The direct application of the EU VAT Directive by the Tax Authorities may not be invoked to demand the payment of the VAT wrongly charged. Judgment of the Court
This judgment of the Central Economic-Administrative Court reiterates the criteria maintained by this Court and in the case-law of the Court of Justice of the EU in relation to the right of the tax administration to invoke a rule contained in the EU VAT Directive but which has not been transposed to the Spanish tax legislation.
The case refers to a first settlement issued by the tax administration where were denied the right to deduction of VAT quotas borne in so far as the taxpayer did not prove that the acquisition of goods and services was carried out with the intention of affecting them to the exercise of an economic activity and, therefore, claimed the taxpayer that, in such a case, should not become due the VAT of the sales made since they would be exempt pursuant to article 20.One.25º of the VAT law.
In this sense, shall be mentioned that article 20.One.25º of the law on VAT states exempt from VAT:
“Supplies of goods whose acquisition, affectation or import or that of its components would have determined the total exclusion of the right to deduct in favour of the transferor pursuant to articles 95 and 96 of this Act”.
That is, this refers to a technical exemption which basically states that if VAT borne in the acquisition of goods cannot be deducted because not being subject to any economic activity, its subsequent sale is not subject to VAT, since otherwise it would be producing a double taxation by considering the taxable person as a final consumer because of demanding the output VAT and not allowing the deduction of input VAT.
The Court TEAC did support the appeal of the taxpayer and cancels the liquidation done by the tax administration, and then, once again, the Tax Administration proceeded to issue a new settlement claiming to the taxpayer the VAT from the sales by application of the principle “responsible for the shortage of tax revenue” as provided in article 203 of the VAT Directive. Before this new settlement, the taxpayer claims before the Court that article 203 of the VAT Directive has not been incorporated into the Spanish legislation, so cannot force a person to pay the VAT charged to the extent that such VAT has not become due since the transaction is not subject to VAT.
Before this new situation, the Court fully estimated the claims of the taxpayer, in the sense that the Tax Administration is not entitled to invoke a European rule which has not been transposed into the domestic law. Thus, mentioned the Court that, effectively, article 203 of the VAT Directive establishes the possibility for claiming to the taxable person the output VAT even though it was undue in cases in which the actions of the taxpayer derives in a loss of tax revenue, but this rule is not contemplated in the national legislation, which refers in all cases to the obligation to pay the VAT accrued and not the VAT charged.
In relation to the so-called ‘ascending vertical direct effect’, the Community Law’s provision and the case law of the European Court of Justice already has clarified on numerous occasions that this effect is one that allows individuals to invoke directly before a national jurisdiction national or European Community legislation, in such a way that they do not have why to withstand the adverse effects of an internal rule contrary to the Directive , and descending ‘vertical direct effect’ is not admissible in any case in which a State has the possibility of invoking the provisions of a Directive not transposed or improperly transposed, so that obligations are generated for the individual against the State that did not implemented it in time or properly.
Attached is a copy, in Spanish language, of the judgement of the Court with resource number 05328/2012.