Mahagében Kft v Nemzeti Adó- és Vámhivatal Dél-dunántúli Regionális Adó Főigazgatósága (C-80/11) and Péter Dávid v Nemzeti Adó- és Vámhivatal Észak-alföldi Regionális Adó Főigazgatósága (C-142/11).
Date: 2012-06-21
35. First of all, it must be noted that, having regard to the various dates of the facts in the main proceedings, the questions submitted refer to both the Sixth Directive and Directive 2006/112. As was noted at paragraph 3 of the present judgment, the latter directive has not, in principle, made material changes to the Sixth Directive. In particular, the provisions of those two directives which are relevant in the context of the cases in the main proceedings are, in essence, identical. In those circumstances, it is sufficient to examine the questions referred in relation to the provisions of Directive 2006/112 (see, to that effect, Joined Cases C-180/10 and C-181/10 Słaby and Others [2011] ECR I-8461, paragraphs 28 and 49 to 51).
The questions referred in Case C-142/11
37. In order to reply to those questions, it must first be borne in mind that, according to settled case-law, the right of taxable persons to deduct the VAT due or already paid on goods purchased and services received as inputs from the VAT which they are liable to pay is a fundamental principle of the common system of VAT established by the relevant European Union legislation (see, inter alia, Case C-78/00 Commission v Italy  [2001] ECR I-8195, paragraph 28; Case C-25/07 Sosnowska  [2008] ECR I-5129, paragraph 14; and Case C-274/10 Commission  v Hungary  [2011] ECR I-7289, paragraph 42).
38. As the Court has repeatedly held, the right to deduct provided for in Article 167 et seq. of Directive 2006/112 is an integral part of the VAT scheme and in principle may not be limited. In particular, the right to deduct is exercisable immediately in respect of all the taxes charged on transactions relating to inputs (see, inter alia, Joined Cases C-110/98 to C-147/98 Gabalfrisa and Others [2000] ECR I-1577, paragraph 43; Joined Cases C-439/04 and C-440/04 Kittel and Recolta Recycling  [2006] ECR I-6161, paragraph 47; Case C-392/09 Uszodaépítő  [2010] ECR I-8791, paragraph 34; and Commission  v Hungary , paragraph 43).
39. The deduction system is intended 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 the purpose or results of those activities, provided that they are themselves subject in principle to VAT (see, inter alia, Gabalfrisa and Others , paragraph 44; Case C-255/02 Halifax and Others  [2006] ECR I-1609, paragraph 78; Kittel and Recolta Recycling , paragraph 48; and Case C-438/09 Dankowski [2010] ECR I-14009, paragraph 24).
40. The question whether the VAT payable on the prior or subsequent sales of the goods concerned has or has not been paid to the public purse is irrelevant to the right of the taxable person to deduct input VAT. VAT applies to each transaction by way of production or distribution after deduction of the VAT directly borne by the various cost components (see order in Case C-395/02 Transport Service  [2004] ECR I-1991, paragraph 26; judgments in Joined Cases C-354/03, C-355/03 and C-484/03 Optigen and Others  [2006] ECR I-483, paragraph 54; and Kittel and Recolta Recycling , paragraph 49).
41. Secondly, it must be recalled that preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by Directive 2006/112 (see, inter alia, Halifax and Others , paragraph 71; Case C-285/09 R.  [2010] ECR I-12605, paragraph 36; and Case C-504/10 Tanoarch  [2011] ECR I-10853, paragraph 50). In that regard, the Court has already held that EU law cannot be relied on for abusive or fraudulent ends (see, inter alia, Case C-32/03 Fini H  [2005] ECR I-1599, paragraph 32; Halifax and Others , paragraph 68; and Kittel and Recolta Recycling , paragraph 54).
42. Therefore, it is a matter for the national authorities and courts 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 or abusive ends (see, to that effect, Fini H , paragraphs 33 and 34; Kittel and Recolta Recycling , paragraph 55; and Case C-414/10 Véleclair [2012] ECR, paragraph 32).
