Brussels, 27/06/2012 (Agence Europe) - The deduction of value added tax (VAT) cannot be refused, in principle, because of irregularities committed by the issuer of the invoice. However, that deduction must be refused if the taxable person knew, or ought to have known, that the transaction relied on as a basis for the right to deduct was connected with fraud. With this judgment, delivered on two joined cases on 21 June, the Court of Justice of the EU, to which questions had been addressed by two Hungarian courts, ruled that the Hungarian tax authorities had not acted in accordance with Directive 2006/112/EC on the common system of value added tax in refusing to allow taxable persons to deduct VAT because irregularities on the part of the issuers of the invoice and the taxable persons had failed to act with due diligence in satisfying themselves as to the propriety of transactions. In the first case, C-80/11, the Hungarian court asked the Court of Justice whether the deduction of VAT may be refused in the case where the invoices on the basis of which the deduction is sought are formally correct but where the taxable person does not have the documentation to prove that the issuer of the invoice held the goods at issue, was in a position to be able to deliver them and had fulfilled the statutory obligations in respect of VAT. In the second case, C-142/11, the Hungarian court asked if deduction of VAT can be refused because of improper acts on the part of the invoice issuer when it is not established that the person requesting the deduction was aware of those improper acts.
In its ruling, the Court points out that the right to deduct provided for by the directive may not, in principle, be limited. The question whether the VAT payable on the prior or subsequent transactions relating to the goods or services concerned has or has not been paid to the public exchequer is irrelevant to the right of the taxable person to deduct input VAT. However, this right may be refused where it is established that that right is being relied on for fraudulent or abusive ends. That will, in particular, be the case where the taxable person knew, or ought to have known, that that transaction was connected with fraud previously committed by the supplier or by another trader at an earlier stage in the transaction.
In examining the taxable person's obligations to satisfy himself as to the propriety of his commercial partner's conduct, the Court points out that, where there are indications pointing to irregularities or fraud, a trader could be obliged to make enquiries about another trader in order to ascertain the latter's trustworthiness. However, the tax authority cannot, as a general rule, require the taxable person wishing to exercise his right to deduct VAT to satisfy himself that there were no irregularities or fraud at the level of the traders operating at an earlier stage of the transaction. In both cases, the transactions relied on as a basis for the right to deduct were in fact carried out and that the corresponding invoices include all the information required by the directive, with the result that the substantive and formal conditions required for the creation and exercise of the right to deduct are fulfilled. Furthermore, the Court points out that the orders for reference do not indicate that the parties to whom the invoices were addressed themselves acted unlawfully by, for instance, filing false returns or issuing improper invoices.
Consequently, in both cases, the Court rules against the refusal by the Hungarian authorities. (FG/transl.rt)