The ECJ issued the preliminary ruling in the case C-262/24 (Pegazus Busz),
Context:
Summary
- The first question pertains to whether the tax authorities’ practices, which include denying the right to deduct VAT based on various circumstances such as the use of subcontractors, personal and organizational relationships, and behavior towards employees, are in accordance with the VAT Directive, the Charter of Fundamental Rights, and principles of proportionality and legal certainty. It also asks whether late payment of taxes and premiums can be considered tax avoidance or fraudulent behavior, and whether the tax authorities are required to provide specific information on non-compliance with tax obligations.
- The second question asks if the principle developed in case law, which assumes that a taxable person is aware of tax non-payment if there is a personal connection between the taxable person and the issuer of the invoice, is consistent with the provisions of the VAT Directive and the principle of legal certainty.
- The third question addresses whether the conduct of the tax authorities, which relies on assumptions and presumptions rather than legally sufficient evidence based on objective circumstances, is in compliance with their obligation to gather evidence in the context of VAT deduction. It also considers whether this conduct undermines the effectiveness of EU law.
- The fourth question involves whether there is a violation of Article 267 TFEU (Treaty on the Functioning of the European Union), the principle of primacy of Union law, the right to effective judicial protection, and the right to a fair trial, when a national court of last instance departs from a previous judgment of the Court of Justice of the European Union (CJEU) without initiating a preliminary ruling procedure or when it contradicts the CJEU’s judgment without initiating a preliminary ruling procedure.
- The fifth question asks whether a court of a Member State, to which the case has been referred for a fresh hearing, can deviate from the instructions given by the court of last instance without making a reference for a preliminary ruling. It also considers whether the subsequent judgment of the CJEU can be applied without a preliminary ruling request in the new proceedings.
Articles in the EU VAT Directive
Articles 9 and 167, Article 168(a), Article 178(a), Articles 220 and 226 of the EU VAT Directive 2006/112/EC.
– Charter of Fundamental Rights of the European Union: Article 47
Facts & Background
The applicant is ‘Pegazus Busz Fuvarozó Kft’. It has entered into an agreement with a client for the provision of passenger transport services by road. She has worked with several subcontractors. After an audit, the tax authority determined that the applicant has a VAT debt and denied the applicant the right to deduct VAT. According to the tax authority, the agreements concluded with the subcontractors had no real economic content and served to circumvent contribution obligations for the employees. The applicant has appealed against the decisions.
Consideration:
The referring court has doubts as to whether there has indeed been tax fraud, and whether the tax authorities have fulfilled their burden of proof by considering the method of invoicing to be artificial. In addition, the referring court wishes to know whether a court adjudicating at last instance must initiate preliminary ruling proceedings if it intends to depart from the judgment given by the Court in the context of proceedings initiated in the same case.
Questions
1. Is the practice of a tax administration in accordance with Article 167, Article 168(a) and Article 178(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of taxation on value added (hereinafter: ‘the VAT Directive’) and the right to a fair trial recognized as a general principle of law in Article 47 of the Charter of Fundamental Rights of the European Union (hereinafter: ‘the Charter’), in conjunction with the general principles of proportionality and legal certainty, if that practice consists in the tax authorities: (a) despite recognizing that the economic transaction stated on the invoice has taken place, denying the taxable person’s right to deduct on the ground that from the aggregate of all the circumstances considered relevant – such as the use of subcontractors, the established personal, organizational and ownership relationships, the behavior towards employees of the person designated as the daily contact point in the main agreement between the client and the applicant and the consistent working conditions of the employees at successive subcontractors – it can be inferred that the applicant’s conduct is contrary to the requirement that rights be exercised legitimately, so that the economic activity must be regarded as artificial and created solely to obtain a tax advantage which is the purpose of the VAT scheme undermines, even though the circumstances mentioned necessarily arise from the private law freedom of contract and from the provisions of civil, labor and tax law applicable to those contracts, and are not causally linked to the taxable person’s right to deduct VAT? b) considers as tax avoidance the circumstance that the issuer of the invoice is late in paying the declared taxes and premiums, although the tax authorities grant him the option of payment in installments for payment thereof and the amount due is ultimately settled against the subcontractor enforced enforcement procedure initiated, so that the central budget has not suffered any damage; or can only concealing the tax from the tax authorities, i.e. not declaring it or not paying it, be regarded as fraudulent behavior? c) during the procedure, does not inform the taxable person, with a reference to tax secrecy, what constitutes the conduct classified as tax avoidance, namely the failure to fulfill the obligation to pay taxes and premiums, and therefore does not indicate which subcontractor does not comply with the obligation has been complied with, what type of tax (or premium) it concerns and what the extent and duration of the non-compliance is,but only refers to it in a general sense? (d) for the exercise of the right of deduction, with a mere reference to the existence of personal and organizational links between the taxable person and the subcontractor, does not only impose on the taxable person a verification obligation (with regard to the tax debt of his subcontractor) to which the taxable person is neither obliged nor entitled, but assumes solely on the basis of this circumstance that the taxpayer is aware of the subcontractor’s tax debt, without examining what the taxpayer actually has knowledge of and whether this knowledge can be obtained from legitimate (given on tax secrecy), physical and logical point of view? Is the fact that the personal and organizational ties are established by natural persons relevant to consider such knowledge proven? e) the determination with which employer the employee has an employment relationship is not based on the employment contract establishing the employment relationship, nor on the identity of the person who registers the employment relationship, nor on the concurring statements of the employers and employees who provide the documents confirm, but on the contrary statements of two employees (currently only one employee), the circumstances surrounding the conclusion of the employment relationships under former subcontractors, the similar nature of the employment and the behavior of the manager of the first employer, which was included in the main agreement has also been appointed as contact person without fully examining its legal basis? f) reproduces its findings relating to previous periods verbatim for subsequent periods, without taking into account the changes in the relevant circumstances in each period, in