The concept of due diligence or good faith of a taxpayer in the context of tax fraud has recently been the subject of a number of comments, also by means of guidance to the authorities on the examination of due diligence of taxpayers. However, the question arises whether, if the supply did not occur at all, i.e.
it did not actually take place, in such a situation, the authority should continue to examine the taxpayer's due diligence, or whether it can refuse the right to charge, simply proving that the transaction did not actually take place.
EU Court of Justice two cases relating to the deduction of VAT where the authorities prove that the goods allegedly purchased by the taxable person have not been supplied at all. The investigation carried out by the tax authority showed not only the lack of supply of allegedly acquired equipment, the lack of installation of the disputed equipment, but also a number of deficiencies on the part of that company, such as the lack of payment of the amount from the invoice, the lack of payment of the deposit and rent provided for by the lease agreement with tenant equipment and lack of verification of the actual existence of equipment.
If there is no actual supply of goods or the actual provision of services, no right of deduction may arise
In such a situation, the referring court wondered whether, in order to deny the taxable person the right to deduct VAT, it was sufficient to demonstrate that the goods or services were not actually supplied to him or her (actually, rather than on the basis of the legal fiction which applies to VAT fraud cases) or whether it should also be demonstrated that the taxable person knew or should have known that the transactions concerned were involved in VAT fraud.
The Court held that, in order to deny the taxable person receiving the invoice the right to deduct the VAT shown on that invoice, it was sufficient for the authority to establish that the transactions to which the invoice corresponds were actually not carried out. The good or bad faith of the taxable person who requests the deduction of VAT does not affect this.
The CJEU clearly indicated that if there is no actual supply of goods or the actual provision of services, no right of deduction may arise and the existence of a right of deduction of VAT is subject to the condition that the relevant transactions have actually been carried out.
Delivery or absence of delivery is an objective premise which is independent of the intent of the taxable person or of other entities in the same supply chain. The tax authority is therefore not obliged to examine the good faith of the taxable person when it is shown that there has been no supply of goods or services.
Judgment of 27 June 2018 in the combined cases of French SGI and Valeriane SNC (Cases C-459/17 and C 460/17).
Author: Bartosz Nawrot
Legal consultant associated with the law firm Russell Bedford Poland 2018.