ECJ C-270/24 (Granulines Invest) – Order – ECJ upholds VAT Deduction Rights Amid Invoice Discrepancies and Fraud Allegations

On February 14, 2025, the ECJ issued an Order in the case C-270/24 (Granulines Invest).

Context: Reference for a preliminary ruling – Article 99 of the Rules of Procedure of the Court – Taxation – Common system of value added tax (VAT) – Directive 2006/112/EC – Articles 167, 168, 178, 220 and 226 – Right to deduct input VAT – Refusal – Fraud – Evidence – Use of a reseller in order to benefit from a credit programme – Article 219 and Article 226(7) – Information which must appear on the invoice – Date on which the goods are delivered – Rectification of the invoice

Summary

Facts of the Case: Granulines Invest Kft., a Hungarian company, sought to deduct input VAT from an invoice issued by CastorFit Gym Kft. for machinery purchased through a credit program. The Hungarian tax authority denied the deduction, alleging tax fraud due to discrepancies in the invoice, including an incorrect delivery date and excessive pricing.
Questions to the Court: The Budapest High Court asked whether the VAT Directive allows tax authorities to refuse VAT deductions based solely on the claim that an invoice is fictitious, despite the actual delivery of goods and the absence of fraud by the taxpayer. Additionally, they questioned if a taxpayer can be denied VAT refund rights solely due to a non-compliant invoice.
Court’s Decision: The Court of Justice of the European Union ruled that tax authorities cannot deny VAT deductions without clear evidence of fraud committed by the taxable person or knowledge of fraud related to the invoice. The court emphasized that the right to deduct VAT is fundamental in the VAT system.
Justification of Decision: The court highlighted that the principles of fiscal neutrality, effectiveness, and proportionality must guide tax authorities. It stated that even if an invoice contains irregularities, this alone does not justify the denial of VAT deductions unless fraud is clearly established.
Implications of Ruling: The decision reinforces the necessity for tax authorities to provide sufficient evidence before denying VAT rights and clarifies that corrections to invoices cannot be mandated if the substantive conditions for VAT deduction are met, thereby upholding the rights of taxpayers in the EU VAT system.

Articles in the EU VAT Directive

Articles 167, 168(a), 178(a), 219, 220, 226(6) and 7, and 273 of the EU VAT Directive 2006/112/EC

Charter of Fundamental Rights of the European Union: Article 47

Facts & Background

The applicant is ‘Granulines Invest Kft’, a trading company active in the waste trade. She ordered a chopper from a reseller, a machine for carrying out her activities. She took out a loan to purchase this machine. The tax inspectorate carried out an inspection and determined that the applicant was not entitled to a VAT refund and that the issuer of the invoice was wrongly included in the distribution chain. There was also an incorrect execution date on the invoice, and the price of the machines had been inflated. The tax authority subsequently imposed a fine on the applicant, which it appealed.

Consideration:
The referring court doubts whether the EU legislature intended, by adopting the VAT Directive, to exclude the taxable person’s right to deduct VAT even where the economic activity stated on the invoice is proven and recognized. The referring court states that the right to VAT refund is not based on the formal correctness of the invoice, but on the economic result. He also states that an error in the invoice cannot be a ground for refusing the right to a VAT refund, because the transactions were carried out in accordance with the contract terms. Finally, the referring court wonders whether the tax authority’s conduct is contrary to EU law, taking into account the principles of fiscal neutrality and effectiveness.

