Tax & Legal

In a Czech request for a preliminary ruling, the European Court of Justice (ECJ) dealt with the joint and several liability of the recipient of a supply who supposedly was involved in VAT fraud for VAT not paid by the supplier. According to the judgment of the ECJ, Article 205 of the VAT Directive does not prevent the recipient from being held liable under such circumstances.

Following a polish request for a preliminary ruling the European Court of Justice held that an employee using employer’s details to issue fake invoices is liable for VAT incurred thereon. Such is the case if the employer, who is a taxable person for VAT purposes, has exercised the due diligence reasonably required to monitor the conduct of its employee.

New transparency rules came into force on 1 January 2024 that will help EU Member States to crack down on Value-Added Tax (VAT) fraud.

Both the first and the second purchaser in a supply chain may be denied the deduction of input VAT in the full amount if they were aware of a VAT fraud. The alternative brought by the referring German Tax Court to limit the non-deductible input VAT amount to the actual tax loss suffered by the State was rejected by the ECJ.

In a preliminary request from Lithuania the European Court of Justice has ruled that it is contrary to EU law for the local tax authority to deny an input VAT deduction on the grounds of alleged abuse of rights solely because the seller is insolvent, and the buyer was aware of this situation.

In a Czech case the ECJ once again had the opportunity to comment on the material requirements for the deduction of input VAT. In the current case, the focus of the judicial review was on the ways to demonstrate and prove that the supplier of the service is a taxable person within the meaning of the VAT Directive.

The right to deduct input VAT is denied not only if the taxable person himself commits an evasion, but also if he is aware that he participated with his acquisition in a tax evasion. In the latter case the refusal of the input tax deduction is a consequence of the failure to comply with the responsibilities in suspect cases. The taxable person who knew or should have known that he or she was participating in a fraudulent transaction assists the perpetrators of that fraud and becomes an accomplice thereto. The European Court of Justice (ECJ) confirms its previous case law on this issue.

The Supreme Tax court has followed the ECJ in holding that the VAT-freedom of an intra-community delivery is dependent on the formal documentation requirements of the VAT Implementation Order, but is lost if the supplier knew of the customer’s intent to defraud.