1 This request for a preliminary ruling concerns the interpretation of Article 205 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), as amended by Council Directive (EU) 2018/1695 of 6 November 2018 (OJ 2018 L 282, p. 5, and corrigendum OJ 2018 L 329, p. 53) (‘the VAT Directive’), as well as the principle of proportionality.
2 The request has been made in proceedings between KONREO, v.o.s. (‘Konreo’), insolvency administrator of FAU s. r. o., and the Odvolací finanční ředitelství (Appellate Tax Directorate, Czech Republic) concerning FAU’s joint and several liability for the purposes of payment of value added tax (VAT) which its supplier, VERAMI International Company s.r.o. (‘Verami’), did not pay to the public exchequer.
3 Article 193 of the VAT Directive provides: ‘VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199b and Article 202.’
4 Articles 194 to 200 and 202 to 204 of that directive provide, in essence, that persons other than a taxable person carrying out a taxable supply of goods or services may or are to be regarded as being liable for VAT.
5 Article 205 of that directive provides: ‘In the situations referred to in Articles 193 to 200 and Articles 202, 203 and 204, Member States may provide that a person other than the person liable for payment of VAT is to be held jointly and severally liable for payment of VAT.’
6 The rules governing joint and several liability in the field of taxation are set out in Paragraphs 171 and 172 of zákon č. 280/2009 Sb., daňový řád (Law No 280/2009 establishing the Tax Procedure Code). Paragraph 171 of that law provides: ‘(1) The guarantor shall also be liable for the arrears if the law imposes liability on him, her or it and if the tax administrator informs him, her or it in a notice of the assessed tax payable by him, her or it and, at the same time, calls on him, her or it to pay the arrears within a specified period of time; a copy of the decision assessing the tax is attached to the notice. … (3) A notice to a guarantor may be issued if the arrears have not been paid by the taxable person, although the taxable person has been served with formal notice to pay them without success, and the arrears have not been paid even when these were enforced against the taxable person, unless it is clearly demonstrated that the enforcement would be unsuccessful; a notice to the guarantor may also be issued after insolvency proceedings have been opened against the taxable person.’
7 The statutory liability incumbent on a taxable person with regard to VAT is governed by Paragraph 109 of zákon č. 235/2004 Sb., o dani z přidané hodnoty (Law No 235/2004 on Value Added Tax (‘the Law on VAT’). Paragraph 109, entitled ‘Liability of the recipient of a taxable supply’, provides: ‘(1) A taxable person who is the recipient of a taxable supply taking place within Czech territory and that is provided by another taxable person or who makes a payment in consideration for such supply (“recipient of the taxable supply”) shall be liable for payment of any tax unpaid on that supply provided the person knew or ought to have and could have known at the time of the supply that: (a) the tax stated in the tax document will intentionally be left unpaid; (b) the taxable person effecting that taxable supply or receiving a payment in consideration for the supply (“the supplier of the taxable supply”) has deliberately placed or finds himself, herself or itself in a position wherein he, she or it is unable to pay the tax; or (c) there is tax evasion or the fraudulent obtaining of a tax advantage involved. (2) The recipient of the taxable supply shall also be liable for payment of unpaid tax on the supply if the payment in consideration for the supply (a) manifestly deviates from the normal price without economic justification; (b) was provided in part or in full by means of a wire transfer to an account held by a payment services provider outside of Czech territory; or (c) was provided in part or in full by means of a wire transfer to an account other than the account of the supplier of the taxable supply that is published by the tax authorities in a manner permitting remote access.’
8 Konreo is the insolvency administrator of FAU, a company established under Czech law which is the subject of insolvency proceedings. From May to October 2013, FAU purchased fuel from Verami, another company established under Czech law.
9 Following fiscal supervision, the tax authorities found evidence of tax evasion in the chain of trade involving Verami and FAU. On 5 January 2015 and 2 February 2015, those authorities issued recovery notices against Verami, by which they assessed Verami with an additional VAT obligation as they refused it the right to deduct VAT on the purchase of the fuel which it had subsequently supplied to FAU. However, Verami did not pay that VAT to the public exchequer.
