On January 30, 2024 the Court of Justice of the European Union (CJEU) ruled in a very interesting and what I think is a very important case. In its judgment the CJEU ruled on who is liable to (re-)pay in case an employee of a company fraudulently issued false VAT invoices of which its employer was not aware and did not consent to. It regards the CJEU’s judgement in Case C-442/23, ECLI:EU:C:2024:100, P sp. z o.o. versus Dyrektor Izby Administracji Skarbowej w Lublinie.

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

• During the period from 2001 to 2014, Company P, which is a taxable person for VAT purposes, operated, inter alia, a retail business for the sale of fuel in a petrol station which was managed, from November 2005, by P.K., an employee of that company.
• Following a tax audit, it was determined that, between January 2010 and April 2014, Company P had issued 1 679 invoices indicating a VAT amount that did not reflect the actual sale of goods, for a total amount of 1 497 847 Polish zlotys (approximately EUR 319 254), to entities that deducted the VAT indicated on those invoices. Those invoices were not recorded in Company P’s accounts and the corresponding VAT was not paid into the State budget, nor was it included in the company’s tax returns.
• The invoices at issue were falsely linked to actual sales made by the petrol station managed by P.K. and recorded by Company P’s cash registers. Those invoices were accompanied by authentic receipts, corresponding to transactions actually carried out with entities other than those indicated on those invoices, and were issued and sold by P.K., without the consent or knowledge of the management of the company, so that the entities who were recipients of those invoices could fraudulently obtain VAT refunds.
• Those receipts were collected by employees of the petrol station, who delivered them to P.K. in return for financial benefit. The invoices at issue were recorded on the petrol station’s computer in a different format to that of the normal invoices issued by Company P and could not be consulted without that computer being unlocked. P.K. used Company P’s details by entering the company as the issuer of the invoices at issue and indicating the company’s tax identification number (TIN) number on them.
• On 24 May 2014, P.K.’s employment was terminated for misconduct.
• Following a tax audit, the Naczelnik Urzędu Skarbowego (Head of the Tax Office, Poland) issued a decision determining the amount of VAT payable by Company P pursuant to the invoices at issue drawn up between January 2010 and April 2014.
• By decision of 31 October 2017, the tax authority upheld that decision. It regarded Company P as not having exercised the due diligence required to avoid the issuance of the invoices at issue. No document specified precise responsibilities of P.K., who, in the light of her duties, was able to issue invoices corresponding to the petrol station’s revenue, outside of the company’s computerised accounting system, without the approval of company management. Given that the chair of the board of Company P knew that invoices were issued in relation to receipts issued by the petrol station, and that this had occurred without accounting oversight, he could have and should have foreseen that that way of working would facilitate the issuance of invoices for fraudulent purposes. According to that decision, it is precisely because of the lack of supervision and adequate organisation that the chair of the board of Company P detected the conduct at issue only when the tax authority carried out its audit. Accordingly, P.K. could not be considered a third party vis-à-vis Company P.
• Furthermore, according to that decision, there was still a risk of budgetary loss for the tax authority with the result that Article 108(1) of the Law on VAT was applicable.
• By decision of 23 February 2018, the Wojewódzki Sąd Administracyjny w Lublinie (Regional Administrative Court, Lublin, Poland) dismissed the action brought by Company P against the tax authority’s decision. That company then lodged an appeal on a point of law before the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland), the referring court in the present case.
• According to that court, there are two contradicting lines of national case-law regarding the interpretation of Article 108(1) of the Law on VAT, which transposes Article 203 of the VAT Directive.
• According to one interpretation, there is no need, in order to apply that provision, to take into account the fact that it is an employee who issued the invoices in question using the name and TIN of her employer. It is sufficient that that employee was entitled to issue those invoices and that, therefore, the employing company must assume the risks associated with selecting its employees. Exempting the employer where invoices are issued by an employee would amount to transferring that liability to the Member State, which would not be acceptable. However, such an interpretation would mean that it is necessary to determine whether that liability is strict or fault-based. If it is the latter, the company whose details are entered on the invoice at issue would only be liable to pay VAT if it had been at fault or negligent, or had failed in its duty of supervision.
• According to a second interpretation, an entity whose details were unlawfully appropriated by another entity is not to be considered to be the issuer of the invoice in question and therefore is not liable to pay the VAT indicated on that invoice under Article 108(1) of the Law on VAT. That provision clearly states that the entity who ‘issued the invoice’, and not the entity whose details were appropriated, is liable to pay the VAT. The referring court adds that such an interpretation could emerge from the wording of Article 203 of the VAT Directive.
• In those circumstances, the Naczelny Sąd Administracyjny (Supreme Administrative Court) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘(1)  Must Article 203 of [the VAT Directive] be interpreted as meaning that in a situation where an employee of a VAT taxable person has issued a fraudulent invoice showing VAT, on which he or she has included the employer’s details as the taxable person, without that employer’s knowledge [or] consent, the person who enters the VAT on the invoice and who is thus liable to pay the VAT is to be considered:

