On January 11, 2024, the ECJ issued its decision in the case C-537/22 (Global Ink Trade).
Executive summary
The case of Global Ink Trade involves a wholesale company in Hungary that purchased office supplies from Office Builder Kft. However, the tax administration discovered that Office Builder had not engaged in any real economic activity and had not fulfilled its tax obligations. The director of Office Builder denied issuing invoices to Global Ink Trade, and the email address used for correspondence did not match the official one. Despite witness testimony confirming delivery of the items, the tax authority denied Global Ink Trade the right to deduct VAT, accusing them of passive tax evasion.
Global Ink Trade challenged this decision, arguing that the tax administration failed to provide evidence and bear the burden of proof. The referring court noted conflicting interpretations of EU law by Hungarian courts, with the Kúria imposing requirements not in line with the VAT Directive. The court questioned whether it should follow Kúria’s judgments or disregard them in light of the primacy of EU law.
The referring court presented several questions to the Court for a preliminary ruling. These questions involved issues such as the primacy of EU law, the right to deduct VAT, requirements for establishing tax evasion, and the burden of proof for the tax administration.
The Court clarified that national courts must follow the interpretation of EU law provided by the Court of Justice, even if it means deviating from previous national court decisions. The right to deduct VAT can be denied based on lack of care by the taxpayer, as long as certain conditions are met, and the tax administration must prove the elements of VAT evasion and the taxpayer’s involvement without necessarily identifying all actors involved.
In summary, the Court emphasized the primacy of EU law, provided guidance on VAT deduction, and clarified the requirements for proving tax evasion.
Facts
- Global Ink Trade, a wholesale company in Hungary, purchased office supplies from Office Builder Kft.
- However, the tax administration found that Office Builder had not conducted any actual economic activity and had not fulfilled its tax obligations.
- The director of Office Builder denied issuing any invoices to Global Ink Trade and the email address used for correspondence did not match the official one.
- Despite witnesses confirming delivery of the items, the tax authority denied Global Ink Trade the right to deduct VAT, accusing them of passive tax evasion.
- Global Ink Trade challenged this decision, arguing that the tax administration failed to provide evidence and bear the burden of proof.
- The referring court noted conflicting interpretations of EU law by Hungarian courts, with the Kúria imposing requirements not in line with the VAT Directive.
- The court questioned whether it should follow Kúria’s judgments or disregard them in light of the primacy of EU law.
Questions
The Fővárosi Törvényszék (Capital Court) referred several questions to the Court for a preliminary ruling:\
- 1. Does it violate the principle of the primacy of Union law and the right to effective judicial protection for a court of last instance to adopt a decision of the Court of Justice in response to a request for a preliminary ruling, without containing any new element leading to a rejection of previous decisions?
- 2. Must the principle of the primacy of EU law apply even if the court of last instance refers to its previous rulings as precedent?
- 3. Can a taxpayer be required to maintain personal contact with the issuer of an invoice or contact the supplier only via the officially provided email address, without a relevant legal provision in the Member State?
- 4. Is it compatible with the VAT Directive and the principle of fiscal neutrality to deny a taxable person the right to deduct input VAT based on lack of due care in commercial transactions?
- 5. Can a determination that the issuer of the invoice has not carried out an economic activity be regarded as an objective circumstance, without considering other evidence?
- 6. Should the design of a supply chain model be considered sufficient as an objective circumstance to establish tax evasion, or must the tax administration prove it based on objective circumstances?
Argumentation Court
Questions 1 & 2
- The principle of the primacy of EU law requires Member State authorities to give full effect to Union law, and they must not allow national law to undermine the unity and effectiveness of EU law.
- National courts must follow the Court of Justice’s interpretation of EU law and may disregard higher national court decisions if they conflict with EU law.
- They are also obligated to amend settled case-law based on interpretations of national law that are incompatible with EU law.
- Additionally, national courts must ensure the implementation of the Court of Justice’s interpretation of EU law and are bound by it.
- There is no distinction in the scope and effects of judgments and reasoned decisions in the context of preliminary ruling procedures.
- The referring court is bound by the Court’s interpretation of EU law and may deviate from previous decisions of the Supreme Court if they are incompatible with EU law.
- The obligation to state reasons does not infringe the primacy of EU law.
- Therefore, the principle of the primacy of EU law requires the national court to follow the legal assessments of a higher national court or General Court, unless they conflict with the interpretation of EU law made by the Court.
Questions 3, 4 & 5
- The referring court asks whether certain articles of the VAT Directive, in conjunction with the principles of fiscal neutrality and legal certainty, preclude a practice where the tax administration denies a taxable person the right to deduct VAT on the acquisition of goods due to questionable circumstances, even though these circumstances are generally assessed based on guidelines published by the tax administration.
- The right to deduct VAT is a fundamental principle of the common system of VAT, subject to substantive and formal requirements.
- The substantive conditions for the right to deduct input tax are met if the supply of goods or services to which the invoice relates has actually been carried out.
- However, the right to deduct VAT may be denied if it is established that it constitutes tax evasion or an abuse of rights.
- This applies not only when the taxable person commits the evasion, but also when they knew or should have known that they were participating in a transaction involved in VAT evasion.
Question 6
- The referring court asks whether the VAT Directive requires the tax administration to provide evidence of VAT evasion and the taxpayer’s involvement without relying on presumptions or assumptions, and without necessarily identifying all actors involved in the evasion.
- The tax administration must precisely determine the elements of tax evasion, prove fraudulent actions, and demonstrate the taxpayer’s active involvement or knowledge of the evasion.
- However, it is not necessary to identify all actors involved in the evasion.
Decision
- 1. The primacy of Union law requires national courts to disregard higher national court assessments if they are incompatible with EU law, based on EU Court interpretation. National legislation can still require lower courts to provide reasons for deviating from higher court assessments.
- 2. Articles 167, 168(a) and 178(a) of Council Directive 2006/112/EC do not prevent tax administration from denying VAT deduction based on lack of care by the taxpayer, as long as the tax administration follows certain conditions and does not burden the taxpayer excessively.
- 3. Directive 2006/112 states that tax administration must prove the elements of VAT evasion and the taxpayer’s active involvement, without necessarily identifying all actors involved in the evasion.
See also
- Join the Linkedin Group on Global E-Invoicing/E-Reporting/SAF-T Developments, click HERE
