Opinion of the Advocate General — ECLI:EU:C:2010:381
Date: 2010-06-29
Language of the case: German
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Germany

summary analysis of the first group of judgments referred to could lead to the hasty conclusion that the country of origin of the goods (in this case, Germany) is free to decide whether to grant the exemption, refusing to grant it to a person who has acted in bad faith. 79. Nevertheless, before drawing that conclusion it is necessary to examine with particular care the most relevant case-law on intra-Community supplies, which better highlights the delicate balance between the mechanisms of combating fraud, on the one hand, and the principles of neutrality and territoriality, on the other hand. 80. I shall then examine the criteria set out in all those judgments and their applicability to the present case, with particular reference to Collée. 1. The case-law on abuse and fraud 81. The Court of Justice has consistently and generally ruled that preventing tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive and that Community law cannot be relied on for abusive or fraudulent ends. (44) 82. With regard, first of all, to abuse of rights, the case-law today provides specific criteria to determine when this occurs and, more importantly, to gauge its effects. (45) In the field of VAT, in particular, Halifax, cited above (footnote 20), stated that an abusive practice can be found to exist only if: – first, the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions; and – second, that the essential aim of the transactions is to obtain a tax advantage. 83. In the case of R, however, it seems clear that there was not merely a ‘formal application of the conditions laid down by the relevant provisions’, for the supply was actually effected. 84. Similarly, it is highly doubtful that the ‘essential aim’ of those transactions was to obtain a tax advantage, even if this is interpreted broadly, that is to say, as meaning obtaining a tax advantage for oneself or for a third party (in this case, the purchasers operating in Portugal). The sales made by Mr R were economically profitable transactions, not fictitious transactions effected solely for the purpose of obtaining a tax advantage. 85. Certainly, the real objective pursued by Mr R was anti-competitive, for it may be considered that concealing the identity of the recipients enabled him to charge them a price which was higher and at the same time more favourable to them than that offered by his ‘honest tax-paying’ competitors (to use the terms of the Bundesgerichtshof). Nevertheless, that fact is not sufficient for Mr R’s transactions to be classified as abusive within the meaning of the Court’s case-law, which instead would seem to require an entirely artificial arrangement. 86. In line with that, the Court of Justice held in Halifax that the transactions ‘involved in an abusive practice must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice’. (46) Accordingly, even if Mr R had declared to the German authorities the identity of the true purchasers, instead of other false ones, the supply would have continued to be an intra-Community supply and, therefore, exempt from VAT. In this case there is no causal link between the fraudulent declaration and the tax advantage obtained (save that it might be asked whether Mr R would have had such an interest in carrying out that transaction if that information had not been concealed). 87. In the light of all the foregoing, I consider that Mr R’s conduct does not constitute an abuse of rights within the meaning of Halifax. 88. Even disregarding its abusive nature within the meaning of the case-law, it is difficult to deny that Mr R’s conduct remains fraudulent according to the facts as established. The issue, however, is whether refusing the exemption is the most appropriate and proportionate way of penalising that conduct. None the less, on this point the case-law also provides insufficient reasons for declaring that the exemption should be refused. 89. There are certainly numerous judgments in which a tax advantage was withdrawn in the case of fraud. (47) Many of them have been repeatedly relied on in these proceedings, but they are, in the main, cases which concerned only the right to deduct input VAT, not an exemption for an intra-Community supply, in which the principle of territoriality was involved. It does not seem appropriate, therefore, automatically to apply, by analogy, the criteria set out in those judgments. 