43. However, as regards the case in the main proceedings, it is apparent from the order for reference that it is not disputed that the applicant in the main proceedings, who wishes to exercise the right to deduct, is a taxable person for the purposes of Article 9(1) of Directive 2006/112 and that the supplies of services relied on to support that right were subsequently used by that applicant as outputs for the purpose of his own taxable transactions.
44. Moreover, it is apparent from the order for reference that the questions referred are based on the premisses, first, that the transaction relied on as a basis for the right to deduct was carried out, as is to be inferred from the corresponding invoice, and, second, that that invoice includes all the information required by Directive 2006/112, with the result that the substantive and formal conditions provided for by that directive for the creation and exercise of the right to deduct are fulfilled. It is necessary to point out, in particular, that the order for reference does not indicate that the applicant in the main proceedings himself acted unlawfully by, for instance, filing false returns or issuing improper invoices.
45. In those circumstances, a taxable person can be refused the benefit of the right to deduct only on the basis of the case-law resulting from paragraphs 56 to 61 of Kittel and Recolta Recycling , according to which it must be established, on the basis of objective factors, that the taxable person to whom were supplied the goods or services which served as the basis on which to substantiate the right to deduct, knew, or ought to have known, that that transaction was connected with fraud previously committed by the supplier or another trader at an earlier stage in the transaction.
46. A taxable person who knew, or ought to have known, that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of Directive 2006/112, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods or the use of the services in the context of the taxable transactions subsequently carried out by him (see Kittel and Recolta Recycling , paragraph 56).
47. By contrast, it is incompatible with the rules governing the right to deduct under that directive, as noted in paragraphs 37 to 40 of the present judgment, to impose a penalty, in the form of refusing that right to a taxable person who did not know, and could not have known, that the transaction concerned was connected with fraud committed by the supplier, or that another transaction forming part of the chain of supply prior or subsequent to that transaction carried out by the taxable person was vitiated by VAT fraud (see, to that effect, Optigen and Others , paragraphs 52 and 55, and Kittel and Recolta Recycling , paragraphs 45, 46 and 60).
48. The establishment of a system of strict liability would go beyond what is necessary to preserve the public exchequer’s rights (see, to that effect, Case C-384/04 Federation of Technological Industries and Others  [2006] ECR I-4191, paragraph 32, and Case C-271/06 Netto Supermarkt  [2008] ECR I-771, paragraph 23).
49. Given that the refusal of the right to deduct in accordance with paragraph 45 of the present judgment is an exception to the application of the fundamental principle constituted by that right, it is for the tax authority to establish, to the requisite legal standard, the objective evidence which allows the conclusion to be drawn that the taxable person knew, or ought to have known, that the transaction relied on as a basis for the right to deduct was connected with fraud committed by the supplier or by another trader acting earlier in the chain of supply.
50. In the light of the foregoing considerations, the answer to the questions referred in Case C-142/11 is that Articles 167, 168(a), 178(a), 220(1) and 226 of Directive 2006/112 must be interpreted as precluding a national practice whereby the tax authority refuses a taxable person the right to deduct, from the VAT which he is liable to pay, the amount of the VAT due or paid in respect of the services supplied to him, on the ground that the issuer of the invoice relating to those services, or one of his suppliers, acted improperly, without that authority establishing, on the basis of objective evidence, that the taxable person concerned knew, or ought to have known, that the transaction relied on as a basis for the right to deduct was connected with fraud committed by the issuer of the invoice or by another trader acting earlier in the chain of supply.
The questions referred in Case C-80/11
53. According to the Court’s case-law, 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 Kittel and Recolta Recycling , paragraph 51).
54. On the other hand, it is not contrary to European Union law to require a trader to take every step which could reasonably be required of him to satisfy himself that the transaction which he is effecting does not result in his participation in tax evasion (see, to that effect, Case C-409/04 Teleos and Others  [2007] ECR I-7797, paragraphs 65 and 68; Netto Supermarkt , paragraph 24; and Case C-499/10 Vlaamse Oliemaatschappij [2011] ECR I-14191, paragraph 25).
