Judgment;Summary — ECLI:EU:C:2021:910
Date: 2021-11-11
Language of the case: Spanish
Court formation: Fifth Chamber
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Spain

Summary C-281/20 — 1 
Case C-281/20 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged: 
26 June 2020 
Referring court:  
Tribunal Supremo (Supreme Court, Spain) 
Date of the decision to refer:  
11 February 2020 
Appellant: 
Ferimet, S. L. 
Respondent: 
Administración General del Estado (General Administration of the 
State) 
  
Subject matter of the main proceedings 
An appeal arising from a decision by which the tax authorities denied an 
undertaking the right to deduct value added tax (‘VAT’) where, under the reverse 
charge procedure, it issued an invoice to itself on which the stated supplier of the 
goods was not the actual supplier. 
Subject matter and legal basis of the request for a preliminary ruling 
Request for a preliminary ruling pursuant to Article 267 TFEU seeking an 
interpretation of Articles 168, 193, 199(1)(d), 200 and 226(11) of the VAT 
Directive. 
Questions referred 
1. Must Article 168 and related provisions of Council Directive 2006/112/EC 
of 28 November 2006 on the common system of value added tax, the principle of 
EN 
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tax neutrality arising from that directive, and the associated case-law of the Court 
of Justice be interpreted as not allowing a trader to deduct input VAT where, 
under the reverse charging of VAT, known in EU law as the reverse charge 
procedure, the documentary evidence (invoice) issued by that trader for the goods 
he or she has purchased states a fictitious supplier, although it is not disputed that 
the trader in question did actually make the purchase and used the purchased 
materials in the course of his or her trade or business? 
2. In the event that a practice such as that described above ― of which the 
interested party must have been aware ― can be characterised as abusive or 
fraudulent for the purposes of refusing the deduction of input VAT, is it 
necessary, in order for the deduction to be refused, to prove in full the existence of 
a tax advantage that is incompatible with the guiding objectives of VAT 
regulation? 
3. Lastly, if such proof is required, must the tax advantage which would be 
grounds for refusing the deduction and which must be identified in the specific 
case in question relate exclusively to the taxpayer (who purchased the goods), or 
could that advantage be one which relates to other parties involved in the 
transaction? 
Provisions of EU law cited 
Council Directive 2006/112/EC of 28 November 2006 on the common system of 
value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’), Articles 168, 193, 
199(1)(d), 200 and 226(11). 
Case-law of the Court of Justice  
Judgment of 1 April 2004, Bockemühl, C-90/02, on the VAT reverse charge 
procedure in relation to the supply of services and applicable mutatis mutandis to 
the supply of goods. 
‘A taxable person who is liable as the recipient of services for the VAT 
relating thereto is not obliged to hold an invoice drawn up in accordance 
with Article 22(3) of the Sixth Directive in order to be able to exercise his 
right to deduct, and only has to fulfil the formalities laid down by the 
Member State concerned’ (paragraph 47). 
While Member States may establish formalities concerning the exercise of 
the right to deduct in cases where the reverse charge procedure applies, ‘that 
power may be exercised only in so far as, by the number or the technical 
nature of such formalities, their imposition does not make it practically 
impossible or excessively difficult to exercise the right to deduct’ 
(paragraph 49). 
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‘The … extent of formalities to be complied with in order to be able to 
exercise the right to deduct should not exceed what is strictly necessary for 
the purposes of verifying the correct application of the reverse charge 
procedure concerned’ (paragraph 50). 
‘Where the tax administration has the information necessary to establish that 
the taxable person is, as the recipient of the supply in question, liable to 
VAT, it cannot, in relation to the right of that taxable person to deduct that 
VAT, impose additional conditions which may have the effect of rendering 
that right ineffective for practical purposes’ (paragraph 51). 
