ECJ C-537/22 (Global Ink Trade) – Questions – Deduction of VAT in case of a missing additional evidence/fictitious transactions

A new referral to ECJ from Hungary.

Context: Principle of the primacy of EU law – Effective judicial protection – Tax evasion – VAT Directive – Principle of fiscal neutrality – Scope of the taxable person’s general obligation to exercise scrutiny – Due diligence – Objective evidence

Action for judicial review brought against a decision of the national tax authority refusing the right to deduct VAT on the basis that that authority required, in connection with invoices, evidence additional to that stipulated by EU law and, in the absence of such evidence, classified the transactions concerned as fictitious.

Article in the EU VAT Directive

Article 167, 168(a) and 178(a) in the EU VAT Directive 2006/112/EC.

Article 167 (Deduction of VAT)
A right of deduction shall arise at the time the deductible tax becomes chargeable.

Article 168
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;

Article 178
In order to exercise the right of deduction, a taxable person must meet the following conditions:
(a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI;

Facts

The main business of the applicant, Global Ink Trade Kft., is as a wholesale trade intermediary. During the period from July 2012 to June 2013, which forms the subject of the main proceedings, the applicant purchased mainly office supplies and ink cartridges. Its main supplier was Office Builder Kft., from which it received 68 invoices during that period.
The tax authority determined that Office Builder Kft. was not engaged in any economic activity, did not have a principal place of business or any branches, did not have the material and personal attributes necessary to carry on an economic activity, had not engaged any employees and had not discharged its tax obligations. The company director, who was questioned in a penal establishment, stated that he did not perform any role in that company, which did not conclude contracts or issue invoices. As a result, the tax authority determined that the financial transactions reflected on the invoices sent to the applicant had not in fact taken place between the parties and that Office Builder Kft. operated exclusively as an intermediate undertaking.
The tax authority questioned the applicant’s director, who explained, with respect to the scrutiny of suppliers, that, in the case of potential business partners (and Office Builder Kft., too, therefore), administrative checks (including on the data contained in the commercial register) and material checks (whether any orders have actually been placed) were carried out, and that, on the basis of those checks, he would decide whether a contract was to be concluded. The applicant’s director and the director of Office Builder Kft. concluded the contract in person but maintained day-to-day contact by e-mail and did not meet face to face.
In its assessment of the evidence obtained, the tax authority noted that the statements made by the directors of the two undertakings were contradictory from the point of view of their content and, on the basis of those contradictions, considered it proved beyond any doubt that the transactions reflected on the invoices had not taken place as certified by those invoices with respect to their form and substance.
According to the tax authority’s conclusions, the issuer of the invoice was not engaged in any genuine economic activity but merely issued invoices the content of which was unreliable, its function, as an intermediate undertaking, therefore being confined to creating for the benefit of the applicant input tax on goods purchased within the European Union, with a view to enabling the applicant to effect the improper recovery of VAT on ostensibly national transactions. The tax authority did not consider the invoices received by the applicant to be reliable, because the company which had issued them did not recognise them and even expressly denied having issued them, and for that reason refused to grant the
applicant the right to deduct the VAT in question.
The first-tier tax authority declared there to be a tax difference payable by the applicant in the amount of HUF 348876000 by way of VAT for the period from July 2012 to June 2013, of which HUF 348773000 was considered to constitute a ‘tax shortfall’. The tax authority imposed a fine for that shortfall and applied a late-payment surcharge.
The second-tier tax authority declared that the applicant had not demonstrated any conduct such as to show that its activity was not simply confined to the mere receipt of invoices meeting the formal requirements laid down, which is to say that it concluded that the applicant had not acted with due diligence in the course of trade. For that reason, the second-tier tax authority upheld the decision given by the first-tier authority.
The applicant brought an action for judicial review against that decision before the Fővárosi Törvényszék (Budapest High Court).

