ECJ’s Resolution, of December 18th, 2014. Italmoda. Refusal of VAT exemption, deduction and refund of VAT due to participation in fraudulent transactions
The judgment of the Court accumulates Cases C-131/13, C-163/13 and C-164/13, but it only decides on the first one and declares inadmissible the other two questions, by considering that both of them are hypothetical cases.
The facts refer to Italmoda, which is a Dutch company that did make transactions of computer equipment, which was acquired by the company in The Netherlands and Germany, and later sold to their taxable customers in Italy. The assets acquired in Germany were declared through its Dutch VAT identification number and shipped from Germany to Italy. Meanwhile, the company deducted the VAT on goods purchased in The Netherlands.
However, the company did not declare both, the intra-Community supply of goods in Germany and the intra-Community acquisition of goods in the Netherlands, besides in Italy the recipients neither declared nor paid the intra-Community acquisition of goods.
The Dutch Tax Authorities considered that Italmoda participated in a so called “carousel” fraud of VAT, so was denied the right to the exemption for intra-Community sales from The Netherlands to Italy, the right to deduct the VAT borne in the acquisition of the goods and the right to refund of VAT paid on goods dispatched from Germany. It accordance with the above, it is asked to the Court whether, as a result of participation in fraud, the national authorities can refuse exemption, the right to the deduction and the right to refund of VAT, assuming that national law does not provide for denial of these rights in such circumstances of participation in fraud.
The Court begins by recalling that the Case-Law has already ruled in the sense that it is on the hands of the national authorities to deny such rights where it is demonstrated that they are invoked in a fraudulent or abusive way, with regard to the deduction of VAT and the applying of a VAT exemption. In this regard, the Court mentions that “the specific function corresponding to the right to refund of VAT, to ensure the neutrality of this tax, cannot be opposite to the denial of this right to a taxpayer in that case”, so it must be refused such rights not only when the taxpayer commits tax fraud, but also when it knew or should have known that participated in an transaction that was part of a VAT fraud.
This denial reflects the principle that no one can take advantage in a fraudulent or abusive way of any standards of EU law, so that the objective criteria for granting these rights are not met due to fraud affecting the transaction performed.
The Court also concludes by mentioning that these rights can be denied even though that fraud was committed in a Member State other than that in which the rights were requested and despite having completed the taxpayer in that State the formal requirements of national legislation.