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ECJ C-521/19 (Tribunal Económico Administrativo Regional de Galicia) – AG Opinion – Even in case of fraud, a transaction price without VAT can be assumed where no invoice was issued

On March 4, 2021, the ECJ issued the AG Opinion in the case C-521/19 (Tribunal Económico Administrativo Regional de Galicia). Question is whether VAT is deemed to be included in the amounts paid and received, even in case of fraud where no invoice was issued?


Article in the EU VAT Directive

Articles 73 and 78 of the EU VAT Directive 2006/112/EC (Taxable amount)

Article 73
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Article 78
The taxable amount shall include the following factors:
(a) taxes, duties, levies and charges, excluding the VAT itself;
(b) incidental expenses, such as commission, packing, transport and insurance costs, charged by the supplier to the customer.
For the purposes of point (b) of the first paragraph, Member States may regard expenses covered by a separate agreement as incidental expenses.


Facts

  • CB negotiated on behalf of Grupo Lito about performances of orchestras with the party committee (informal group of residents).
  • The party committee almost always paid in cash and without an invoice to Grupo Lito, the payments were neither booked nor declared.
  • CB received 10% of the income from Grupo Lito (without invoices, cash and not stated).
  • In the years 2010, 2011 and 2012, CB received € 64,414.90, € 67,565.40 and € 60,692.50 respectively in income.
  • According to the tax authorities, this did not include VAT and the income tax assessment had to be calculated based on the total amount received.
  • CB states that the tax authorities apply VAT incorrectly; contrary to the case law of the Tribunal Supremo, from which it follows that if a tax inspection reveals hidden transactions for which no invoice has been issued, it must be assumed that VAT is included in the price agreed between the parties.
  • Letrado del Estado (type of state lawyer), as the representative of the authorities, considered that the reference for a preliminary ruling was necessary, since the judgment in Case C-249 / 12JT, on which the Tribunal Supremo relies, does not apply to cases of fraudulent conduct and refers to the judgments in Case C-576/15; C-332/15; and C-131 / 13JT.

Recital:

The Court has recently and again, following most of the judgments of the Tribunal Supremo based on the interpretation of the VAT Directive which is questioned in the present case, ruled that the tax authorities can deny a taxable person the right to deduct VAT when it is demonstrated that he has acted fraudulently in order to exercise this right (C-159/17).

The question is whether the assessment of tax assessments and the imposition of sanctions by the tax authorities – in cases where a transaction comes to light that the parties involved voluntarily and in consultation with each other – are compatible with the principle of neutrality of VAT and with the principle that EU law cannot be invoked through fraud, so that it is assumed that VAT is included in such deliberately hidden transactions, just as in transactions carried out between traders that are not hidden and whose payments are formally recorded.


 

Questions

Must Articles 73 and 78 of the VAT Directive, in the light of the principles of neutrality, prohibition of tax evasion and abuse of rights, and prohibition of the illegal distortion of competition, be interpreted as precluding national legislation and the case-law interpreting it, pursuant to which, where the tax authorities discover concealed transactions subject to value added tax for which no invoice was issued, the price agreed by the parties for those transactions must be regarded as already including value added tax?

Is it therefore possible, in cases of fraud in which the transaction was concealed from the tax authorities, to consider, as may be deduced from the judgments of the Court of Justice of the European Union of 28 July 2016 (Case C-332/15, Astone), of 5 October 2016 (Case C-576/15, Marinova) and of 7 March 2018 (C-159/17, Dobre), that the amounts paid and received do not include value added tax in order to conduct the proper assessment and impose the appropriate penalty?


AG Opinion

In those circumstances, I propose to answer the question referred by the Tribunal Superior de Justicia de Galicia (High Court of Justice of Galicia, Spain) to the effect that Articles 73 and 78 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in the light of the principles of neutrality, of prohibition of tax evasion and abuse of rights, and of prohibition of the illegal distortion of competition, do not preclude national legislation, in the circumstances of the case at issue in the main proceedings (namely, that of a concealed transaction carried out between two taxable persons in the course of their activity giving rise to a right to deduction), from calculating the VAT due on the premiss that it has not been included in the price charged. In these circumstances, however, the national legislation must also provide that this premiss can be rebutted by the taxpayer by the provision of evidence to the contrary, in particular, by comparing the price paid with the prevailing prices (including VAT) for similar goods or services.

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Decision

 


Source:


Similar ECJ cases

  • Case C-332/15 (Astone)
  • Case C-576/15 (Marinova)
  • C-159/17 (Dobre)

 

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  • CB negotiated on behalf of Grupo Lito about performances of orchestras with the party committee (informal group of residents).
  • The party committee almost always paid in cash and without an invoice to Grupo Lito, the payments were neither booked nor declared.
  • CB received 10% of the income from Grupo Lito (without invoices, cash and not stated).
  • In the years 2010, 2011 and 2012, CB received € 64,414.90, € 67,565.40 and € 60,692.50 respectively in income.
  • According to the tax authorities, this did not include VAT and the income tax assessment had to be calculated based on the total amount received.
  • CB states that the tax authorities apply VAT incorrectly; contrary to the case law of the Tribunal Supremo, from which it follows that if a tax inspection reveals hidden transactions for which no invoice has been issued, it must be assumed that VAT is included in the price agreed between the parties.
  • Letrado del Estado (type of state lawyer), as the representative of the authorities, considered that the reference for a preliminary ruling was necessary, since the judgment in Case C-249 / 12JT, on which the Tribunal Supremo relies, does not apply to cases of fraudulent conduct and refers to the judgments in Case C-576/15; C-332/15; and C-131 / 13JT.

Recital:

The Court has recently and again, following most of the judgments of the Tribunal Supremo based on the interpretation of the VAT Directive which is questioned in the present case, ruled that the tax authorities can deny a taxable person the right to deduct VAT when it is demonstrated that he has acted fraudulently in order to exercise this right (C-159/17).

The question is whether the assessment of tax assessments and the imposition of sanctions by the tax authorities – in cases where a transaction comes to light that the parties involved voluntarily and in consultation with each other – are compatible with the principle of neutrality of VAT and with the principle that EU law cannot be invoked through fraud, so that it is assumed that VAT is included in such deliberately hidden transactions, just as in transactions carried out between traders that are not hidden and whose payments are formally recorded.

Preliminary rulings:

Are Articles 73 and 78 of the VAT Directive to be interpreted in the light of the principles of neutrality, prohibition of tax fraud, abuse of rights and prohibition of unlawful distortion of competition in such a way that they preclude national legislation and case law? to interpret that, according to which it must be assumed that if the tax authorities uncover hidden transactions liable to VAT for which no invoice has been issued, VAT is included in the price agreed by the parties for those transactions?

Thus, in cases of fraud in which the transaction is concealed from the tax authorities, can be assumed, as can be deduced from the judgments of the Court of Justice of the European Union of 28 July 2016 (Case C-332/15,), 5 October 2016 (case C-576/15,) and 7 March 2018, (C-159/17, EU: C: 2018: 161), no VAT is included in the amounts paid and received, so that the correct assessment can be determined and the relevant sanction can be imposed?

Cited (recent) case law: C-332/15; C-576/15; C-159/17; C-249/12 and C-250/12; C-33/74; C-110/99; Joined Cases C-131/13, C-163/13 and C-164/13,

 

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