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ECJ Case C-648/16 (Fontana) – Judgment – Powers of tax authorities – Use of extrapolation for assessment

European Court of Justice – Judgment of 21 November 2018 in case C-648/16 (Fortunata Silvia Fontana) regarding tax evasion and the auditing methods of the tax authorities.

Unofficial translation

Facts (Simplified):

Ms Fortunata Silvia Fontana received a VAT assessment from the Italian tax authorities, whereby the authorities claimed that Ms Fontana had not reported all her taxable turnover.

Ms Fontana claimed that the Tax Office had wrongly applied to her situation the sectoral study relating to public accountants and tax consultants, instead of the study relating to human resources management advisers, which she considered to be her main activity. In addition, she argued that the amount of VAT claimed by the Tax Office had merely been determined based on a sectoral study which disregarded the economic activities she had actually carried out.

The Italian Court asked the European Court of Justice if the Italian tax authorities were allowed to apply VAT to the overall turnover established by extrapolation, in the light of the principle of deduction and the obligation to recover the tax and, more generally, the principle of the neutrality and the passing-on of the tax.

Opinion Advocate General:

A-G WAHL gave its opinion on 22 March 2018. The conclusion was that the tax authorities are allowed to assess the tax due through an inductive method based on sectoral studies which estimate the likely revenues of certain categories of taxpayer.


The ECJ rules as follows:

Member States are allowed to have national legislation which authorizes a tax administration, in the event of serious differences between the revenue declared and the revenue estimated on the basis of sectoral studies, to use an inductive method, based on such sectoral studies, in order to determine the amount of turnover achieved by a taxable person and, consequently, to proceed to a tax adjustment imposing the payment of an additional amount of VAT, provided that this regulation and its application allow the taxable person, in accordance with the principles of fiscal neutrality and proportionality as well as the rights of the taxpayer’s defence, to call into question the results obtained by this method, on the basis of all the contrary evidence at its disposal, and to exercise its right to deduct input VAT.

In short: it is allowed for the tax authorities to extrapolate results for calculating an assessment, provided the rights of the tax payer are not endangered.

Source: Curia