Judgment of 8 May 2008, Ecotrade, C-95/07 and C-96/07, on the reverse charge 
procedure, which, with regard to the formalities for exercising the right to deduct, 
states as follows: 
‘Although it is true that that provision [Article 18(1)(d) of the Sixth VAT 
Directive] allows Member States to lay down the formalities relating to the 
exercise of the right to deduct in the case of the reverse charge procedure, a 
failure to comply with those formalities by the taxable person cannot deprive 
him of his right to deduct’ (paragraph 62), and ‘since the reverse charge 
procedure was indisputably applicable to the cases in the main proceedings, 
the principle of fiscal neutrality requires deduction of input tax to be allowed 
if the substantive requirements are satisfied, even if the taxable person has 
failed to comply with some of the formal requirements’ (paragraph 63), 
accordingly ‘although those provisions allow Member States to take certain 
measures, they must not however go further than is necessary to attain the 
objectives mentioned in the preceding paragraph. Such measures may not 
therefore be used in such a way that they would have the effect of 
systematically undermining the right to deduct VAT, which is a fundamental 
principle of the common system of VAT established by the relevant 
Community legislation’ (paragraph 66). 
In short, ‘a failure to comply with accounting obligations, such as that at 
issue in the main proceedings, cannot be regarded as giving rise to a risk of 
loss of tax revenues, since, as stated in paragraph 56 of this judgment, in the 
context of the application of the reverse charge procedure, no tax is due in 
principle to the Exchequer. For those reasons, such a failure also cannot be 
treated as a transaction designed to evade tax or as a misuse of Community 
rules, since it was not intended to obtain a tax advantage to which there was 
no entitlement’ (paragraph 71). 
Judgment of 10 July 2019, Kuršu zeme, C-273/18, also concerning a similar 
situation to the one at issue here, in which the Supreme Court of Latvia referred 
the following question to the Court of Justice for a preliminary ruling: 
‘Must Article 168(a) of [the VAT] Directive … be interpreted as precluding 
a refusal of the deduction of input …VAT … where the refusal is based 
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solely on the fact that the taxpayer is knowingly involved in the arrangement 
of sham transactions, but it is not indicated how the outcome of those 
specific transactions is detrimental to the Treasury because of failure to pay 
VAT or an unjustified claim for repayment of VAT, as compared with the 
situation that would have obtained had the transactions been arranged to 
reflect the actual circumstances?’ 
In essence, the reply by the Court of Justice, which reframed the question, 
was as follows: 
‘In the sphere of VAT, an abusive practice can be found to exist only if two 
conditions are satisfied, namely, first, the transactions concerned, 
notwithstanding formal application of the conditions laid down by the 
relevant provisions of the VAT Directive and the 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 and, secondly, it is 
apparent from a number of objective factors that the essential aim of the 
transactions concerned is solely to obtain that tax advantage’ (paragraph 35). 
‘The fact that goods have not been received directly from the issuer of the 
invoice is not necessarily the result of fraudulent concealment of the true 
supplier and does not necessarily constitute an abusive practice, but … there 
may be other reasons for it, such as, inter alia, the existence of two 
successive sales of the same goods which, on instructions, are transported 
directly from the first vendor to the second person acquiring the goods, with 
the result that there are two successive supplies within the meaning of 
Article 14(1) of the VAT Directive, but a single actual transport … it is not 
necessary for the first person acquiring the goods in question to have 
become the owner of those goods at the time of that transport, given that the 
existence of a supply within the meaning of that provision does not 
presuppose the transfer of the legal ownership of the goods’ (paragraph 36). 
In view of the failure of the Latvian authorities to establish the existence of 
an undue tax advantage, ‘the sole existence of a chain of transactions and the 
fact that Kuršu zeme acquired material possession of the goods at issue in 
[an undertaking’s] warehouse without actually receiving them from the 
company mentioned on the invoice as the supplier of those goods’ are not in 
themselves grounds for concluding that Kuršu zeme did not acquire those 
goods and therefore that the acquisition did not take place (paragraph 37). 
Judgment of 17 October 2019, Unitel, C-653/18. 
‘The characterisation of a transaction as a supply of goods within the 
meaning of Articles 146(1)(a) and (b) of the VAT Directive cannot be held 
subject to the condition that the person acquiring the goods must be 
identified’ (paragraph 25). ‘However, in the second place, it is for the 
Member States to lay down, in accordance with Article 131 of the VAT 
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Directive, the conditions under which they will exempt transactions on 
exportation for the purposes of ensuring the correct and straightforward 
application of the exemptions provided for in that directive and of 
preventing any possible evasion, avoidance or abuse. When they exercise 
their powers, Member States must nonetheless respect the general principles 
of law which form part of the legal order of the European Union, including, 
in particular, the principle of proportionality’ (paragraph 26). 