56. However, even though that provision gives the Member States a margin of discretion (see Case C-588/10 Kraft Foods Polska  [2012] ECR, paragraph 23), that option may not be relied upon, according to the second paragraph of that article, in order to impose additional invoicing obligations over and above those laid down in Chapter 3, headed ‘Invoicing’, of Title XI, headed ‘Obligations of taxable persons and certain non-taxable persons’, of that directive and, in particular, Article 226 thereof.
57. Furthermore, the measures which the Member States may adopt under Article 273 of Directive 2006/112, in order to ensure the correct levying and collection of the tax and to prevent evasion, must not go further than is necessary to attain such objectives. Therefore, they cannot be used in such a way that they would have the effect of systematically undermining the right to deduct VAT and, consequently, the neutrality of VAT, which is a fundam ental principle of the common system of VAT (see, to that effect, inter alia, Gabalfrisa and Others , paragraph 52; Halifax and Others , paragraph 92; Case C-385/09 Nidera Handelscompagnie  [2010] ECR I-10385, paragraph 49; and Dankowski , paragraph 37).
59. In those circumstances, it follows from the case-law referred to in paragraphs 53 and 54 of the present judgment that determination of the measures which may, in a particular case, reasonably be required of a taxable person wishing to exercise the right to deduct VAT in order to satisfy himself that his transactions are not connected with fraud committed by a trader at an earlier stage of a transaction depends essentially on the circumstances of that particular case.
60. It is true that, when there are indications pointing to an infringement or fraud, a reasonable trader could, depending on the circumstances of the case, be obliged to make enquiries about another trader from whom he intends to purchase goods or services in order to ascertain the latter’s trustworthiness.
61. However, the tax authority cannot, as a general rule, require the taxable person wishing to exercise the right to deduct VAT, first, to ensure that the issuer of the invoice relating to the goods and services in respect of which the exercise of that right to deduct is sought has the capacity of a taxable person, that he was in possession of the goods at issue and was in a position to supply them and that he has satisfied his obligations as regards declaration and payment of VAT, in order to be satisfied that there are no irregularities or fraud at the level of the traders operating at an earlier stage of the transaction or, second, to be in possession of documents in that regard.
62. It is, in principle, for the tax authorities to carry out the necessary inspections of taxable persons in order to detect VAT irregularities and fraud as well as to impose penalties on the taxable person who has committed those irregularities or fraud.
63. According to the case-law of the Court, Member States are required to check taxable persons’ returns, accounts and other relevant documents (see Case C-132/06 Commission  v Italy  [2008] ECR I-5457, paragraph 37, and Case C-188/09 Profaktor Kulesza, Frankowski, Jóźwiak, Orłowski [2010] ECR I-7639, paragraph 21).
64. To that end, Directive 2006/112 imposes, in particular in Article 242, an obligation on every taxable person to keep accounts in sufficient detail for VAT to be applied and its application checked by the tax authorities. In order to facilitate the performance of that task, Articles 245 and 249 of that directive provide for the right of the competent authorities to access the invoices which the taxable person is obliged to store under Article 244 of that directive.
65. It follows that, by imposing on taxable persons, in view of the risk that the right to deduct may be refused, the measures listed in paragraph 61 of the present judgment, the tax authority would, contrary to those provisions, be transferring its own investigative tasks to taxable persons.
66. In the light of the foregoing considerations, the answer to the questions referred in Case C-80/11 is that Articles 167, 168(a), 178(a) and 273 of Directive 2006/112 must be interpreted as precluding a national practice whereby the tax authority refuses the right to deduct on the ground that the taxable person did not satisfy himself that the issuer of the invoice relating to the goods in respect of which the exercise of the right to deduct is sought had the status of a taxable person, that he was in possession of the goods in question and was in a position to supply them, and that he had satisfied his obligations as regards declaration and payment of VAT, or on the ground that, in addition to that invoice, that taxable person is not in possession of other documents capable of demonstrating that those conditions were fulfilled, although the substantive and formal conditions laid down by Directive 2006/112 for exercising the right to deduct were fulfilled and the taxable person is not in possession of any material justifying the suspicion that irregularities or fraud have been committed within that invoice issuer’s sphere of activity.
Costs