On June 21, 2012, the ECJ issued its decision in the case C-80/11 (Mahagében) & C-142/11 (Dávid)
Context: Taxation — VAT — Sixth Directive — Directive 2006/112/EC — Right to deduct — Conditions governing the exercise of that right — Article 273 — National measures to combat fraud — Practice of the national tax authorities — Refusal of the right to deduct in the event of improper conduct on the part of the issuer of the invoice relating to the goods or services in respect of which the exercise of that right is sought — Burden of proof — Obligation of the taxable person to satisfy himself as to the propriety of the conduct of the issuer of that invoice and to provide proof thereof
Article in the EU VAT Directive
Articles 167, 168(a), 178(a), 220(1) and 226 of Council Directive 2006/112/EC
Article 167 (Right to deduct)
A right of deduction shall arise at the time the deductible tax becomes chargeable.
Article 168a (Right to deduct)
1. In the case of immovable property forming part of the business assets of a taxable person and used both for purposes of the taxable person’s business and for his private use or that of his staff, or, more generally, for purposes other than those of his business, VAT on expenditure related to this property shall be deductible in accordance with the principles set out in Articles 167, 168, 169 and 173 only up to the proportion of the property’s use for purposes of the taxable person’s business. By way of derogation from Article 26, changes in the proportion of use of immovable property referred to in the first subparagraph shall be taken into account in accordance with the principles provided for in Articles 184 to 192 as applied in the respective Member State.
2. Member States may also apply paragraph 1 in relation to VAT on expenditure related to other goods forming part of the business assets as they specify.
Article 178 (Rules Governing Exercise of the Right of Deduction)
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 220 (Issue of invoices)
1. Every taxable person shall ensure that, in respect of the following, an invoice is issued, either by himself or by his customer or, in his name and on his behalf, by a third party:
(1) supplies of goods or services which he has made to another taxable person or to a non-taxable legal person;
(2) supplies of goods as referred to in Article 33;
(3) supplies of goods carried out in accordance with the conditions specified in Article 138;
(4) any payment on account made to him before one of the supplies of goods referred to in points (1) and (2) was carried out;
(5) any payment on account made to him by another taxable person or non-taxable legal person before the provision of services was completed.
2. By way of derogation from paragraph 1, and without prejudice to Article 221(2), the issue of an invoice shall not be required in respect of supplies of services exempted under points (a) to (g) of Article 135(1).
Article 226 (Content of invoices)
Without prejudice to the particular provisions laid down in this Directive, only the following details are required for VAT purposes on invoices issued pursuant to Articles 220 and 221:
(1) the date of issue;
(2) a sequential number, based on one or more series, which uniquely identifies the invoice;
(3) the VAT identification number referred to in Article 214 under which the taxable person supplied the goods or services;
(4) the customer’s VAT identification number, as referred to in Article 214, under which the customer received a supply of goods or services in respect of which he is liable for payment of VAT, or received a supply of goods as referred to in Article 138;
(5) the full name and address of the taxable person and of the customer;
(6) the quantity and nature of the goods supplied or the extent and nature of the services rendered;
(7) the date on which the supply of goods or services was made or completed or the date on which the payment on account referred to in points (4) and (5) of Article 220 was made, in so far as that date can be determined and differs from the date of issue of the invoice;
(7a) where the VAT becomes chargeable at the time when the payment is received in accordance with Article 66(b) and the right of deduction arises at the time the deductible tax becomes chargeable, the mention “Cash accounting”;
(8) the taxable amount per rate or exemption, the unit price exclusive of VAT and any discounts or rebates if they are not included in the unit price;
(9) the VAT rate applied;
(10) the VAT amount payable, except where a special arrangement is applied under which, in accordance with this Directive, such a detail is excluded;
(10a) where the customer receiving a supply issues the invoice instead of the supplier, the mention “Self-billing”;
(11) in the case of an exemption, reference to the applicable provision of this Directive, or to the corresponding national provision, or any other reference indicating that the supply of goods or services is exempt;
(11a) where the customer is liable for the payment of the VAT, the mention “Reverse charge”;
(12) in the case of the supply of a new means of transport made in accordance with the conditions specified in Article 138(1) and (2)(a), the characteristics as identified in point (b) of Article 2(2);
(13) where the margin scheme for travel agents is applied, the mention “Margin scheme — Travel agents”;
(14) where one of the special arrangements applicable to second-hand goods, works of art, collectors’ items and antiques is applied, the mention “Margin scheme — Second-hand goods”; “Margin scheme — Works of art” or “Margin scheme — Collector’s items and antiques” respectively”;
(15) where the person liable for payment of VAT is a tax representative for the purposes of Article 204, the VAT identification number, referred to in Article 214, of that tax representative, together with his full name and address.
