ECJ C-114/22 (Dyrektor Izby Adminitracji Skarbowej w Warszawie) – Judgment – VAT deduction even if sale of the brands was a sham transaction

On May 25, 2023, the ECJ issued its decision in the case C-114/22 (Dyrektor Izby Adminitracji Skarbowej w Warszawie).

Context: Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/EC — Right to deduct VAT — Refusal — Refusal based on the nullity of the transaction under national civil law

Articles in the EU VAT Directive

Articles 167, 168(a), 178(a) and 273

Article 167
A right of deduction shall arise at the time the deductible tax becomes chargeable.

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;

Article 178
In order to exercise the right of deduction, a taxable person must meet the following conditions:
(a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI;

Article 273
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

The director of the Warsaw tax authorities (Dias) upheld that decision by decision of 11-10-2018, stating, however, as a ground for refusal that the sale of the brands was a sham transaction. The applicant appealed against the decision of the Dias.

Consideration:

According to the referring court, there are doubts as to whether the legal basis chosen by the tax authorities for refusing the right to deduct is supported by the provisions of the VAT Directive. Articles 58 and 83 kc refer to cases in which a transaction is null and void from the point of view of civil law and not because of abuse of tax law. The question of the nullity of sham transactions in civil law relationships is irrelevant for VAT purposes where there is an explanation for the economic activity concerned other than the mere obtaining of tax advantages. It is clear that, when applying national law, the national court is under an obligation to interpret that law as far as possible in the light of the wording and purpose of the Directive, in order to achieve the purpose it seeks. However, it seems that when this situation is rectified by national case-law which finds that a provision such as Article 88(3bis)(4)(c) of the VAT Act must be interpreted on the basis of the notion of abuse of tax law, the principle of legal certainty is undermined, the law is understood as a system of clear and published rules which ensure foreseeability to individuals of their legal position and of transactions performed by them, since this interpretation in the context of the structural elements of VAT, such as the right to deduct, principle of neutrality requires that this right be limited on the basis of criteria not derived from that rule in question. This would mean relying on the direct effect of the Directive on natural and legal persons while the relevant criterion, which is in line with the VAT Directive, namely, the substantial limitation of the taxpayer’s rights, is not mentioned at all in the wording of the provision to be interpreted. It thus appears that an interpretation of the provision in accordance with the objectives of the Directive would go beyond the possible limits of interpretation within which the referring court may rule without infringing the legal certainty guaranteed to the taxpayer.

Questions

Should Article 167, Article 168(a), Article 178(a) and Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, as amended) and the principles of proportionality and neutrality are interpreted as precluding a national provision such as Article 88(3bis)(4)(c) of the Ustawa o podatku od towarów i usług (Law on the Taxation of Goods and Services) of 11 March 2004 (Dz. U. 2011, No. 177, Item No. 1054, as amended),which denies a taxable person the right to deduct VAT on the acquisition of a right (goods) which, under national civil law, has been made only in appearance, irrespective of whether the intended outcome of the transaction was a tax advantage the grant of which would be contrary with one or more objectives of the Directive and whether that result was the essential objective of the chosen contractual solution?irrespective of whether the intended result of the transaction was a tax advantage the grant of which would conflict with one or more of the objectives of the Directive and whether that result was the essential aim of the contractual solution chosen?irrespective of whether the intended result of the transaction was a tax advantage the grant of which would conflict with one or more of the objectives of the Directive and whether that result was the essential aim of the contractual solution chosen?

Minbuza.nl

AG Opinion

None

Decision

Article 167, Article 168(a), Article 178(a) and Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, read in the light of the principles of fiscal neutrality and proportionality,

must be interpreted as meaning that:

They preclude national legislation under which the taxable person is deprived of the right to deduct input value added tax paid merely because a taxable economic transaction is regarded as fictitious and void pursuant to the provisions of national civil law, without it being necessary to establish that the factors permitting classification, under EU law, that fictitious transaction is combined or, where that transaction has actually been carried out, is the result of value added tax fraud or abuse of rights.

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