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
- Part 6: Impact of Fraud on VAT deduction, Conditions when Fraud can be considered
3rd Question: Lastly, if such proof is required, must the tax advantage which would be grounds for refusing the deduction and which must be identified in the specific case in question relate exclusively to the taxpayer (who purchased the goods) or could that advantage be one which relates to other parties involved in the transaction?
- Under the reverse charge procedure, no payment is due to the Treasury (see Fatorie, C‑424/12, paragraph 29, and Farkas, C‑564/15,
- Whether the VAT payable on the prior or subsequent sales of the goods concerned has or has not been paid to the Treasury is irrelevant to the right of the taxable person to deduct VAT (Vikingo Fővállalkozó, C‑610/19, paragraph 42 and the case-law cited).
- However, the taxable person must be refused the right of deduction where the information necessary to verify that the supplier of the goods or services concerned had the status of taxable person is lacking or it is established to the requisite legal standard that that taxable person has committed VAT fraud or knew or ought to have known that the transaction relied on as a basis for that right was connected with such a fraud. A finding of a risk of loss of tax revenue is not, therefore, necessary in order to justify such a refusal.
- The referring court has mentioned the possibility that the taxable person may be acting in bad faith if he or she conceals the identity of the true supplier, it must be added that, while it is not contrary to EU law to require a trader to act in good faith, it is not necessary for the taxable person’s bad faith to be established in order for that person to be refused the right of deduction (see Finanzamt Wilmersdorf, C‑108/20, paragraphs 30 and 31).
- The fact that concealing the true supplier’s identity may jeopardise direct taxation by depriving the tax authorities of means of control, the right of deduction cannot be refused on that ground. Such a refusal would be contrary to the fundamental principle constituted by that right and, accordingly, to the principle of fiscal neutrality.
Conclusion (decision):
- A taxable person must be refused the right to deduct VAT relating to the acquisition of goods supplied to that taxable person where he or she has knowingly mentioned a fictitious supplier on the invoice which that taxable person him- or herself has issued in respect of that transaction under the reverse charge procedure,
- if, taking into account the factual circumstances and the evidence provided by that taxable person, the information necessary to verify that the true supplier had the status of taxable person is lacking, or
- if it is established to the requisite legal standard that the taxable person has committed VAT fraud or knew or ought to have known that the transaction relied on as a basis for the right of deduction was connected with such a fraud.