- On 1 June 2007, Mahagében concluded a contract with Rómahegy-Kert kft (‘RK’) for the supply of unprocessed acacia logs between 1 June and 31 December 2007. During that period, RK issued sixteen invoices in the name of Mahagében for the delivery of various quantities of acacia logs. The number of the delivery note, attached as an annex, was also indicated on six of those invoices. RK declared all of the invoices in its tax return, stating that the deliveries had taken place, and paid the VAT following delivery. Mahagében also included those invoices in its tax return and exercised its right to deduct. The quantities of acacia logs purchased from RK were included in Mahagében’s stocks and were resold by it to various undertakings.
- During an inspection of purchases and deliveries by RK, the tax authority concluded that RK did not have any reserves of acacia logs and that the quantity of acacia logs purchased during 2007 was insufficient to fulfil the orders invoiced to Mahagében. Although, during that inspection, the two contracting parties declared that they had not retained the delivery notes, Mahagében subsequently handed over copies of 22 delivery notes to the tax authorities as proof that the transactions at issue had taken place.
- By decision dated 1 June 2010, the tax authority established a tax debt on the part of Mahagében and, furthermore, imposed on it a fine and late payment surcharge on the basis that Mahagében had no right of deduction in respect of those invoices issued by RK. Having regard to the result of the inspection carried out at RK’s premises, those invoices could not, the tax authority concluded, be regarded as authentic.
- Mahagében’s administrative appeal against the decision of 1 June 2010 was rejected by the defendant in the main proceedings. That rejection was based, inter alia, on the finding that RK, as the issuer of the invoices in question, had not been able to produce any documents evidencing the corresponding transactions, such as delivery notes, that it could not have had the quantity of goods indicated on those invoices and that it did not have an appropriate lorry for delivery of those goods, nor any documentary evidence of the price paid for their transportation. Moreover, Mahagében had not acted with due diligence within the meaning of Paragraph 44(5) of the Law on VAT since it had not, inter alia, checked whether RK was an existing taxable person and whether it was in possession of the goods which Mahagében wished to purchase.
- Mahagében brought an action before the Baranya Megyei Bíróság (Regional Court, Baranya) seeking to obtain annulment of the tax debt, fine and late payment surcharge imposed on it. It claimed, inter alia, that it had acted with due diligence at the time of concluding the contract made with RK. Its role in the transaction was, it contended, limited to verifying that the supplying company was registered, had a tax registration number and was capable of carrying out the transaction in question. It had also satisfied itself as to the quality and quantity of the goods at the time of delivery at its registered office, which was the place of supply and sale according to that contract.
- The Baranya Megyei Bíróság doubts that the right to deduct VAT can be refused merely because the issuer of the invoice did not enter the purchase of the goods concerned in its accounts, and that, without a lorry, it was unable to deliver the goods, even though it stated that it had supplied the goods and met its obligations as to declaration and payment of the tax.
- The dispute in the main proceedings in Case C‑142/11 concerns two distinct transactions.
- First, Mr Dávid had undertaken, under a works contract, to carry out various construction works. After performance of that contract in May 2006, the project developer’s agent issued the certificate of completion of the work which indicated 1 992 hours worked on the basis of attendance registers stating, inter alia, the start and end dates of the work, the place where the work was carried out, the name, date of birth and signature of the workers as well as Mr Dávid’s name and stamp.
- During a tax inspection concerning that transaction, Mr Dávid stated that he did not have any employees of his own and that he had used a subcontractor, Mr Máté, to carry out the work. He was unable to name the individual workers employed by that subcontractor. The fee stipulated in the agreement between Mr Dávid and Mr Máté was paid on the basis of the certificate of completion of the work.
- Tax inspections showed that Mr Máté also did not have any employees or equipment necessary to carry out the work in respect of which the invoices had been issued and that he had merely reproduced the invoices of another subcontractor. The latter, who was the father-in-law of Mr Máté, did not have any registered employees during the period in question and had not filed a tax return for the tax year at issue.
