ECJ C-270/24 (Granulines Invest) – Order – ECJ upholds VAT Deduction Rights Amid Invoice Discrepancies and Fraud Allegations

On February 14, 2025, the ECJ issued an Order in the case C-270/24 (Granulines Invest).

Context: Reference for a preliminary ruling – Article 99 of the Rules of Procedure of the Court – Taxation – Common system of value added tax (VAT) – Directive 2006/112/EC – Articles 167, 168, 178, 220 and 226 – Right to deduct input VAT – Refusal – Fraud – Evidence – Use of a reseller in order to benefit from a credit programme – Article 219 and Article 226(7) – Information which must appear on the invoice – Date on which the goods are delivered – Rectification of the invoice

Summary

Facts: Granulines Invest Kft., a Hungarian company, purchased a crusher through a reseller, CastorFit Gym Kft., to benefit from a credit program. The Hungarian tax authority later denied Granulines’ right to deduct the VAT on the purchase, claiming the invoice was fictitious because the delivery dates and pricing were incorrect, and that the reseller was merely a conduit for the transaction.
Questions: The Budapest Capital Court referred questions to the Court of Justice of the European Union regarding whether the VAT Directive allows tax authorities to deny VAT deductions based solely on discrepancies in invoices (such as incorrect delivery dates or excessive pricing), especially when the goods were actually delivered and used for taxable transactions. Additionally, it questioned the necessity of rectifying the invoice for VAT deduction eligibility.
Decision: The Court ruled that the VAT Directive prohibits tax authorities from denying VAT deductions on the grounds that an invoice is fictitious if the taxpayer has received the goods, used them for taxable transactions, and the delivery has been properly invoiced. The authorities must establish evidence of fraud or knowledge of fraud on the taxpayer’s part to refuse the deduction.
Further Clarifications: The Court emphasized that mere formal defects in an invoice, such as an incorrect delivery date, do not automatically invalidate the right to deduct VAT, provided the substantive conditions are met. Additionally, rectification of an invoice is not a prerequisite for exercising the right to deduct VAT if the necessary information is available.
Implications: This ruling reinforces the principles of fiscal neutrality, effectiveness, and proportionality in VAT law, ensuring that genuine transactions cannot be undermined by technicalities, thereby protecting the rights of taxable persons in the EU.

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 ?

AG Opiniom

None

Order

1) 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 conjunction with the principles of fiscal neutrality, effectiveness and proportionality,

should be interpreted as meaning that:

it opposes a practice whereby the tax administration, in order to refuse a taxable person the right to deduct the value added tax (VAT) relating to the acquisition of a good, when that taxable person has received delivery of that good, used it for the purposes of his own taxable transactions and that delivery has been the subject of an invoice, relies on the circumstance that that invoice is fictitious given that, firstly, the delivery was not made by the issuer of the invoice, secondly, that issuer was associated with the transaction in order to meet the conditions for granting a certain loan, thirdly, the price indicated on the invoice is excessive and the issuer has only paid the VAT late and partially, and, fourthly, the invoice contains an incorrect delivery date. To justify such a refusal of the right to deduct VAT, the tax administration must establish to the sufficient legal standard that the taxable person actively participated in VAT fraud or that the taxable person knew or should have known that the issuer of the invoice had committed such fraud.

2) Article 178(a) of Directive 2006/112, as amended by Directive 2010/45,

should be interpreted as meaning that:

he objects to the right to a refund of value added tax being refused by the tax authorities solely on the grounds that the taxable person holds an invoice which does not meet the conditions required by Article 226(7) of Directive 2006/112, as amended by Directive 2010/45, even though that authority has all the information necessary to enable it to verify that the material conditions for exercising that right are met. The rectification of the invoice cannot constitute a condition for exercising that right, where the taxable person has provided that information.

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