‘As regards that principle of proportionality, it must be recalled that a 
national measure goes beyond what is necessary to ensure the correct 
collection of the tax if, in essence, it makes the right of exemption from 
VAT subject to compliance with formal obligations, without any account 
being taken of the substantive requirements and, in particular, without any 
consideration being given as to whether those requirements have been 
satisfied. Transactions should be taxed taking into account their objective 
characteristics’ (paragraph 27). 
‘When those substantive requirements have been satisfied, the principle of 
fiscal neutrality requires the VAT exemption to be granted even if certain 
formal requirements have been omitted by the taxable persons’ 
(paragraph 28). 
‘According to the Court’s case-law, there are only two situations in which 
the failure to meet a formal requirement may result in the loss of entitlement 
to an exemption from VAT’ (paragraph 29). 
‘First, a breach of a formal requirement may lead to the refusal of an 
exemption from VAT if the effect of the breach is to prevent the production 
of conclusive evidence that the substantive requirements have been satisfied’ 
(paragraph 30). 
‘Therefore, if the failure to identify the person actually acquiring the goods 
prevents, in a given case, it from being proved that the transaction at issue 
constitutes a supply of goods within the meaning of Article 146(1)(a) and (b) 
of the VAT Directive, that fact may lead to refusal of the exemption on 
exportation provided for in that article. On the other hand, requiring in all 
cases that the person who acquires the goods in the non-Member State must 
be identified, without seeking to ascertain whether the substantive conditions 
for that exemption, in particular the exit of the goods concerned from the 
customs territory of the European Union, have been met, is not in 
accordance with either the principle of proportionality or the principle of 
fiscal neutrality’ (paragraph 31). 
‘Secondly, the principle of fiscal neutrality cannot be relied on for the 
purposes of an exemption from VAT by a taxable person who has 
intentionally participated in tax evasion which has jeopardised the operation 
of the common system of VAT … it is not contrary to EU law to require an 
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operator to act in good faith and to take every step which could reasonably 
be asked of him to satisfy himself that the transaction which he is carrying 
out does not result in his participation in tax evasion. If it were concluded 
that the taxable person concerned knew or ought to have known that the 
transaction he carried out was part of a fraud committed by the person 
acquiring the goods and that he has not taken every step which could 
reasonably be asked of him to prevent that fraud from being committed, he 
would have to be refused the exemption’ (paragraph 33). 
‘On the other hand, the supplier cannot be held liable for the payment of the 
VAT irrespective of his involvement in the tax evasion committed by the 
person acquiring the goods[, since] it would clearly be disproportionate to 
hold a taxable person liable for the shortfall in tax caused by fraudulent acts 
of third parties over which he has no influence whatsoever’ (paragraph 34). 
Provisions of national law cited 
Ley 37/1992, de 28 de diciembre, del Impuesto sobre el Valor Añadido (Law 37 
of 28 December 1992 on value added tax; ‘the VAT Law’). 
Article 84(1)(2)(c) of the VAT Law establishes that, in the case of transactions 
involving the supply of recovered materials (among other materials), the taxable 
person is the trader or professional for whom the taxable transaction is carried out. 
Article 92(1)(3) of the VAT Law provides that taxable persons may deduct the tax 
accruing within the country’s territory in respect of input tax charged to them or 
paid by them on supplies of goods falling within Article 84(1)(2) of the VAT 
Law, among other provisions, from the VAT due on the taxed transactions they 
carry out within the country. 
Article 97(1) of the VAT Law provides that the right to deduct may be exercised 
only by traders or professionals who have documentary evidence of their right and 
that, for those purposes, the only acceptable documentary evidence of the right to 
deduct is an invoice issued by the taxable person in accordance with the 
provisions of Article 165(1) of that law. Article 97(2) of the VAT Law states that 
any such documents that do not satisfy all the statutory and regulatory 
requirements will not be treated as evidence of a right to deduct. 
