Opinion of the Advocate General — ECLI:EU:C:2005:200
Date: 2005-04-07
Language of the case: English
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: United Kingdom

Summary of the Judgment 1. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Supplies of goods – Supplies of services (Council Directive 77/388, Arts 2(1), 4(1) and (2), 5(1), and 6(1)) 2. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax (Council Directive 77/388, Art. 17) 1. Transactions constitute supplies of goods or services and an economic activity within the meaning of Article 2(1), Article 4(1) and (2), Article 5(1) and Article 6(1) of Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, as amended by Directive 95/7, provided that they satisfy the objective criteria on which those concepts are based, even if they are carried out with the sole aim of obtaining a tax advantage, without any other economic objective. The terms ‘taxable person’ and ‘economic activities’ and the terms ‘supply of goods’ and ‘supply of services’, which define taxable transactions under the Sixth Directive, are all objective in nature and apply without regard to the purpose or results of the transactions concerned. In that regard, an obligation on the tax authorities to carry out inquiries to determine the intention of the taxable person would be contrary to the objectives of the common system of value added tax of ensuring legal certainty and facilitating the application of value added tax by having regard, save in exceptional cases, to the objective character of the transaction in question. While it is true that those criteria are not satisfied where tax is evaded, for example by means of untruthful tax returns or the issue of improper invoices, the fact nevertheless remains that the question whether a given transaction is carried out for the sole purpose of obtaining a tax advantage is entirely irrelevant in determining whether it constitutes a supply of goods or services and an economic activity. (see paras 55-57, 59-60, operative part 1) 2. The Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, as amended by Directive 95/7, must be interpreted as precluding any right of a taxable person to deduct input VAT where the transactions from which that right derives constitute an abusive practice. For it to be found that an abusive practice exists, it is necessary, first, that the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and of national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions. Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage. To allow taxable persons to deduct all input value added tax even though, in the context of their normal commercial operations, no transactions conforming with the deduction rules of the Sixth Directive or of the national legislation transposing it would have enabled them to deduct such value added tax, or would have allowed them to deduct only a part, would be contrary to the principle of fiscal neutrality and, therefore, contrary to the purpose of those rules. As regards the second element, whereby the transactions concerned must essentially seek to obtain a tax advantage, it must be borne in mind that it is the responsibility of the national court to determine the real substance and significance of the transactions concerned. In so doing, it may take account of the purely artificial nature of those transactions and the links of a legal, economic and/or personal nature between the operators involved in the scheme for reduction of the tax burden Where an abusive practice has been found to exist, the transactions involved must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice. In that regard, the tax authorities are entitled to demand, with retroactive effect, repayment of the amounts deducted in relation to each transaction whenever they find that the right to deduct has been exercised abusively. However, they must also subtract therefrom any tax charged on an output transaction for which the taxable person was artificially liable under a scheme for reduction of the tax burden and, if appropriate, they must reimburse any excess. Similarly, they must allow a taxable person who, in the absence of transactions constituting an abusive practice, would have benefited from the first transaction not constituting such a practice, to deduct, under the deduction rules of the Sixth Directive, the value added tax on that input transaction. (see paras 74-75, 80-81, 85-86, 94-98, operative parts 2 and 3)