Information;Order — ECLI:EU:C:2019:978
Date: 2019-11-14
Language of the case: Czech
Court formation: Tenth Chamber
Subject matter: Taxation;Value added tax;Fundamental rights;Charter of Fundamental Rights
Procedure: Reference for a preliminary ruling;Reference for a preliminary ruling - inadmissible
Origin: Czechia

Translation C-520/19 — 1 
Case C-520/19 
Request for a preliminary ruling 
Date of receipt: 
9 July 2019 
Referring court: 
Krajský soud v Ostravě (Česká republika) 
(Regional Court in Ostrava, Czech Republic) 
Date of the decision to refer: 
18 June 2019 
Applicant: 
ARMOSTAV MÍSTEK s.r.o. 
Defendant: 
Odvolací finanční ředitelství 
(Appellate Tax Directorate, Czech Republic) 
  
ORDER 
The Krajský soud v Ostravě (Regional Court in Ostrava, Czech Republic) [...] 
[composition of the chamber] has ruled, in the case 
 ARMOSTAV MÍSTEK, s. r. o. 
Having its registered office at [...] Frýdek-Místek [(Czech 
Republic)]  
(the applicant) 
[...]  
  
v 
 
 Odvolací finanční ředitelství 
Having its registered office at [...] Brno [(Czech Republic)] 
 (the defendant) 
EN 
REQUEST FOR A PRELIMINARY RULING 18.6.2019 — CASE C-520/19 
 
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Concerning the applicant’s action brought against the defendant’s decision of 
2 February 2016 [...] concerning value added tax 
as follows: 
I. The following question is hereby referred to the Court of Justice of the 
European Union for a preliminary ruling: ‘Does the existence of express 
national legislation relating to [joint and several] liability for missing tax in 
a fraudulent chain preclude tax administration authorities from refusing the 
person held liable under that legislation the right to deduct value added tax 
in accordance with the case-law of the Court of Justice of the European 
Union on VAT fraud? Is such a practice in that situation precluded by 
Article 17(1), Article 20, Article 52(1), Article 52(6), and Article 54 of the 
Charter of Fundamental Rights of the European Union?’ 
II. The proceedings are hereby stayed [...] [procedural particulars under 
national law] 
Statement of Grounds: 
I. 
Outline of the Case 
1 The applicant is a legal entity engaged in the construction business, trading in 
reinforcing steel in the course of that activity. The applicant is a value added tax 
(‘VAT’) payer. For the tax periods of August, September, October, November and 
December 2012, the applicant claimed the right to deduct the tax on the purchase 
of reinforcing steel from three other undertakings. 
2 The Finanční úřad pro Moravskoslezský kraj (Tax Office for the Moravian-
Silesian Region, Czech Republic), in its decisions of 7 October 2014 and 1 April 
2015, assessed the applicant for extra value added tax and informed it of its legal 
obligation to pay a penalty. This was the conclusion of tax inspections for the tax 
periods of October, November, and December 2012 commenced on 25 February 
2013, inspections for August and September 2012 commenced on 14 March 2013, 
and a tax inspection prior to the tax assessment for the period of January 2013. 
3 The applicant lodged an appeal with the Odvolací finanční ředitelství (Appellate 
Tax Directorate) against the decision of the Tax Office for the Moravian-Silesian 
Region, which dismissed the appeal by its decision of 2 February 2016 and 
confirmed the contested decision. That decision on the applicant’s appeal is the 
subject of the present review before the Krajský soud (Regional Court). 
4 In the present case, the applicant argues, inter alia, that, in view of the fact that the 
fraudulent links in the chain were allegedly the applicant’s direct suppliers, the 
applicant should not be refused the deduction of input value added tax (application 
of the general principle taken from the case-law of the Court of Justice of the 
ARMOSTAV MÍSTEK 
 