Article 165(1) of the VAT Law establishes that where Article 84(1)(2) of that law 
(among other provisions) applies, an invoice issued by the supplier of the goods or 
services, or the accounting record of the transaction, must be accompanied by a 
VAT invoice. The VAT invoice must satisfy the requirements laid down in 
regulations. 
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Case-law of the Tribunal Supremo (Supreme Court) 
Judgment of 25 March 2009 (4608/2006): ‘All the formal requirements are 
designed to facilitate the correct application of VAT, and therefore it does not 
make sense to ascribe the same importance to breach of the formal requirements 
where the reverse charge procedure is used and the taxpayer fails to declare it, 
because he or she believes the transaction is not subject to the tax, under an 
interpretation of the legislation which, while reasonable, is incorrect, since it 
would infringe the principle of neutrality.’ Accordingly, ‘the right to deduct must 
be considered a substantive right that plays an undeniably important part in the 
VAT system, which is why a purely formal obligation ― however important in 
facilitating the correct application of the relevant administrative procedure ― 
cannot lead to the loss of that right to deduct’. 
Judgment of 28 January 2013 (3272/2010). In this case, the inspectorate found 
that the addresses of the undertakings listed as the suppliers by the taxpayer on its 
invoices were fictitious and, moreover, that those undertakings could not have 
supplied the goods formally included in the invoices, because they were shell 
companies intended to be used as conduit companies in order to create an 
appearance that would enable the taxable person to acquire the goods from actual 
suppliers in ‘B’, that is, without their being recorded in the accounts. The 
inspectorate therefore disallowed the deduction of VAT, on the ground that the 
transactions recorded in the invoices had not actually taken place with the 
undertakings stated in the invoices, and were a sham. 
That judgment notes that the Court of Justice has stated that if the transaction 
carried out by the taxable person does not in itself constitute fraud, his or her right 
to deduct input tax cannot be affected by the fact that, in the chain of supply of 
which his or her transaction forms part, another prior or subsequent transaction is 
vitiated by VAT fraud, without that taxable person knowing or having any means 
of knowing. It also refers to the view expressed by the Court of Justice that a 
taxable person who knew, or should have known, that, by his or her purchase, he 
or she was taking part in a transaction connected with VAT fraud must be 
regarded as a participant in that fraud, whether or not he or she profits from the 
resale of the goods. It is, therefore, for the referring court to refuse entitlement to 
the right to deduct where it is ascertained, having regard to objective factors, that 
the taxable person knew or should have known that, by his or her purchase, he or 
she was participating in a transaction connected with fraudulent evasion of VAT, 
and to do so even where the transaction in question met the objective criteria 
which form the basis of the concepts of ‘supply of goods effected by a taxable 
person acting as such’ and ‘economic activity’. 
It is also noted in the judgment of the Supreme Court that, according to the Court 
of Justice, although Article 21(3) of the Sixth Directive allows a Member State to 
make a person jointly and severally liable for the payment of VAT if, at the time 
of the supply, that person knew or had reasonable grounds to suspect that the VAT 
payable in respect of that supply, or of any previous or subsequent supply, would 
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go unpaid, and to rely on presumptions in that regard, such presumptions may not 
be formulated in such a way as to make it practically impossible or excessively 
difficult for the taxable person to rebut them with evidence to the contrary, 
thereby bringing about a system of strict liability, since Member States must 
comply with the general principles of law which form part of the Community 
legal order, which include, in particular, the principles of legal certainty and 
proportionality. 
The Supreme Court went on to state in that judgment that the interested party 
issued the invoices in the knowledge that it had not contracted with the 
undertaking which it was invoicing and that, in such a situation, the case-law of 
the Court of Justice to the effect that the right to deduct could not be denied to a 
trader who was involved in a carousel fraud but who did not know and could not 
have known what was happening did not apply, for the simple reason that the 
undertaking knew that the other undertaking it had named in the invoice as the 
supplier was a shell company with which it had not contracted. 
Consequently, the approach to be applied was that established by the Court of 
Justice which provides for the taxable person to be denied the right to deduct 
where it has been demonstrated that he or she knew, or should have known, that, 
by his or her purchase, he or she was participating in a transaction connected with 
fraudulent evasion of VAT, even where the transaction in question meets the 
objective criteria which form the basis of the concepts of supply of goods. 
