On November 11, 2021, the ECJ issued its decision in the case C-281/20 (Ferimet, S. L.) – Decision – No Input VAT deduction for self-invoice with reverse charge VAT with fictitious supplier.
The court case develops an interesting argumentation on the Right to Deduct VAT, and more specifically when there is a suspicion that fraud is involved.
In a series of newsitems, we will highlight some interesting obeservations from the decision of the Court.
- Part 1 dealt with regard to the Formal vs. Material requirements of the Right to deduct VAT.
- Part 2: ”naming” and ” status” of the supplier, formal or material condition for the right to deduct VAT
- Part 3: For the application of art. 199(1), no invoice is required to deduct the VAT
- Part 4: Neutrality principle, Substance over Form and the Right to deduct VAT
- Part 5: Evidence to proof material requirements to be provided by Taxable Persons
What can tax authorities require related to VAT Fraud?
- Tax authorities cannot require the taxable person wishing to exercise the right to deduct VAT to check that the supplier has the status of taxable person (see Mahagében and Dávid, C‑80/11 and C‑142/11, paragraph 61, and Vikingo Fővállalkozó, C‑610/19, paragraph 56).
- A distinction must be made between establishing a material condition governing the right to deduct VAT and, on the other, determining the existence of VAT fraud.
- In the context of VAT Fraud, although a taxable person wishing to exercise the right to deduct VAT cannot be required to check that the supplier of the goods or services concerned has ‘taxable person’ status, a taxable person needs to check the status for the purpose of verifying that that material condition governing the right of deduction is satisfied.
- It is for the taxable person to establish, on the basis of objective evidence, that the supplier has the status of taxable person, unless the tax authorities have the information necessary to check that that material condition governing the right to deduct VAT is satisfied. In that regard, it follows from the wording of Article 9(1) of Directive 2006/112 that the concept of ‘taxable person’ is defined widely, on the basis of the factual circumstances (Tóth, C‑324/11, paragraph 30, and PPUH Stehcemp, C‑277/14, paragraph 34), and therefore that the supplier’s status as a taxable person may be apparent from the circumstances of the case.
- As supplier is material condition to deduct VAT, a taxable person must be refused the right to deduct VAT if the identity of the true supplier is not mentioned on the invoice and other evidence that the supplier had the status of taxable person is lacking.
- The Court has repeatedly pointed out, the prevention of tax evasion, tax avoidance and abuse is an objective recognised and encouraged by Directive 2006/112. In this respect, the Court has held that individuals cannot fraudulently or improperly avail themselves of the rules of EU law and that, therefore, it is for national authorities/courts to refuse the right of deduction if being relied on for fraudulent or abusive ends (see Kittel and Recolta Recycling, C‑439/04 and C‑440/04, paragraphs 54 and 55, Glencore Agriculture Hungary, C‑189/18, paragraph 34 and the case-law cited and Finanzamt Wilmersdorf, C‑108/20, paragraph 21).
- In the case of fraud, a taxable person is to be refused the right of deduction if fraud is committed by the taxable person and where it is established that that taxable person knew or ought to have known that, he or she was participating in a transaction connected with the evasion of VAT (seeKittel and Recolta Recycling, C‑439/04 and C‑440/04, paragraph 59, Mahagében and Dávid, C‑80/11 and C‑142/11, paragraph 45, Glencore Agriculture Hungary, C‑189/18, paragraph 35 and the case-law cited and Finanzamt Wilmersdorf, C‑108/20, paragraph 22).
- It is irrelevant whether or not the taxable person profits from the resale of the goods/services in the context of the taxable transactions subsequently carried out by that person (Finanzamt Wilmersdorf, C‑108/20, paragraph 23 and the case-law cited).
- Since EU law lays down no rules relating to the procedures for taking evidence in connection with VAT fraud, that objective evidence must be established by the tax authorities in accordance with the rules of evidence laid down in national law. However, those rules must not undermine the effectiveness of EU law (Vikingo Fővállalkozó, C‑610/19, paragraph 59 and the case-law cited).
Conclusion: In the present case, in the context of that overall assessment, the fact that the taxable person who claims to be entitled to the right of deduction and who issued the invoice, knowingly mentioned a fictitious supplier on that invoice is relevant information which may indicate that that taxable person was aware that it was participating in a supply of goods connected with VAT fraud. It is, however, for the referring court to assess, taking into account all the evidence and factual circumstances of the case, whether that is indeed so in the context of the case in the main proceedings.
Conditions:
- The transactions concerned result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions and
- it is apparent from a number of objective factors that the essential aim of the transactions concerned is solely to obtain that tax advantage (see WebMindLicenses, C‑419/14, EU, paragraph 36, Kuršu zeme, C‑273/18, paragraph 35 and KrakVet Marek Batko, C‑276/18, paragraph 85).
Consequently, such a practice does not cover the mention of a fictitious supplier on an invoice relating to the goods or services on the basis of which the right to deduct VAT is exercised, since the naming of the supplier, on the invoice relating to the goods or services on the basis of which the right to deduct VAT is exercised, is a formal condition of that right and does not therefore result in the material conditions laid down by the provisions relating to the right of deduction being met.