–   the VAT taxable person whose details were unlawfully used in the invoice; or

–   the employee who unlawfully entered VAT on that invoice using the details of the VAT taxable person?

(2)   In connection with the question of who is to be considered, within the meaning of Article 203 of [the VAT Directive], the person who enters VAT on the invoice and is thus liable to pay VAT in the circumstances described in Question 1, is it relevant whether the VAT taxable person that employs the employee who unlawfully entered that taxable person’s details on a VAT invoice may be considered to have failed to exercise due diligence in supervising that employee?’

Legal context

European Union law

• Article 9 of the VAT Directive provides:

‘1.    “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.

2.     In addition to the persons referred to in paragraph 1, any person who, on an occasional basis, supplies a new means of transport, which is dispatched or transported to the customer by the vendor or the customer, or on behalf of the vendor or the customer, to a destination outside the territory of a Member State but within the territory of the [European] Community, shall be regarded as a taxable person.’

• Under Article 167 of that directive:

‘A right of deduction shall arise at the time the deductible tax becomes chargeable.’

• Article 203 of that directive provides:

‘VAT shall be payable by any person who enters the VAT on an invoice.’

• Article 205 of that same directive reads as follows:

‘In the situations referred to in Articles 193 to 200 and Articles 202, 203 and 204, Member States may provide that a person other than the person liable for payment of VAT is to be held jointly and severally liable for payment of VAT.’

 Polish law

• Article 108(1) of the l’ustawa o podatku od towarów i usług (Law on the tax on goods and services), of 11 March 2004 (Dz. U. of 2011, No 177, item 1054), in the version applicable to the dispute in the main proceedings (‘the Law on VAT’), which transposed Article 203 of the VAT Directive, provides:

‘If a legal person, an unincorporated organisational unit or a natural person issues an invoice in which the amount of tax is shown, he or she is obliged to pay that tax.’

Judgment

In its judgment the CJEU ruled that that VAT cannot be payable by the apparent issuer of a fake invoice where it is acting in good faith and the tax authority is aware of the identity of the person who actually issued the invoice. In such a situation, it is that person who is liable for payment of the VAT. A different interpretation would be contrary to the objective of the VAT Directive, which is to prevent fraud and to stop individuals from fraudulently relying on the rules of EU law.

In order to be regarded as having acted in good faith, the employer is required to prove that it has exercised the due diligence reasonably required to monitor the conduct of its employee and, in so doing, to prevent its details from being used to issue fake invoices. In the absence of such proof, the employer must be regarded as having the obligation to pay the VAT indicated on the fake invoices. It is for the tax authority or the national court to assess, in the light of all the relevant factors, whether the employer has exercised such due diligence.

The full text of the judgment of the CJEU can be found here.

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