Brief summary of the facts and the main proceedings 
1 In 2008, the appellant, Ferimet, S. L., purchased recovered materials (scrap metal) 
from the company Reciclatges de terra alta, which it accounted for under the 
reverse charge procedure for VAT, issuing the relevant self-billed invoices. 
2 The tax inspectorate conducted an audit and inspection, and concluded that the 
supplier, Reciclatges de terra alta, did not have the material and human resources 
required to supply the material, and that the invoices the company issued to the 
purchaser were false. It therefore took the view that the transaction was a sham in 
that, while there was no denying that the materials had been supplied, the real 
supplier had deliberately been concealed. The inspectorate therefore concluded 
that Ferimet was not entitled to the deduction of input VAT it had made, and fined 
the company. 
3 The Tribunal Económico-Administrativo Regional de Cataluña (Regional Tax 
Tribunal, Catalonia) upheld that conclusion. 
4 Ferimet challenged those administrative decisions in the Sala de lo Contencioso 
Administrativo del Tribunal Superior de Justicia de Cataluña (Administrative 
Chamber of the High Court of Justice, Catalonia), citing Spanish and European 
legislation and case-law from the Court of Justice, and arguing as follows: 
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– It was not disputed (and was accepted by the Inspectorate) that Ferimet had 
purchased the recovered materials. 
– The naming of a fictitious supplier was a purely formal issue given that, in 
material terms, the purchase had taken place. 
– Under European legislation and case-law, the right to deduct cannot be refused 
where the transaction is shown to exist and where the reverse charge procedure 
ensures not only that the VAT is collected and monitored, but also that there is 
no possible tax advantage to the taxpayer. 
5 The court referred to gave judgment, dismissing the action on 23 November 2017 
on the following grounds: 
– The inspection clearly demonstrated that the supplier was a sham. 
– Provision of the supplier’s details, which must be included in a self-billed 
invoice, cannot be considered a purely formal matter, as it enables the 
lawfulness of the VAT chain to be checked and, therefore, has an impact on the 
principle of tax neutrality. 
– While it is true that, under the reverse charge procedure, in principle there is no 
loss of tax revenue, in that the debt and the right to deduct cancel each other 
out, this does not mean that there is a right to deduct even where the recorded 
transaction is fictitious (in this case, as regards the supplier), because the right 
to deduct is conditional on satisfying material requirements, which include a 
requirement for the stated supplier to be the actual supplier. 
6 Ferimet lodged an appeal against that judgment. 
Main arguments of the parties to the main proceedings 
7 In the appeal, Ferimet argues that the tax legislation and the large body of case-
law from the Court of Justice necessarily lead to the conclusion that it was entitled 
to deduct the input VAT in the transaction under examination since: (a) it was the 
genuine customer in the transaction, and it did indeed purchase and receive the 
scrap metal and (b) there was not, and could not have been, any loss of tax 
revenue because (i) it did not owe any VAT as it was using the reverse charge 
mechanism and (ii) its suppliers did not owe any VAT either, since they could not 
charge VAT as they were part of that reverse charge procedure. 
8 In commenting on whether a reference should be made to the Court of Justice for 
a preliminary ruling, Ferimet put forward the following arguments: 
– The application of the reverse charge procedure in itself already ensures that 
VAT is collected and monitored, and therefore there is no need to turn what is a 
purely formal requirement for the supplier of the goods to be correctly stated on 
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the invoice into an essential condition for exercising the right to deduct, 
because the reverse charge procedure itself makes it impossible to obtain any 
tax advantage. 
– Since the taxpayer has not obtained an unjustified tax advantage, under the 
principle of neutrality, any potential fraudulent intent on the part of an operator 
involved in the same chain of supply other than the person liable for the VAT is 
irrelevant, because, according to the Court of Justice, ‘each transaction must … 
be regarded on its own merits’. 
