Denial of a right and extraterritoriality: strengthening the fight against tax fraud

Abstract

The judgment of the European Court of Justice C-131/13 of 2014, Italmoda, besides confirming the principles already established on the consequences arising from the participation of the taxpayer to a tax fraud on VAT, introduces the principle of the extraterritoriality of the effects of tax fraud in the hands of the traders. The partial fulfillment of the obligations of information, limited to the jurisdiction of origin, as part of a fraudulent plan is no longer sufficient to ensure the rights of the taxpayer in the country of establishment. Cooperation between member states must be understood as not limited to the activities of national administrations because in the case of evasion, avoidance or abuse interaction among different judicial entities is justified through the possibility of reviewing transactions carried out simultaneously to recover unlevied taxation through conduct that can be considered unlawful or contrary to the purposes of the Directive.

Notes

1 See point 31 of C-395/02, where it is stated that “the principle of the neutrality of the common system of VAT does not preclude a Member State from recovering VAT, after the event, from a taxable person which has wrongly invoiced a supply of goods as being exempt from that tax. It is irrelevant, in that regard, whether the VAT on the later sale of the goods concerned to the end user has been paid to the public purse or not”.

2 This aspect has been the subject of specific attention by Advocate General Pedro Cruz Villalon in the conclusions presented on 29 June 2010 in the R, C-289/09. In particular, paras 57 et seq of the Conclusions, where the concept is developed that the non-application of the exemption at the origin, as a result of fraudulent conduct, can undermine the general principles of VAT and, specifically, the principles neutrality and territoriality.

3 The quotation is a summary of points 15(1), 21, and 26 of the judgment under review.

4 See para 39 of the judgment in question.

5 Fraud, particularly carousel fraud, has to affect several parties involved in the chain of assignments that articulates in several member countries. In this way, the effects on the application of the tax and its neutrality manifest themselves in the hands of many people who knowingly or unknowingly take part in the chain of operations, in both intermediate and final aspects. To learn more about fragmentation of the effects of tax evasion see A Giovanardi, VAT Fraud. Profiles Reconstructive (Turin, 2013), p. 216.

6 COM(2012) 722 final, “Communication from the Commission to the European Parliament and the Council an Action Plan to strengthen the fight against tax fraud and tax evasion”. The attempt to prevent and react to such conduct was undertaken by the European legislator with Directives 42/2013/EC and 43/2013/EU enlarging the system of reverse charge and quick reaction mechanisms. Nationally, the directives have been transposed by the Law of Stability 2015; on their implementation, see P Centore, “'Split Payment’ and Extension of the Reverse Charge: an Attack to Concrete VAT Gap”, Corr. Trib. N. 43/2014, p. 3316.

7 On this topic please refer to the most recent judgments of the Court of Justice C-18/13, Maks Pen and C-285/11, Bonik.

8 See paras 56 and 60.

9 For a discussion on the guiding principles of the tax system of sanctions and the details of the penalties on VAT, see F Aquilanti, “Le sanzioni tributarie amministrative per le violazioni della disciplina IVA al vaglio europeo di proporzionalità”, in Rass. trib. n. 3/2014, p. 645. It should also be noted that in many member states the denial supports the penalty, on this see A Mondini, “Corresponsabilità tributaria per le evasioni Iva commesse da terzi”, in Rass. trib. n. 3/2014, p. 453.

10 Paragraph 47 of the judgment mentions the Commission's position on the impossibility of equating the right to reimbursement with the right of deduction or exemption because of its special nature compared with intra-Community transactions which would qualify it as a mere correction mechanism guarantee of neutrality, and not an independent right guaranteed to the taxpayer. The dismissal by the court and the Advocate General of this assumption is to be considered acceptable, as even if the reimbursement is not intrinsic to the functioning of the intra-Community transactions, it is still a hypothesis of standard operation of the taxation mechanism designed to prevent the taxpayer bears the burden of the tax.

11 With regard to the comparison of the principles applied in the lawcase at the European and national level, see P Centore and E Qualizza, “The Responsibility of the VAT Trader Involved in the Fraud: a Step Towards Legal Certainty?”, in Corr. Trib. N. 21/2014, p. 1632.

12 See Supreme Court, 26 February 2014, n. 4609, “The transferee, in particular, has the burden of proving at least, in the alternative, of not having been involved in the legal situation of having been aware of prior transactions that occurred between the transferor and the issuer of the invoice in order to asset sold or, despite the possession cognitive ability appropriate to the professional activities on the occasion of the disputed transaction, of not being able to leave the condition of ignorance about the fraudulent nature of the transactions of the other persons connected to the transaction itself (Cass. 8132/11, 23074 / 12) ”.