On March 7, 2018 the Court of Justice of the European Union (CJEU) judged in Case C-159/17, Întreprinderea Individuală Dobre M. Marius versus Ministerul Finanţelor Publice — A.N.A.F. — D.G.R.F.P. Galaţi — Serviciul Soluţionare Contestaţii, A.N.A.F — D.G.R.F.P. Galaţi — A.J.F.P. Constanţa — Serviciul Inspecţie Fiscală Persoane Fizice 2 Constanţa (ECLI:EU:C:2018:161).

This request for a preliminary ruling concerns the interpretation of Articles 167 to 169 and 179, Article 213(1), Article 214(1)(a) and Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), as amended, as regards the rules on invoicing, by Council Directive 2010/45/EU of 13 July 2010 (OJ 2010 L 189, p. 1), (‘Directive 2006/112’).

The request has been made in proceedings between the Întreprinderea Individuală Dobre M. Marius (sole trader M. Marius Dobre, ‘Dobre’) and the Ministerul Finanțelor Publice — Agenția Națională de Administrare Fiscală — Direcția Generală Regională a Finanțelor Publice Galați — Serviciul Soluționare Contestații (Ministry of Public Finances — National Agency for Tax Administration — Directorate-General of Public Finance of Galați — Complaints Office) and the Agenția Națională de Administrare Fiscală — Direcția Generală Regională a Finanțelor Publice Galați — Administrația Județeană a Finanțelor Publice Constanța — Serviciul Inspecție Fiscală Persoane Fizice 2 Constanța (National Agency for Tax Administration — Directorate-General of Public Finance of Galați – Regional Public Finance Administration of Constanța — Department No 2 of the Constanţa Tax Office for Natural Persons) (together ‘the tax authorities’), concerning the right to deduct value added tax (VAT) relating to purchases made by Dobre during the period in which his identification for VAT purposes had been revoked.

 

The dispute in the main proceedings and the question referred for a preliminary ruling

·   Dobre was identified for VAT purposes in Romania for the period between 13 July 2011 and 31 July 2012.

 

·   Dobre failed to submit to the tax authorities VAT returns relating to the fourth quarter of 2011 and the first quarter of 2012, which led to the revocation of his identification for VAT purposes as from 1 August 2012.

 

·   From 1 August 2012 to 31 July 2013, Dobre continued to issue invoices including VAT without submitting the relevant VAT returns.

 

·   On 30 January 2014, Dobre submitted VAT returns for the fourth quarter of 2011 and for the first and second quarters of 2012.

 

·   Following a tax inspection carried out between 1 July and 4 August 2015, the tax authorities issued a tax demand requiring Dobre to pay, inter alia, the sum of 183 301 Romanian lei (RON) (approximately EUR 39 982) corresponding to the VAT he had collected for the period during which he was not registered for VAT purposes (‘the tax demand’).

 

·   Dobre filed a claim for deduction of RON 123 266 (approximately EUR 26 887) from the sum claimed in respect of the VAT paid for the goods and services used by him for the purpose of supplying legal persons with services corresponding to his business objective for the period in which he was not identified for VAT purposes; the tax authorities rejected that claim.

 

·   Dobre lodged an administrative appeal against the tax demand and the rejection of his claim for deduction, which was dismissed.

 

·   Dobre brought an action before the Tribunalul Constanța (Constanța Regional Court, Romania) against, inter alia, the tax demand, which was also dismissed.

 

·   Dobre lodged an appeal against the judgment of the Tribunalul Constanța (Constanța Regional Court) before the referring court, the Curtea de Apel Constanţa (Court of Appeal, Constanţa, Romania).

 

·   The referring court observes that refusal to allow a taxable person to deduct input VAT for the purpose of carrying out his activities and, in parallel, his obligation to pay the VAT collected in connection with the services provided by him, even though he was not identified for VAT purposes, are intended, in accordance with Article 273 of Directive 2006/112, to combat tax avoidance. However, it entertains doubts as to whether such a rule is compatible with the fundamental principle of the right of deduction.

 

·   In those circumstances, the Curtea de Apel Constanţa (Court of Appeal, Constanţa) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘Must Articles 167, 168, 169 and 179, Article 213(1), Article 214(1)(a) and Article 273 of Directive [2006/112] be interpreted as precluding national legislation which, in circumstances such as those of the main proceedings, requires a taxpayer, whose identification for VAT purposes has been revoked, to pay to the State the VAT collected during the period in which the VAT reference number was revoked, without, however, recognising his right to deduct the VAT relating to purchases made during that period?’

 

Judgment

The CJEU ruled as follows:

Articles 167 to 169 and 179, Articles 213(1) and 214(1), and Article 273 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 legislation, such as that at issue in the main proceedings, which allows tax authorities to refuse a taxable person the right to deduct value added tax when it is established that, on account of the alleged infringements committed by that person, the tax authorities could not have access to the information necessary to establish that the substantive requirements giving rise to the right to deduct input value added tax paid by that taxable person have been satisfied or that that person acted fraudulently in order to enjoy that right, a matter which it is for the referring court to ascertain.

 

From the considerations of the Court

·   By its question, the referring court asks, in essence, whether Directive 2006/112 must be interpreted as precluding national legislation, such as that at issue in the main proceedings, which allows tax authorities to refuse a taxable person the right to deduct VAT when his identification for VAT purposes has been revoked on the ground that he failed to submit VAT returns within the statutory time limit for a given period.