2. The case-law on bad faith in intra-Community supplies 90. Having disregarded the case-law on abuse and bad faith in internal transactions, only the case-law concerning cases of intra-Community supplies provides, in my view, any elements which are relevant to this case. 91. Two recent judgments, Teleos, and Collée, (48) are concerned with the grant of exemption for intra-Community supplies when a supplier may have acted in bad faith. 92. In Teleos, the Court of Justice started from a situation in which intra‑Community supply did not take place (the goods did not leave the territory of the country of dispatch), but the provider presented at the proper time evidence which made it possible to apply the exemption. In that case it was decided that, provided that the supplier shows that he had acted in utmost good faith, he could not be required subsequently to pay the tax. 93. It follows from that judgment that, although there was no intra-Community supply within the meaning of the Sixth Directive, if the supplier acted in good faith it is not possible subsequently to seek to recover from him the unduly exempted VAT. (49)A contrario sensu, it must be concluded that, if there was no supply but the supplier acted in bad faith, the amount of the VAT should be recovered from him. In both cases, the person concerned is not entitled to the exemption, but, where the taxable person acts in good faith, the Court of Justice requires the Member State concerned to refrain from collecting the VAT to which it is entitled (in short, it refrains from regularising the situation in the light of that good faith). 94. However, it is not clear that it is possible to infer from the actual wording of Teleos – as the German Government claims – that the mere existence in fact of bad faith is sufficient, in any circumstances (particularly when, as here, there has indeed been an intra-Community supply), to declare that the exemption in favour of the supplier should be refused and to allow the Member State of origin of the goods to collect VAT to which it is not entitled. It is therefore doubtful that it applies in this case. 95. This conclusion may be confirmed by a reading of Collée, which relates to a case in which there was indeed an intra-Community supply, although it was initially concealed by the supplier for non-fiscal reasons. Although not identical, the factual background to that case is that which is most similar to the case at issue: in both there was an intra-Community supply and the corresponding acquisition, but in Collée the vendor preferred to conceal the intra-Community nature of the supply (sacrificing the corresponding exemption) so as thereby not to jeopardise a commercial commission to which he was not entitled if he sold outside the territory which was contractually reserved for him; (50) in the present case, on the contrary, Mr R concealed the true identity of the recipients of the supplies, although not the supply as such. 96. Of particular interest are Paragraphs 35 et seq. of Collée, in which the Court of Justice puts forward a two-stage line of argument. 97. Firstly, taking Genius Holding (51) and Schmeink & Cofreth (52) as its starting point, paragraph 35 of Collée makes the possibility of adjusting the improperly invoiced VAT conditional upon the fact that the supplier ‘has in sufficient time wholly eliminated the risk of any loss in tax revenues’. If that has been done, the principle of neutrality itself requires that the exemption should be granted and accordingly the outcome is unrelated to whether the supplier was acting in good faith or bad faith. (53) 98. The same principle seems to be applicable to R’s case, although here the ‘adjustment’ which the German authorities seek to implement seems to consist in refusing an exemption already granted for a transaction which has always been stated to be what it is: an intra-Community supply. The difficulty in the case at issue lies in determining whether that risk of any loss in tax revenues must apply to the Member State seeking ‘to make the adjustment’ or whether it is sufficient that it applies to the VAT system in general. 99. The Generalbundeswalt considers in its pleading that, in so far as combating fraud is one of the objectives of the Sixth Directive, the case-law can refer only to the risk of loss in tax revenues in the Community as a whole. The Irish Government supports the same approach, expressly referring to paragraph 36 of Collée itself, in which reference is made to ‘loss in tax revenues or jeopardis[ing] the levying of VAT’. That last comment could actually suggest that it is immaterial which Member State is entitled to the tax credit. 