On September 12, 2018 the Court of Justice of the European Union (CJEU) judged in Case C-69/17, Siemens Gamesa Renewable Energy România SRL, formerly Gamesa Wind România SRL, versus Agenţia Naţională de Administrare Fiscală — Direcţia Generală de Soluţionare a Contestaţiilor, Agenţia Naţională de Administrare Fiscală — Direcţia Generală de Administrare a Marilor Contribuabili, (ECLI:EU:C:2018:703).

This request for a preliminary ruling concerns the interpretation 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 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 Siemens Gamesa Renewable Energy România SRL, formerly Gamesa Wind România SRL (‘Gamesa’), and the Agenţia Naţională de Administrare Fiscală — Direcţia Generală de Soluţionare a Contestaţiilor (National Tax Administration Office — Directorate-General for the settlement of complaints, Romania) and the Agenţia Naţională de Administrare Fiscală — Direcţia Generală de Administrare a Marilor Contribuabili (National Tax Administration Office — Directorate-General for the Administration of Large-scale Taxpayers, Romania), concerning Gamesa’s right to deduct value added tax (VAT) paid on acquisitions made during a period in which its VAT identification number was inoperative.

 

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

·   Gamesa is a company governed by Romanian law and established in Bucharest (Romania), engaged in the business of the assembly, installation and maintenance of wind farms.

 

·   For the purpose of carrying out its economic activity, Gamesa acquired various goods and services from suppliers established and registered for VAT purposes in Romania and in other Member States of the European Union. It exercised its right to deduct VAT in respect of the goods and services acquired by submitting a VAT return.

 

·   From 7 October 2010 to 24 May 2011, Gamesa was declared an ‘inactive taxpayer’ for the purposes of Article 11(11) of the Tax Code on the ground that, for half a calendar year, it had not filed any of the returns required by law.

 

·   From 26 November 2014 to 29 July 2015, Gamesa was subject to a tax inspection to verify its position as regards VAT and corporation tax in respect of transactions carried out in the period from 15 May 2009 to 31 December 2013. On the basis of the report drawn up following that inspection, Gamesa received an assessment notice refusing it the right to deduct VAT in the sum of 3 875 717 Romanian lei (RON) (approximately EUR 890 000) and imposing on it an obligation to pay penalties in the sum of RON 2 845 308 (approximately EUR 654 000), on the ground, inter alia, that it was not entitled to a right of deduction in respect of the acquisitions made in the period during which it had been declared inactive.

 

·   The complaint filed by Gamesa against the tax adjustment was dismissed by a decision of the National Tax Administration Office — Directorate-General for the settlement of complaints.

 

·   By application lodged on 10 June 2016, Gamesa brought an action before the Curtea de Apel București (Bucharest Appeal Court, Romania) against the National Tax Administration Office — Directorate-General for the settlement of complaints and the National Tax Administration Office — Directorate-General for the Administration of Large-scale Taxpayers. It seeks, first, the partial annulment of the tax assessment inasmuch as in that assessment the tax authorities refused it the right to deduct VAT in the sum of RON 3 875 717 (approximately EUR 890 000) in respect of the period from 15 May 2009 to 31 December 2013 and imposed on it an obligation to pay penalties in the sum of RON 2 845 308 (approximately EUR 654 000), and, secondly, annulment in its entirety of the decision dated 15 December 2015 of the National Tax Administration Office — Directorate-General for the settlement of complaints.

 

·   In its application, Gamesa primarily alleges that the tax authorities infringed the principle of proportionality and the principle of the neutrality of VAT, in circumstances in which it had met all the necessary obligations for the purposes of the reactivation of its VAT identification number. Those authorities rely, in their defence, on the need to accurately collect VAT and to prevent tax evasion.

 

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

‘(1) Does [Directive 2006/112] (in particular, Articles 213, 214 and 273) preclude, in circumstances such as those of the main proceedings, national legislation or a tax practice under which a taxpayer does not have the right to deduct VAT claimed in several returns after the reactivation of the taxpayer’s VAT identification number, on the basis that the VAT in question relates to purchases made during a period in which the taxpayer’s VAT identification number was inoperative?

(2)  Does [Directive 2006/112] (in particular, Articles 213, 214 and 273) preclude, in circumstances such as those of the main proceedings, national legislation or a tax practice under which a taxpayer does not have the right to deduct VAT claimed in several returns after the reactivation of the taxpayer’s VAT identification number, on the basis that, although the VAT in question relates to invoices issued after the reactivation of the taxpayer’s VAT identification number, it concerns purchases made during a period in which the VAT identification number was inoperative?’