 

·   At the outset, it should be recalled that the right of taxable persons to deduct the VAT due or already paid on goods purchased and services received as inputs from the VAT which they are liable to pay is a fundamental principle of the common system of VAT established by EU legislation (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 35 and the case-law cited).

 

·   As the Court has repeatedly held, the right to deduct provided for in Article 167 et seq. of Directive 2006/112 is an integral part of the VAT scheme and may not, in principle, be limited. In particular, that right is exercisable immediately in respect of all the taxes charged on transactions relating to inputs (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 36 and the case-law cited).

 

·   The deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures the neutrality of taxation of all economic activities, whatever the purpose or results of those activities, provided that they are themselves subject in principle to VAT (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 37 and the case-law cited).

 

·   Consequently, according to settled case-law, the fundamental principle of VAT neutrality requires deduction of input tax to be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements (judgment of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 45).

 

·   In particular, identification for VAT purposes, provided for in Article 214 of Directive 2006/112, and the obligation of the taxable person to state when his activity as a taxable person commences, changes or ceases, provided for in Article 213 of that directive, are only formal requirements for the purposes of control, and they cannot compromise, inter alia, the right to deduct VAT, in so far as the substantive conditions which give rise to that right have been satisfied (judgment of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraph 60).

 

·   Accordingly, a person taxable for VAT purposes may not be prevented from exercising his right of deduction on the ground that he had not been identified as a taxable person for those purposes before using the goods purchased in the context of his taxed activity (judgment of 21 October 2010, Nidera Handelscompagnie, C‑385/09, EU:C:2010:627, paragraph 51).

 

·   Furthermore, the Court has held that penalising the failure on the part of the taxable person to comply with the obligations relating to accounts and tax returns by denial of the right to deduct clearly goes further than is necessary to attain the objective of ensuring the correct application of those obligations, since EU law does not prevent Member States from imposing, where necessary, a fine or a financial penalty proportionate to the seriousness of the offence (judgment of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraph 63).

 

·   The position could be different if the effect of breach of failure to satisfy formal requirements is to prevent the production of conclusive evidence that the substantive requirements have been satisfied (judgment of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 46 and the case-law cited). Refusal of the right to deduct depends more on the lack of information necessary to establish that the substantive requirements have been satisfied than it does on failure to comply with a formal requirement (see, to that effect, judgment of 11 December 2014, Idexx Laboratories Italia, C‑590/13, EU:C:2014:2429, paragraphs 44 and 45).

 

·   Similarly, the right to deduct may be refused, if it has been established, in the light of objective evidence, that that right is being invoked fraudulently or abusively (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 43).

 

·   In the present case, it is apparent from the order for reference, first, that Dobre’s identification for VAT purposes was revoked, in accordance with Article 153(9)(d) of Law No 571/2003, on the ground that that taxable person failed to submit, within the period prescribed by statute, his tax returns relating to the fourth quarter of 2011 and the first and second quarters of 2012. Second, that taxable person did not provide any such returns between the month of August 2012 and the month of July 2013, even though he continued to issue invoices including VAT, with the result that the tax authorities did not recognise his right to deduct VAT for that period.

 

·   Having regard to the considerations set out in paragraph 35 of the present judgment, it is for the referring court to ascertain whether the tax authorities had the information necessary to establish that the substantive requirements giving rise to the right to deduct input VAT paid by Dobre had been satisfied, notwithstanding the alleged failure to satisfy formal conditions.

 

·   In that regard, it must be noted that, under Article 168(a) of Directive 2006/112, in order to have a right to deduct, first, the interested party must be a ‘taxable person’ within the meaning of that directive and, second, the goods or services relied on to give entitlement to that right must be used by the taxable person for the purposes of his own taxed output transactions, and that, as inputs, those goods or services must be supplied by another taxable person (see, to that effect, inter alia, judgments of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, paragraph 28, and of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 39).

 

·   In any event, the Court has held that, even if infringements of those formal obligations do not prevent the production of conclusive evidence that the substantive requirements giving rise to the right to deduct input VAT have been satisfied, such circumstances may establish the simplest case of tax evasion, in which the taxable person deliberately fails to fulfil the formal obligations incumbent upon him with the aim of evading payment of the tax (judgment of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 55).

 

·   In particular, failure to file a VAT return that would allow VAT to be applied and monitored by the tax authorities is liable to prevent the correct collection of the tax and, therefore, to compromise the proper functioning of the common system of VAT. Therefore, EU law does not prevent such infringements from being considered to amount to tax fraud and the right to deduct being refused in such a case (judgment of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 56).

 

·   Having regard to those considerations, Articles 167 to 169 and 179, Articles 213(1) and 214(1), and Article 273 of Directive 2006/112 must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which allows tax authorities to refuse a taxable person the right to deduct VAT when it is established that, on account of the alleged infringements committed by that person, the tax authorities could not have access to the information necessary to establish that the substantive requirements giving rise to the right to deduct input VAT paid by that taxable person have been satisfied or that that person acted fraudulently in order to enjoy that right, a matter which it is for the referring court to ascertain.

 

For further information click here to be forwarded to the text of the judgment as published on the website of the CJEU, which will open in a new window.

 

Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).

 

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