100. However, paragraph 34 of Collée clearly states that the answer to the question whether the exemption from VAT may be conditional upon the good faith of that person ‘depends on whether the Member State concerned is at risk of losing any tax revenues’. (54) Moreover, according to paragraph 37, ‘the non-collection of the VAT relating to an intra-Community supply which, initially, was incorrectly described as a supply effected within the territory of the country … cannot be regarded as a loss in tax revenues. According to the principle of territorial application of tax, such revenues belong to the Member State in which final consumption occurred’. 101. In my view, the analogy with R’s case is obvious. The actual wording of the judgment is very clear on this point and it seems difficult to maintain, as does the Generalbundeswalt, that the rule set out therein is not applicable to the case at issue simply because in Collée the recipient had paid the VAT from the outset. 102. Although it is true that the loss of tax revenues to a Member State should be a concern for the Community as a whole, (55) I consider that the Court of Justice, in the paragraphs of Collée reproduced, sought to give priority to the application of the principle of territoriality, even when there has been bad faith. That is a logical solution: in cases such as R’s, denial of the exemption would be a penalty entirely unrelated to tax matters, for Germany is not entitled to any credit by way of VAT. The idea of the case-law when establishing ‘loss in tax revenues’ as a criterion for assessing the effects of the bad faith is to rebalance the financial situation of the public exchequer concerned, re-establishing the situation that would have prevailed if there had been no fraud or abuse. (56) 103. The line of argument in Collée was not exhausted at that point. In the following paragraphs the Court offered a clear invitation to the national court to check whether there had been an abusive or fraudulent transaction, expressly referring to Kittel and Recolta Recycling (57) and to Halifax as regards abuse of rights. (58) However, as set out above, Mr R’s conduct cannot be regarded as abusive for the purposes of the case-law and, although the conduct is fraudulent in nature, the requirements for refusing to exempt the intra-Community supply which was carried out have not been fulfilled. D – Refusal of the exemption is a disproportionate solution 104. Finally, the Court of Justice made clear in Collée that ‘Community law does not prevent Member States – in certain circumstances – from treating the concealment of the existence of an intra-Community transaction as an attempt to evade VAT and from imposing, in such a case, fines or penalty payments prescribed by their domestic law’, which in any event must be proportionate to the gravity of the abuse. (59) 105. I consider that that clarification in the case-law refers to the possible imposition of other alternative penalties more proportionate than the refusal to grant an exemption, which would change the entire system of territorial distribution of fiscal sovereignty in VAT matters. 106. Under that case-law and Article 28c(A) of the Sixth Directive itself, the Member States may without doubt introduce legislative provisions imposing penalties (whether administrative or criminal) for such conduct. (60) Moreover, there would be nothing to prevent the amount of any financial penalty from being the same as the exemption applied (it would, on the contrary, be proportionate and reasonable). In such a case, however, the Member State of destination of the goods would collect that amount in the exercise of its powers to impose penalties which, as is logical, is possible only where supported by express legislative provisions, which do not seem to be available to the German authorities in this case. 107. Such legislative provisions, supplemented by the administrative cooperation mechanisms governed by Regulation (EC) No 1798/2003, to which I have already referred, would be a more proportionate response – and, at the same time, a response more consistent with the internal logic of the tax – to the risk of exposure to fraud, which, as the Generalbundesanwalt points out, is almost inherent in systems involving action by various national tax authorities. 