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European Union), but should have been dealt with under a specific procedure 
provided for by law, namely under Paragraph 109 of Zákon č. 235/2004 Sb., o 
dani z přidané hodnoty (Law No 235/2004 on Value Added Tax), that is to say, 
dealt with as a person holding [joint and several] liability. The person held [jointly 
and severally] liable is then liable to pay the tax only after it has been served a 
notice of liability, which did not take place in the applicant’s case. 
5 In the response, the Appellate Tax Directorate argues that, in the situation in 
question, the tax authorities did not regard the applicant as a person who would be 
held [jointly and severally] liable for the unpaid tax of another taxable person, but 
that the situation was one in which the applicant was in the position of a taxable 
person in the tax inspection carried out by the tax authorities, on the basis of 
which the applicant was regarded as involved in the VAT fraud and consequently 
denied entitlement to the tax deduction  claimed in its tax return. The tax was thus 
charged to the applicant on the basis of the results of the tax inspection carried 
out. Since the defendant’s decisions are based on statutory provisions and include 
a reviewable legal finding, the applicant’s claim, alleging infringement of its 
constitutionally-guaranteed right to have taxes imposed on it solely on the basis of 
the law, cannot be accepted. 
6 In the case at hand, the Regional Court had already ruled once, upholding the 
applicant’s claim and setting the contested decision aside. In its ruling, the Court 
concluded that the tax administration authorities should have applied the specific 
procedure under Paragraph 109(1) of the Czech Law on Value Added Tax 
(described in greater detail below) to the applicant, rather than proceeding 
according to the case-law of the Court of Justice of the European Union 
concerning chain value added tax fraud. 
7 Following a complaint in cassation lodged by the defendant, that judgment was set 
aside by the Nejvyšší správní soud (Supreme Administrative Court, Czech 
Republic), which came to the opposite conclusion in the case as to the application 
of the case-law of the Court of Justice of the European Union. The Nejvyšší 
správní soud (Supreme Administrative Court) based its legal position on the fact 
that the institute of [joint and several] liability systematically falls within the tax-
payment phase. In the context of that phase of tax administration, it serves as an 
ancillary and subsidiary means of ensuring the payment of the tax already 
imposed on the taxable person, that is to say, the institute of [joint and several] tax 
liability functions in the same way as guarantees in private law. Paragraph 109(1) 
of the Law on Value Added Tax links the formation of [joint and several] liability 
not only to a failure on the part of the person on behalf of whom [joint and 
several] liability has been imposed, but also to the fact that the person held liable 
knew or should have and could have known about the situations listed in the 
Paragraph 109(1) of that Law. The condition that the taxable person knew or 
should have and could have known is not a basis upon which to hold [joint and 
several] liability to be comparable with the doctrine of refusal of the right to 
deduct tax, but it is ‘only’ a further condition for the application of [joint and 
several] liability. In other words, the present form of Paragraph 109(1) of the Law 
REQUEST FOR A PRELIMINARY RULING 18.6.2019 — CASE C-520/19 
 
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on Value Added Tax constitutes a ‘mere’ special case of liability, as a security 
institute that has its place in the partial tax procedure at the time of the payment of 
taxes, not as a general rule of response to any conceivable tax fraud. 
II. 
Relevant Provisions of European Union Law 
8 In the past, the Court of Justice of the European Union has ruled extensively on 
value added tax fraud chains (in particular, Case C-439/04 Kittel, [C-354/03] 
Optigen, C-80/11 Mahagében and Others), when it established the case-law 
doctrine ‘knew or should have and could have known’. 
9 That is, however, a conclusion which is purely judicial in nature, unsupported by 
express legislative provision, whether European or national. As regards the 
meaning of that case-law, the requirement of legal certainty is therefore not 
entirely fully satisfied, namely the requirement that ‘rules of law must be clear 
and precise and predictable in their effect, so that interested parties can ascertain 
their position in situations and legal relationships governed by European Union 
law’ (see, for example, judgements in C-81/10 France Telecom, C-643/11 LVK, 
etc.). 
10 In the context of harmonisation of the VAT system and of the common fight 
against VAT fraud, Directive 2006/112/EC on the common system of value added 
tax (VAT) was adopted. That directive, in Article 205 thereof, allows Member 
States to introduce joint and several liability for payment of the tax. 
III. 
Relevant National Legislation 
and its Interpretation thus far by the National Courts 
11 Article 11(5) of the Listina základních práv a svobod (Czech Charter of 
Fundamental Rights and Freedoms) stipulates: 
‘Taxes and fees may only be levied on the basis of law.’ 
12 The Czech legislature implemented Directive 2006/112/EC in the Czech legal 
system by Zákon č. 47/2011 (Law No 47/2011), whereby it introduced in the 
Czech Republic’s legal order: 
a) a reverse charge for commodities with respect to which the Directive 
permits it; and 
b) joint and several liability for payment of the tax, which, however, has also 
been formulated in line with the above-mentioned doctrine of ‘should have and 
could have known’, and gave it concrete expression in Paragraph 109 of the Czech 
Act on Value Added Tax, with the following wording: 
ARMOSTAV MÍSTEK 
 