10 Verami and FAU were declared insolvent on 27 February 2015 and 14 December 2016 respectively, and two insolvency proceedings concerning the assets of those companies were opened. The two sets of proceedings were still ongoing on the date on which the request for a preliminary ruling in the present case was referred to the Court.
11 On 7 February 2017, the tax authorities issued an additional assessment for the VAT due from FAU as they refused it the right to deduct the VAT appearing on the fuel invoices on the ground of VAT evasion in the trade chain of which the transaction carried out by that company formed part. By decision of 25 September 2017, the Appellate Tax Directorate dismissed FAU’s appeal against that refusal. The Krajský soud v Brně (Regional Court, Brno, Czech Republic) dismissed the action brought against the latter decision. Konreo brought an appeal on a point of law against the judgment of that court before the Nejvyšší správní soud (Supreme Administrative Court, Czech Republic), which is the referring court.
12 Before issuing an additional assessment for the VAT due from FAU, the tax authorities had, by six decisions of 22 April 2015 and 7 August 2015, required FAU, as the legal guarantor, under Paragraph 109(2)(b) of the Law on VAT, to pay the VAT which Verami had failed to pay to the public exchequer.
13 By decisions of 22 September 2016, the Appellate Tax Directorate dismissed FAU’s appeals against those six decisions of the tax authorities. By judgment of 9 May 2019, the Krajský soud v Brně (Regional Court, Brno) annulled the decisions dismissing FAU’s appeals on the ground that the Appellate Directorate had not correctly applied the case-law of the Court of Justice and of the Nejvyšší správní soud (Supreme Administrative Court) with regard to the conditions for the application of the statutory guarantee in respect of the VAT not paid by the supplier.
14 Following the referral of those cases back to the Appellate Tax Directorate, that directorate dismissed FAU’s appeals for a second time on 26 May 2020. Konreo brought an action against those decisions of the Appellate Tax Directorate dismissing the appeals and the Krajský soud v Brně (Regional Court, Brno) annulled those decisions on the ground, in essence, that the statutory guarantee imposed double taxation on FAU. On 10 February 2023, the Appellate Tax Directorate brought an appeal against the judgment of that court before the referring court.
15 The referring court points out that, on 26 May 2020, the date on which the legality of the decisions of the Appellate Tax Directorate dismissing the appeals must be assessed, the additional VAT assessments issued against both Verami and FAU, based on the refusal of the right to deduct VAT on account of acts of evasion, had become final. The referring court points out that FAU was called upon to pay to the public exchequer, on behalf of Verami, the tax which it had already paid to that company when it paid the fuel invoices issued by it in its capacity as supplier.
16 Before the referring court, the Appellate Tax Directorate submits that the principle of fiscal neutrality cannot be relied on by taxable persons who have deliberately participated in tax evasion. In such a case, the tax authorities would be required to refuse the right to deduct VAT, since those taxable persons knew or ought to have known that the chain of trade was vitiated by tax evasion. The Appellate Tax Directorate submits that the tax liability borne by the taxable person as a result of such a refusal is distinct from its obligation, under the statutory guarantee, to ensure payment of VAT due from his or her supplier. There is therefore nothing preventing a taxable person from simultaneously being refused the right to deduct tax on a supply vitiated by tax evasion and being required, under the statutory guarantee, to pay the VAT owed by his or her supplier on that supply. It would be paradoxical if the statutory guarantee were to apply only to taxable persons who have acted in good faith and who have exercised their right to deduct tax on the transactions which they have carried out.
17 Konreo submits that the refusal of the right to deduct VAT and the statutory guarantee must be regarded as exclusive of each other, since their concurrent application infringes the principles of fiscal neutrality and that of equal treatment of taxpayers. The decisions of the Appellate Tax Directorate require FAU to pay VAT on the same transaction three times, first, by paying it to its supplier, subsequently, by ‘paying’ it following the refusal of the right to deduct that tax and, finally by paying it pursuant to the statutory guarantee in respect of the VAT payable by its supplier.
