EMS-Bulgaria Transport OOD v Direktor na Direktsia ‘Obzhalvane i upravlenie na izpalnenieto’ Plovdiv.
Date: 2012-07-12
43. It should be recalled at the outset that the deduction system established by the VAT Directive is meant to relieve the operator entirely of the burden of the VAT paid or payable in the course of all his economic activities. The common system of VAT seeks to ensure complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject, in principle, to VAT (see, inter alia, Case 268/83 Rompelman  [1985] ECR 655, paragraph 19, and Case C-153/11 Klub  [2012] ECR, paragraph 35).
44. The right to deduct forms an integral part of the VAT mechanism and in principle cannot be limited (see, inter alia, Joined Cases C-110/98 to C-147/98 Gabalfrisa and Others  [2000] ECR I-1577, paragraph 43; Ecotrade , paragraph 39; and Case C-118/11 Eon Aset Menidjmunt  [2012] ECR, paragraph 68 and the case-law cited).
46. Nevertheless, pursuant to Articles 180 and 182 of the VAT Directive, a taxable person may be authorised to make a deduction even if he did not exercise his right during the period in which the right arose, subject to compliance with certain conditions and procedures determined by national legislation (see, to that effect, Ecotrade , paragraphs 42 and 43).
47. In that regard, although the Member States may adopt, under Article 273 of the VAT Directive, measures to ensure the correct collection of VAT and to prevent evasion, those measures must not go further than is necessary to attain those objectives and must not undermine the neutrality of VAT (see Case C-385/09 Nidera Handelscompagnie  [2010] ECR I-10385, paragraph 49, and Klub , paragraph 50).
48. It must also be stated that the possibility of exercising the right to deduct without any temporal limit would be contrary to the principle of legal certainty, which requires the tax position of the taxable person, having regard to his rights and obligations vis-à-vis the tax authority, not to be open to challenge indefinitely ( Ecotrade , paragraph 44).
49. The Court has already held, in connection with the reverse charge procedure, that a limitation period the expiry of which has the effect of penalising a taxable person who has not been sufficiently diligent and has failed to claim deduction of input tax, by making him forfeit his right to deduct, cannot be regarded as incompatible with the regime established by the VAT Directive, in so far as, first, that limitation period applies in the same way to analogous rights in tax matters founded on domestic law and to those founded on European Union law (principle of equivalence) and, second, that it does not in practice render impossible or excessively difficult the exercise of the right to deduct (principle of effectiveness) ( Ecotrade , paragraph 46 and the case-law cited).
51. According to the case-law of the Court, although it is for the national court to determine whether national measures are compatible with European Union law, in the present case with the principle of effectiveness (see, by analogy, Case C-188/09 Profaktor Kulesza, Frankowski, Jóźwiak Orłowski  [2010] ECR I-7639, paragraph 30), it is however for the Court to provide it with any helpful guidance to resolve the dispute before it (see, to that effect, Case C-267/99 Adam  [2001] ECR I-7467, paragraph 39, and Eon Aset Menidjmunt , paragraph 49).
61. Furthermore, the formalities laid down by the Member State, which must be complied with by a taxable person in order to be able to exercise the right to deduct VAT, should not exceed what is strictly necessary for the purposes of verifying the correct application of the reverse charge procedure (Case C-392/09 Uszodaépítő [2010] ECR I-8791, paragraph 38).
62. It has also been held that the fundamental principle of VAT 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. Where the tax authority has the information necessary to establish that the taxable person is, as the recipient of the supplies in question, liable to VAT, it cannot impose, in relation to the right of that taxable person to deduct that tax, additional conditions which may have the effect of rendering that right ineffective for practical purposes (see Ecotrade , paragraphs 63 and 64; Nidera Handelscompagnie , paragraph 42; and Case C-438/09 Dankowski  [2010] ECR I-14009, paragraph 35).
67. In that regard, it is important to bear in mind that, although Member States may impose penalties in the event of non-compliance with obligations which seek to ensure that the tax is collected correctly and that evasion is prevented, those penalties must not go further than is necessary to attain the objective pursued (see, to that effect, Ecotrade , paragraphs 65 and 67, and Dankowski , paragraph 37).
68. As regards a penalty consisting of an absolute refusal of the right to deduct, it must be pointed out that the common system of VAT, as is apparent from paragraph 43 of this judgment, seeks to ensure complete neutrality of taxation of all economic activities, which presupposes that a taxable person may deduct the VAT paid or payable in the course of all his economic activities pursuant to Article 167 of the VAT Directive.
69. Member States must, in accordance with the principle of proportionality, employ means which, whilst enabling them effectively to attain the objective of preventing possible tax evasion and avoidance, are the least detrimental to the objectives and principles laid down by European Union legislation, which include the fundamental principle of the right to deduct VAT (see Case C-25/07 Sosnowska  [2008] ECR I-5129, paragraph 23).
70. In view of the preponderant position which the right to deduct has in the common system of VAT, such a penalty appears disproportionate where no evasion or detriment to the budget of the State is ascertained.
71. As is apparent from the case-law referred to in paragraph 62 of this judgment, the deduction of input VAT must, as a rule, be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements. The case may be different if non-compliance with such formal requirements effectively prevents the production of conclusive evidence that the substantive requirements have been satisfied (see, by analogy, Case C-146/05 Collée  [2007] ECR I-7861, paragraph 31).
73. It is true that Member States may, in certain circumstances, treat the concealment of the existence of an intra-Community transaction as an attempt to evade VAT and impose, in such a case, fines or penalty payments prescribed by their domestic law, provided that they are proportionate to the gravity of the abuse (see, to that effect, Collée , paragraph 40).
74. However, a belated accounting for of VAT cannot, per se, be equated with evasion, which presupposes, first, that the transaction concerned, notwithstanding compliance with the conditions laid down by the relevant provisions of the VAT Directive and the national legislation transposing it, results in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions and, secondly, that it is apparent from a number of objective factors that the essential aim of the transaction concerned is to obtain a tax advantage (see, to that effect, Case C-255/02 Halifax and Others  [2006] ECR I-609, paragraphs 74 and 75, and Klub , paragraph 49).
75. The payment of default interest may constitute an adequate penalty, provided that it does not go further than is necessary to attain the objective, referred to in paragraph 67 of this judgment, of preventing evasion and ensuring the correct collection of VAT.
77. Consequently, the answer to the second question is that the principle of fiscal neutrality precludes a penalty consisting in a refusal of the right to deduct if VAT is accounted for belatedly, but does not preclude the payment of default interest, provided that that penalty complies with the principle of proportionality, which it is for the national court to determine.
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