108. In conclusion, notwithstanding the relevance of arguments such as the need to safeguard the proper functioning of the VAT system as a whole and not to promote anti-competitive behaviour, I consider that the finding that the exemption should be refused, leaving aside entirely the issue of its consequences in terms of integration into a criminal offence, would constitute a disproportionate response, insofar as there are other means which would allow those objectives to be achieved without a substantial breach of the principles of neutrality and territoriality. VIII – Conclusion 109. Accordingly, I suggest that the Court of Justice should give the following answer to the question referred by the Bundesgerichtshof: Article 28c(A)(a) of the Sixth Directive must be interpreted as meaning that it does not incorporate a derogation from the exemption from value added tax for supplies of goods within the meaning of that provision in those cases in which the supply has actually been effected, but it is established on the basis of objective factors that the vendor, a taxable person, (a) knew that, by his supply, he was participating in a transaction aimed at evading VAT, or (b) took actions aimed at concealing the true identity of the person to whom the goods were supplied in order to enable the latter person or a third person to evade VAT. 1 – Original language: Spanish. 2– Council Directive 77/388/EEC of 17 May 1977, Sixth Council Directive on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1; ‘the Sixth Directive’). 3 – Directive of 16 December 1991 supplementing the common system of value added tax and amending the Sixth Directive with a view to the abolition of fiscal frontiers (OJ 1991 L 376 p. 1). 4 – BGB1. 1976 I, p. 613 and 1977 I, p. 269. 5 – BGB1. 1993 I, p. 565. 6 – BGB1. 1999 I, p. 1308. 7 – Mr R’s lawyer confirmed at the hearing that the vehicles at issue were second-hand. If they had been ‘new means of transport’, Article 28c(A)(b) of the Sixth Directive would apply instead of Article 28c(A)(a). 8 – Decisions of 20 November 2008 (Case 1 StR 354/08) and of 19 February 2009 (Case 1 StR 633/08). An appeal was brought against the first of those two decisions before the Bundesverfassungsgericht (Federal Constitutional Court), which, by decision of 23 July 2009 (Case 2 BvR 542/09), suspended the prison sentence imposed pending its final decision and stated that it was not possible, in principle, to exclude in that case an infringement of Article 103(2) of the Constitution (principle of legality in criminal proceedings). 9 – Decision of 11 March 2009; Case 1V 4305/08. 10 – Case XI B 24/09, DstR 2009, p. 1693. 11 – If the operation constitutes a tax-exempt Community supply, false statements concerning the persons acquiring the goods do not amount to criminal offences but merely administrative offences punishable by a fine of up to EUR 5 000 (Paragraph 26a(2) of the UStG). 12 – According to the information provided by the Bundesgerichtshof, neither the penal provision (Paragraph 370 of the AO) nor German VAT law (Paragraphs 4 and 6a of the UStG) expressly contemplates fraudulent acts such as those at issue here, or lays down the criminal or tax consequences which must be attributed to such acts: it is not possible under Paragraph 370 of the AO to classify the manipulations and concealments effected by Mr R as an offence if the transaction was VAT-free, and the actual wording of the UStG is not sufficient to declare that the exemption should be refused in this case. 13 – He cites, in that regard, Case 80/86 Kolpinghuis Nijmegen [1987] ECR 3969, paragraph 13; Joined Cases C‑74/95 and C‑129/95 X [1996] ECR I‑6609, paragraph 24, and Joined Cases C‑387/02, C‑391/02 and C‑403/02 Berlusconi [2005] ECR I‑3565, paragraph 73 et seq. 14 – To the same effect, see Case 14/86 Pretore di Salò [1987] ECR 2545, paragraph 20; Case C‑168/95 Arcaro [1996] ECR I‑4705, paragraph 37, and Case C‑60/02 X [2004] ECR I‑651, paragraph 61. 15 – See, inter alia, Case C‑206/99 SONAE [2001] ECR I‑4679, paragraphs 45 to 47; Joined Cases C‑430/99 and C‑431/99 Sea-Land Service and Nedlloyd Lijnen [2002] ECR I‑5235, paragraphs 47 and 48, and Case C‑147/02 Alabaster [2004] ECR I‑3101, paragraph 55. Moreover, it should be recalled that, according to settled case-law, it is for the national court, before which the dispute has been brought and which must assume responsibility for the forthcoming judicial decision, to determine in the light of the particular circumstances of the case both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the questions which it submits to the Court (see, inter alia, Case 5/77 Tedeschi v Denkavit [1977] ECR 1555, paragraphs 17 to 19; Case C‑326/00 IKA [2003] ECR I‑1703, paragraph 27; Case C‑145/03 Keller [2005] ECR I‑2529, paragraph 33; Case C‑419/04 Conseil générale de la Vienne [2006] ECR I‑5645, paragraph 19, and Case C‑537/07 Gómez-Limón [2009] ECR I‑6525, paragraph 24). 