Judgment;Summary — ECLI:EU:C:2021:989
Date: 2021-12-09
Language of the case: Czech
Court formation: Tenth Chamber
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Czechia

summary given in the judgment of 
16 September 2016, Senatex, C-518/14, EU:C:2016:691, paragraph 28). Where 
those conditions are fulfilled, entitlement to deduction cannot, in principle, be 
refused. No additional conditions can be imposed on the taxable persons 
concerned, nor can there be strict insistence on fulfilment of the formal conditions 
governing exercise of the right to deduct [OR.5] input tax (see judgments of 
22 December 2010, C-438/09 Dankowski, EU:C:2010:818, paragraph 36; Maks 
Pen, paragraph 25; and PPUH Stehcemp, paragraph 40). 
[21] The tax authority is to refuse a taxable person the right to deduct value added tax 
if the authority itself establishes — without requiring the taxable person to furnish 
proof of other facts which are not his responsibility — that he knew or could have 
known that, by acquiring the goods or services in question, he was participating in 
tax fraud. In that context, the Nejvyšší správní soud is aware of the existing case-
law of the Court of Justice (for example, judgments of 21 February 2006, Halifax, 
C-255/02, EU:C:2006:121; of 12 January 2006, Optigen, C-354/03, C-355/03 and 
C-484/03, EU:C:2006:16; and PPUH Stehcemp). It is apparent from this case-law 
that, where there are doubts, a taxable person can be successfully refused the right 
of deduction only if the tax authority establishes facts proving the taxable person’s 
participation in tax fraud. 
[22] The Extended Chamber of the Nejvyšší správní soud considers it essential to point 
out that, in contrast, under Czech law, the burden of proof that the substantive 
conditions have been fulfilled is on the taxable person. However, the same 
conclusions also follow from the greater part of the case-law of the Court of 
Justice. According to paragraph 24 of the judgment of 26 September 1996, Enkler, 
C-230/94, EU:C:1996:352: ‘As far as this point is concerned, it must be 
remembered that it is for the person seeking deduction of VAT to establish that he 
meets the conditions for eligibility’. Similarly of note is, for example, 
paragraph 37 of the judgment of 18 July 2013, Evita -K, C-78/12, EU:C:2013:486: 
‘Moreover, in so far as it is apparent from the order for reference that the 
Bulgarian tax authorities refused Evita-K the right to deduct  VAT relating to the 
supplies of goods at issue in the main proceedings on the ground that it was not 
established that those supplies had in fact been carried out, and in so far as the 
assertion that they were not carried out is disputed by Evita-K,  it must be borne in 
mind that, first, it is for the person seeking deduction of VAT to establish that he 
meets the conditions for eligibility …’. Paragraph 46 of the judgment of 
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15 September 2016, Barlis 06, C-516/14, EU:C:2016:690, states: ‘In this 
connection, it must be pointed out, first, that it is for the taxable person seeking 
deduction of VAT to establish that he meets the conditions for eligibility (see, to 
that effect, judgment of 18 July 2013, Evita-K, C-78/12, EU:C:2013:486, 
paragraph 37). The tax authorities may thus require the taxable person himself to 
produce the evidence they consider necessary for determining whether or not the 
deduction requested should be granted (see, to that effect, judgment of 
27 September 2007, Twoh International, C-184/05, EU:C:2007:550, 
paragraph 35).’ In its judgment of 21 November 2018, Vădan, C-664/16, 
EU:C:2018:933, paragraph 44, the Court likewise held: ‘Accordingly, the taxable 
person is required to provide objective evidence that goods and services were 
actually provided as inputs by taxable persons for the purposes of his own 
transactions subject to VAT, in respect of which he has actually paid VAT’. The 
case-law of the Court of Justice alters the burden of proof only to the extent that it 
prevents tax authorities and Member States imposing additional conditions on a 
taxable person which are not consistent with the objectives recognised by 
Directive 2006/112/EC. However, in the event of evidence of participation in tax 
fraud, the burden of proof is reversed and it is for the tax authority to establish that 
there has been participation in fraud. 