18 The referring court points out that, in Czech tax law, the statutory guarantee is subsidiary in nature, such that, under Paragraph 171(3) of Law No 280/2009 establishing the Tax Procedure Code, the guarantor can be called upon only following the tax authorities’ failure to recover the debt from the debtor despite the issuance of an enforcement measure or upon the opening of insolvency proceedings against him, her or it. If the statutory guarantor in fact discharges the debtor’s principal obligation, in the latter’s stead, the guarantor will have a recourse claim against the debtor. In view of the circumstances in which the statutory guarantee may be relied on, that court considers that that recourse claim is unlikely to succeed.
19 That is the case here, since Verami was insolvent at the time of the issuance of the guarantee calls with regard to FAU. The referring court therefore starts from the premiss that FAU, as legal guarantor, will not recover from Verami, as the principal debtor, the sum which it will pay to the tax authorities in respect of that debtor’s VAT arrears.
20 That court states that two measures relating to the application of the VAT system are at issue in the main proceedings, namely, first, the refusal of the right to deduct VAT and, second, the application of joint and several liability of the recipient in respect of the transactions concerned for the purposes of the payment of VAT on the taxable supplies carried out by the supplier. In that regard, a systematic interpretation of Czech law shows that the simultaneous application of those two measures is not excluded.
21 However, the Court has not yet ruled on the question whether it is consistent with the principle of proportionality to apply, concurrently and for the same commercial transactions, joint and several liability for the payment of unpaid VAT and the refusal of the right to deduct VAT on account of participation in tax evasion.
22 In those circumstances, the Nejvyšší správní soud (Supreme Administrative Court) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling: ‘Does Article 205 of Council Directive 2006/112/EC on the common system of value added tax, in conjunction with the proportionality principle, preclude a national practice whereby the liability for the payment of value added tax by a supplier of a taxable transaction may be applied to the recipient of that transaction, even though the recipient of the taxable transaction has already been denied a right to a tax deduction due to its involvement in tax fraud?’
23 By its question, the referring court asks, in essence, whether Article 205 of the VAT Directive, read in the light of the principle of proportionality, must be interpreted as precluding a national practice which imposes on a taxable person, recipient of a supply of goods for consideration, a joint and several obligation for the payment of VAT due from the supplier of those goods, even though the recipient of that supply of goods was refused the right to deduct the input VAT due or paid on the ground that he, she or it knew or ought to have known that he, she or it was participating in VAT evasion.
24 In the first place, it must be recalled that, as set out in Article 205 of the VAT Directive, in the situations referred to in Articles 193 to 200 and 202 to 204 of that directive, Member States may provide that a person other than the person liable for VAT is to be held jointly and severally liable for payment of VAT.
25 Articles 193 to 200 and 202 to 204 of that directive, which form part of Section 1 of Chapter 1 of Title XI thereof, entitled ‘Persons liable for payment of VAT to the tax authorities’, determine the persons liable for VAT. Although Article 193 of that directive provides, as the basic rule, that VAT is payable by any taxable person carrying out a taxable supply of goods or services, it states, however, that other persons may or are to be liable for VAT in the situations referred to in Articles 194 to 199b and 202 of that directive.
26 The provisions of Section 1 of Chapter 1 of Title XI of the VAT Directive, which include Article 205 of that directive, are aimed at identifying the person liable for payment of VAT in various situations. In so doing, the purpose of those provisions is to ensure for the public exchequer the efficient collection of VAT from the most appropriate person in the light of the specific situation (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 28, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 20).
27 In principle, Article 205 of the VAT Directive allows Member States to adopt, for the efficient collection of VAT, measures pursuant to which a person other than the person normally liable for that tax under Articles 193 to 200 and 202 to 204 of that directive is jointly and severally liable for payment of that tax (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 29, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 21).