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‘(1) A taxpayer who accepts a taxable supply with a place of performance in the 
Czech Republic provided by another taxpayer or makes a payment for such 
a supply (“the recipient of a taxable supply”) shall be liable to pay tax not 
paid on that supply where, at the time of the taxable supply or the payment 
of the consideration for such a supply, he knew or should have and could 
have known that: 
(a) the tax shown on the tax invoice would intentionally not be paid; 
(b) a taxpayer making the taxable supply or receiving payment for it 
(“supplier of the taxable supply”) had intentionally contrived or intends to 
contrive a situation in which the tax could not be paid; or 
(c) tax would be evaded, or undue tax benefits elicited. 
(2) The recipient of a taxable supply shall also be liable for the unpaid tax on 
such a supply if the payment for the supply: 
a) manifestly differs from the normal price without any economic 
justification; 
(b) was provided in whole or in part by means of a cashless transfer to an 
account held by a payment service provider outside the Czech Republic; 
(c) was provided in whole or in part by a cashless transfer to an account 
other than the account of the supplier of the taxable supply, which has been 
published by the tax authorities in a manner allowing remote access, and 
provided that the payment for that supply is more than twice the amount 
specified in the zákon upravující omezení plateb v hotovosti (Law on 
restriction of cash payments), above which an obligation to make a cashless 
payment is imposed; or 
(d) was provided in whole or in part in the form of virtual currency in 
accordance with the legislation governing certain measures against the 
legitimisation of the proceeds of crime and the financing of terrorism. 
(3) The recipient of a taxable supply shall be liable for the unpaid tax on that 
supply where, at the time when it is made or at the time of a payment for it, 
the fact that the supplier of the taxable supply  is not a reliable taxpayer had 
been published in a manner permitting remote access. 
(4) [...] [a provision clearly unrelated to the facts of the case at hand]’ 
13 Whereas the provisions of paragraphs (2) — (4) of that national legislation are 
based on other criteria, the provisions of paragraph (1) set out criteria that 
precisely correspond to the ‘should have and could have known’ doctrine 
REQUEST FOR A PRELIMINARY RULING 18.6.2019 — CASE C-520/19 
 