Questions

1. Is a practice of the tax authorities whereby the taxable person is denied the right to VAT refund on the grounds that, although the supply of goods has actually taken place and an invoice and other accounting supporting documents exist, the invoice is fictitious because the economic transactions mentioned therein did not actually take place and the transactions were therefore not carried out between the parties mentioned in the invoice, because (a) the taxable person was the one who negotiated with the manufacturers on all matters and only after expressing itself transaction, the issuer of the invoice established in the national territory intervened in order to meet the credit conditions, (b) the machinery was supplied directly by the manufacturer to the taxable person, (c) the date of execution indicated on the invoice is incorrect, (d) ) the price on the invoice has been inflated, (e) the issuer of the invoice has only partially and late fulfilled his obligation to pay [VAT], consistent with Article 167, Article 168(a), Article 178(a) , and Article 226 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (hereinafter: ‘the VAT Directive’) and the right to an impartial tribunal which is a general principle of law recognized in Article 47 of the Charter of Fundamental Rights of the European Union (‘the Charter’), as regards the principles of fiscal neutrality, proportionality, effectiveness and legal certainty?
2. Must Article 178(a) of the VAT Directive be interpreted as precluding the national tax authorities from refusing the right to a VAT refund solely on the ground that the taxable person has an invoice that does not comply to the conditions laid down in Article 226(6) and (7) of this Directive, even though the tax authorities have all the necessary documents and information to enable them to verify whether the substantive conditions laid down by law for the exercise of this right are met met? a) If the second question referred is answered in the affirmative, does the condition for the taxable person to correct the invoice constitute a condition for VAT refund? b) If the second question referred for a preliminary ruling is answered in the negative, it is proportionate in such a case, also taking into account the principles of fiscal neutrality and proportionality, to impose on the taxpayer a tax penalty of 200%, namely the fine that can be imposed in case of concealment of income or falsification and destruction of supporting documents, accounting documents and reports?
3. Is a practice of the tax authorities whereby the taxable person is denied the right to a VAT refund for the reasons mentioned in the first preliminary question and considered objective by the tax authorities, even though the economic transaction mentioned in the invoice has actually taken place and on the basis that the invoice is fictitious in nature; whereby he establishes ex officio, without any other investigation, that the actions of the taxpayer are contrary to the requirements of the lawful exercise of the right and, on the basis of that action and without expressly examining the knowledge element, that the taxpayer refuses the payment of the has deliberately avoided VAT by means of the fabricated transactions mentioned in the invoice, compatible with the aforementioned provisions of the VAT Directive, with the right to a fair trial recognized in Article 47 of the Charter and with the principles of effectiveness, proportionality and fiscal neutrality ?

AG Opinion

None

Order

1) 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, read in conjunction with the principles of fiscal neutrality, effectiveness and proportionality,

should be interpreted as meaning that:

it opposes a practice whereby the tax administration, in order to refuse a taxable person the right to deduct the value added tax (VAT) relating to the acquisition of a good, when that taxable person has received delivery of that good, used it for the purposes of his own taxable transactions and that delivery has been the subject of an invoice, relies on the circumstance that that invoice is fictitious given that, firstly, the delivery was not made by the issuer of the invoice, secondly, that issuer was associated with the transaction in order to meet the conditions for granting a certain loan, thirdly, the price indicated on the invoice is excessive and the issuer has only paid the VAT late and partially, and, fourthly, the invoice contains an incorrect delivery date. To justify such a refusal of the right to deduct VAT, the tax administration must establish to the sufficient legal standard that the taxable person actively participated in VAT fraud or that the taxable person knew or should have known that the issuer of the invoice had committed such fraud.

2) Article 178(a) of Directive 2006/112, as amended by Directive 2010/45,

should be interpreted as meaning that:

he objects to the right to a refund of value added tax being refused by the tax authorities solely on the grounds that the taxable person holds an invoice which does not meet the conditions required by Article 226(7) of Directive 2006/112, as amended by Directive 2010/45, even though that authority has all the information necessary to enable it to verify that the material conditions for exercising that right are met. The rectification of the invoice cannot constitute a condition for exercising that right, where the taxable person has provided that information.

Source

Curia

Cited ECJ Cases

Vikingo Fővállalkozó (C-610/19): This case is frequently cited to emphasize the fundamental principle of the right to deduct VAT as an integral part of the VAT system. It establishes that this right cannot be limited as long as the substantive and formal requirements are met.
Ferimet (C-281/20): This case is referenced in relation to the conditions under which a taxable person must hold an invoice that satisfies formal requirements. It highlights that even if certain formal requirements are not met, the right to deduct VAT should still be granted if substantive conditions are satisfied.
Barlis 06 — Investimentos Imobiliários e Turísticos (C-516/14): This case is used to illustrate that any document that modifies an initial invoice should be treated equivalently to an invoice and that tax authorities must consider all relevant information beyond just the invoice itself.
A.T.S. 2003 (C-289/22): This case reinforces the principle that a taxable person’s right to deduct VAT can only be refused if there is clear evidence of fraud or involvement in VAT fraud, emphasizing the need for an overall assessment of the facts.
Amper Metal (C-334/20): This case addresses the issue of excessive pricing and clarifies that simply having a high price on an invoice does not justify the refusal of the right to deduct VAT unless clear evidence of fraud is present.
HA.EN. (C-227/21): This case discusses the implications of the issuer of the invoice fulfilling its VAT reporting obligations. It establishes that a failure to pay VAT, even if intentional, does not automatically constitute VAT fraud.
Dyrektor Izby Administracji Skarbowej w Warszawie (C-114/22): This case is referenced regarding the fictitious nature of contracts and states that even if a contract is deemed fictitious, this alone does not prove the existence of VAT fraud.