Advocate General Ettema is of the opinion that stating the VAT identification number on the invoice is not a material condition for the reverse charge mechanism. It is only a formal requirement which cannot prejudice the reverse charge, insofar as its substantive conditions are met. In this case, it is clear that the material conditions have been met.
Can an inspector override the reverse charge mechanism if the invoice contains a defect? If not, is that possible if you participate in fraud?
In this case, a private company supplies non-ferrous metals for which the so-called rags scheme stipulates that the turnover tax must be transferred to the customer. The goods are always collected by the buyer, who is an entrepreneur, and paid in cash. It is unknown where the goods were transported to. Prior to the first delivery, an employee of the supplier verifies the number supplied by the buyer. This number turns out not to be a valid VAT identification number, but an (invalid) German sales tax number. At the end of April 2010 and in June 2010, the employee asks the buyer for the correct VAT identification number. He does not receive this. The supplier states ‘no VAT’ on one invoice and ‘VAT reverse charged’ on all other invoices. In cassation the question is whether the reverse charge mechanism can be applied.
The Court has rejected the Inspector’s position that the reverse charge mechanism can only be applied if the supplier has a correct (Dutch) VAT identification number of the customer. Neither national law nor the VAT Directive lays down that requirement, nor is it a material condition for the application of the reverse charge mechanism. The application of the reverse charge mechanism also does not require that the identity of the customer be known. Because it has been established that the customer is an entrepreneur and the other substantive conditions for application of the reverse charge mechanism have also been met, the customer is liable to pay VAT. According to the Court, this would only be different if the supplier concealed the identity of the real purchaser upon delivery in order to enable it to evade turnover tax and thus deliberately participated in tax fraud. The Inspector has not made this plausible, according to the Court.
The State Secretary has lodged an appeal in cassation against the judgment of the Court and has proposed three pleas. Ground I argues that the taxable person is obliged to state the VAT identification number of the customer on the invoice and that, on the basis of this invoice requirement, in conjunction with the rationale of the reverse charge mechanism, that regulation is only applied if the supplier has that VAT identification number. Ground II challenges the opinion of the Court that the application of the reverse charge mechanism does not require that the identity of the customer be known. The plea argues, among other things, that the supplier already knew prior to the deliveries that the VAT identification number provided was incorrect and was therefore not confronted with information afterwards.
AG Ettema is of the opinion that the indication of the VAT identification number on the invoice is not a material condition for the application of the reverse charge mechanism. This obligation is a formal requirement which cannot affect the reverse charge to the extent that the substantive conditions of that arrangement are met. In this case, it is clear that the material conditions have been met. Means I therefore fails.
The application of the so-called ‘substance over form’ case law would mean that it must be assessed whether the formal defect in the invoice precludes proof that the substantive conditions have been met. Since the substantive conditions for the reverse charge mechanism are met, that is not the case here. The AG is of the opinion that ground II fails to that extent.
Insofar as pleas II and III argue that turnover tax must be levied from the interested party, because the supplier was not only negligent, but also knew that there was a considerable chance that the buyer would not declare the reversed turnover tax, the pleas also fail, according to the AG. . Case law shows that the mere circumstance that an interested party trades goods of a category that is regularly the subject of transaction chains in which VAT fraud is committed does not mean that that interested party must – without concrete indication of fraud or abuse – check whether his customer does comply with its obligations with regard to the VAT declaration and payment, in order to ensure that it does not participate in a chain of transactions in which VAT fraud is committed.
However, the Court has given too limited an interpretation of the case law of the Court of Justice on participation in fraud. However, AG Ettema believes that a reference is not necessary because any finding that the supplier knew or should have known that it participated in VAT fraud can at most lead to the deduction of input tax or any other right arising from EU law to which the interested party may rely. appeal must be denied. In the present case, the interested party does not invoke a right, but it is in dispute who is obliged to pay the VAT.
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