ECJ Case C-459/17 (SGI) and C-460/17 (Valériane SNC) – Judgment – No VAT deduction if no transactions took place

Judgement of 27 June 2018 in Joined Cases C‑459/17 (SGI) and C‑460/17 (Valériane SNC ).


The activities of SGI and Valériane, companies incorporated under French law with their registered office in Réunion (France), consist of the execution of investments, consisting of purchasing of equipment intended to be leased to operators established in Réunion.

SGI and Valériane’s deducted all input VAT relating to these activities, but this VAT deduction was denied by the French tax authorities. According to the French tax authorities, the various invoices for the purchase of equipment did not correspond to any actual delivery.

SGI and Valériane claimed that they had acted in good faith, which claim was not accepted by the national court. That court concluded that the tax authorities had provided evidence that SGI, as ‘a professional company engaged in reducing overseas tax liability’, could not have been unaware of the fictitious nature of the transactions at issue or the overcharging which featured in some of them. And as regards Valériane, the court considered that the tax authorities’ audit had made it possible to highlight, first, the failure to deliver and install the equipment at issue and, second, the existence of a certain number of failures on the part of that company, such as the non-payment of the balance of the invoice, the failure to pay in the security deposit and lease payments agreed with the lessee of the equipment and the failure to verify that the equipment actually exists although the lease agreement had been signed even before the equipment was invoiced and delivered.

SGI argued that, in the absence of any serious indication that the economic transactions at issue involved fraud, it was not obliged to verify that those transactions were actually carried out. And Valériane argued that the tax authorities did not have sufficient evidence to prove that Valériane knew, or ought to have known, that the transaction at issue was connected with VAT fraud.

The question ask to the ECJ is:

‘Can the tax authorities refuse the right to deduct input VAT, charged on invoices corresponding to goods or services that the tax authorities establish have not actually been supplied to the taxable person, and is it thereby necessary, in all cases, to examine whether it has been established that that taxable person knew, or ought to have known, that the transaction was connected with VAT fraud, regardless of whether that fraud was committed on the initiative of the issuer of the invoice, its recipient or a third party?’

The ECJ rules that:

“In order to deny a taxable person in receipt of an invoice the right to deduct the VAT appearing on that invoice, it is sufficient that the authorities establish that the transactions covered by that invoice have not actually been carried out.”

Source: Curia