Questions

1) Does the fact that a court in a Member State, adjudicating at last instance, interprets a decision of the Court of Justice (adopted in the form of an order in response to a request for a preliminary ruling specifically concerned with the case-law developed by the self-same court adjudicating at last instance) as meaning that there is nothing in that decision which has or is likely to have the effect of overturning earlier decisions of the Court of Justice or bringing about a change in the previous national case-law developed by the court adjudicating at last instance, constitute an infringement of the principle of the primacy of EU law and of the right to effective judicial protection guaranteed in Article 47 of the Charter of
Fundamental Rights of the European Union (‘the Charter’)?
2) Must the principle of the primacy of EU law and the right to effective judicial protection guaranteed in Article 47 of the Charter be nterpreted as meaning that the principle of the primacy of decisions of the Court of Justice applies even in the case where a court in a Member State, adjudicating at last instance, also relies on [the] earlier judgments [of the Court of Justice] as precedent? Is a different answer conceivable, in the light of Article 99 of the Rules of Procedures of the Court of Justice, where the decision of the Court of Justice takes the form of an order?
3) Within the framework of the taxable person’s general obligation to exercise scrutiny, irrespective of the performance and nature of the economic transaction shown on the invoices concerned, and regard being had to Articles 167, 168(a) and 178(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’) and to the principles of legal certainty and fiscal neutrality, may the taxable person be required, as a condition of benefiting from the right to deduct VAT ― and notwithstanding the absence of a legislative provision to this effect in the Member State concerned ―, to maintain contact in person with the issuer of the invoice or to contact his supplier only at the officially communicated e-mail address? May these circumstances be regarded as revealing a failure, demonstrated by objective facts, to exercise the due diligence to be expected of the taxable person, account being taken of the fact that those circumstances did not yet exist at the time when the taxable person carried out the relevant checks before entering into the business relationship in question, but are features of the existing business relationship between the parties?
4) Are a legal interpretation and a practice developed in a Member State, whereby a taxable person who has an invoice in conformity with the VAT Directive is refused the benefit of the right to deduct VAT on the ground that he has not acted with due diligence in the course of trade because he has failed to demonstrate conduct such as to support the determination that his activity was not simply confined to the mere receipt of invoices meeting the formal requirements laid down, consistent with the aforementioned articles of the VAT Directive, with the principle of fiscal neutrality and, above all, with the case-law of the Court of Justice ― which, when interpreting those provisions, places the burden of proof on the tax authority ―, even in the case where the taxable person has enclosed all documentation relating to the transactions at issue and the tax authority has rejected other offers to furnish evidence made by the taxable person during the tax proceedings?
5) In the light of the aforementioned articles of the VAT Directive and the fundamental principle of legal certainty, may the finding, reached in connection with due diligence, that the issuer of the invoice was not engaged in any economic activity at all, constitute an objective fact, in the case where the tax authority takes the view that there has been a failure to demonstrate the actual performance (and, therefore, the genuine existence) of an economic transaction ― as documented by means of invoices, contracts and other supporting accounting documentation, and by correspondence, and as confirmed by the statements of the warehousing undertaking and the taxable person’s director and employee ―, and bases that view exclusively on the statement of the supplier undertaking’s director denying the existence of that transaction, without taking into account the circumstances in which that statement was made, the interests of the person making the statement or the fact that, according to the documents in the case file, that undertaking had been founded by the very person making the statement and, according to the information available, an agent was acting on its behalf?
6) Must the provisions of the VAT Directive relating to the deduction of VAT be interpreted as meaning that, in the case where the tax authority discovers during the tax proceedings that the goods mentioned on the invoices concerned are of Community origin and that the taxable person is the second member of a chain [of supplies], the configuration of that scenario ― given that goods of Community origin are exempt from VAT and the first Hungarian purchaser is not therefore entitled to deduct VAT, only the second member of that chain being so entitled ― is an objective fact sufficient in itself to demonstrate tax evasion, or must the tax authority, in that case, also show, on the basis of objective facts, which member or members of that chain committed tax evasion, by what modus operandi it or they did so, and whether the taxable person was or could have been aware of this through the exercise of due diligence?

AG Opinion

Decision

Summary

Source