28 However, since Article 205 of Directive 2006/112 specifies neither the persons that Member States may designate as joint and several debtors nor the situations in which such designation may be made, it is for the Member States to determine the conditions and arrangements under which the joint and several liability provided for in that article will be incurred in compliance, in particular, with the principles of legal certainty and of proportionality (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraphs 31 and 32, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 22).
29 As regards the latter principle, in the light of which the referring court seeks the Court’s guidance as to the interpretation of Article 205 of the VAT Directive, while it is legitimate for the measures adopted by the Member States to seek to preserve the rights of the public exchequer as effectively as possible, they must not go further than is necessary for that purpose (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 33, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 23).
30 In that context, exercise of the power conferred on Member States to designate a joint and several debtor other than the person liable for payment of the tax in order to ensure efficient collection of that tax must be justified by the factual and/or legal relationship between the two persons concerned in the light of the principles of legal certainty and of proportionality. It is for Member States to specify the particular circumstances in which a person such as the recipient of a taxable supply is to be held jointly and severally liable for payment of the tax owed by the other party to the contract (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 34, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 24).
31 In that context, it should be recalled that preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by EU legislation on the common system of VAT and that the effect of the principle that the abuse of rights is prohibited is to bar wholly artificial arrangements which do not reflect economic reality and are set up with the sole aim of obtaining a tax advantage (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 35, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 25).
32 The Court has thus ruled that Article 205 of the VAT Directive allows a Member State to hold a person jointly and severally liable for payment of VAT where, at the time he, she or it receives the supply, that person knew or ought to have known that the tax payable in respect of that supply, or of any previous or subsequent supply, would go unpaid, and to rely on presumptions in that regard, provided that such presumptions are not 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 creating a system of strict liability going beyond what is necessary to preserve the public exchequer’s rights. Traders who take every precaution which could reasonably be required of them to ensure that their transactions do not form part of a chain that is fraudulent or amounts to an abuse must be able to rely on the legality of those transactions without the risk of being made jointly and severally liable to pay the VAT due from another taxable person (judgments of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 36, and of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 26).
33 In the present case, the referring court states that Paragraph 109 of the Law on VAT transposes Article 205 of the VAT Directive. It points out that the tax authorities took the view that FAU, as jointly and severally liable, was required to pay the VAT which Verami had failed to pay to the public exchequer. The tax authorities based that liability on Paragraph 109(2)(b) of the Law on VAT, which provides that the recipient of the taxable supply is required to pay the tax not paid on that supply, if the payment in consideration for the supply was provided in part or in full by means of a wire transfer to an account held by a payment services provider outside of Czech territory.
34 According to that court, joint and several liability under Paragraph 109(2)(b) of the Law on VAT, as interpreted by the national courts, is conditional on the fact that there must be other circumstances, in addition to the making of a payment to an account held by a payment services provider outside of the country, which clearly indicate that the taxable person who made the payment to that account knew, or ought to have known, that the purpose of the payment being directed outside of the country was to avoid paying tax. That is the case here as regards the payment made by FAU to its supplier Verami.
35 It should also be noted that it is not apparent from the material in the file before the Court that FAU was deprived of the option of establishing that it had taken every measure which could reasonably be required of it to ensure that the transactions which it had carried out were not part of an abusive or fraudulent chain.
36 In those circumstances, Article 205 of the VAT Directive does not preclude, in the situation described in paragraphs 33 to 35 of the present judgment, the tax authorities from applying a national provision which, in order to ensure the effective collection of VAT, imposes on the recipient of the supply of goods for consideration at issue in the main proceedings a joint and several obligation to pay the VAT due from the supplier of those goods.