9 In opposing the appeal, the Government’s representative focused on three 
arguments: (a) there can be no doubt as to the existence of a sham transaction, 
given that the named supplier of the materials is fictitious; (b) that concealment of 
the true supplier’s identity from the tax authorities must be considered to be 
connected with VAT fraud and direct tax fraud; and (c) the appellant has failed to 
prove its assertion that there is no tax advantage. 
Brief summary of the reasons for the request for a preliminary ruling 
The VAT reverse charge procedure 
10 The Supreme Court explains that, as a general rule, the taxable person is the 
natural or legal person who, in his or her capacity as a professional or trader, 
issues an invoice and charges his or her customer VAT; he or she then pays every 
3 months to the Exchequer the total amount of VAT collected. Consequently, as a 
rule, the taxable person is the person who issues the invoice, charges the VAT, 
and subsequently submits a VAT return and pays the VAT into the Exchequer. 
11 However, in certain circumstances, which are set out in Article 84 of the VAT 
Law, it is the recipient, rather than the issuer, of the invoice who is required to 
declare and pay the VAT. One of the circumstances where the ‘reverse charge’ 
procedure applies is set out in Article 84(1)(2)(c), which applies to traders buying 
and selling recovered materials (scrap metal). Under that procedure, the seller of 
the goods issues an invoice in which he does not charge VAT, and the purchaser 
of the goods issues an invoice (a ‘self-billed invoice’) which includes the 
applicable VAT. As the issuer and recipient of the self-billed invoice are the same 
person, the purchaser of the goods must record the same amount of both output 
and input VAT, which he or she must include in his or her quarterly VAT return. 
The dispute in the main proceedings 
12 The issue in the proceedings concerns whether it is possible to deduct VAT that is 
both charged by the appellant as output VAT and payable by it as input VAT in a 
self-billed invoice issued under the reverse charge procedure in a situation where: 
(i) the transaction has actually taken place (which is not disputed) and (ii) the true 
supplier of the goods has been concealed. 
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13 In order to rule on the main proceedings, it is necessary to determine: (i) whether 
the omission of the supplier of those goods is a purely formal requirement; (ii) the 
impact of the fact that the actual supplier recorded was false and the purchaser 
knew it was false and (iii) whether European case-law inevitably means ― even 
where bad faith is involved ― that the right to deduct can be denied only ‘where 
there is a risk of a loss of tax revenues for the Member State’, bearing in mind 
that, under the reverse charge procedure, in principle the taxable person owes the 
Exchequer nothing. 
14 The Supreme Court does not believe that the Court of Justice’s case-law 
necessarily implies that it is never possible to deny the right to deduct where it is 
demonstrated that the supply of goods and the purchase by the taxpayer actually 
took place. Nor does the case-law show that the naming of a fictitious supplier in 
the documentary evidence of the transaction (a self-billed invoice) constitutes a 
purely formal infringement that is irrelevant for the purposes of obtaining the 
deduction where the transaction itself is real.  
15 The Supreme Court is aware of the position adopted by the Court of Justice that 
domestic law or national tax authorities may not impose restrictions on the right to 
deduct VAT (which is essential to ensuring tax neutrality) that go beyond what is 
required to prevent fraud or that make it extremely complicated to exercise that 
right. However, the Court of Justice has also stated that it is not permissible to 
apply for and obtain a deduction where the applicant has participated in a 
transaction connected with the fraudulent evasion of VAT, even where the 
transaction in question satisfies the relevant objective criteria. In that context, the 
Supreme Court is uncertain whether the fact that the interested party knows that 
the supplier is fictitious rather than genuine means that the transaction can be 
characterised as abusive or fraudulent. 
16 In addition, with regard to the concept of ‘tax advantage’ ― which the Court of 
Justice has also repeatedly held to be an essential requirement in order for the 
right to deduct to be denied ― European case-law does not demonstrate 
unequivocally that the concept of ‘tax advantage’ relates only to the party that is 
applying for the deduction and cannot potentially apply to other parties involved 
in the transaction giving rise to the deduction. In other words, it is not clear that 
the conduct of the supplier of the goods must necessarily be disregarded, 
particularly where the purchaser of the goods has deliberately concealed the 
supplier’s identity and this may jeopardise direct taxation, since for the true seller 
of the goods the transaction is fiscally opaque, and the tax authorities are unaware 
of its existence.