VAT deduction in chain supply. Need to demonstrate abusive practice. Judgment of the ECJ “SIA KURSU ZEME”


The main proceedings (C-273/18) relates to the refusal, by the Latvian Tax Administration, of the VAT deduction by a company that acquires goods from the last supplier of a chain supply, where there is only one intra-community transport of the goods.

Kursu Zeme is a Latvian company that deducted the VAT incurred in the acquisition of goods from another company established in Latvia. The peculiarity is that these acquisitions occurred after a chain of successive sales involving more companies, so that the first supplier was a company established in Lithuania who sold the goods to two companies established in Latvia, who sold the goods to another Latvian company. Subsequently, the latter company sold the goods to the supplier of Kursu Zeme who finally sold them to the latter. However, the goods were transported by Kursu Zema from Lithuania to its factory in Latvia.

Due to the high number of participants in the chain supply and the lack of logic, the Administration considered that the intermediaries did not carry out any activity and that Kursu Zeme actually acquired the goods directly from the first supplier in Lithuania, qualifying these purchases as intra-community acquisitions of goods. Therefore, it regularized its VAT situation by increasing the VAT accrued for intra-community acquisitions of goods and simultaneously reducing the input VAT quota by that amount.

However, alleging that in carrying out the operations in this way no tax advantage had been obtained, together with the proof from the Tax Administration proving that tax advantage, the company appealed the resolution, so that the Supreme Court of Latvia raised the consultation to the Court of Justice of the EU (ECJ) asking, in essence, “whether Article 168(a) of the VAT Directive must be interpreted as meaning that, for the purposes of refusing the right to deduct input VAT, the fact that an acquisition of goods took place at the end of a chain of successive sale transactions between several persons and that the taxable person acquired possession of the goods concerned in the warehouse of a person forming part of that chain, other than the person mentioned as supplier on the invoice, is in itself sufficient to find the existence of an abusive practice on the part of the taxable person or the other persons participating in that chain, or whether it is also necessary to establish in what the undue tax advantage allegedly obtained by that taxable person or those other persons consisted”.

In this regard, the ECJ recalls that it is the decision of the national courts to deny the right to deduction when it is proven, through objective data, that a fraudulent or abusive practice has been carried out. In addition, the Court itself has stated that there are two conditions that must be met for the existence of an abusive practice: on the one hand, that the operations result in obtaining a tax advantage whose concession would be contrary to the objective of the legal provisions and, on the other hand, that from the objective elements it turns out that the purpose of the operations was only to obtain said fiscal advantage.

In this case, the existence of chain successive sales, so that the goods are not acquired directly from the person who issued the invoice, does not necessarily imply fraud and does not necessarily result in abusive practice, as there may be other reasons. Likewise, it is not necessary the first acquirer to be the owner of the goods at the time of transport. In addition, the Tax Administration has not proven what the tax advantage is, so it cannot be concluded that the operation between the last supplier and Kursu zeme has not taken place. The fact that the acquisition of goods occurs after a chain of sales and the possession of the goods took place at the facilities of the first supplier, other than the one that appears on the purchase invoice, is not in itself sufficient to confirm the existence of an abusive practice. In conclusion, it cannot be denied the right to deduction.

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