[23] In summary, it follows from the case-law of the Court of Justice cited above that 
the onus of proving that the substantive conditions for the right to deduct VAT 
have been fulfilled is on the taxable person, whereas the burden of proving 
participation in tax fraud lies with the tax authority. 
[24] It is apparent from the facts established in the present case that advertising 
services were provided, but without it being clear who supplied them to the 
applicant. Doubt as to who is the supplier of a service received should not, in 
itself, entitle the tax authority to disallow the deduction, since the wording of 
Directive 2006/112/EC defines ‘taxable person’ very [OR.6] broadly 
(Article 9(1)). It could therefore be inferred that, although it is not obvious which 
specific taxable person is concerned, the supplier is nonetheless a taxable person. 
However, like other countries, the Czech Republic applies the abovementioned 
exception under Article 287 of Directive 2006/112/EC (or, where appropriate, 
under Articles 284 to 286 of the Directive), which has been transposed into Czech 
law so that only a person subject to VAT who meets the condition of having a 
minimum turnover of CZK 1 000 000 (Paragraph 6(1) of the Law on VAT) or a 
person who has registered voluntarily (Paragraph 94a(1) of the Law on VAT) can 
be a taxable person for VAT purposes. In this situation, therefore, it is not possible 
to say whether the person who really made the supplies was a taxable person, and 
consequently it has not been clearly established that one of the substantive 
conditions for exercising the right of deduction — that the goods or services were 
supplied by another taxable person — was met. Moreover, as will be explained 
below, even if it were to be proved that the supplies were made by a taxable 
person while remaining unclear which specific person was concerned, this would 
point to the possibility of VAT fraud. 
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[25] The Nejvyšší správní soud is aware that the Court of Justice of the European 
Union addressed a similar situation in, for example, Signum Alfa Sped (following, 
inter alia, Maks Pen), in which it held that the tax authorities could not refuse to 
deduct the tax due or paid solely on the ground that the invoices relating to the 
services received were not reliable since the person who drew them up could not 
be the real supplier of those services. However, neither the order of the Court in 
Signum Alfa Sped nor its judgment in Maks Pen have an obvious impact on the 
exceptions applied by a Member State under Article 287 of Directive 
2006/112/EC (or, where appropriate, under Articles 284 to 286). Yet in the 
present case, the application of that exception is highly material. Similarly to the 
situation in Signum Alfa Sped, it has been clearly established in the present case 
that the person who issued the invoice did not carry out the taxable transaction, 
and it remains unclear whether or not the actual supplier was a taxable person 
(given that there could have been more than one supplier). If the supplier were not 
a taxable person, that would completely undermine the principle of the neutrality 
of value added tax, as the tax authorities would have to grant the right to deduct 
VAT even in situations where it was not possible to ascertain whether the supplies 
were made by a taxable person. 
[26] Moreover, the Nejvyšší správní soud adds that, even if the exceptions provided for 
in Articles 284 to 287 of Directive 2006/112/EC were not relevant, the 
conclusions of the judgment in Maks Pen and the order in Signum Alfa Sped fail to 
apply the case-law of the Court of Justice cited in paragraph [22] of this order. 