37 It should be added that, as stated, in essence, by the Czech Government, the application of such joint and several liability is without prejudice to the possible application of the national civil law rules governing the relationship between the person held jointly and severally liable for payment of VAT, and the taxable person normally liable for that tax. The referring court confirms, in that regard, that Czech law provides that, if the tax due from the taxable person is paid by the person held jointly and severally liable for it, he, she or it may bring a recourse claim against the taxable person.
38 In that regard, in the light of the material in the file before the Court, from which it is apparent that Verami, the person liable for the tax, is the subject of insolvency proceedings, it should be noted that the decision of the tax authorities to apply the mechanism of joint and several liability, under the national provision transposing Article 205 of the VAT Directive, cannot depend on the chances of success of the recourse claim which could be brought by the person held jointly and severally liable. Otherwise, the application of that mechanism could be rendered difficult to such an extent as to undermine the efficient collection of VAT, since the tax authorities would be required to assess at the outset whether the taxable person whom they intend to designate as jointly and severally liable will obtain a refund of the amount of tax paid instead of the taxable person.
39 In the second place, according to settled case-law, since the prevention of possible tax evasion, tax avoidance and abuse is an objective recognised and encouraged by the VAT Directive, it is for the national authorities and courts to refuse the right to deduct VAT if it is established, on the basis of objective elements, that this right is being relied on for fraudulent or abusive ends (see, to that effect, judgment of 24 November 2022, Finanzamt M (Scope of the right to deduct VAT), C‑596/21, EU:C:2022:921, paragraph 34 and the case-law cited).
40 The Court ruled that a taxable person is to be refused the right to deduct VAT not only where fraud is committed by the taxable person him or herself, but also where it is established that that taxable person, to whom the goods which served as the basis on which to substantiate the right to deduct were supplied, knew or ought to have known that, through the purchase of those goods, he, she or it was taking part in, or at least facilitated, a transaction connected with VAT evasion. Such a taxable person must, for the purposes of the VAT Directive, be regarded as participating in or facilitating evasion, whether or not he, she or it profits from the resale of the goods in the context of taxable transactions subsequently carried out by him, her or it, since that taxable person, in such a situation, aids the perpetrators of that evasion and becomes their accomplice (see, to that effect, judgment of 24 November 2022, Finanzamt M (Scope of the right to deduct VAT), C‑596/21, EU:C:2022:921, paragraphs 25 and 35 and the case-law cited).
41 The obligation on the national authorities and courts to refuse the right to deduct where a taxable person knew or ought to have known that the transaction was connected with evasion is intended in particular to require taxable persons to carry out the steps which could reasonably be asked of them in any economic transaction in order to satisfy themselves that the transactions which they carry out do not result in their participation in tax evasion (judgment of 24 November 2022, Finanzamt M (Scope of the right to deduct VAT), C‑596/21, EU:C:2022:921, paragraph 39 and the case-law cited).
42 Accordingly, in a situation such as that in the main proceedings, in which, as indicated by the referring court, the recipient of the supply of goods knew or ought to have known that, in the context of the purchase transactions, he, she or it was participating in tax evasion, the tax authorities were required to refuse that recipient the right to deduct input VAT.
43 It remains to be assessed, in the third place, whether it is possible to apply, concurrently, the two measures consisting, first, in imposing on a taxable person who is the recipient of a supply of goods for consideration, such as FAU, the joint and several obligation, under a national provision transposing Article 205 of the VAT Directive, to pay the VAT not paid by the taxable person supplying those goods and, second, in refusing the right to deduct the VAT which that taxable person receiving the goods paid to that supplier.
44 In that regard, given that, in accordance with the case-law of the Court cited in paragraphs 39 and 40 of the present judgment, the taxable person liable for VAT cannot claim any right to deduct VAT in cases of evasion, such a right to deduct cannot, a fortiori, be transferred to the taxable person who is jointly and severally liable for payment of that tax under the national provision transposing Article 205 of the VAT Directive (see, to that effect, judgment of 12 December 2024, Dranken Van Eetvelde, C‑331/23, EU:C:2024:1027, paragraph 45).
