Flashback on ECJ Cases – C-78/02, C-79/02, C-80/02 (Karageorgou & others) – VAT incorrectly paid by a non-taxable person and stated on the invoice drawn up by him

On November 6, 2003, the ECJ issued its decision in the cases C-78/02, C-79/02 and C-80/02

Context: Sixth VAT Directive – Article 21(1)(c) – Persons liable to tax – Person mentioning the tax on an invoice – Tax paid in error by a non-taxable person and included in the invoice established by that person)

Article in the EU VAT Directive

Article 21(1)(c) of the Sixth VAT Directive (Article 203 of the EU VAT Directive 2006/112/EC)

Article 203 (Persons liable for payment of VAT to the tax authorities)
VAT shall be payable by any person who enters the VAT on an invoice.

Facts

Case 78/02

By Decision no F.093.23 of 12 April 1988 of the Secretary-General of the Ministry of Foreign Affairs, Mrs Maria Karageorgou was appointed as a translator from Greek into English to carry out work for the Translation Department of that Ministry.
In respect of that activity, the plaintiff submitted to Mr Cholargos, the Head of the Dimosia Oikonomiki Ypiresia (Financial Services Directorate, hereinafter the ”DOY”), provisional tax statements and a statement of account for VAT for the 1992 financial year. She subsequently retracted those statements by request No 22240/29.12.1994, and sought reimbursement of the VAT on the basis that it had been unduly paid.
In support of her retraction she claimed that she had submitted the statements in question on the basis of an error in law given that she is not liable to VAT for income earned as a translator.
In her claim she contends that she was in an employer-employee relationship with the Ministry of Foreign Affairs with regard to her working conditions and pay. First, she did not herself determine her remuneration. Secondly, the Ministry of Foreign Affairs was liable to third parties for any acts or omissions on her part as a translator. Further, the abovementioned VAT paid in accordance with her statements for 1992 was not passed on to the consumer, given that neither she nor the ministry charged those amounts to the private or legal persons for whom those translations were intended, with the result that those amounts constitute part of her earnings and not tax.
In reply No 22240-22241/9.2.1995, the Head of the DOY rejected the applicant’s claim on the ground, first, that her working conditions were not the same as those of salaried staff and, secondly, that the VAT had been lawfully paid by Mrs Karageorgou since she had mentioned it on the receipts which she had issued for the provision of her services to the Ministry of Foreign Affairs and that she was therefore not entitled to reimbursement of the tax paid.
In its judgment no 275/1995 the President of the Diikitiko Protodikio Athinon (Administrative Court of First Instance, Athens) (Greece) allowed the application by Mrs Karageorgou and her request to retract the VAT statements for 1992, set aside negative reply No 22240-22241/9.2.1995 of the Head of the DOY, and ordered reimbursement of the amount of tax paid by the applicant. That judgment was based on reasoning to the effect that translators operate as organs of the State, which has sole liability for their acts and omissions given that the translations provided by them are public documents, and that Mrs Karageorgou operated, in the performance of her work, under an employer-employee relationship as regards the terms governing her work and remuneration.
The Greek State appealed against that ruling to the Diikitiko Efetio Athinon, contending, inter alia, as it had done at first instance, that the respondent, irrespective of the nature of her work, was liable to pay the contested tax in compliance with Article 28(1)(d) of Law 1642/1986 on the ground that she had mentioned VAT on the receipts issued in respect of the period in question.

In Cases C-79/02 and C-80/02, concerning Mrs Petrova and Mr Vlachos respectively, the facts and main proceedings are analogous to those in Case C-78/02.

Questions

Case C-78/02

Reference has been made to the Court of Justice of the European Communities by order of the Athens Appeal Court (Greece) of 31 January 2002, received at the Court Registry on 11 March 2002, for a preliminary ruling in the case of the Greek State against Maria Karageorgou on the following questions:

a)Is it possible to characterise as VAT, within the meaning of the provisions of the Sixth VAT Directive (77/388/EEC)¹, the amount mentioned on an invoice by a person who provides services to the State as a salaried employee, when the person providing those services mistakenly considers that he is providing services to the State as a self-employed person whilst, in reality, he is an employee and, on the recommendation of his employer, charges VAT on the invoices issued by him and not on his total earnings received from the State, which in law constitute the tax basis of assessment to VAT, subsequently collected from his earnings, but where the amount thereof is determined on the earnings by means of an internal deduction method and the earnings are regarded as containing the amount of VAT owed, while the State reduces the amount of legitimate earnings paid to that person by the element of VAT they are calculated to contain?

b)Can there be a departure from the formal principle governing the tax as set out in Article 21(1)(c) of the Sixth VAT Directive (77/388/EEC) (that is to say, where VAT is mentioned on the invoice or other document serving as an invoice, such tax is payable to the State), where the State, in performing that activity in pursuance of its public authority, is under Article 4(5) of the above directive not subject to tax, so as to render the mechanism of deductions inapplicable thereto, and the said tax cannot be and is not passed on to the end consumer (namely, the individual who contracts with the State for the translation of documents), the provider of services being entitled to reimbursement of the tax paid to the tax authority after deduction of any input tax in order to avoid the State’s enrichment as a result thereof?

AG Opinion

Case C-78/02

The amount mentioned on an invoice by a person who provides services to the State as a salaried employee is not VAT within the meaning of the 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 where the person providing these services mistakenly considers that he is providing services to the State as a self-employed person whilst, in reality, he is an employee and, on the recommendation of his employer, charges VAT on the invoices issued by him and not on his total earnings received from the State, which in law constitute the tax basis of assessment to VAT, subsequently collected from his earnings, but where the amount thereof is determined on the earnings by means of an internal deduction method and the earnings are regarded as containing the amount of VAT owed, while the State reduces the amount of legitimate earnings paid to that person by the element of VAT they are calculated to contain.

Decision

1. The amount mentioned as value added tax on the invoice drawn up by a person providing services to the State may not be classified as value added tax where that person erroneously believes that he is providing those services as a self-employed person whilst in reality there is an employer-employee relationship.

2. Article 21(1)(c) of the 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 does not preclude reimbursement of an amount mentioned in error by way of value added tax on an invoice or other document serving as invoice where the services at issue are not subject to value added tax and the amount invoiced cannot therefore be classified as value added tax.

Summary

VAT incorrectly paid by a non-taxable person and stated on the invoice drawn up by him

The amount that a person providing services to the State declares as VAT on an invoice should not be regarded as VAT if that person mistakenly believes that he is providing those services as a self-employed person, when in reality there is a relationship of subordination.

Article 203 of the VAT Directive does not preclude the reimbursement of an amount mistakenly stated as VAT on an invoice or a document serving as such, where the services concerned are not subject to VAT and the invoiced amount cannot therefore be classified as VAT be considered.

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