On April 15, 2021, the ECJ issued its decision in the case C-935/19 – Grupa Warzywna vs Poland. The case dealt with the question whether the application of penalties in the form of an additional tax liability where no tax revenue was lost, as a result of an erroneous understanding of applicable laws, is compatible with the VAT Directive and the principle of proportionality and whether the imposition of such additional liabilities actually serves to prevent tax fraud or is merely an additional fiscal measure.
Context: Preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112 / EC – Article 273 – Overvaluation, in the tax return, of the amount of the refund of VAT – Error of assessment of the taxable person regarding the subject to transaction tax – Rectification of the tax return following an inspection – Penalty for an amount corresponding to 20% of the amount of the overvaluation of the amount of the VAT refund – Principle of proportionality
Articles in the EU VAT Directive
Article 273 of Council Directive 2006/112
Article 273 (Misc. provisions)
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.
The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.
- Questions raised on 12 February 2020
- The competent authority in the first instance tax authority found that the Grupa Warzywna was not entitled to deduct input VAT.
- Grupa Warzywna submitted a correction to its VAT return(s).
- The authorities subsequently imposed an additional assessment to Grupa Warzywna.
- Following an appeal, the competent tax authority at second instance held that the correction served its purpose and that there were no grounds for an assessment.
- However, the part of the decision in which the additional tax liability, was maintained
- Grupa Warzywna pleads for annulment of this decision.
- Is a VAT penalty (in the form of an additional tax liability) compatible with the VAT Directive and the principle of proportionality?
Is an additional tax liability such as that provided for in Article 112b(2) of the Law on VAT compatible with the provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax 1 (in particular Articles 2, 250 and 273 thereof), Article 4(3) of the Treaty on European Union, Article 325 TFEU and the principle of proportionality?
Decision (unofficial translation)
Article 273 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax and the principle of proportionality must be interpreted as precluding national rules which impose on the taxpayer who incorrectly classified the transaction exempt from value added tax (VAT) as a transaction subject to that tax, a penalty of 20% of the amount of overstatement of the VAT reimbursement unduly claimed, in so far as this penalty applies without distinction, both where the irregularity results from an error of assessment made by the parties to the transaction as to being subject to taxation by the supply, which error is characterized by the lack of indications of fraud and depletion of revenues to the state treasury, and in a situation where there are no such special circumstances.