45 Accordingly, in such a situation of tax evasion, the system provided for by the VAT Directive allows the tax authorities to apply independently the refusal of the right to deduct VAT and joint and several liability under Article 205 of the VAT Directive, without them being required to make a choice between those two measures.
46 Consequently, the VAT Directive does not prevent the tax authorities from applying those measures to the same taxable person, in respect of whom, it is common ground that he, she or it knew or ought to have known that he, she or it was participating in VAT evasion, since their application does not infringe the principle of proportionality.
47 First, as is apparent from paragraphs 39 to 42 of the present judgment, the refusal of the right to deduct VAT which a taxable person, as the recipient of a supply of goods, has paid to the supplier of those goods constitutes a correct application of the common system of VAT where that taxable person knew or ought to have known that, by the transaction concerned, he, she or it was participating in tax evasion.
48 Second, the application of joint and several liability, under Article 205 of the VAT Directive, to that taxable person to whom that supply is made, results in that taxable person paying the tax normally due by the supplier of the goods concerned, in a situation where, in the event of such tax evasion, the tax authorities consider that the application of that liability will make it possible to ensure the efficient collection of that tax.
49 It should be noted, in that regard, that the tax authorities may designate, as jointly and severally liable under Article 205 of the VAT Directive, a taxable person who has already paid VAT by paying the price of the transaction which is subject to VAT (see, to that effect, judgment of 20 May 2021, ALTI, C‑4/20, EU:C:2021:397, paragraph 34). Accordingly, the designation of a person, other than the taxable person normally liable for the tax, as being jointly and severally liable for payment of that tax, under that article, does not depend on whether that person has paid the VAT invoiced to him, her or it by that taxable person and, consequently, is not dependent on whether or not that person has obtained the right to deduct VAT.
50 In addition, the refusal of the right to deduct VAT and joint and several liability under Article 205 pursue two distinct and complementary objectives, consisting, respectively, of combating tax evasion and ensuring for the public exchequer the efficient collection of VAT from the most appropriate persons, in particular in a situation of evasion. To require the tax authorities to apply those measures alternatively would lead it to abandon, at least in part, one of those two objectives, which cannot be justified in the case of taxable persons who knew or ought to have known that they were participating in tax evasion.
51 As stated by the Appellate Tax Directorate and the Czech Government, the solution to the contrary, consisting in the inability of holding the taxable persons whose right to deduct VAT has been refused, jointly and severally liable under Article 205 of the VAT Directive, would imply that only taxable persons acting in good faith who have the right to deduct VAT on their taxable transactions, could be designated, pursuant to that article, as being jointly and severally liable for the payment of the tax that is due by the taxable person normally liable for it. That would result in taxable persons who have acted in good faith being treated in a less favourable manner than taxable persons who knew or ought to have known that they were participating in tax evasion.
52 Lastly, as the European Commission stated at the hearing before the Court, the imposition on a taxable person receiving a supply of goods for consideration of a joint and several obligation to pay the VAT payable by the taxable person supplying those goods, in a situation such as that in the main proceedings, does not result in unjust enrichment of the tax authorities. By refusing, on the one hand, to the first taxable person, the right to deduct VAT in a situation where that taxable person knew or ought to have known that he, she or it was participating in tax evasion, and, on the other hand, designating that first taxable person as being jointly and severally liable for payment of the VAT due from the second taxable person, the tax authorities are merely taking measures which may enable them to obtain payment of the separate amounts of VAT due to them from those two taxable persons.
53 Having regard to all of the foregoing considerations, the answer to the question referred is that Article 205 of the VAT Directive, read in the light of the principle of proportionality, must be interpreted as not precluding a national practice which imposes on a taxable person, recipient of a supply of goods for consideration, a joint and several obligation to pay the VAT due from the supplier of those goods, even though the recipient of that supply of goods was refused the right to deduct the input VAT due or paid on the ground that he, she or it knew or ought to have known that he, she or it was participating in VAT evasion.
54 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.