Day 22 October 2015 The Court of Justice of the European Union (hereinafter: TEU) issued a judgment which may prove to be very important for taxpayers whose tax authorities have challenged the right to deduct input VAT.
The Court pointed out that the tax authorities cannot generally require the taxable person to examine whether the issuer of an invoice for the goods or services to be deducted has the goods in question and is able to deliver them and whether he is complying with the obligation to make a declaration and to pay VAT, in order to ensure that operators operating at earlier stages of the trade do not commit irregularities or offences, or that the taxable person has supporting documents.
In particular, taxable persons whose authorities have defined a tax liability in VAT or refused to return VAT due to irregularities found in the deduction of input tax, alleging participation in fictitious transactions or other tax frauds.
When analysing the activities of tax authorities, a growing tendency can be observed to determine a tax liability which is subsequently enforced by administrative execution or to refuse to make a VAT refund on grounds of generally ‘irregularities found in taxable customers’.
The tax authorities thus overly simplify the conduct of proceedings by applying a scheme of actions.
After first in the tax proceedings (or the control proceedings carried out by the UKS) shall include, in the light of evidence, tax decisions issued to other entities, the taxable counterparties in which they have determined VAT should be paid in the light of the irregularities found.
Subsequently, after such decisions have been included in the evidence, the tax authorities conclude very quickly that, since the taxable person’s taxable person has been determined to pay a tax to be paid in respect of fictitious purchases of goods which were subsequently sold to the taxable person, the taxable person should also be called into question the tax charged on invoices from those counterparties.
The reasoning of the tax authorities in such a situation boils down to the finding that since, according to the tax decision, the taxpayer's contractor did not have the goods (it follows from the decision that he was not entitled to deduct from the purchase of the goods), the taxable person could not have the goods either and that his tax on these purchases was also inflated.
The consequence of this simplified tax procedure is usually a decision determining the VAT to be paid, which also prejudges the refusal to return VAT.
In the judgment of 22 October 2015, The file number. C-277/14 (PPUH Stehcump sp.j. Florian Stefanek, Janina Stefanek, Jarosław Stefanek) TEU has, among others, touched upon the problem of limiting the taxpayer's right to deduct VAT resulting from invoices issued by entities where the tax authorities have found irregularities related to the supply.
The Court pointed out that the tax authorities cannot generally require the taxable person to examine whether the issuer of an invoice for the goods or services to be deducted has the goods in question and is able to deliver them and whether he is complying with the obligation to make a declaration and to pay VAT, in order to ensure that operators operating at earlier stages of the trade do not commit irregularities or offences, or that the taxable person has supporting documents.
The judgment in question may be an effective tool for the defence of taxable persons against adverse decisions in which tax authorities often lay down million VAT obligations, as well as blocking the reimbursement of VAT to taxable persons, in view of the challenge of transactions from which the return results.
Furthermore, which is very important, this judgment of the TEU can also constitute a condition for reopening proceedings which have already ended with final decisions.