16 – In that regard, I believe it is appropriate to specify that it is not my intention to provide a legal classification of the facts, in the strict sense, which is the responsibility of the national court, but to carry out an analysis of the situation and give a response to the question in the terms in which it has been raised and on the basis of the facts as set out in the order for reference, without prejudging their accuracy. 17 – Case C‑409/04 Teleos [2007] ECR I‑7797, paragraph 70. 18 – Case C‑62/93 BP Soupergaz [1995] ECR I‑1883, paragraph 34. 19 – The Generalbundesanwalt and the Irish Government suggested in the course of the hearing that Paragraph 6a(1) of the UStG and Paragraph 17 of the UStDV are measures to combat VAT fraud and evasion and that they would be sufficient to refuse the exemption in this case. Obviously, it is not for the Court of Justice to interpret such a national rule, but it is certainly true that, if that interpretation were correct, the question referred would not have been raised in the same terms. The Bundesgerichtshof does not ask whether such a provision is compatible with the Sixth Directive, but whether it follows directly from that provision that the exemption should be refused where there is bad faith. 20 – Case C‑255/02 Halifax [2006] ECR I‑1609, paragraph 92. In that regard, see also Case C‑25/07 Sosnowska [2008] ECR I‑5129, paragraph 23. 21 – Taxation at origin would have benefited those Member States from which the greatest numbers of intra-Community supplies originate, distorting the nature of VAT as a tax on consumption. Such imbalances could be corrected by means of a system of automatic compensation between Member States. However, the practical complexity of such a mechanism (which would result in the flow of funds between the States) and the difficulty, at least in the short term, in attaining greater uniformity in tax rates, led the Community legislature to introduce those transitional arrangements, which, initially intended until the end of 1996, remain in force today and have been temporarily reproduced by the new VAT Directive (Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax; OJ 2006 L 347 p. 1). 22 – In that regard, see the Opinion of Advocate General Kokott in Teleos. 23 – Teleos, paragraph 25. 24– It is precisely the specific nature of that ‘exemption’, in contrast with those in Article 13 of the Sixth Directive, which leads to doubts as to whether it should be understood as an ‘exception’, which must therefore automatically be interpreted restrictively, contrary to the arguments of the interveners. 25 – Teleos, paragraphs 38 and 40. That objective nature also applies to other expressions which define taxable transactions for the purposes of the Sixth Directive (Joined Cases C‑354/03, C‑355/03 and C‑484/03 Optigen and Others [2006] ECR I‑483, paragraph 44, and Joined Cases C‑439/04 and C‑440/04 Kittel and Recolta Recycling [2006] ECR I‑6161, paragraph 41]. 26 – In that regard, the Court has stated in its case-law that ‘requiring 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 VAT of ensuring legal certainty and facilitating the measures necessary for the application of VAT by having regard, save in exceptional cases, to the objective character of the transaction concerned’ [Case C‑4/94 BLP Group [1995] ECR I‑983, paragraph 24; Optigen and Others, paragraph 45; Kittel and Recolta Recycling, paragraph 42, and Teleos, paragraph 39]. 27 – Or refusing the status of intra-Community supply to one which fulfils all the objective requirements laid down for classification as such. 28 – Case 268/83 Rompelman [1985] ECR 655, paragraph 19; Case C‑37/95 Ghent Coal Terminal [1998] ECR I‑1, paragraph 15; Case C‑223/03 University of Huddersfield [2006] ECR I‑1751, paragraph 47, and Case C‑437/06 Securenta [2008] ECR I‑1597), paragraph 25. 29 – Case C‑240/05 Eurodental [2006] ECR I‑11479, paragraph 46, and Teleos, paragraph 59. 30 – According to the German Government, R ‘would find himself in a more advantageous position than a provider in good faith who has simply been unable to provide evidence that he adopted all the necessary precautions concerning the required evidence, and whose supply is regarded as taxable’. The Bundesgerichtshof also states that there is no competition ‘between honest tax-paying undertakings and dishonest non-tax-paying undertakings, which evade tax by means of systematic concealment measures’. 31 – Case C‑174/08 [2009] ECR I‑10567, paragraphs 46 and 47. 