- In the light of all those factors, the tax authority found, first, that the invoices issued by the latter subcontractor could not adequately establish, for legal purposes, that the economic transaction detailed in them had taken place and, second, that Mr Máté had not actually carried out any subcontracted activities. Even though the inspections carried out had not disputed the fact that the work had indeed taken place, or that it had been carried out by the workers named in the attendance registers, it was not possible to determine adequately for legal purposes which contractor had carried out the work and which undertaking had employed those workers. In those circumstances, the tax authority found, the invoices received by Mr Dávid did not reflect a genuine economic transaction and were therefore fictitious. Moreover, it found, Mr Dávid had not acted with due diligence within the meaning of Paragraph 44(5) of the Law on VAT.
- Second, in 2006 Mr Dávid had undertaken to carry out for a company certain work which he completed using another subcontractor. However, at the time of the tax inspection, the latter subcontractor was already in liquidation. It was not possible to contact its former representative and no document was submitted to the liquidator. According to the tax authority, there was no evidence that the price and the parties indicated on the invoice issued by that subcontractor were genuine. Moreover, in the view of that authority, Mr Dávid had not acted with due diligence as required by the Law on VAT because he had not satisfied himself that that subcontractor had the necessary resources to carry out the work in question.
- In those circumstances, the tax authority refused the right to deduct resulting from the two transactions at issue, held that Mr Dávid had incurred a VAT debt and imposed on him a fine and a late payment surcharge.
- Mr Dávid brought an action before the Jász-Nagykun-Szolnok Megyei Bíróság (Regional Court, Jász-Nagykun-Szolnok) against the decision taken by the tax authority, claiming, inter alia, that he had shown due diligence. He stated that he was satisfied that the economic transaction had actually taken place and that he had checked the status of the invoice issuer as a taxable person. He could not be held liable for any failure on the part of the subcontractor to fulfil his tax obligations.
- The Jász-Nagykun-Szolnok Megyei Bíróság is unsure as to whether the taxable person has the right to deduct input VAT without carrying out supplementary inspections in the case where the tax authority does not establish negligent or intentional conduct in regard to possible tax avoidance, attributable to the invoice issuer himself or to the issuers of other invoices received by him, of which the recipient of the invoice, namely the taxable person, was not aware or in which he did not collude.
1. Articles 167, 168(a), 178(a), 220(1) and 226 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as precluding a national practice whereby the tax authority refuses a taxable person the right to deduct, from the value added tax which he is liable to pay, the amount of the value added tax due or paid in respect of the services supplied to him, on the ground that the issuer of the invoice relating to those services, or one of his suppliers, acted improperly, without that authority establishing, on the basis of objective evidence, that the taxable person concerned knew, or ought to have known, that the transaction relied on as a basis for the right to deduct was connected with fraud committed by the issuer of the invoice or by another trader acting earlier in the chain of supply.
2. Articles 167, 168(a), 178(a) and 273 of Directive 2006/112 must be interpreted as precluding a national practice whereby the tax authority refuses the right to deduct on the ground that the taxable person did not satisfy himself that the issuer of the invoice relating to the goods in respect of which the exercise of the right to deduct is sought had the status of a taxable person, that he was in possession of the goods in question and was in a position to supply them, and that he had satisfied his obligations as regards declaration and payment of value added tax, or on the ground that, in addition to that invoice, that taxable person is not in possession of other documents capable of demonstrating that those conditions were fulfilled, although the substantive and formal conditions laid down by Directive 2006/112 for exercising the right to deduct were fulfilled and the taxable person is not in possession of any material justifying the suspicion that irregularities or fraud have been committed within that invoice issuer’s sphere of activity.
Refusal of the right to deduct in the event of irregular conduct of the originator of the invoice for goods or services for which the exercise of that right is requested – Burden of proof – Obligation for the taxable person to ascertain and prove that the originator of this invoice acts regularly
The common system of VAT must be interpreted as precluding a national practice whereby the tax administration refuses to a taxable person the right to deduct from the VAT due or paid by him on services rendered on the basis that the originator of the invoice for those services or one of his service providers has committed irregularities without that tax authority demonstrating on the basis of objective data that the taxable person concerned knew or should have known that the transaction invoked as the basis for the right to deduct was part of fraud by this originator or any other economic operator active at an earlier stage in the supply chain.
The VAT Directive must be interpreted as precluding a national practice whereby the tax administration refuses the right to deduct on the ground that the taxable person has not satisfied that the originator of the invoice for the goods for which the right to deduct is requested for a deduction, was taxable, owned the goods in question, was able to deliver the goods and fulfilled his obligations with regard to declaration and payment of VAT, or on the ground that this taxable person does not have any other documents other than this invoice that can demonstrate that these conditions are present,although the substantive and formal conditions for the exercise of the right to deduct laid down in the VAT Directive are met and the taxable person did not have evidence of irregularities or fraud by this originator.
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