On December 7, 2010, the ECJ issued its decision in the case C-285/09 (R.).
Context: Sixth VAT Directive – Article 28c(A)(a) – Evasion of VAT – Refusal to grant an exemption of VAT on intra-community supplies of goods – Vendor’s active participation in the fraud – Powers of the Member States in connection with the prevention of potential tax evasion, avoidance and abuse
Article in the EU VAT Directive
Artice 28c(A) of the Sixth VAT Directive (Art. 138 of the EU VAT Directive 2006/112/EC).
Article 28a(1)(a) (Exemption for intra-Community supplies of goods)
‘The following shall also be subject to value added tax:
(a) intra-Community acquisitions of goods for consideration within the territory of the country by a taxable person acting as such or by a non-taxable legal person where the vendor is a taxable person acting as such who is not eligible for the tax exemption provided for in Article 24 and who is not covered by the arrangements laid down in the second sentence of Article 8(1)(a) or in Article 28b(B)(1).
- Mr R, a Portuguese national, was the manager of a German company engaged in the luxury car trade. According to the findings in the order for reference, since 2001 it had sold more than 500 vehicles per year. The buyers were, for the most part, car dealers established in Portugal.
- From 2002, Mr R carried out a series of manipulations, concealing the identity of the true purchasers of the vehicles in order to enable the distributors established in the Portuguese Republic to evade the payment of VAT in Portugal. This allowed him to sell the vehicles at a more advantageous price and thereby to make more substantial profits.
- Those manipulations consisted in the issuing, for the company’s accounting purposes, of false invoices in the name of fictitious purchasers who appeared as recipients of the supplies. Those invoices stated in each case the business name of the alleged purchaser, his VAT identification number, the description of the vehicle (which was actually supplied to another purchaser), the purchase price and the endorsement ‘tax-free intra-Community supply under Paragraph 6a of the UStG’, which implied that the VAT would be paid in Portugal. The fictitious purchasers were real undertakings established in Portugal, some of which knew of the use of their business name, while others were unaware of it.
- For their part, the real purchasers sold the vehicles on to private final purchasers in Portugal without declaring to the Portuguese tax authorities that there had been a prior intra-Community acquisition and without paying the VAT payable in respect of that acquisition. Moreover, the real business relationships were concealed by other means. If the final purchasers were known at the date of the supply, Mr R had the vehicle registration documents issued to those purchasers at the outset. He then issued a further fictitious invoice showing the name of the final purchaser as the recipient and the deliberately inaccurate endorsement ‘taxation of profit margin pursuant to Paragraph 25a of the UStG’, which applies to second-hand vehicles.
- In that way, the company of which Mr R was manager sold and supplied more than 1 100 vehicles for a sum of approximately EUR 19 million during 2002 and 2003. In his tax returns for those two years, Mr R referred to those transactions as tax-free intra-Community supplies and, in ‘summary’ returns made to the Bundeszentralamt für Steuern, described the fictitious purchasers as contractual partners, in order to prevent the identification of the real purchasers in Portugal via the VAT Information Exchange System at European Union level.
- Criminal proceedings were brought against Mr R, who was held on remand from 30 January 2008. By judgment of 17 September 2008, the Landgericht Mannheim (Mannheim Regional Court) sentenced him to a total of three years’ imprisonment on two counts of tax evasion by means of which he had evaded more than EUR 1 million of VAT in 2002 and more than EUR 1.5 million in 2003. According to the Landgericht, the falsified supplies to Portugal are not intra-Community supplies within the meaning of the first subparagraph of Article 28c(A)(a) of the Sixth Directive. The deliberate abuse of the rules of European Union law justifies the refusal of the tax exemption in Germany. As a result of the breach of his duty to collect German VAT on those supplies, to pay it to the tax authorities and to declare it in his annual returns, Mr R had committed tax evasion.
- Mr R appealed on a point of law against that judgment to the Bundesgerichtshof (Federal Court of Justice). In his view, the Landgericht Mannheim had not correctly classified the transactions at issue, which were in fact VAT-exempt intra-Community supplies because the vehicles were actually supplied to businesses in Portugal. There was never any risk of any loss of VAT revenues in Germany, since that tax was payable in the destination Member State, the Portuguese Republic. The fact that that tax was not paid in Portugal is irrelevant, in his view.
- In its order for reference, the Bundesgerichtshof sets out its view that Article 28c(A)(a) of the Sixth Directive must be interpreted as meaning that the tax advantages generally attaching to a transaction must be refused in respect of anyone involved in such transactions with the aim of evading taxes if the taxable person concerned knew of the abuse or fraud and participated in it. That follows from the prohibition of abusive practices enshrined in EU law and applicable to VAT, and also from the broad logic and scope of that provision and the objectives of the Sixth Directive.
- The Bundesgerichtshof observes that it has never had any doubt as to the interpretation of the Sixth Directive, owing to the sufficiently clear case-law of the Court of Justice of the European Union, and that it has already refused in two similar cases to grant the exemption in respect of an intra-Community supply.
- However, it is apparent from the file that, in parallel tax proceedings brought against Mr R on the same facts, the Finanzgericht Baden-Württemberg (Baden-Württemberg Finance Court), in an order of 11 March 2009, raised doubts concerning the interpretation given by the Bundesgerichtshof in relation to the refusal of the exemption, and ordered the suspension of operation of the VAT assessment notices sent to Mr R. According to the Finanzgericht, the Community prohibition of abuse does not apply when the contested transactions can be explained by factors other than merely obtaining tax advantages. Furthermore, the Bundesgerichtshof’s proposition is at odds with the principles of neutrality and territoriality of VAT.
- In the light of that difference of opinion between the German courts, the Bundesgerichtshof considers that it is necessary to refer a question for a preliminary ruling, since Mr R might avoid criminal prosecution if the transactions at issue are to be classified as intra-Community supplies covered by the exemption provided for in the first subparagraph of Article 28c(A)(a) of the Sixth Directive. In that case, a German trader’s involvement in tax evasion in Portugal could not be a criminal offence under German fiscal criminal law, there being no reciprocity in respect of bringing criminal proceedings. A false statement concerning the person acquiring the goods does not amount to a criminal offence but merely an administrative offence punishable by a fine of up to EUR 5 000.
Article 28c(A)(a) of the Sixth Directive must be interpreted as meaning that it does not incorporate a derogation from the exemption from value added tax for supplies of goods within the meaning of that provision in those cases in which the supply has actually been effected, but it is established on the basis of objective factors that the vendor, a taxable person,
(a) knew that, by his supply, he was participating in a transaction aimed at evading VAT, or
(b) took actions aimed at concealing the true identity of the person to whom the goods were supplied in order to enable the latter person or a third person to evade VAT.
In circumstances such as those at issue in the main proceedings, in which an intra-Community supply of goods has actually taken place, but when, at the time of that supply, the supplier concealed the identity of the true purchaser in order to enable the latter to evade payment of value added tax, the Member State of departure of the intra-Community supply may, pursuant to its powers under the first part of the sentence in Article 28c(A) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2000/65/EC of 17 October 2000, refuse to allow an exemption in respect of that transaction.
In circumstances such as those at issue in the main proceedings, in which, although an intra-Community supply of goods has taken place, the supplier concealed the identity of the real acquirer at the time of the supply in order to enable him to evade VAT, the Member State of departure of the intra-Community supply by virtue of its powers under the first sentence of Article 28c(A) of the Sixth Directive to exempt this transaction.
Similar ECJ cases