Tax inspectors are becoming increasingly rigorous and demanding in the course of tax inspections, often causing difficulties even for companies being particularly careful. This means the judgements of the European Court of Justice (ECJ) are extremely important when faced with the sometimes excessive rulings of the Hungarian Tax Authority (NAV). In edition 2012/2 of Tax Bridge we reported on two earlier judgements that were significant (Mahagében and Dávid), but another two ECJ rulings have recently been adopted.
In case C-324/11 a building contractor (G. Tóth) working as a subcontractor employed an individual contractor for some building work. The tax authority wanted to reject G. Tóth’s right to deduct taxes based on a legitimate invoice, citing the fact that while the service had indeed been performed, the individual contractor licence of the supplier (issuer of the invoice) had previously been revoked, he had not settled his tax liabilities, and had employed personnel irregularly and without registering them for tax purposes. Similarly to the Mahagében and Dávid cases before, the ECJ confirmed that the tax authority cannot reject a right to deduct taxes without proving based on objective circumstances that the taxpayer making use of his tax deduction right knew or should have known he was taking part in tax fraud organised by some participant. If the invoice complies with the rules set forth in legislation and the directive, the withdrawal of the individual contractor’s licence does not revoke the taxpayer status of the person providing the service, and so making reference to this the tax authority may not refuse to allow the beneficiary of the service to deduct the tax charged in the otherwise legally compliant invoice received.
In case C-273/11, Mecsek Gabona Kft. sold rapeseed without VAT to an Italian customer who at the time the transaction was concluded had an Italian tax number, but later it was deleted with retroactive effect by the Italian tax authority; furthermore, the Italian company could not be found at its registered office and had not paid Italian VAT. Although Mecsek Gabona Kft. had the CMR waybills stamped and returned by the Italian client from Italy, and the goods had been handed over to a foreign-registered lorry as instructed by the customer, the tax authority took the view that Mecsek Gabona Kft. could not provide credible proof that the transaction in question qualified as an intra-Community supply of goods, and so Hungarian VAT had to be paid on the transaction. In its decision the European Court of Justice emphasised that a vendor acting in good faith and trusting official records cannot be refused VAT exemption due to the removal of a customer’s VAT identification number with retroactive effect. The European Court of Justice expressed no opinion regarding evidence (as that is for a court in the Member State to assess, according to the judgement), but it highlighted that objective evidence is required to prove that the taxpayer failed to fulfil its obligations as regards evidence, or that it knew or should have known that the transaction which it carried out was part of a tax fraud committed by the purchaser.