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ABSTRACT
The requirement that taxable persons act in good faith first appeared in the Court of Justice’s case law in 1989. Given that there is an indisputable link between it and the rights to deduct input VAT, exempt intra-Community transactions and adjust improperly invoiced VAT, the requirement has potentially serious financial repercussions for taxable persons across the EU. However, as exemplified by the high number of preliminary references relating to the requirement, national courts have been slow to engage with the concept. This article comprehensively evaluates the VAT requirement. It determines its application and categorises the legal standard within the VAT system of rules. It highlights the competing interests of fiscal neutrality and third party liability for VAT losses, and the role the requirement has assumed in this regard. Finally, as a means of ensuring legal certainty, the article calls for the formalisation of the requirement at an EU level.
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No potential conflict of interest was reported by the author.
Notes
1 See, for example, Paolo Centore, ‘Personal Responsibility of Traders in Relation to VAT Fraud: The Bonik Case’ (2013) World Journal of VAT/GST Law, 2:1, 59; Krzysztof Lasiński-Sulecki, ‘Looking for Taxable Persons’ Good Faith – the Stehcemp Case’ (2016) International VAT Monitor, 113; Redmar Wolf, ‘Mecsek-Gabona: The Final Step of the ECJ’s Doctrine on Reliance on EU Law for Abusive or Fraudulent Ends in the Context of Intra-Community Transactions’ (2013) International VAT Monitor, 280. Articles discussing missing trader fraud often touch on the subject of the good faith requirement, see for example, Christian Amand and Kris Boucquez, ‘A New Defence for Victims of EU Missing-Trader Fraud’ (2011) International VAT Monitor, 234; Joep Swinkles, ‘Carousel Fraud in the European Union’ (2008) International VAT Monitor 103.
2 Case C-454/98 Schmeink & Cofreth and Strobel [2000] ECLI:EU:C:2000:469, para 30.
3 Case C-24/15 Plöckl [2016] ECLI:EU:C:2016:791.
4 Case C-342/87 Genius Holding v Staatssecretaris van Financien [1989] ECLI:EU:C:1989:635, para 5.
5 Ibid, para 6.
6 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax [2006] OJ L347/1.
7 Genius Holding (n 4), para 12.
8 Ibid, para 18.
9 Schmeink & Cofreth (n 2), para 30.
10 Ibid, para 58.
11 Ibid, para 32.
12 Case C-224/01 Köbler [2003] ECLI:EU:C:2003:513.
13 Paul Craig and Gráinne de Búrca, EU Law: Text, Cases and Materials (Oxford University Press, 6th edn 2015), 255.
14 Case C-354/03 Optigen [2006] ECLI:EU:C:2006:16, para 2.
15 Ibid, para 29.
16 Case C-354/03, Optigen [2005] ECLI:EU:C:2005:89, Opinion of AG Poiares Maduro.
17 Optigen (n 14), para 47.
18 Optigen, Opinion of AG Poiares Maduro (n 16), para 26.
19 Ibid, para 52.
20 Case C-439/04 Kittel [2006] ECLI:EU:C:2006:446.
21 Ibid, para 24.
22 Ibid, paras 27–28.
23 Ibid, para 51.
24 Ibid, para 53.
25 Ibid, para 56.
26 Case C-78/02 Karageorgou [2003] ECLI:EU:C:2003:604.
27 Ibid, para 13.
28 Ibid, para 41.
29 Ibid, para 52.
30 Case C-146/05 Collée [2007] ECLI:EU:C:2007:549, para 34; see Schmeink & Cofreth (n 2), paras 60–61.
31 Collée (n 30), para 35.
32 Ibid, para 38.
33 Ibid, para 38.
34 Ibid, para 40.
35 A CMR is a dispatch note, drawn up on the basis of the Convention on the Contract for the International Carriage of Goods by Road, signed at Geneva on 19 May 1956, as amended by the Protocol of 5 July 1978 (Case C-409/04 Teleos [2007] ECLI:EU:C:2007:548, para 15).
36 Teleos (n 35), para 44.
37 Case C-273/11 Mecsek-Gabona [2012] ECLI:EU:C:2012:547. For a comprehensive evaluation of the judgment see Wolf (n 1).
38 Case C-80/11 Mahagében and Dávid [2012] ECLI:EU:C:2012:373, para 52.
39 Ibid, para 53.
40 Mecsek-Gabona (n 37), para 20.
41 Mecsek-Gabona (n 37), para 53.
42 See Kittel (n 20), para 51.
43 See Mahagében (n 38), para 53.
44 C-324/11 Tóth [2012] ECLI:EU:C:2012:549.
45 Ibid, para 42.
46 Iibid, para 45.
47 Ibid, para 43.
48 Ibid, para 44.
49 Case C-285/11 Bonik [2012] ECLI:EU:C:2012:774.
50 Case C-642/11 Stroy Trans [2013] ECLI:EU:C:2013:54.
51 Case C-643/11 LVK-56 [2013] ECLI:EU:C:2013:55.
52 Case C-18/13 Maks Pen [2014] ECLI:EU:C:2014:69.
53 Following an audit, the Bulgarian tax authority took the view that a number of supplies of fuel made to Stroy were not authentic and sought to refuse Stroy the right to deduct input VAT. It was held by the CJEU that ‘if, in the light of fraud or irregularities … that transaction is considered not to have been actually carried out, it must be established, on the basis of objective factors and without requiring of the recipient of the invoice checks which are not his responsibility, that he knew or should have known that that transaction was connected with VAT fraud’ (Stroy Trans (n 50), para 52).