The Court has repeatedly concluded that it is for the person exercising the right of 
deduction to prove that the substantive conditions have been fulfilled, including 
by furnishing proof that the goods and services were actually supplied by a 
taxable person. That condition was not fulfilled in Maks Pen (paragraphs 31 and 
32) or in Signum Alfa Sped (paragraphs 41 and 45), and yet the Court held that it 
was appropriate to grant the right to deduct VAT where participation in tax fraud 
had not been established. However, this means that — in contradiction to previous 
judgments of the Court of Justice — a person claiming the right of deduction 
would be under no obligation to prove one of the substantive conditions. In the 
view of the Extended Chamber of the Nejvyšší správní soud, that obligation must 
apply not only to situations where it is unclear whether or not the supplies were 
made by a taxable person, but also to situations where the supplier was obviously 
a taxable person but it was impossible to ascertain which specific taxable person is 
concerned. A contrary finding could make it practically impossible to bring tax 
fraud to light. If the onus of proving VAT fraud is on the Member States’ tax 
authorities, they must at least have basic information on the chain of taxable 
persons. However, if it is not actually obvious who made the supplies, then in 
reality the authorities will have no chance of proving tax fraud. 
[OR.7] 
[27] If the Extended Chamber of the Nejvyšší správní soud were to look at the case 
through the prism of the judgment in Maks Pen and the order in Signum Alfa Sped, 
it would have to agree with the applicant in the main proceedings. The applicant’s 
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failure to prove that the service was supplied to it by a taxable person is not 
sufficient reason to refuse it the right to deduct input tax: in order to do so, the tax 
authority should, at the very least, demonstrate that the applicant had some 
knowledge of its participation in VAT fraud. However, in the opinion of the 
Extended Chamber of the Nejvyšší správní soud, the present case must be 
considered in the wider context. First, in so far as the Czech Republic is one of the 
countries which applies an exception under Article 287 of Directive 2006/112/EC, 
it cannot be said with certainty that the substantive conditions governing exercise 
of the right of deduction resulting from the case-law of the Court of Justice — that 
the supplies were made by a taxable person — have actually been met in the 
present case. According to the Extended Chamber of the Nejvyšší správní soud, 
failure to meet those conditions would unequivocally undermine the principle of 
fiscal neutrality, which is one of the pillars of the VAT system and which 
precludes identical cases being treated differently. Moreover, if VAT were to be 
deductible where it was obvious (for example, in view of the volume of goods or 
services supplied) that the supplies were made by a taxable person, while 
remaining unclear which specific person was concerned, this would be tantamount 
to negating the long-standing judicial practice of the Court of Justice, which 
places evidentiary obligations on the person subject to VAT. These, in the view of 
the Nejvyšší správní soud, include providing proof that a specific taxable person 
was the supplier — and therefore this challenge to the case-law of the Court could 
open up new avenues for significant tax evasion, whereas fighting tax evasion is 
one of the aims recognised by Directive 2006/112/EC (see Bonik, paragraphs 35 
and 37), as has been pointed out above. 
[28] The Extended Chamber of the Nejvyšší správní soud is convinced that the tax 
authority must refuse the right to deduct VAT where the taxable person has failed 
to satisfy the burden of proof as to the identity of the actual supplier of the service 
received. Proving that the taxable transaction in respect of which a deduction is 
claimed has been supplied by a specific taxable person is one of the substantive 
conditions governing the right of deduction, proof of which must be furnished by 
the person exercising the right: it is not merely a formal condition, from which it 
is possible to derogate, to a certain degree, under the case-law of the Court of 
Justice (see, for example, PPUH Stehcemp). A contrary finding would undermine 
the principle of fiscal neutrality of the entire VAT system. 
IV. Conclusion 
[29] The Extended Chamber of the Nejvyšší správní soud therefore submits the 
following questions to the Court of Justice of the European Union for a 
preliminary ruling: 
1. Is it compatible with Directive 2006/112/EC for exercise of the 
right to deduct input value added tax to be conditional on the 
taxable person fulfilling the obligation to prove that the taxable 
supply received was made by another specific taxable person? 
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2. If the first question is answered in the affirmative and the taxable 
person fails to fulfil that evidentiary obligation, can the right to 
deduct input tax be refused without it being established that that 
taxable person knew or could have known that, by acquiring the 
goods or services in question, he was participating in tax fraud? 
[OR.8] 
[…] 
[…] [national procedure] 
Brno, 11 March 2020 
[…] [signatures]