Case C‑537/22

Global Ink Trade Kft.

v

Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága

(Request for a preliminary ruling from the Fővárosi Törvényszék)

Judgment of the Court (First Chamber) of 11 January 2024

(Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Refusal of the right of deduction – Obligations of taxable persons – Duty of diligence – Burden of proof – Principles of fiscal neutrality and legal certainty – Primacy of EU law – Conflict between the case-law of a national court and EU law)

1. EU law – Primacy – Decisions of the supreme court of a Member State contrary to the interpretation of provisions of EU law provided by the Court – National legislation requiring the courts of that Member State to comply with those decisions – Unlawful – Interpretation by the Court in the form of a reasoned order under Article 99 of the Rules of Procedure instead of a judgment – Irrelevant – National legislation requiring the courts of that Member State to state reasons for any departure from a ruling by the supreme court – Whether permissible

   (Art. 267 TFEU)

   (see paragraphs 23-30, operative part 1)

2. Harmonisation of fiscal legislation – Common system of value added tax – Deduction of input tax – Right of deduction – Measures taken by the Member State to ensure the correct collection of tax and to prevent evasion – Whether permissible – Condition – Observance of the principles of fiscal neutrality and legal certainty – Lack of diligence by the taxable person in respect of those measures – Refusal of the right of deduction

   (Council Directive 2006/112, Arts 167, 168(a), 178(a), and 273, first para.)

   (see paragraphs 35, 36, 41-46, 49, 50, 52, operative part 2)

3. Harmonisation of fiscal legislation – Common system of value added tax – Deduction of input tax – Refusal on the ground that the supplies of goods have not actually been carried out, as a result of fraud and irregularities – Taking of evidence – Use of the rules of evidence laid down in national law – Limit – Observance of the effectiveness of EU law

   (see paragraph 38)

4. Harmonisation of fiscal legislation – Common system of value added tax – Deduction of input tax – Right of deduction – Refusal on the ground that a taxable person was connected with tax evasion – VAT carousel fraud – Evidentiary requirements – Tax authority merely establishes that the transaction in question forms part of a circular invoicing chain – Not permissible – Obligations on the tax authority to establish fraud to the requisite legal standard – Accurate description of the constituent elements of the fraud – Proving fraudulent conduct and active participation in fraud

   (see paragraph 58, operative part 3)

Résumé

In a case concerning a refusal of the right to deduct VAT, the Court of Justice clarifies the scope of the principle of the primacy of EU law in the event of a difference of opinion between the national courts as to the implications of the Court’s case-law, including where that case-law is in the form of orders under Article 99 of the Court’s Rules of Procedure. The Court also summarises the guidance contained in its case-law on the refusal of the right of deduction.

In the course of its wholesale business, the undertaking Global Ink Trade had made various purchases of office supplies, primarily from a supplier called Office Builder Kft.

As the result of checks carried out, the tax authority found that the supplier in question did not carry on any real economic activity and that it had not complied with its tax obligations. On account of uncertainty as to the true identity of that supplier, that tax authority found that the supplies of goods invoiced to Global Ink Trade had not taken place, and that accordingly credence could not be given to the invoices submitted by that undertaking. The tax authority therefore refused Global Ink Trade the benefit of the right to deduct the VAT relating to those invoices, including on the ground that, by failing to obtain sufficient information about the true identity of its supplier and the latter’s compliance with its tax obligations, it had not acted with due diligence in carrying on its activity. In those circumstances, the tax authority found that Global Ink Trade had committed passive tax evasion.

Global Ink Trade brought an action before the Fővárosi Törvényszék (Budapest High Court, Hungary), which is the referring court.

By virtue of the national legislation, the referring court considers itself to be bound by earlier legal rulings of the Kúria (Supreme Court, Hungary) which, according to the referring court, restrict the right to deduct VAT by requiring all taxable persons to carry out complex and far-reaching checks as to their suppliers, in particular as regards whether those suppliers have complied with their obligations to declare and to pay VAT.

