Axel Kittel v Belgian State (C-439/04) and Belgian State v Recolta Recycling SPRL (C-440/04).
Date: 2006-07-06
39. The Sixth Directive establishes a common system of VAT based, inter alia, on a uniform definition of taxable transactions (see, inter alia, Case C-305/01 MKG-Kraftfahrzeuge-Factoring  [2003] ECR I-6729, paragraph 38, and Joined Cases C‑354/03, C‑355/03 and C‑484/03 Optigen and Others  [2006] ECR I-0000, paragraph 36).
41. In fact, an analysis of the definitions of ‘supply of goods effected by a taxable person acting as such’ and ‘economic activities’ shows that those terms, which define taxable transactions for the purposes of the Sixth Directive, are objective in nature and apply without regard to the purpose or results of the transactions concerned (see, to that effect, Optigen , paragraphs 43 and 44).
42. As the Court held at paragraph 24 of the judgment in Case C‑4/94 BLP Group  [1995] ECR I-983, 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.
44. The Court drew the conclusion, at paragraph 51 of Optigen , that transactions which are not themselves vitiated by VAT fraud constitute supplies of goods effected by a taxable person acting as such and an economic activity within the meaning of Article 2(1), Article 4 and Article 5(1) of the Sixth Directive where they fulfil the objective criteria on which the definitions of those terms are based, regardless of the intention of a trader other than the taxable person concerned involved in the same chain of supply and/or the possible fraudulent nature of another transaction in the chain, prior or subsequent to the transaction carried out by that taxable person, of which that taxable person had no knowledge and no means of knowledge.
45. The Court observed that the right to deduct input VAT of a taxable person who carries out such transactions likewise cannot be affected by the fact that, in the chain of supply of which those transactions form part, another prior or subsequent transaction is vitiated by VAT fraud, without that taxable person knowing or having any means of knowing ( Optigen , paragraph 52).
46. The same conclusion applies where such transactions, without that taxable person knowing or having any means of knowing, are carried out in connection with fraud committed by the seller.
47. In fact, the right to deduct provided for in Article 17 et seq. of the Sixth Directive is an integral part of the VAT scheme and in principle may not be limited. The right to deduct is exercisable immediately in respect of all the taxes charged on transactions relating to inputs (see, in particular, Case C-62/93 BP Supergas  [1995] ECR I‑1883, paragraph 18, and Joined Cases C‑110/98 to C‑147/98 Gabalfrisa and Others  [2000] ECR I-1577, paragraph 43).
48. The rules governing deduction are meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures neutrality of taxation of all economic activities, whatever their purpose or results, provided that those activities are themselves subject in principle to VAT (see, inter alia, Case C‑408/98 Abbey National  [2001] ECR I‑1361, paragraph 24, and Case C‑25/03 HE  [2005] ECR I‑3123, paragraph 70).
49. The question whether the VAT payable on prior or subsequent sales of the goods concerned has or has not been paid to the Treasury is irrelevant to the right of the taxable person to deduct input VAT (see, to that effect, the order of the Court in Case C-395/02 Transport Service  [2004] ECR I-1991, paragraph 26). According to the fundamental principle which underlies the common system of VAT, and which follows from Article 2 of the First and Sixth Directives, VAT applies to each transaction by way of production or distribution after deduction of the VAT directly borne by the various cost components (see, inter alia, Case C-98/98 Midland Bank  [2000] ECR I-4177, paragraph 29; Case C‑497/01 Zita Modes  [2003] ECR I-14393, paragraph 37; and Optigen , paragraph 54).
50. In that context, as the referring court observed, it is settled case-law that the principle of fiscal neutrality prevents any general distinction between lawful and unlawful transactions. Consequently, the mere fact that conduct amounts to an offence does not entail exemption from tax; that exemption applies only in specific circumstances where, owing to the special characteristics of certain goods or services, any competition between a lawful economic sector and an unlawful sector is precluded (see, inter alia, Case C-158/98 Coffeeshop ‘Siberië ’ [1999] ECR I-3971, paragraphs 14 and 21, and Case C‑455/98 Salumets and Others  [2000] ECR I‑4993, paragraph 19). It is common ground, however, that that is not the case with either the computer components or the vehicles at issue in the main proceedings.
51. In the light of the foregoing, it is apparent that traders who take every precaution which could reasonably be required of them to ensure that their transactions are not connected with fraud, be it the fraudulent evasion of VAT or other fraud, must be able to rely on the legality of those transactions without the risk of losing their right to deduct the input VAT (see, to that effect, Case C‑384/04 Federation of Technological Industries and Others  [2006] ECR I-0000, paragraph 33).
53. By contrast, 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’ are not met where tax is evaded by the taxable person himself (see Case C‑255/02 Halifax and Others  [2006] ECR I‑0000, paragraph 59).
54. As the Court has already observed, preventing tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive (see Joined Cases C-487/01 and C-7/02 Gemeente Leusden and Holin Groep  [2004] ECR I-5337, paragraph 76). Community law cannot be relied on for abusive or fraudulent ends (see, inter alia, Case C‑367/96 Kefalas and Others  [1998] ECR I-2843, paragraph 20; Case C‑373/97 Diamantis  [2000] ECR I-1705, paragraph 33; and Case C‑32/03 Fini H  [2005] ECR I-1599, paragraph 32).
55. Where the tax authorities find that the right to deduct has been exercised fraudulently, they are permitted to claim repayment of the deducted sums retroactively (see, inter alia, Case 268/83 Rompelman  [1985] ECR 655, paragraph 24; Case C‑110/94 INZO  [1996] ECR I-857, paragraph 24; and Gabalfrisa , paragraph 46). It is a matter for the national court to refuse to allow the right to deduct where it is established, on the basis of objective evidence, that that right is being relied on for fraudulent ends (see Fini H , paragraph 34).
56. In the same way, a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods.
57. That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice.
58. In addition, such an interpretation, by making it more difficult to carry out fraudulent transactions, is apt to prevent them.
59. Therefore, it is 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 purchase, he was participating in a transaction connected with fraudulent evasion of VAT, and to do so even where the transaction in question meets 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’.
60. It follows from the foregoing that the answer to the questions must be that where a recipient of a supply of goods is a taxable person who did not and could not know that the transaction concerned was connected with a fraud committed by the seller, Article 17 of the Sixth Directive must be interpreted as meaning that it precludes a rule of national law under which the fact that the contract of sale is void – by reason of a civil law provision which renders that contract incurably void as contrary to public policy for unlawful basis of the contract attributable to the seller – causes that taxable person to lose the right to deduct the VAT he has paid. It is irrelevant in this respect whether the fact that the contract is void is due to fraudulent evasion of VAT or to other fraud.
61. By contrast, where it is ascertained, having regard to objective factors, that the supply is to a taxable person who knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, it is for the national court to refuse that taxable person entitlement to the right to deduct.
Costs