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Flashback on ECJ Cases – C-550/11 (PIGI) – Revision of the deducted input tax is possible in the event of theft

Oc October 4, 2012, teh ECJ issued its decision in the case C-550/11 (PIGI).

Context: Taxation – VAT – Directive 2006/112/EC – Right to deduction – Adjustment – Theft of goods


Article in the EU VAT Directive

Article 185(2) of the EU VAT Directive 2006/112/EC

Article 185 (Adjustment of deductions)
1. Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.
2. By way of derogation from paragraph 1, no adjustment shall be made in the case of transactions remaining totally or partially unpaid or in the case of destruction, loss or theft of property duly proved or confirmed, or in the case of goods reserved for the purpose of making gifts of small value or of giving samples, as referred to in Article 16.
However, in the case of transactions remaining totally or partially unpaid or in the case of theft, Member States may require adjustment to be made


Facts

  • PIGI, a sole trader under Bulgarian law represented by Ms Dimova, operates in inter alia the manufacture, purchase and marketing of agricultural products, the manufacture and sale of alcoholic and non-alcoholic drinks and trade in foodstuffs.
  • Following an inspection pertaining to the period between 1 August 2005 and 30 September 2010, in October 2010 the revenue office, Varna, of the regional directorate of the central administration of the national public revenue agency, proposed an adjustment of the VAT owing for the month of January 2007. That adjustment was confirmed by a tax assessment of 14 January 2011, ordering PIGI to pay BGN 1 283.43 in VAT owing for that month and BGN 656.04 in interest.
  • The claimant in the main proceedings stated before that office that there was a shortfall in the goods (packaged products and cigarettes) to which the assessment in question related following a theft at the company’s premises on 3 January 2007. According to PIGI’s accounting records, the value of the goods totalled BGN 6 417.16.
  • In order to have the theft recognised, a complaint against X was lodged before the Dobrich regional police. By order of 26 March 2007 of the Public Prosecutor, Dobrich, the proceedings were temporarily suspended because the perpetrator could not be identified. The documents were communicated to the police officer leading the investigation in order to allow the search for the perpetrator to be continued.
  • The revenue office, Varna, of the regional directorate of the central administration of the national public revenue agency took the view, however, that under Article 79(3) of the ZDDS PIGI was liable for VAT equal to the amount of the input tax deduction claimed for the period in which the goods were stolen. It then relied on Article 80 of the Law on VAT, which sets out the circumstances in which the taxable person is not required to make an adjustment to the input tax deduction claimed in respect of the shortfall, including force majeure. It went on to hold that a ground for an adjustment existed, since the claimant in the main proceedings should have paid VAT equal to the amount of the input tax deduction claimed on acquisition of the goods in which there was now a shortfall.
  • PIGI then lodged an objection to that decision before the Direktor, arguing that, since the shortfall in the goods was the result of theft, the shortfall had been caused by force majeure which she could not have foreseen, and therefore no adjustment had to be made.
  • By decision of 22 March 2011, the Direktor dismissed that objection, holding that an adjustment of an input VAT deduction is possible in cases of theft of goods.
  • PIGI brought an action against that rejection decision before the referring court, arguing inter alia that, since the shortfall was the result of theft, the Direktor ought not to have applied the provisions on adjustment of input VAT. PIGI argued that it was a case of force majeure which it could not have foreseen or prevented.

Questions

(1)      In which cases is it to be assumed that there is a theft of property duly proved or confirmed within the meaning of Article 185(2) of [the Directive], and is it necessary in that regard that the identity of the perpetrator has been established and that that person has already been finally convicted?

(2)      Depending on the answer to the first question: does the expression “theft of property duly proved or confirmed” within the meaning of Article 185(2) of [the Directive] cover a situation such as that in the main proceedings, in which a pre-litigation procedure for theft was initiated against person or persons unknown, a fact that is not disputed by the revenue collection department and on the basis of which it has been assumed that there is a shortfall [of the goods stolen]?

(3)      In the light of Article 185(2) of [the Directive], are national legal provisions such as those laid down in Articles 79(3) and 80(2) of the ZDDS and a tax practice such as that adopted in the main proceedings permissible, under which the input tax deduction made on the acquisition of goods which are subsequently stolen must be adjusted, if it is assumed that the State has not made use of the power afforded to it to provide expressly for adjustments to the input tax deducted in the case of theft?


AG Opinion

None


Decision

Article 185(2) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as not precluding national tax provisions, such as those contained in Articles 79 and 80 of the Law on value added tax (Zakon za danak varhu dobavenata stoynost), which require, where a shortfall in the goods subject to value added tax has been established, that an adjustment be made to the deduction of that input tax at the time of acquisition of those goods, where the taxable person was the victim of a theft of those goods and the perpetrator has not been identified.


Summary

National tax provisions are permitted which, where it is established that goods subject to VAT are missing, require adjustment of the deduction of input VAT made on the purchase of those goods if the taxable person is the victim of the theft of those goods and the perpetrator has not been identified.


Source:


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