The referring court finds that the Court has interpreted the relevant provisions of Directive 2006/112 ( 1 ) in similar cases, ( 2 ) from which it can be seen that a taxable person who exercises the right to deduct VAT cannot be required to carry out such checks. Notwithstanding that interpretation of EU law provided by the Court, the Kúria (Supreme Court) has continued to apply its case-law as it existed prior to those decisions, on the ground that the Court’s decisions, made in the form of orders under Article 99 of its Rules of Procedure, are not capable of containing new elements for the interpretation of EU law.

Against that background, the tax authority, likewise, has continued to impose requirements that are incompatible both with the provisions of the VAT Directive, as interpreted by the Court, and with a circular aimed at taxable persons published by that authority.

In those circumstances, the referring court decided to ask the Court:

Findings of the Court

As regards, in the first place, the application of the principle of the primacy of EU law, the Court points out that the principle requires a national court to disregard the rulings of a higher national court if it considers, in the light of the interpretation of the provisions of EU law provided by the Court, that those rulings are not consistent with EU law, if necessary by refusing to apply the national rule requiring it to comply with the decisions of that higher court.

In order to give full effect to EU law, the national court must therefore, if necessary, alter established case-law that is based on an interpretation of national law incompatible with EU law, and must apply an interpretation of EU law apparent from clear case-law of the Court. It is irrelevant that the Court’s case-law in question may be in the form of a reasoned order under Article 99 of the Court’s Rules of Procedure, which has the same scope and effect as a judgment. A national court may not therefore disregard an order on the ground that, unlike a judgment, it contains no new elements for the interpretation of EU law.

In the second place, the Court clarifies that the right to deduct VAT may be refused on the ground of alleged lack of diligence by the taxable person not only where the taxable person him or herself has committed VAT fraud, but also where it is objectively established that the taxable person knew or ought to have known that, through the purchase of the goods or the services on the basis of which the right of deduction is claimed, he or she was participating in a transaction connected with such fraud.

Since a refusal of the right of deduction is an exception to the application of the fundamental principle constituted by that right, tax authorities must, subject to review by national courts, and in accordance with the rules of evidence under national law, establish to the requisite legal standard the objective evidence from which it may be concluded that the taxable person is connected with VAT fraud.

In that context, only the referring court has jurisdiction to assess whether, in the light of the circumstances of the particular case, the taxable person concerned has exercised sufficient diligence and has taken the measures which may reasonably be required of him or her to satisfy him or herself that, through his or her acquisition, he or she has not participated in a transaction connected with fraud committed by a trader at an earlier stage of a transaction.

In this respect, a Member State is entitled to publish a circular in order to specify the level of diligence required and to guide the tax authorities in their assessment, provided that such a circular does not systematically undermine the right to deduct VAT and, consequently, the neutrality of VAT, and provided it does not undermine the effectiveness of EU law as regards the taking of evidence in connection with VAT fraud.

Specifically, the tax authority may not, by means of such a circular, require taxable persons to carry out complex and far-reaching checks of their suppliers – and in particular to check whether their suppliers have fulfilled their obligations to declare and pay VAT – which would have the effect of indirectly transferring to the taxable person the investigative tasks which are in principle the responsibility of the tax authority.

Such a circular must also accord with the principle of legal certainty. It is therefore for the referring court to determine whether the circular aimed at taxable persons published by the tax authority was worded unequivocally, whether its application was foreseeable by those subject to it and whether the requirements imposed by the tax authority in the exercise of its powers conflicted with the circular.

As regards, in the third place, whether a taxable person may be refused the right to deduct VAT in the context of a VAT carousel fraud, the Court notes that the tax authority must adduce sufficient evidence to establish objectively the existence of fraud and of fraudulent conduct by the taxable person, thereby precluding the use of assumptions or presumptions.

The tax authority may not, therefore, merely establish that the transaction carried out by the taxable person forms part of a circular invoicing chain. Establishing the existence of the fraud and of the taxable person’s participation in that fraud does not however necessarily entail identifying all the operators involved in the fraud and their respective conduct.

( 1 ) Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) (‘the VAT Directive’).

( 2 ) Orders of 3 September 2020, Vikingo Fővállalkozó (C‑610/19, EU:C:2020:673), and of 3 September 2020, Crewprint (C‑611/19, EU:C:2020:674).