ECJ Sixth VAT Directive – Deduction of input tax – ‘Carousel’ fraud – Contract of sale incurably void under domestic law.
The right of a taxpayer to deduct Input Tax may be refused if: ‘it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT.’
Where it is ascertained, having regard to objective factors, that a recipient of a supply of goods is a taxable person who knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, it is for the national court to refuse that taxable person entitlement to the right to deduct VAT he has paid: ‘an analysis of the terms ‘supply of goods effected by a taxable person acting as such’ and ‘economic activities’ shows that those terms, which define taxable transactions for the purposes of the Sixth Directive, are objective in nature and apply without regard to the purpose or results of the transactions concerned (see, to that effect, Joined Cases C-354/03, C-355/03 and C-484/03 Optigen [2006] Ch 218, paras. 43 and 44).
traders who take every precaution which could reasonably be required of them to ensure that their transactions are not connected with fraud . . must be able to rely on the legality of those transactions without the risk of losing their right to deduct the input VAT (see, to that effect, Case C-384/04 Federation of Technological Industries [2006] STC 1483, para. 33).
By contrast, the objective criteria which form the basis of the concepts of ‘supply of goods effected by a taxable person acting as such’ and ‘economic activity’ are not met where tax is evaded by the taxable person himself (see Case C-255/02 Halifax and Others [2006] Ch 387, paras. 59).
Where the tax authorities find that the right to deduct has been exercised fraudulently, they are permitted to claim repayment of the deducted sums retroactively (see, inter alia, Case 268/83 Rompelman [1985] 2 CMLR 202, para. 24; Case C-110/94 INZO [1996] STC 569, para. 24; and Joined Cases C-110/98 to C-147/98 Gabalfrisa [2002] STC 535, para. 46) . .
a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods.
That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice.
In addition, such an interpretation, by making it more difficult to carry out fraudulent transactions, is apt to prevent them.
Therefore, it is for the referring court to refuse entitlement to the right to deduct where it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, and to do so even where the transaction in question meets the objective criteria which form the basis of the concepts of ‘supply of goods effected by a taxable person acting as such’ and ‘economic activity”
C-439/04, [2006] EUECJ C-439/04
Bailii
European
Citing:
See Also – Axel Kittel v Belgian State; Belgian State v Recolta Recycling SPRL C-440/04 ECJ 6-Jul-2006
ECJ Sixth VAT Directive – Deduction of input tax – ‘Carousel’ fraud – Contract of sale incurably void under domestic law. . .
Cited by:
Cited – Mobilx Ltd and Others v HM Revenue and Customs; Blue Sphere Global Ltd v Same and similar CA 12-May-2010
Each company sought repayment of input VAT. HMRC refused, saying that the transactions were the end-product of a fraud on it, and that even if the taxpayer did not know that a fraud was involved, it should have been aware that one was and acted . .
Cited – Revenue and Customs v SED Essex Ltd ChD 14-Jun-2013
Liquidator confirmed despite VAT challege
The Revenue sought the winding up of the company for non-payment of substantial arrears of VAT. The revenue had declined to allow VAT input claims. The company said that the petition was wrong since the debt was genuinely disputed.
Held: The . .
Cited – Else Refining and Recycling Ltd v Revenue and Customs FTTTx 23-Jul-2012
VALUE ADDED TAX – MTIC – HMRC’s refusal to repay VAT on supplies connected with fraudulent VAT evasion – connection conceded by the appellant – only issues were whether the appellant knew or should have known of the connection – Axel Kittel v . .
Cited – Microring Ltd v Revenue and Customs (Value Added Tax – Kittel Denial of Input Tax) FTTTx 12-Jul-2019
VALUE ADDED TAX — Kittel denial of input tax – strike out applications – whether issue estoppel applies – no – whether HMRC should be barred from part of the proceedings – no – – whether Appellant’s appeal should be struck out in part – no – . .
Lists of cited by and citing cases may be incomplete.
VAT
Leading Case
Updated: 10 November 2021; Ref: scu.243021