54 For two months in 2007, LVK, a Bulgarian agricultural producer, deducted input VAT on the basis invoices relating to the supply of goods from two other Bulgarian companies. The tax authorities carried out cross checks on the two suppliers and found that some documents contained mistakes, while others were never submitted. The tax authorities concluded that it was not established that the invoiced supplies had been carried out; therefore, the VAT had been improperly entered on the invoices at issue. Based on this evidence it sought to refuse LVK-56 the right to deduct. The CJEU’s reply was identical to its holding at paragraph 52 of Stroy Trans (n 50), above.
55 Case C-285/11 Bonik [2012] ECLI:EU:C:2012:774, paras 37–39.
56 Ibid, para 40.
57 Ibid, para 41.
58 Maks Pen (n 52), para 31.
59 Case C-277/14 PPUH Stehcemp [2015] ECLI:EU:C:2015:719, para 19.
60 Ibid, para 22.
61 Ibid, para 23.
62 Ibid, para 24.
63 The CJEU elaborated on this distinction in case C-590/13 Idexx Laboratories Italia [2014] ECLI:EU:C:2014:2429, paras 41–42.
64 Stehcemp (n 59), para 33.
65 Ibid, para 48.
66 Lasiński-Sulecki (n 1), 116.
67 Plöckl (n 3), para 24.
68 Idexx Laboratories Italia (n 63).
69 Ibid, para 41.
70 Ibid, para 42.
71 Plöckl (n 3), para 27.
72 Ibid, para 12.
73 Ibid, para 37.
74 Ibid, para 38.
75 Ibid, para 39.
76 Ibid, paras 43–46 (emphasis added).
77 Ibid, para 51.
78 Case C-587/10 VSTR [2012] ECLI:EU:C:2012:592, para 58.
79 Plöckl (n 3), para 54.
80 Ibid, para 55.
81 Case C-285/09 R [2010] ECLI:EU:C:2010:742.
82 Case C-131/13 Schoenimport ‘Italmoda’ Mariano Previti [2014] ECLI:EU:C:2014:2455.
83 R (n 81), para 17.
84 Ibid, para 18.
85 Ibid, para 19.
86 Ibid, para 20.
87 Ibid, para 21.
88 Ibid, para 48.
89 Italmoda (n 82), para 41.
90 Ibid, paras 43–44.
91 Ibid, para 47.
92 Ibid, para 50.
93 Ibid, para 51.
94 Case C-255/02 Halifax [2006] ECLI:EU:C:2006:121, para 76.
95 Ronald Dworkin, Taking Rights Seriously (Duckworth 1977), 22.
96 Rita de la Feria, ‘Prohibition of Abuse of (Community) Law – The Creation of a New General Principle of EC Law through Tax?’ (2008) Common Market Law Review 395, 435.
97 See Xavier Groussot, ‘General Principles and the Many Faces of Coherence: Between Law and Ideology in the European Union’ in Ulf Bernitz, Xavier Groussot and Felix Schulyok (eds), General Principles of EU Law and European Private Law (Wolters Kluwer 2013), 2; Takis Tridimas, General Principles of EU Law (Oxford University Press, 2nd edn 2006), 17.
98 There is debate on whether the principle of fiscal neutrality has achieved the status of a general principle of EU law, or if it is merely a principle. While this distinction is not relevant to the discussion on good faith, Amand provides an interesting insight on this issue in his article ‘VAT Neutrality: a Principle of EU Law or a Principle of the VAT System?’ (2013) World Journal of VAT/GST Law, 163.
99 Dworkin (n 95), 24.
100 Ibid.
101 Ibid, 27.
102 Ibid, 28.
103 Lasiński-Sulecki (n 4), 113.
104 Genius Holding (n 4), para 18.
105 Schmeink and Cofreth (n 2), para 30.
106 Collée (n 30), para 35.
107 Case C-271/06 Netto Supermarkt [2008] ECLI:EU:C:2008:105, para 23.
108 In EMAG (Case C-245/04 EMAG Handel Eder [2006] ECLI:EU:C:2006:232) the Austrian tax authority sought to treat an intra-Community supply and the subsequent domestic supply of goods as the one transaction in order to hold the first acquirer of the goods responsible for remitting the VAT to the Austrian authorities. The CJEU held that this would be illogical and contrary to the arrangements for the taxation of trade between Member States (para 37).
109 Federation of Technological Industries (Case C-384/04 Federation of Technological Industries [2006] ECLI:EU:C:2006:309) concerned the unsuccessful enactment of legislation in the UK rendering a taxable person jointly and severally liable for unpaid VAT in respect of a supply where that taxable person knew, or had reasonable grounds to suspect, that some or all of the VAT payable in respect that supply, or any previous or subsequent supply, would go unpaid. See also Magdalena Małecka ‘Not Your Business but Your Liability: New VAT Third Party Liability in Poland’, (2013) World Journal of VAT/GST Law, 2:3, 253 on similar Polish legislation.
110 Optigen, Opinion of AG Poiares Maduro (n 16), para 42.
111 Teleos (n 35), para 60.
112 Ben Terra, VAT: The Case of VAT in the EU (Lund University, Series on International Indirect Tax, vol 5, 2010), 7.
113 TFEU, Article 253.
114 Consolidated Version of the Treaty on the Functioning of the European Union [2016] OJ C202/47.
115 Article 21(1) of the Constitution of Ireland states that only Dáil Éireann, the directly elected House of Parliament, may initiate and amend Money Bills. In the UK, by a resolution in 1678, the House of Commons is regarded as having sole competence in matters that relate to raising revenue and choosing how to distribute it. UK Parliament <https://www.publications.parliament.uk/pa/ld201011/ldselect/ldconst/97/9703.htm#note2> accessed 07 May 2017.
116 Tridimas (n 97), 12.
117 Teleos (n 35), para 48.