VATupdate

Flashback on ECJ Cases – C-624/15 (Litdana) – Conditions under which a margin scheme is applicable

On May 18, 2017, the ECJ issued its decision in the case C-624/15 (Litdana).

Context: Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/EC — Article 314 — Margin scheme — Conditions under which it is applicable — Refusal by the national tax authorities to grant a taxable person the right to apply the margin scheme — References on the invoices relating both to the application of the margin scheme by the supplier and to exemption from VAT — Margin scheme not applied by the supplier to the supply — Indications giving grounds for suspecting an infringement or fraud in the supply


Article in the EU VAT Directive

Article 314 of the EU VAT Directive 2006/112/EC.

Article 314
The margin scheme shall apply to the supply by a taxable dealer of second-hand goods, works of art, collectors’ items or antiques where those goods have been supplied to him within the Community by one of the following persons:
(a) a non-taxable person;
(b) another taxable person, in so far as the supply of goods by that other taxable person is exempt pursuant to Article 136;
(c) another taxable person, in so far as the supply of goods by that other taxable person is covered by the exemption for small enterprises provided for in Articles 282 to 292 and involves capital goods;
(d) another taxable dealer, in so far as VAT has been applied to the supply of goods by that other taxable dealer in accordance with this margin scheme.


Facts

  • Litdana is engaged in the activity of selling second-hand vehicles on a constant basis. During the period from 1 January to 30 October 2012, it acquired from Handicare Auto A/S, a Danish company, second-hand vehicles which it resold to natural and legal persons. All the invoices relating to the acquired second-hand vehicles contained a reference to Paragraphs 69 to 71 of the Danish VAT Law and indicated, in addition, that the vehicles being sold were exempt from VAT. Litdana applied the margin scheme referred to in Article 106(2) of the Law on VAT to the vehicles at issue when they were resold.
  • Litdana was subject to a tax inspection carried out by the Klaipėdos apskrities valstybinė mokesčių inspekcija (State Tax Inspectorate, Region of Klaipėda, Lithuania, ‘the Regional Tax Inspectorate’) covering the period from 1 January to 30 October 2012 with regard to the calculation of VAT. That inspection gave rise to an inspection report dated 28 April 2014, in which the Regional Tax Inspectorate found that Litdana had not been justified in applying the margin scheme to the 25 second-hand vehicles that it had acquired from Handicare Auto and resold to natural and legal persons, since Handicare Auto had not applied the margin scheme to the vehicles sold. The Regional Tax Inspectorate therefore required Litdana to pay VAT in the amount of EUR 15 745.48.
  • On 23 June 2014, the Regional Tax Inspectorate approved the inspection report and orderedLitdana to pay EUR 15 745.48 in VAT, EUR 3 141.76 in interest for late payment and a fine of EUR 1 574.66. By decision of 21 August 2014, the State Tax Inspectorate confirmed that decision.
  • Litdana lodged a complaint with the Mokestinių ginčų komisija prie Lietuvos Respublikos Vyriausybės (Tax Disputes Commission under the Government of the Republic of Lithuania, ‘the Tax Disputes Commission’) requesting annulment of the decisions of the Regional Tax Inspectorate and the State Tax Inspectorate.
  • By decision of 31 October 2014, the Tax Disputes Commission confirmed the State Tax Inspectorate’s decision but relieved Litdana of the interest for late payment.
  • Litdana brought an appeal against those various decisions before the Vilniaus apygardos administracinis teismas (Regional Administrative Court, Vilnius, Lithuania).
  • The referring court states that the Lithuanian tax authorities denied Litdana the right to apply the margin scheme in the light solely of the information provided by the Danish tax authority that Handicare Auto had not applied the margin scheme to the supply of the vehicles at issue. In doing so, first, the State Tax Inspectorate did not take account of the fact that the invoices presented by Handicare Auto indicated that the vehicles being sold were exempt from VAT and contained a reference to Paragraphs 69 to 71 of the Danish VAT Law and, secondly, the Tax Disputes Commission stated that Litdana, acting with care, should have contacted Handicare Auto in order to obtain confirmation that the vehicles were sold under the margin scheme, or asked the Danish tax authorities whether that company had transmitted the data on the supply of the vehicles at issue to the electronic database of the VAT Information Exchange System (VIES).
  • The question arising before the referring court is therefore whether a taxable person who has received an invoice that includes references relating both to the margin scheme and to exemption from VAT has the right to apply that scheme, referred to in Article 314 of the VAT Directive, notwithstanding the fact that it is apparent from a subsequent check carried out by the tax authorities that the taxable dealer supplying the goods at issue had not applied that scheme.

Questions

(1)      Under Articles 314(a) and 226(11) of [the VAT Directive] and under Articles 314(d) and 226(14) of that directive, are national rules and/or national practice founded on those rules allowed that prevent a taxable person from applying the VAT margin scheme because it becomes apparent upon a tax inspection carried out by the tax authority that incorrect information/data on the application of the VAT margin scheme and/or on exemption from VAT was provided in the VAT invoices for the goods supplied, but the taxable person did not know and could not have known about that?

(2)      Is Article 314 of [the VAT Directive] to be understood and interpreted as meaning that, although the VAT invoice states that the goods are exempt from VAT (Article 226(11) of [the VAT Directive]) and/or the seller has applied the margin scheme in order to supply the goods (Article 226(14) of [the VAT Directive]), the taxable person acquires the right to apply the VAT margin scheme only when the supplier of the goods actually applies the margin scheme and duly discharges his obligations in the sphere of payment of VAT (pays VAT on the margin in his State)?


AG Opinion

None


Decision

Article 314 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, must be interpreted as precluding the competent authorities of a Member State from denying a taxable person the right to apply the margin scheme where he received an invoice that includes references relating both to the margin scheme and to exemption from value added tax (VAT), even if it is apparent from a subsequent check carried out by those authorities that the taxable dealer supplying the second-hand goods had not actually applied that scheme to the supply of those goods, unless it is established by the competent authorities that the taxable person did not act in good faith or did not take every reasonable measure in his power to satisfy himself that the transaction carried out by him does not result in his participation in tax evasion — a matter which it is for the referring court to determine.


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