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ECJ C-189/18 (Glencore Agriculture) – Judgment – Powers of tax authorities; Findings of administrative procedures to which the taxable person was not a party

Source Curia

On 16 October 2019, the European Court of Justice gave its judgment in case C-189/18 (Glencore Agriculture Hungary Kft.). The case deals with the question how much power national tax authorities have and what information they may obtain and withhold during a VAT audit.

Decision

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, the principle of respect for the rights of the defence and Article 47 of the Charter of Fundamental Rights of the European Union must be interpreted as not precluding, in principle, legislation or a practice of a Member State according to which, during a check of the right to deduct value added tax (VAT) exercised by a taxable person, the tax authorities are bound by the findings of fact and the legal classifications which they have already made in the context of related administrative procedures initiated against suppliers of that taxable person, on which decisions which have become final finding the existence of VAT fraud committed by those suppliers are based, on condition, first, that it does not relieve the tax authorities of the obligation to disclose to the taxable person the evidence, including that originating in those related administrative procedures, on the basis of which they intend to take a decision, and that that taxable person is not thus deprived of the right effectively to challenge those findings of fact and legal classifications during the procedure brought against him; second, that the taxable person may have access during that procedure to all the evidence obtained during those related administrative procedures or any other procedure on which those authorities intend to base their decision or which may assist the exercise of the rights of the defence, unless objectives of public interest justify restricting that access; and, third, that the court hearing an action challenging that decision may check the legality of the way in which that evidence was obtained and used and the findings made in the administrative decisions taken with respect to those suppliers that are decisive for the outcome of the action.

Unofficial translation

Facts:

Glencore Agriculture Hungary is a wholeseller of wheat, oilseeds, animal feed and raw materials. The Hungarian tax authorities performed a VAT audit, resulting in a refusal to deduct input VAT.

This decision was (also) based on investigations with suppliers of Glencore. Based on these investigations, the transactions of Glencore’s suppliers were reclassified.

Glencore is of the opinion that there was not a fair procedure, because the tax authorities used evidence collected by the tax authorities, i.e. the information collected from third parties, which evidence Glencore could not obtain or interpret.

The tax authorities argued that the rights of defense had not have been infringed, since Glencore could have obtained access to the documentation and evidence via a legal procedure. According to the tax authorities taxpayers are informed of all facts, data and evidence that relate to their case, protected by the tax secrecy.

The ECJ is being asked if the recipient of an invoice, who is not actively involved in the re-qualification of the transactions performed by his supplier, is damaged in his right to a fair trial.

Considerations:

At the hearing, Glencore and the Hungarian Government made it clear that two criminal proceedings relating to the fraud in question were still pending when the tax authorities consulted the documents of those proceedings and took the two administrative decisions against which Glencore challenged the main proceedings. These proceedings were therefore not yet concluded with a decision on the merits of a criminal court. It follows that the present case does not raise questions concerning the authority of res judicata.

In the light of those clarifications, it must be held that, by its three questions, which must be examined together, the referring court is essentially asking whether the VAT Directive, the principle of respect for the rights of the defense and Article 47 of the Charter must be interpreted as precluding a scheme or practice of a Member State according to which the tax authorities, when checking the right to deduct VAT exercised by a taxable person, are bound by the factual findings and legal qualifications that they already have has established in the context of related administrative proceedings against suppliers of that taxable person, on which decisions have become final based on the existence of VAT fraud committed by those suppliers.

Judgment:

The ECJ rules as follows:

 

The EU VAT Directive and the Charter of Fundamental Rights of the European Union do not, in principle, preclude a scheme or practice of a Member State according to which the tax authorities, when checking the right exercised by a taxable person to deduct value added tax (VAT), are bound by the factual findings and legal qualifications that he has already established in the context of related administrative proceedings against suppliers of that taxable person, on which decisions are finalized in which the existence of VAT fraud committed by those suppliers is established.

Conditions are that, first, this scheme do not release tax authorities from the obligation to inform the taxable person of the evidence, including evidence from those related administrative procedures, on the basis of which he intends to take a decision, and that taxable person is therefore not deprived of the right to should challenge those factual findings and legal qualifications, second, that taxpayers can have access during this procedure to all elements gathered in the context of these related administrative procedures or of any other procedure where the tax authorities intend to take their decision basis of whether or not they may be useful for the exercise of the rights of the defense, unless public interest objectives justify a restriction on that access and, thirdly, the court before which an appeal against that decision is brought may verify whether those elements are lawful obtained and used and he can check the findings in the administrative decisions taken with regard to those suppliers and which determine the outcome of the appeal.

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