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The invoice is sufficient to deduct VAT – grounds for resumption of the proceeding and argument in the carousel case


On June 4, 2020, the Court of Justice of the EU (hereinafter: the CJEU, the Court) issued a judgment which is very favorable to VAT taxpayers in which it confirmed the right to deduct VAT only on the basis of an invoice, without the obligation to possess other documents confirming the actual nature of the transaction, or without the need to verify the contractor for his hypothetical tax offense. The case concerns the decision of the Romanian tax authority, which stated the artificiality of the taxpayer’s commercial transactions on the basis of the lack of presentation of evidence of transactions other than the invoice received from the contractor and therefore imposed a penalty on the taxpayer.

The Romanian administrative court asked the CJEU whether there was a need to annul the decision of the tax authority due to breach of the right of defense in the given case and whether it is justified to refuse the right to deduct VAT to a taxpayer who has no other evidence of the actual nature of the transaction besides the invoice – there is no specification in the national tax legislation as to what evidence it may be.

The CJEU recalled that the right of defense is a principle of European Union law and should be used whenever the authority takes an unfavorable decision to a person. The punished person should be listened to and given the opportunity to state his position. Upon submission of the application, he should receive access to information and documents contained in the files of the administrative case.  

The CJEU ruled that in the light of European Union law, an invoice is sufficient evidence that the taxpayer can exercise the right to deduct VAT and reminded that this is the basic right on which the Community VAT system is based. The CJEU stressed that combating tax fraud is also an important goal The European Union and national authorities have the right to refuse the right to deduct tax if there is objective evidence and it is shown that this right is the result of fraud or abuse, which the taxpayer knew or should have known as a participant in the transaction.

Importantly, CJEU once again confirmed that the taxpayer who is the recipient of the invoice is not obliged to examine whether the transaction was associated with VAT fraud – there is no obligation to investigate whether the invoice issuer has the goods, has the ability to deliver them or whether they submit tax returns. It is for the national court to determine the objective evidence as to whether there is a tax fraud in specific cases, as EU law does not provide for rules on how evidence is to be taken in cases of VAT fraud.

In the light of the principle of tax neutrality and legal certainty, the CJEU states that the unproven suspicions of the national tax authority as to the actual nature of transactions do not allow the taxpayer to be denied the right to deduct VAT when he is unable to provide evidence of the actual nature of the transaction other than the invoice.

Such a ruling is good news for taxpayers and is a favorable interpretation of the law for them.

Publication and effects

For now, the Court’s judgment has the form of a temporary edition and is not officially published in the Journal of Laws.

However, it should be remembered that the official publication of the judgment will open the time limit for resumption of tax proceedings (a month) or judicial-administrative proceedings (3 months) in order to raise negative decisions issued in carousel cases. There are thousands of such cases. The tax authorities in the overwhelming majority of carousel proceedings do not provide any evidence that the taxpayer knew or should have known about the fraud, but usually their own presumptions are based on clues (not evidence) or even their own beliefs. It is also common to shift the burden of proving lack of knowledge about the illegal procedures to the taxpayer – which is often impossible.

Such categorical statement of the CJEU should allow to revise the decisions previously issued in analogous cases and the judgments that accepted them. Potentially, it may be more challenging to use this judgment in ongoing proceedings. Although it contains new and quite categorical wording, the tax office has so far practiced ignoring judgments favorable to taxpayers, accompanied with the unreflective acceptance in most of the administrative court wordings. Paradoxically, therefore, it is easier to change judgments with such a ruling than to convince the office or the court in the ongoing proceedings – which does not mean that you should not try.