“Should have known” test for VAT fraud covers all VAT rights

30 Dec 2014

Joined Cases C‑131/13, C‑163/13 and C‑164/13, Schoenimport and others, Court of Justice of the European Union (First Chamber), judgment 18 December 2014

These references to the CJEU concerned Articles 17(2) and (3) and 28b(A)(2) of the Sixth VAT Directive and whether Member States could refuse an exemption from or deduction or refund of VAT on the ground that a trader had participated in evasion of VAT, in circumstances where the goods were transported within the Community and the tax evasion was carried out in the Member State of arrival but that evasion was taken into account in the Member State of dispatch. Further, it was queried whether this could be done in the absence of specific provisions in national law.

The CJEU restated and reaffirmed its Kittel case law on the right to deduct in Missing Trader Intra-Community (MTIC) fraud cases in the context of exemption of intra-Community supplies and that it is for the national authorities and courts to refuse such a right if it is shown, in the light of objective evidence, that it is being relied on for fraudulent or abusive ends. Further, that this is so regardless of whether tax evasion has been carried out by the taxable person itself or whether that person merely knew, or should have known, that, by the transaction concerned, it was participating in a transaction involving evasion of VAT carried out by any other trader acting upstream or downstream in the supply chain, and whether occurring in the same Member State or not.

Furthermore, this must be the case even if national law contains no rules which may be interpreted in accordance with the requirements of EU law to refuse such rights; express authorisation is not required for the national authorities and courts to be able to refuse a benefit under the common system of VAT as that consequence must be regarded as being inherent in the system.

Both the CJEU and the Advocate General stressed that these principles apply generally in the VAT system, irrespective of the particular VAT right affected by the fraud. Further, that such a refusal is not in the nature of a penalty or a sanction within the meaning of Article 7 ECHR or Article 49 of the Charter of Fundamental Rights.

Philip Moser QC and George Peretz acted for the United Kingdom.