 

Judgment

The CJEU ruled as follows:

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, in particular Articles 213, 214 and 273 thereof, must be interpreted as precluding national legislation, such as that at issue in the main proceedings, under which it is permissible for the tax authorities to refuse,on account of a failure to submit tax returns, a taxable person which has made acquisitions in the period during which its value added tax identification number was revoked the right to deduct value added tax on those acquisitions using value added tax returns filed — or invoices issued — after the reactivation of its identification number, on the sole ground that those acquisitions took place in the period during which its value added tax identification number was de-activated and where the substantive requirements have been satisfied and the right of deduction is not being invoked fraudulently or abusively.

 

From the consideration of the Court

·   By the questions referred, which must be examined together, the referring court asks whether Directive 2006/112, in particular Articles 213, 214 and 273 thereof, must be interpreted as precluding national legislation, such as that at issue in the main proceedings, under which it is permissible for the tax authorities to refuse, on account of a failure to submit tax returns, a taxable person which has made acquisitions during the period in which its VAT identification number was revoked the right to deduct VAT on those acquisitions using VAT returns filed — or invoices issued — after the reactivation of its identification number.

 

·   It must be recalled at the outset 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 pointed out, the right of deduction provided for in Article 167 et seq. of Directive 2006/112 is an integral part of the VAT scheme and in principle may not be limited. In particular, the right of deduction 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 intended 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).

 

·   The right to deduct VAT is, however, subject to compliance with both substantive requirements or conditions and formal requirements or conditions.

 

·   With regard to the substantive requirements or conditions, it is apparent from the wording of Article 168(a) of Directive 2006/112 that, in order to have a right to deduct, it is necessary, first, that the interested party be a ‘taxable person’ within the meaning of that directive and, second, that the goods or services relied on to confer entitlement to that right 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 (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 39).

 

·   As to the detailed rules governing the exercise of the right of deduction, which may be considered formal requirements or conditions, Article 178(a) of Directive 2006/112 provides that the taxable person must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238 to 240 of that directive (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 40).

 

·   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 (judgments of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 45; 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 41, and 26 April 2018, Zabrus Siret, C‑81/17, EU:C:2018:283, paragraph 44).

 

·   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 (judgments of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraph 60, and 7 March 2018, Dobre, C‑159/17, EU:C:2018:161, paragraph 32).

 

·   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 (judgments of 21 October 2010, Nidera Handelscompagnie, C‑385/09, EU:C:2010:627, paragraph 51, and 7 March 2018, Dobre, C‑159/17, EU:C:2018:161, paragraph 33).

 

·   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 of deduction 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 (judgments of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraph 63, and 7 March 2018, Dobre, C-159/17, EU:C:2018:161, paragraph 34).

 

·   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 (judgments of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 46 and the case-law cited, and 7 March 2018, Dobre, C‑159/17, EU:C:2018:161, paragraph 35).

 

·   Similarly, the right of deduction may be refused, if it has been established, in the light of objective evidence, that that right is being invoked fraudulently or abusively (judgments of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 43, and 7 March 2018, Dobre, C-159/17, EU:C:2018:161, paragraph 36).

 

·   In the present case, it is apparent from the order for reference that, in the period from 7 October 2010 to 24 May 2011, Gamesa was declared an inactive taxpayer on the ground that it had not filed any of the returns required by law. However, its VAT identification number was reactivated and it was re-registered for VAT purposes as of 25 May 2011. Following that reactivation, it exercised its right of deduction using VAT returns filed or invoices issued after that reactivation.

 

·   It must be observed that the date at which the VAT return is filed or the invoice issued does not necessarily have an effect on the substantive requirements which confer the right of deduction.

 

·   Accordingly, in so far as the substantive requirements conferring a right to deduct input VAT have been satisfied and that right of deduction is not being invoked fraudulently or abusively, a company in a situation such as Gamesa would be entitled to assert its right of deduction by means of VAT returns filed or invoices issued after the reactivation of its VAT identification number.

 

·   It is for the referring court to ascertain inter alia if the tax authorities had the necessary data to establish that the substantive requirements conferring a right to deduct VAT paid as input tax by Gamesa were satisfied, irrespective of the date of the VAT return or invoice.

 

·   Having regard to those considerations, Directive 2006/112, in particular Articles 213, 214 and 273 thereof, must be interpreted as precluding national legislation, such as that at issue in the main proceedings, under which it is permissible for the tax authorities to refuse, on account of a failure to submit tax returns, a taxable person which has made acquisitions during the period in which its VAT identification number was revoked the right to deduct VAT on those acquisitions using VAT returns filed — or invoices issued — after the reactivation of its identification number, on the sole ground that those acquisitions took place in the period during which its VAT identification number was de-activated and where the substantive requirements have been satisfied and the right of deduction is not being invoked fraudulently or abusively.

 

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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