Flashback on ECJ Cases C-101/16 (Paper Consult) – Right to deduct VAT if the supplier has become inactive

On Oct 19, 2017, the ECJ issued its decision in the case C-101/16 (Paper Consult). This case is about the Right to deduct VAT if the supplier has become inactive. It is one of the case on the concept “Substance over form”.

Article in the EU VAT Directive

Article 178(a), 214(1)(a) and 273 of the EU VAT Directive 2006/112/EC

Article 178(a) (Right to deduct VAT)

In order to exercise the right of deduction, a taxable person must meet the following conditions:

(a)      for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI’.

Article 214(1)(a) of that directive provides:

1.      Member States shall take the measures necessary to ensure that the following persons are identified by means of an individual number:

(a)      every taxable person, with the exception of those referred to in Article 9(2), who within their respective territory carries out supplies of goods or services in respect of which VAT is deductible, other than supplies of goods or services in respect of which VAT is payable solely by the customer or the person for whom the goods or services are intended, in accordance with Articles 194 to 197 and Article 199.

The first paragraph of Article 273of Directive 2006/112 states that:

Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.


  • By decision of 11 May 2012, the tax authorities established that Rom Packaging, established in Bucharest (Romania), had supplied services to Paper Consult, established in Bistriţa-Năsăud (Romania), for an amount of RON 190 340 (approximately EUR 44 560) excluding VAT, on the basis of a contract for supplies of services concluded on 3 January 2011.
  • As Rom Packaging had been declared inactive since 7 October 2010 and removed from the register of persons subject to VAT as from 1 November 2010 for failure to submit the tax declarations required by law, and in view of Article 11(12) of the Tax Code, the tax authorities found that Paper Consult was not entitled to deduct the amount of RON 45 680 (approximately EUR 10 694), this being the amount paid in respect of VAT for the supplies of services provided by Rom Packaging.
  • The complaint lodged by Paper Consult against the tax inspectorate’s measure was rejected as unfounded by decision of the Regional Directorate-General of Public Finances of Cluj-Napoca of 17 July 2014. The tax proceedings brought by Paper Consult against that decision were, in turn, dismissed by the civil judgment of 8 July 2015 of the Tribunalul Bistrița-Năsăud (High Court, Bistrița-Năsăud Romania).
  • Paper Consult appealed against that judgment to the Curtea de Apel Cluj (Court of Appeal, Cluj, Romania). It did not contest the factual evidence relied on by the tax authorities and by the Tribunalul Bistrița-Năsăud (High Court, Bistrița-Năsăud). However, it claimed that it had not received any communication regarding the decision of the President of the NAFA of 21 September 2010 declaring Rom Packaging inactive, but that that decision had merely been displayed at the NAFA’s headquarters and published on its website. Paper Consult maintained that, in those circumstances, that decision was not enforceable against it and could not be regarded as constituting the basis of the refusal to grant it its right to deduct VAT, as such a measure was contrary to EU law.
  • Paper Consult submits that, in order to be able to benefit from the right to deduct VAT, it suffices to meet the conditions laid down in Article 178 of Directive 2006/112.
  • The referring court, however, observes that, according to the case-law of the Court of Justice, the fight against tax avoidance, evasion and abuses is an objective that is recognised and encouraged by Directive 2006/112, provided that the national measures adopted for that purpose are proportionate. According to that court, it is not an excessive burden for taxpayers to carry out a basic check, on the NAFA’s website, of the persons with whom they intend to enter into a contract, in order to determine whether or not they have been declared ‘inactive taxpayers’. However, the referring court notes that there is no Court of Justice case-law relating to such a situation.


Does Directive 2006/112/EC preclude national rules under which a taxable person is denied the right to deduct VAT on the grounds that the person upstream, which issued the invoice in which the expenditure and VAT are indicated, has been declared inactive by the tax authorities?

If the answer to the first question is in the negative, does Directive 2006/112/EC preclude national rules under which it is sufficient to display the list of registered inactive taxpayers at the headquarters of the Agenției Națională de Administrare Fiscală (National Agency for Fiscal Administration) and to publish that list on the website of that agency, in the section Public information — Information relating to economic operators, in order that the right to deduct VAT in the circumstances described in the first question may be refused?

AG Opinion

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as precluding national rules, such as those at issue in the main proceedings, which entail, even where no tax evasion and no loss of tax revenues has been established, systematic and definitive refusal of a value added tax deduction to a taxpayer having paid value added tax on transactions concluded with an operator declared ‘inactive’ under those rules, notwithstanding the fact that the declaration of inactivity of the operator in question, which is contingent on there being a risk of tax evasion, is publicly and easily accessible to any taxable person in the Member State in question.


Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as precluding national rules, such as those at issue in the main proceedings, under which the right to deduct value added tax is refused to a taxable person on the ground that the trader which supplied a service to that taxable person and issued a corresponding invoice, on which the expenditure and the value added tax are indicated separately, has been declared inactive by the tax authorities of a Member State, that declaration of inactivity being public and accessible on the internet to any taxable person in that State, in the case where that refusal of the right to deduct is systematic and final, making it impossible to adduce evidence that there was no tax evasion or loss of tax revenue.



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