VAT Newsletter 2/2014
The European Court of Justice (“ECJ”) has ruled on case C-323/12 (E.ON)
The dispute in this case refers to the Romanian tax authorities’ refusal to approve the VAT deduction right related to the acquisitions performed by E.ON Global Commodities SE (“E.ON” or “the Company”) in Romania.
E.ON, a company established in Germany, carries out activities in the energy sector, being on the Romanian market since 2005.
According to the provisions in force until 2007, E.ON assigned in Romania a fiscal representative (“the Fiscal representative”). Although such liability was abolished since the Romania’s accession to the European Union, the mandate of the Fiscal representative continued after this moment.
Thus, the Fiscal representative received on behalf of the Company, invoices bearing VAT and deducted such VAT.
The fiscal authorities rejected the VAT deduction right based on the ground that E.ON no longer performs activities in Romania for which it is liable to pay VAT. In this respect, has been issued the decision of the High Court of Cassation and Justice.
The tax authorities rejected the VAT refund request submitted as per the provisions of the Eighth Directive, as the legal conditions required for such cases were not fulfilled.
ECJ concluded that the provisions of the Eighth Directive must be interpreted as meaning that a taxable person established in one Member State and who has made supplies of electricity to taxable dealers established in another Member State has the right to rely on the Eighth Directive in the latter State in order to obtain a refund of input VAT. That right is not precluded merely by the designation of a fiscal representative who is identified for VAT purposes in the latter State.
The dispute in this case refers to the Romanian tax authorities’ refusal to approve the VAT deduction right inscribed on the invoice received for the construction and assembly works contracted by Fatorie SRL (“Fatorie” or “the Company”) in 2007, for which the simplification measures were applicable.
Initially, the tax authorities approved the VAT deduction right related to the final invoice received by the Company, but subsequently revoked this decision based on the fact that the VAT simplification measures were not properly applied for the services rendered and the Supplier went bankrupt and did not pay to the State Budget the VAT invoiced to the Company.
ECJ concluded that the provisions of the VAT Directive and of the principle of fiscal neutrality do not preclude the recipient of the services from being deprived of the right to deduct the VAT which he paid when that tax was not due to the service supplier on the basis of an incorrectly drawn up invoice, even where the correction of that error is impossible because that supplier is insolvent.
Also, the principle of legal certainty does not preclude an administrative practice of the national tax authorities whereby, within a limitation period, they revoke a decision by which they granted the taxable person the right to deduct VAT and then, following a fresh investigation, order him to pay that tax together with default interest.
The dispute in this case refers to the Bulgarian tax authorities’ refusal to approve the reimbursement of the VAT related to certain invoices received by Maks Pen EOOD (“Maks Pen” or “the Company”) for the supply of services from part of its suppliers.
The fiscal authorities rejected the deduction right of the VAT related to invoices issued by seventh of the Company’ suppliers, on the following grounds:
- the supplier mentioned on the invoice or its subcontractor has not available the necessary human and material resources for the supply of services;
- the supplier did not register in its books/fiscal statements the invoices representing the costs incurred for the performance of the supply of services towards the Company;
- one cannot prove the validity of the signature of the suppliers’ representatives as inscribed on the documents issued to the Company;
ECJ concluded that the provisions of the VAT Directive must be interpreted as precluding a taxable person from deducting the VAT included in the invoices issued by a supplier under the facts mentioned above, with the twofold condition that such facts constitute fraudulent conduct and that it is established that the taxable person knew or should have known that the acquisition performed was connected with a VAT fraud.
ECJ concluded that the national courts must or may rise of their own motion points of law based on binding rules of national law, they must do so in relation to a binding rule of the European Union law such as that which requires that the national courts and authorities refuse entitlement to the right to deduct VAT where it is established, in the light of objective evidence, that that right is being relied on for fraudulent or abusive ends.
ECJ concluded that the provisions of the VAT Directive must be interpreted as not precluding to a Member State from requiring that any taxable person observe all the national accounting rules consistent with international accounting standards, provided that the measures adopted to that effect do not go beyond what is necessary to attain the objectives of ensuring the correct levying and collection of the VAT and preventing tax evasion. The VAT Directive precludes a national provision according to which a service is deemed to have been supplied at the time when the conditions governing recognition of the revenue arising from that service are satisfied.