On 17 January 2019, Advocate General KOKOTT gaive its opinion in case C-712/17 (EN.SA Srl) regarding the question if the deduction of input tax and application of the VAT zero-rate can be refused if through fictitious actions it is attempted to obtain other unlawful benefits besides VAT fraud?
Unofficial translation
Facts (simplified):
EN.SA. S.r.l operates in electricity trading and trades in electricity on the basis of forward contracts outside the Piattaforma dei Conti Energia (PCE).
EN.SA sold large quantities of electricity to companies of the “Green Network” group and, in a kind of circular movement, they were bought back from this group. The transactions were recorded in the accounting for the correct amount. The corresponding invoices for these transactions were also drawn up.
It is not certain whether EN.SA. is part of the “Green Network” group, or if it acted as an independent company. Nor is it certain whether EN.SA. bought back the same quantities of electricity for the same price. Furthermore, the question is what the purpose was of buying and selling by and to the same persons. The Italian tax authorities suspect that this was intended to include large amounts in the accounts of the companies involved, giving them (better) access to financing options at banks. EN.SA. however contradicts this.
It is clear that the VAT charged on the invoices for the electricity transactions was paid in time and in the correct manner and the recipient of the service deducted the input tax. It is also certain that the tax authorities were not at a disadvantage in the field of VAT. According to the referring court, in particular every possibility of a so-called ‘carousel fraud’ is excluded.
Having said that, it is apparent from its question that the referring court assumes that the electricity transactions must be regarded as non-existent in the years 2009 and 2010.
The tax administration refused EN.SA the deduction of input tax, arguing that EN.SA had performed non-existent actions (no real purchases). With respect to the non-existent transactions carried out at a later stage (ie to the extent that EN.SA has sold electricity), a corresponding tax debt was established because the VAT was separately charged on the invoices of EN.SA. The Italian tax authorities therefore raised a VAT assessment, to which EN.SA appealed.
The Italian court asked the following question to the European Court of Justice (simplified):
“In the case of acts considered fictitious which have not caused the tax authorities a disadvantage and the taxpayer did not derive a tax advantage, can a Member State deny the deduction of input tax and application of the VAT zero-rate, when this means that:
(a) the tax paid by the purchaser on the purchases is not deductible for any of the disputed transactions involving the same taxpayer and having the same tax base;
(b) the tax on corresponding parallel parallel sales, considered to be non-existent, is paid by the seller (and recovery of unduly paid tax is excluded);
(c) a penalty is imposed in the amount of the input tax which is not deductible? ‘
Opinion:
The AG is of the opinion that
“Articles 168 and 203 of Directive 2006/112 / EC do not, in the case of fictitious transactions, oppose a simultaneous tax debt on the basis of the issuance of an invoice and a refusal to deduct input tax (also several times within a circular supply chain). The condition is that the tax debt can be revised under Article 203 of the VAT Directive as soon as a risk of loss of tax revenue is excluded. In such a case, it is true that a penalty may be imposed for the production of an incorrect invoice, but a penalty for the full amount of the non-deductible input tax of the fictitious actions carried out at an earlier stage is disproportionate, in so far as the fictitious , VAT was paid at a later stage and for this reason there was no risk of loss of tax revenue.”
Source: Curia (Dutch version)
