring court to consider the case-law of the Hungarian Supreme Court, specifically referring to Opinion No 5/2016, which provided guidance on the right to deduct VAT.
In the new proceedings, the referring court was instructed to determine whether the economic transactions took place and whether they occurred between the parties shown on the invoice. Based on the Supreme Court’s opinion, the referring court was directed to:
- Examine whether the applicant knew or should have known about the economic transaction if it can be proven that the transaction took place but the identity of the parties cannot be established (Intellisec invoice).
- Declare that the applicant was necessarily aware of the tax evasion and not entitled to deduct VAT if it cannot be proven that the economic transaction took place (Magyar Beton and Double Two invoices).
Questions
- 1. Do Articles 167, 168(a) and 178(a) of the VAT Directive and the right to an effective remedy and to a fair trial enshrined as a general principle of law in Article 47 of the Charter of Fundamental Rights of the European Union (‘the Charter’), in conjunction with the fundamental principles of fiscal neutrality, effectiveness and legal certainty, preclude the practice of a tax authority whereby – in accordance with the content of paragraphs 1 and 2 of Opinion No 5/2016 of 26 September 2016 issued by the Administrative and Labour
Chamber of the Kúria (Supreme Court, Hungary), the national court of last instance – that authority applies the aforementioned provisions drawing a distinction with the effect that, if it declares that the economic transaction reflected in the invoice did not take place, it does not examine whether the recipient of the invoice was or should have been aware of the tax evasion or avoidance, while if, on the other hand, it declares that the economic transaction did take place, but not between the parties shown on the invoice, it examines, on the basis of the facts, whether the recipient of the invoice was or should have been aware of the tax evasion or avoidance? - 2. Do the articles of the VAT Directive, the principles of law referred to above and the tax authority’s legal obligation to provide proof by means of objective facts, preclude a procedure in which that authority:
- (a) as a condition for exercising the right to deduct the tax, and invoking lack of due diligence, imposes an obligation on the taxable person to carry out checks of whether the issuer of the invoice has committed an irregularity that is grounds for invalidity and has no causal link with the obligation to pay VAT or therefore with the exercise of the right of deduction, since, under national and EU law, the obligation to pay VAT exists also where a contract is invalid, once a demonstrable
economic result has occurred; - (b) denies the taxable person the right to deduct tax, without examining due diligence, on the ground that, subsequently to the economic transaction, in reliance on circumstances attributable to the issuer of the invoice in the period covered by the inspection, it has been established that the economic transaction reflected in the invoice did not take place;
- (c) requires that the loss resulting from the unsuccessful witness evidence be borne by the taxable person which furnishes proof by means of an invoice, on the ground that, in order for the deduction of VAT to be allowed, in addition to the invoice, the circumstances in which the invoiced economic transaction took place must be the subject matter of a detailed statement by the taxable persons named on the invoice and by the representatives of the undertakings that participated in any way in the economic transaction, taking into account also the principle established by the Court of Justice according to which rules of evidence laid down in national law may not undermine the effectiveness of EU law?
- (a) as a condition for exercising the right to deduct the tax, and invoking lack of due diligence, imposes an obligation on the taxable person to carry out checks of whether the issuer of the invoice has committed an irregularity that is grounds for invalidity and has no causal link with the obligation to pay VAT or therefore with the exercise of the right of deduction, since, under national and EU law, the obligation to pay VAT exists also where a contract is invalid, once a demonstrable
- 3. In the light of the aforementioned provisions of the VAT Directive, Article 47 of the Charter and the primacy of EU law, are the decisions of the Court of Justice containing guidelines on the rules of the VAT Directive concerning the right of deduction and on the circumstances to be assessed in the context of the knowledge of the taxable person applicable in the present case if the tax authority, on the basis of the same circumstances that were examined in the context of that knowledge, determines that the economic transaction did not take place?
- 4. Do Article 267 TFEU, the principle of the primacy of EU law and the right to an effective remedy and to a fair trial enshrined in Article 47 of the Charter preclude the fact that a national court of last instance:
- (a) claiming that there are differences in the factual circumstances, in the context of an appeal in which a number of decisions in the field of VAT deduction are examined, does not apply the decisions of the Court of Justice in that field or prohibits them from being relied on in new proceedings, on the ground that, when compared with the circumstances listed in the decision under appeal, the decisions of the Court of Justice contain only indications relating to isolated circumstances, and relying on the distinction in paragraphs 1 and 2 of Opinion No 5/2016 of the Administrative and Social Chamber of the Hungarian Supreme Court, the logic of which means that the decisions of the Court of Justice in VAT cases are not applicable in situations where the tax authority finds that the economic transaction invoiced did not take place, even though it is precisely the legality of that finding that the applicant is challenging in its action;
- (b) after finding that the decisions of the Court of Justice have been misapplied in the case in question, orders the court, in respect of the new proceedings, contrary to what was established in those decisions, to conduct the new proceedings in accordance with the case-law summarised in the – non-binding – opinion of the Administrative and Labour Chamber of the Hungarian Supreme Court and with the case-law subsequent to the adoption of that opinion;
- (c) in connection with appeal proceedings, deviates from the judgment of the Court of Justice in the case in question as a result of preliminary ruling proceedings and takes a decision contrary to that judgment without bringing preliminary ruling proceedings itself, despite the contradictions with regard to the interpretation of EU law demonstrated in its decision?
- 5. Given the necessary respect for the rights and principles mentioned in the previous question and the obligation to disregard national law that is contrary to EU law, can a court of a Member State, ordered by the court of last instance to initiate new proceedings, deviate in the second proceedings from the instructions given by the court of last instance – without referring a question for a preliminary ruling – if it deems those instructions to be contrary to EU law, and if, after the order to initiate new proceedings, the Court of Justice delivers a decision on the same point of law in a case with similar facts that is contrary to the legal interpretation on which the obligation to initiate new proceedings is based? Or is it only possible to avoid the obligation imposed by the national court of last instance and to implement the subsequent decision of the Court of Justice if the court
responsible for initiating new proceedings makes a request for a preliminary ruling in the new proceedings? - 6. In the light of the principle of the primacy of EU law and the consequent obligation to disapply national law that is contrary to EU law, is the answer to the fourth and fifth questions applicable in all cases, irrespective of the subject matter of the dispute, or only in cases concerning the right to deduct VAT?
Source
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