Ecotrade SpA v Agenzia delle Entrate - Ufficio di Genova 3.

• Jurisdiction: European Union
• Court: Court of Justice (European Union)
• Date: 08 May 2008

Joined Cases C-95/07 and C-96/07

Ecotrade SpA

v

Agenzia delle Entrate — Ufficio di Genova 3

(References for a preliminary ruling from the Commissione tributaria provinciale di Genova)

(Sixth VAT Directive – Reverse charge procedure – Right to deduct – Time-bar – Irregularity in accounts and tax returns affecting transactions subject to the reverse charge procedure)

Summary of the Judgment

1. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax

(Council Directive 77/388, Arts 17, 18(2) and (3) and 21(1)(b))

2. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax

(Council Directive 77/388, Arts 18(1)(d) and 22)

1. Articles 17, 18(2) and (3) and 21(1)(b) of Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, as amended by Directive 2000/17, do not preclude national legislation which lays down a limitation period for the exercise of the right to deduct by a taxpayer, provided that the principle of equivalence which requires that the limitation period applies in the same way to analogous rights in tax matters founded on domestic law and to those based on Community law, and the principle of effectiveness, pursuant to which the limitation period may not render virtually impossible or excessively difficult the exercise of the right to deduct, are respected.

The principle of effectiveness is not infringed merely because the tax authority has a longer period in which to recover unpaid value added tax than the period granted to taxable persons for the exercise of their right to deduct because the position of the tax authority cannot be compared with that of a taxable person and the fact that a limitation period begins to run as regards the tax authority at a date subsequent to the date from which the limitation period applicable to the right to deduct of a taxable person begins to run is not such as to infringe the principle of equality

(see paras 46, 51, 54, operative part 1)

2. However, Articles 18(1)(d) and 22 of Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, as amended by Directive 2000/17, preclude a practice whereby tax returns are reassessed and value added tax recovered which penalises a failure to comply, first, with obligations arising from formalities laid down in national legislation pursuant to Article 18(1)(d), and, second, with the obligations relating to accounts and tax returns under Article 22(2) and (4) respectively, by denying the right to deduct in the case of a reverse charge procedure.

The failure by a taxable person to comply with the formalities imposed by a Member State pursuant to Article 18(1)(d) of the Sixth Directive cannot deprive him of his right to deduction since, in accordance with the principle of fiscal neutrality, the deduction of input tax must be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements.

Furthermore, the measures taken by the Member States to ensure that taxable persons comply with their obligations relating to declaration and payment or impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion may not be used in such a way that they would have the effect of systematically undermining the right to deduct value added tax. A reassessment and recovery practice, which penalises non-compliance on the part of the taxable person with the obligations relating to accounts and tax returns by a denial of the right to deduct, clearly goes further than is necessary to attain the objective of ensuring the correct application of such obligations within the meaning of Article 22(7) of the Sixth Directive, since Community law does not prevent Member States from imposing, where necessary, a fine or a financial penalty proportionate to the seriousness of the offence in order to sanction a failure to comply with those obligations. That practice also goes further than is necessary for the correct collection of the tax and for the prevention of evasion, since it may even lead to the loss of the right to deduct if the reassessment of the tax return by the tax authorities is made after the expiry of the limitation period available to the taxable person in which to make the deduction.

(see paras 62-63, 65-68, 72, operative part 2)

JUDGMENT OF THE COURT (Third Chamber)

8 May 2008 (*)

(Sixth VAT Directive – Reverse charge procedure – Right to deduct – Time-bar – Irregularity in accounts and tax returns affecting transactions subject to the reverse charge procedure)

In Joined Cases C‑95/07 and C‑96/07,

REFERENCES for a preliminary ruling under Article 234 EC from the Commissione tributaria provinciale di Genova (Italy), made by decision of 13 December 2006, received at the Court on 20 February 2007, in the proceedings

Ecotrade SpA

v

Agenzia delle Entrate – Ufficio di Genova 3,

THE COURT (Third Chamber),

composed of A. Rosas, President of the Chamber, U. Lõhmus, A. Ó Caoimh, P. Lindh and A. Arabadjiev (Rapporteur), Judges,

Advocate General: E. Sharpston,

Registrar: C. Strömholm, Administrator,

having regard to the written procedure and further to the hearing on 16 January 2008,

after considering the observations submitted on behalf of:

– Ecotrade SpA, by A. Lovisolo and N. Raggi, avvocati,

– the Italian Government, by I.M. Braguglia, acting as Agent, and G. De Bellis, avvocato dello Stato,

– the Cypriot Government, by A. Pantazi-Lambrou, acting as Agent,

– the Commission of the European Communities, by A. Aresu and M. Afonso, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 13 March 2008,

gives the following

Judgment

1 These references for a preliminary ruling concern the interpretation of Articles 17 and 18(1)(d), 21(1) and 22 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), as amended by Council Directive 2000/17/EC of 30 March 2000 (OJ 2000 L 84, p. 24) (‘the Sixth Directive’).

2 The references were made in the course of two disputes between Ecotrade SpA (‘Ecotrade’) and Agenzia delle Entrate – Ufficio di Genova 3 (‘the Agenzia’), concerning a number of recovery notices issued by the latter reassessing, for the purposes of value added tax (‘VAT’), tax returns submitted by Ecotrade for the tax years 2000 and 2001.

Legal context

Community rules

3 As regards the right to deduct, Article 17(1) and (2)(a) of the Sixth Directive, in the version resulting from Article 28f(1) thereof provides:

‘1. The right to deduct shall arise at the time when the deductible tax becomes chargeable.

2. In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person’.

4 According to Article 17(6), until the Council of the European Union has decided what expenditure is not to be eligible for a deduction of value added tax, Member States may retain all the exclusions provided for under their national laws when the Sixth Directive came into force, subject to the qualification that VAT may in no circumstances be deductible on expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment. Article 17(7) allows Member States, subject to the consultation procedure provided for in Article 29, to exclude for cyclical economic reasons totally or partly all or some capital goods or other goods from the system of deductions.

5 According to Article 21(1)(b) of the Sixth Directive, in the version resulting from Article 28g thereof, VAT is payable, under the internal system, by taxable persons to whom services covered inter alia by Article 28bC are supplied, if the services are carried out by a taxable person established abroad. Article 28bC to which it refers covers ‘services in the intra-Community transport of goods’. That regime, which is also applicable to other services, is widely known as the ‘reverse charge procedure’.

6 With regard to the rules for exercise of the right to deduct in circumstances such as those described in the preceding paragraph, Article 18(1)(d) of the Sixth Directive, in the version resulting from Article 28f(2) thereof, provides that, to exercise that right, a taxable person must comply with the formalities laid down by each Member State.

7 Article 18(2) and (3) of the Sixth Directive provides as follows:

‘2. The taxable person shall effect the deduction by subtracting from the total amount of value added tax due for a given tax period the total amount of the tax in respect of which, during the same period, the right to deduct has arisen and can be exercised under the provisions of paragraph 1.

3. Member States shall determine the conditions and procedures whereby a taxable person may be authorised to make a deduction which he has not made in accordance with the provisions of paragraphs 1 and 2.’

8 Furthermore, Article 22 of the Directive, in the version resulting from Article 28h, lays down a series of obligations on persons liable for payment of VAT. Among those obligations is the obligation in Article 22(2)(a), according to which every taxable person is to keep accounts in sufficient detail for VAT to be applied and inspected by the tax authority, and the obligation provided for in Article 22(4)(a) and (b), according to which every taxable person is to submit a return by the stated deadline which must...