particular the cessation of personal and organizational ties, and, despite those changed circumstances, does not examine the extent to which these changes in the period in question affected the tax authorities’ assessment of the abuse of rights, the artificial nature of the economic activity, the existence of fraudulent behavior in the period in question and the relevant knowledge by the taxpayer?without examining what the taxpayer actually has knowledge of and whether this knowledge can be obtained from a legitimate (given tax secrecy), physical and logical point of view? Is the fact that the personal and organizational ties are established by natural persons relevant to consider such knowledge proven? e) the determination with which employer the employee has an employment relationship is not based on the employment contract establishing the employment relationship, nor on the identity of the person who registers the employment relationship, nor on the concurring statements of the employers and employees who provide the documents confirm, but on the contrary statements of two employees (currently only one employee), the circumstances surrounding the conclusion of the employment relationships under former subcontractors, the similar nature of the employment and the behavior of the manager of the first employer, which was included in the main agreement has also been appointed as contact person without fully examining its legal basis? f) reproduces its findings relating to previous periods verbatim for subsequent periods, without taking into account the changes in the relevant circumstances in each period, in particular the cessation of personal and organizational ties, and, despite those changed circumstances, does not examine the extent to which these changes in the period in question influenced the tax authorities’ assessment of the abuse of rights, the artificial nature of the economic activity, the existence of fraudulent behavior in the period in question and the relevant knowledge by the taxpayer?without examining what the taxpayer actually has knowledge of and whether this knowledge can be obtained from a legitimate (given tax secrecy), physical and logical point of view? Is the fact that the personal and organizational ties are established by natural persons relevant to consider such knowledge proven? e) the determination with which employer the employee has an employment relationship is not based on the employment contract establishing the employment relationship, nor on the identity of the person who registers the employment relationship, nor on the concurring statements of the employers and employees who provide the documents confirm, but on the contrary statements of two employees (currently only one employee), the circumstances surrounding the conclusion of the employment relationships under former subcontractors, the similar nature of the employment and the behavior of the manager of the first employer, which was included in the main agreement has also been appointed as contact person without fully examining its legal basis? f) reproduces its findings relating to previous periods verbatim for subsequent periods, without taking into account the changes in the relevant circumstances in each period, in particular the cessation of personal and organizational ties, and, despite those changed circumstances, does not examine the extent to which these changes in the period in question affected the tax authorities’ assessment of the abuse of rights, the artificial nature of the economic activity, the existence of fraudulent behavior in the period in question and the relevant knowledge by the taxpayer?without taking into account the changes in the relevant circumstances in each period, in particular the loss of personal and organizational ties, and despite these changed circumstances does not examine to what extent these changes in the period in question influenced the assessment of the tax authorities regarding the abuse of rights, the artificial nature of the economic activity, the existence of fraudulent behavior in the period in question and the relevant knowledge by the taxpayer?without taking into account the changes in the relevant circumstances in each period, in particular the loss of personal and organizational ties, and despite these changed circumstances does not examine to what extent these changes in the period in question influenced the assessment of the tax authorities regarding the abuse of rights, the artificial nature of the economic activity, the existence of fraudulent behavior in the period in question and the relevant knowledge by the taxpayer?
2. Partly in the light of the answer to the previous question, the aforementioned provisions of the VAT Directive, and in particular the principle of legal certainty, preclude the principled finding developed in case law that when between the applicant and the author of the invoice, a personal connection can be established that may influence the performance of the economic transaction to which the invoice relates, without further examination of the knowledge of the taxable person it can be concluded that the taxable person was aware of the non-payment of the tax, and therefore of tax avoidance?
3. Considered as a whole, is this conduct of the tax authorities in accordance with its obligation to gather legally sufficient evidence based on objective circumstances in the context of VAT deduction, or should this conduct, also in view of the the principle formulated by the Court that rules of evidence under national law may not undermine the effectiveness of EU law, be qualified as an assessment based on assumptions and assumptions?
4. Is there a breach of Article 267 TFEU, of the principle of primacy of Union law, of the right to effective judicial protection and of the right to a fair trial within the meaning of Article 47 of the Charter – where a national court court of last instance does not apply a decision of the Court by reference to other factual circumstances because that court considers that that decision related to a supply of goods while the present case concerns a provision of services, or that the objective circumstance put forward is only one of the objective circumstances assessed in the applicable decision of the Court, so that at most part of the decision of the Court is relevant? – where a national court of last instance, in the context of an appeal in cassation, departs from the judgment of the Court in the case in question as a result of a reference for a preliminary ruling and takes a decision contrary to it, without itself initiating a preliminary ruling procedure, despite the contradictions identified in its decision as regards the interpretation of EU law? 5. Can the court of a Member State to which the court of last instance has referred the case for a fresh hearing, taking into account the need to respect the rights and principles set out in the previous question and the obligation to national law, to deviate in those second proceedings from the instructions given by the court of last instance – without making a reference for a preliminary ruling – where it considers that those instructions are contrary to EU law or where, after referral for re-examination, the Court has given a judgment on the same legal question in a case with a similar factual background that does not correspond to the legal interpretation on which the obligation to re-examine is based; or can the judge who has to hear the case again only evade the obligation imposed by the national court of last instance and apply the subsequent judgment of the Court only if he submits a request for a preliminary ruling in the new proceedings?
Source
Cited case law
- C-80/11 and C-142/11;
- C-512/21 Aquila Part Prod Com;
- C-611/19 Crewprint
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