ECJ C-521/19 (Tribunal Económico Administrativo Regional de Galicia) – Decision – Taxable amount, even in case of fraud, assumes a price with VAT

On July 1, 2021, the ECJ issued its decision 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.


  • 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.


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.


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.



Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax, in particular its articles 73 and 78, read in light of the principle of neutrality of value added tax (VAT), should be interpreted in the sense that when, incurring in fraudulent behavior, VAT taxpayers have not notified the tax administration of the existence of an operation, nor have they issued an invoice, nor have they recorded the income obtained thanks to to said operation in a direct tax return, the reconstitution carried out by the tax administration concerned, within the framework of the inspection of said return, of the quantities delivered and received on the occasion of the disputed operation must be considered a price that includes VAT,unless, under national law, taxable persons have the possibility to subsequently carry over and deduct the VAT at issue despite the fraud.

Note: The Court has disagreed with the AG, essentially saying that for undeclared sales where VAT cannot be charged as an extra sum to customers, the consideration received is deemed to be VAT inclusive



This case relates to mainly cash payments made to a self-employed person who was an artistic agent. His services were supplied to a group of companies (the Lito group) responsible for managing the infrastructure and orchestras for religious and village festivals. Payments made by the festival committees to the Lito group were in cash, without invoices being issued or accounting entries being made. As a result, they were not declared to the tax authorities for the purposes of either corporate tax or VAT. The taxpayer would receive 10% of the Lito group’s income again in cash.

Following an inspection, the tax authorities assessed. However, they took the view that the amounts identified were the taxable base and did not include VAT so they assessed for VAT as an additional amount. The taxpayer appealed on the basis that as he cannot claim VAT under Spanish law and is unable to pass VAT on because of conducting a tax offence, the VAT must be regarded as included in the price of the taxable services which he supplied.

The earlier AG was of the view that such national legislation was not precluded however, the national legislation must also provide that this premise 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.

The Court has essentially disagreed. It noted that although taxable persons have failed to comply with their obligations, this cannot constitute a restriction of the basic principle that the VAT system is aimed at taxing only the end consumer (Tulică and Plavoşin (C 249/12 and C 250/12). Therefore, in such a scenario the cash received must be interpreted as a price already including VAT. The only exception to this would be where national law allowed the taxpayer to pass on the VAT, i.e. invoice the VAT on to the Lito Group as an extra amount. The Court added it is by penalties and not by an increase in the taxable amount that such fraud should be punished

Source KPMG

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