The European Court pointed out that the taxpayer's good faith de facto does not affect the actual course of the transaction. Delivery or absence of delivery is an objective, independent of the intent of the taxable person or of other entities in the same supply chain.
On 27 June 2018 European Court of Justice of the European Union delivered a judgment in Joined Cases C 459/17 (SGI), C 460/17 (Valériane SNC) v French Minister for Public Actions and Accounts on Interpretation Article 17 sixth Directive 77/388 of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes (now Article 168 Directive 2006/112 of 28 November 2006) The purpose of the decision was to ask the French cassation court whether the taxable person could be denied the right to charge VAT without examining his good faith, where the tax authority found that the fraud was committed on the initiative of the issuer of the invoice, its consignee or person third, and the goods and services have indeed not been delivered or made to that taxable person.
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 investigation concerned two French law companies in which, in the course of the audit, the tax authority contested the right to deduct VAT on various invoices relating to the acquisition of inputs, inter alia, because those invoices did not correspond to any actual supply.
The Bordeaux Court did not believe in an explanation of the SGI which relied on its good faith, but did not question the fact that the numerous transactions did not lead to the actual supply of goods and did not examine their actual character.
As far as Valériane is concerned, the court held that the investigation by the tax authority allowed the lack of supply and installation of the equipment in question to be demonstrated and that there were a number of deficiencies on the part of the company, such as the lack of payment of the amount from the invoice, the lack of payment of the deposit and rent provided by the lease agreement with the equipment tenant and the lack of verification of the actual existence of the equipment.
From the above judgments, SGI and Valériane brought a cassation action before the Conseil d’État (French State Council) alleging that the Bordeaux court had not examined whether the companies knew or should have known that the transactions involved in VAT fraud.
In doubt, the Court of Cassation decided to suspend the proceedings and refer the case to the TEU.
The Court pointed out that the taxpayer’s good faith does not de facto affect the actual course of the transaction. 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. The right to deduct shall be granted on condition that the relevant transactions have been executed.
If there was no delivery, the taxpayer cannot defend himself with due care and good faith.
The CJEU therefore ruled that Article 17 sixth Directive 77/388 of 17 May 1977 it must be interpreted as meaning that, in order to deny the taxable person receiving the invoice the right to deduct the VAT shown on that invoice, it is sufficient for the tax authority to determine that the transactions to which that invoice corresponds have not actually been carried out.
Author:
Marcin Kołkowicz
Tax advisor, tax consultant at Russell Bedford Poland Sp. z o.o., graduate of the Administration, Management and Marketing of the Catholic University of Lublin named after John Paul II. The subject of tax law deals with from 2012. He gained experience in Lublin and in Warsaw tax advisory offices. Author and co-author of many tax publications, in particular for Tax and Tax Portal TaxFin.pl. In his career, he dealt with both direct and indirect taxation issues, with particular emphasis on VAT.