32 – The case concerned a building business which was required to pay VAT on supplies relating to construction effected on its own account (self-supply). The Court of Justice held, in the sentence in question, that the principle of neutrality could not preclude that business from being unable fully to deduct the VAT relating to the general costs incurred thereby, since the turnover from the sale of buildings thus constructed is exempt from the tax. 33 – Case 269/86 Mol [1988] ECR 3627, paragraph 18; Case 289/86 Happy Family [2008] ECR 3655, paragraph 20, and Case C‑111/92 Lange [1993] ECR I‑4677, paragraph 16. That case-law excludes the supply of products, such as narcotic drugs, which have special characteristics inasmuch as, because of their very nature, they are subject to a total prohibition on their being put into circulation in all the Member States, with the exception of strictly controlled economic channels for use for medical and scientific purposes. However, that exception does not seem to apply in the present case. 34 – In that regard, it is perhaps appropriate to make an exception from the exclusively fiscal assessment of the case and focus for a moment on its somewhat paradoxical consequences as regards criminal law, for if it were possible to form a criminal conviction against Mr R, as the national court suggests, on the basis that the exemption should be refused, it would be necessary to ask what would be the consequences of a subsequent refund of that amount on the sentence. 35 – Case C‑395/02 [2004] ECR I‑1991. 36– Case C‑245/04 EMAG Handel Eder [2006] I‑3227, paragraph 40. See also the Opinion of Advocate General Kokott in that case, points 23 and 24, and the Opinion of Advocate General Ruiz-Jarabo in Case C‑68/03 Lipjes [2004] ECR I‑5879, point 25. 37 – Council Regulation of 17 October 2005 laying down implementing measures for Directive 77/388/EEC on the common system of value added tax (OJ 2005 L 288 p. 1). 38 – Case C‑409/04 [2007] ECR I‑7797, paragraph 71. 39 – Teleos, paragraph 23. 40 – In that regard, it seems to me that point 31 of the Opinion of Advocate General Kokott in Teleos is very revealing: ‘[t]hrough intra-Community acquisition, the right to tax shifts from the State of origin to the State of destination’; she explains in a footnote that ‘[t]he findings by the authorities of the State of destination concerning intra-Community acquisition do not… bind the authorities in the State of origin when examining whether the requirements for exempting the intra-Community supply have been met’. 41 – Council Regulation of 7 October 2003 on administrative cooperation in the field of value added tax and repealing Regulation (EEC) No 218/92 (OJ 2003 L 264 p. 1). 42 – Joined Cases C‑536/08 and C‑539/08 [2010] ECR I‑0000. 43 – X, paragraph 44. 44 – Case C‑367/96 Kefalas and Others [1998] ECR I‑2843, paragraph 20; Case C‑373/97 Diamantis [2000] ECR I‑1705, paragraph 33; Joined Cases C‑487/01 and C‑7/02 Gemeente Leusden and Holin Groep [2004] ECR I‑5337, paragraph 76; Case C‑32/03 Fini H [2005] ECR I‑1599, paragraph 32, and Kittel and Recolta Recycling, paragraph 54. 45 – After a long process of development in the case-law, the legal doctrine on abuse of rights today occupies a pre-eminent place in European Union law, in some cases raising the possibility of classifying it as a general principle. This was asserted, for example, by Advocate General Poiares Maduro in his Opinion in Halifax, point 64, and also, though less clearly, by Advocate General La Pérgola in his Opinion in Centros [Case C‑212/97 [1999] ECR I‑1459], point 20. In the legal literature, see De la Feria, R., ‘Prohibition of abuse of (Community) law: the creation of a new general principle of EC law through tax’, Common Market Law Review, 45, 2008, p. 395. 46 – Halifax, paragraph 94. 47 – Case 268/83 Rompelman [1985] ECR 655, paragraph 24; Case C‑110/94 INZO [1996] ECR I‑857, paragraph 24; Joined Cases C‑110/98 to C‑147/98 Gabalfrisa and Others [2000] ECR I‑1577; Fini H, paragraph 34, and Kittel and Recolta Recycling, paragraph 55. It is sufficient that the person concerned knew that, by his conduct, ‘he was taking part in a transaction connected with fraudulent evasion of VAT’; and in that case ‘must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud’ (Kittel and Recolta Recycling, paragraph 56). 48 – Case C‑146/05 [2007] ECR I‑7861. 49 – Teleos, paragraph 2 of the operative part. 50 – Collée, paragraphs 13 and 39. 51 – Case C‑342/87 [1989] ECR 4227. 52 – Case C‑454/98 [2000] ECR I‑6973. 53 – To the same effect, Joined Cases C‑78/02 and C‑80/02 Karageorgou [2003] ECR I‑13295, paragraph 50. 54 – Emphasis added. 55 – As the Government of Ireland correctly pointed out. 56 – As follows from Halifax, paragraph 94. 57 – Cited above, footnote 25. 58 – Collée, paragraph 38 and 39. 59 – Collée, paragraph 40. To the same effect, Schmeink & Cofreth, paragraph 62. 60 – In this case, in fact, the German legislation provides for the possibility of imposing an administrative penalty.