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14 The Czech legislature thus created a situation where a situation with identical facts 
allows tax authorities to punish a member of a fraudulent chain: 
a) either by failing to recognise the VAT deduction in accordance with the 
case-law doctrine of the Court of Justice ‘should have and could have 
known’, 
b) or by applying the institute of [joint and several] liability pursuant to 
Paragraph 109(1) of the Czech Law on VAT. 
15 To give full illustration of the case, the referring court states that the Czech tax 
authorities have in the past been able to apply both of the above institutes 
simultaneously to the same taxable person in the case of the same tax obligation. 
It was only the referring court that prevented such double levying of the same tax 
by a judgment of 14 June 2017 ref. no 22 Af 9/2017-84 (a complaint in cassation 
lodged by tax authorities against that judgment was dismissed by judgment of the 
Nejvyšší správní soud (Supreme Administrative Court) of 30 November 2017 ref. 
no 4 Afs 140/2017-54 — both judgements are available at www.nssoud.cz). 
IV. 
Grounds for making the Order for Reference 
16 While the referring court is aware that, generally, the refusal to of the right to 
deduct input tax must be distinguished from [joint and several] liability for the tax 
debt of another person, since both the deduction of tax and [joint and several] 
liability are subject to different conditions and provisions of the VAT Directive 
(Advocate General’s Opinion in Case C-107/13[,] FIRIN, point 18), in the present 
case the argument for distinguishing the two does not apply, since the conditions 
for not granting a deduction and the conditions for the application of the institute 
of [joint and several] liability are the same. 
17 The choice of tax authorities as to whether, in a particular case, not to grant the 
deduction of VAT or to apply the principle of [joint and several] liability is totally 
independent of the will of the taxable person, but it has a significant impact on it. 
According to Czech national legislation, a person held [jointly and severally] 
liable pays default interest (presently 16% per annum) only after it has been 
served the notice of liability in respect of the debt, whereas default interest is 
charged as from the outset to a taxable person to which a VAT deduction is not 
granted. Furthermore, the taxable person which was not granted the right to a tax 
deduction is obliged to pay a tax penalty of 20% of the deduction not granted. 
18 Which of these sanctions is imposed on a particular taxable person is entirely at 
the discretion of tax authorities, since  they alone bear responsibility (as the 
referring court reiterates) for choosing whether not to grant the VAT deduction or 
whether to apply joint and several liability. Such a situation naturally gives rise to 
a risk of arbitrariness. 
ARMOSTAV MÍSTEK 
 
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19 The referring court also notes that the Czech Republic is part of the continental 
legal system based on the adoption of legal provisions of general application by a 
legislative authority — the Parliament. In this legal system, express legislation 
takes precedence over case-law based on an (e.g., earlier) absence of legislation. 
20 In the present case, according to the Krajský soud (Regional Court), the following 
articles of the Charter of Fundamental Rights of the European Union are, in 
particular, relevant: 
Article 17(1) of the Charter of Fundamental Rights of the European Union 
‘Everyone has the right to own, use, dispose of and bequeath his or her 
lawfully acquired possessions. No one may be deprived of his or her 
possessions, except in the public interest and in the cases and under the 
conditions provided for by law, subject to fair compensation being paid in 
good time for their loss. The use of property may be regulated by law in so 
far as is necessary for the general interest.’ 
Article 20 of the Charter of Fundamental Rights of the European Union 
‘Everyone is equal before the law.’ 
Article 52(1) of the Charter of Fundamental Rights of the European Union 
‘Any limitation on the exercise of the rights and freedoms recognised by this 
Charter must be provided for by law and respect the essence of those rights 
and freedoms. Subject to the principle of proportionality, limitations may be 
made only if they are necessary and genuinely meet objectives of general 
interest recognised by the Union or the need to protect the rights and 
freedoms of others.’ 
Article 52(6) of the Charter of Fundamental Rights of the European Union 
‘Full account shall be taken of national laws and practices as specified in 
this Charter.’ 
Article 54 of the Charter of Fundamental Rights of the European Union. 
‘Nothing in this Charter shall be interpreted as implying any right to engage 
in any activity or to perform any act aimed at the destruction of any of the 
rights and freedoms recognised in this Charter or at their limitation to a 
greater extent than is provided for herein.’ 
21 For the reasons set out in paragraphs 8 to 20, the referring court considers that the 
national legal practice whereby the tax authorities refuse to grant a taxable person 
a VAT deduction in accordance with the case-law of the European Court of 
Justice in a situation in which express national legislation provides that the 
institute of [joint and several] liability for an unpaid tax is to be applied to that 
REQUEST FOR A PRELIMINARY RULING 18.6.2019 — CASE C-520/19 
 
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taxable person is contrary to Article 17(1), Article 20, Article 52(1), Article 52(6), 
and Article 54 of the Charter of Fundamental Rights of the European Union, and it 
therefore refers the abovementioned question to the Court of Justice for a 
preliminary ruling. 
V. 
Stay of Proceedings 
22 [...] [procedural particulars under national law] 
23 [...] [procedural particulars under national law] 
Notice: 
[...] [notice about appeal possibilities] 
Ostrava, 18 June 2019 
[...] [signature]