Judgment of the Court Fourth Chamber of 15 September 2022, HA.EN., C-227/21

• Date: 15 September 2022
• Year: 2022

39

VIII. FISCAL PROVISIONS: RULES GOVERNING THE EXERCISE OF THE RIGHT

TO DEDUCT VAT

Judgment of the Court (Fourth Chamber) of 15 September 2022, HA.EN., C-227/21

Link to the full text of the judgment

Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/EC – Right to deduct input

VAT – Sale of an item of immovable property between taxable persons – Vendor subject to insolvency

proceedings – National practice under which the purchaser is denied the right of deduction on the

ground that he or she knew or shoul d have known of the vendor’s difficulties in paying the output tax –

Fraud and abuse of rights – Conditions

In September 2007, a Lithuanian company (‘the vendor company’) obtained a loan from a Lithuanian

bank to carry out real estate development activity. That loan was secured by a mortgage over a plot of

land in Vilnius (Lithuania) on which a building was under construction.

By an assignment of claim agreement concluded in November 2015, the company HA.EN. acquired

for consideration the monetary claims arising from that loan, and also the contractual mortgage.

When concluding that agreement, HA.EN. confirmed, inter alia, that it had become acquainted with

the vendor company’s economic and financial situation and legal status, and that it was aware that

the vendor company was insolvent and the subject of pending administration proceedings.

After the auction, announced by order of a bailif f in May 2016, of the item of immovable property

over which HA.EN. held the mortgage was unsuccessful, HA.EN. accepted the proposal made to it of

acquiring that property for its initial price of sale at the auction, and this resulted in the extinction of a

part of its claims. Thus, ownership of the item of immovable property was transferred to it for the

total amount of EUR 5 468 000, that is to say, a sum of EUR 4 519 008.26 together with

EUR 948 991.74 in value added tax (VAT). The invoice for that transaction was entered in the

respective accounts of both parties to the transfer. As the vendor company was then declared

insolvent, it never paid the output tax into the public purse.

HA.EN. requested the tax authority to refund it the excess VAT resulting fr om deduction of the input

VAT, namely EUR 948 991.74.

However, the tax authority found that, in entering into the transaction for acquisition of the

immovable property at issue although it knew or should have known that the vendor company would

not pay the VAT generated by that transaction into the public purse, HA.EN. h ad acted in bad faith and

committed an abuse of rights. For that reason, the tax authority denied it the right to deduct that

input VAT.

At first instance, the Lithuanian courts ruled in favour of the tax authority. However, the Lietuvos

vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania), before which HA.EN.

brought an appeal, expressed doubts as to whether a practice of the tax authority under which the

deduction of VAT is denied in instances such as the present one is permissible from the point of view

of EU law.