ECJ C-611/19 (Crewprint) – Order – Right to deduct VAT and economic rationality

On Sept 3, 2020, the ECJ issued his order in the case C-611/19 (Crewprint) related to the denial of input VAT recovery without full investigation and whether  a business is free to choose form with lowest VAT burden

Articles in the EU VAT Directive

Right to deduct VAT: Article 167, Articles 168(a) and 178(a)

Invoicing: Articles 220 and 226 of Directive 2006/112


The applicant, a company providing printing and printing services, had accepted orders for the production of printed matter carried out by its main contractor Crew Kft., In part with the involvement of other subcontractors. During a check on the applicant’s VAT returns, a VAT difference was established which was regarded as a tax liability and on which a tax fine was imposed. Following the investigation, the tax authority has concluded that the printing work is mainly carried out by Crew Kft. were executed. Crew Kft. had therefore unlawfully received and deducted invoices for printing services and subsequently reduced the tax due using false subcontractors’ invoices in such a way that the taxable persons at the end of the deliberately constructed invoicing chain did not pay VAT. According to the tax authority, these facts and the tax evasion by Crew Kft. Necessarily and objectively known to the applicant, since the directors of the two companies were the same person and the two companies had the same seat, the same place of business and the same accountant. The applicant has therefore seriously infringed the principle of the exercise of law in good faith enshrined in tax law. The applicant claims in her claim that the legal requirements were met and that she was therefore entitled to a deduction. With regard to the question whether it knew that it was evading tax, it stated that it follows from the case law of the Court that the recipient of an invoice does not have to carry out a tax check and is not obliged to investigate all chain participants.

Consideration: The administrative and labor court of Hungary wonders whether the mere fact that the tax authorities, following an inspection, have established that the content of the invoices is implausible can form a basis for the refusal of the right to deduct VAT. It is doubtful for the referring court whether the direction, scope and depth of such a review are consistent with the principles of fiscal neutrality, effectiveness and proportionality. Furthermore, the question arises whether the practice of the tax authorities meets the requirement of providing evidence in accordance with legal obligations, when he expects the taxpayer to have an audit of the circumstances of a thoroughness incompatible with the period for carrying out transactions in the course of trade and which is objectively impossible for other reasons, while he considers the circumstances that led to the institution of does not fully map the chain. In summary, the referring court asks by its questions whether the scope, depth and scope of the evidence required by the tax authorities as a condition for exercising the right to deduct VAT,


Is it compatible with the relevant provisions [on the deduction of VAT] of Directive 2006/112 and with the principle of tax neutrality for national interpretation and practice to operate with the effect that the tax authority denies the right [to deduct VAT] on an economic transaction between the parties, on the basis that it finds the form of the legal relationship between them (a works contract) to be fraudulent because it gives rise to a right to deduct tax and, therefore, classifies it, under Article 1(7) [of the General Law on Tax Procedure] as an activity (agency) that does not give rise to a right to deduct, taking the view that the parties’ conduct was intended to evade tax since the activity carried on by the addressee of the invoice did not necessarily have to take [that form of business activity], and since it could also have performed that activity as an agent? In that context, are taxable persons obliged, as a requirement for [deducting VAT], to choose the form of economic activity that places the greater tax burden on them, or is there an abusive practice where, in exercise of their freedom to contract and for purposes unrelated to tax law, they choose a contractual form for the economic activity carried on between them that also has the unintended consequence of entitling them to deduct the tax?

Is it compatible with the relevant provisions [on the deduction of VAT] of Directive 2006/112 and with the principle of tax neutrality for national interpretation and practice to operate with the effect that, where a taxable person wishing to exercise the right [to deduct VAT] fulfils the substantive and formal requirements [for that deduction] and has taken the measures it can be expected to take before concluding the contract, the tax authority denies the right to deduct VAT on the basis that it finds that it was unnecessary from an economic perspective to set up a chain and that doing so is therefore an abusive practice because the subcontractor, notwithstanding that it is in a position to supply the services, engages other subcontractors to perform them for reasons unconnected with the taxable event, and because the taxable person wishing to exercise the right [to deduct VAT] knew that its subcontractor, at the time it accepted the commission, owing to a lack of personnel and material resources, would perform the services using subcontractors of its own? Is the answer affected by the fact that the taxable person or its subcontractor included in the chain a subcontractor with which it has a direct relationship or to which it has a personal or organisational link (personal acquaintance, family relationship or even ownership)?

If the preceding question is answered in the affirmative, is the requirement that the facts must be determined on the basis of objective facts satisfied where, in proceedings in which the tax authority considers the economic relationship between the taxable person wishing to exercise the right to [deduct VAT] and its subcontractor is irrational and unjustified, it bases that finding solely on the evidence of some of the subcontractor’s employees, without ascertaining on the basis of objective facts the characteristics of the economic activity under the contract, the specific circumstances of that activity or the relevant economic context, and without hearing the directors with decision-making powers of the taxable person or of the subcontractors forming part of the chain and, if that requirement is satisfied, is it relevant whether the taxable person or members of the chain are capable of performing the services and is it necessary to involve an expert in that respect?

Is it compatible with Directive 2006/112 and with the principle of effectiveness for national interpretation and practice to operate with the effect that, where the substantive and formal requirements [to deduct VAT] are satisfied and the measures that can [reasonably] be expected have been taken, the tax authority, acting on the basis of circumstances that, according to judgments of the Court of Justice do not justify [the refusal to allow the deduction of VAT] and are not objective, finds tax evasion to have been proven and denies the right [to deduct VAT] solely because those circumstances occur in the chain detected as a whole, in a sufficient number of its members who were investigated?

For previous posts on this case, click here

Order (Unofficial translation – only published in French)

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with the principles of fiscal neutrality, effectiveness and proportionality, must be interpreted as precluding a national practice by which the tax authorities refuse a taxable person the right to deduct input value added tax on the ground that the conduct of that taxable person and of the biller constitutes fraud where firstly, their contracts were not necessary for the performance of the economic operations concerned and could be given a legal qualification other than that given by them, secondly, that issuer had recourse, without necessity or economic rationality, to a chain of subcontractors, some of whom did not have the necessary personal and material resources, and thirdly, that reporting entity had personal or organisational links with said issuer and with one of those subcontractors. In order to justify such a refusal, it must be established, other than by suppositions based on pre-established criteria, that the same taxable person actively participated in a fraud or that he knew or ought to have known that those transactions were involved in a fraud committed by the biller, which is for the national court to verify.







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