Opinion of Advocate General Kokott delivered on 16 May 2024.

• Jurisdiction: European Union
• Celex Number: 62023CC0171
• ECLI: ECLI:EU:C:2024:417
• Date: 16 May 2024
• Court: Court of Justice (European Union)

Provisional text

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 16 May 2024 (1)

Case C‑171/23

UP CAFFE d.o.o.

v

Ministarstvo financija Republike Hrvatske

(Request for a preliminary ruling from the Upravni sud u Zagrebu (Administrative Court, Zagreb, Croatia))

(Reference for a preliminary ruling – Common system of value added tax – Directive 2006/112/EC – Scheme exempting small enterprises – Abuse of VAT law by forming a new company – EU law prohibition of abusive practices in the area of VAT law – Direct applicability versus an assessment of the facts carried out on the basis of the economic viewpoint approach)

I. Introduction

1. Under EU law, the general principle applies that no one can fraudulently or abusively rely on EU law. That principle applies also to VAT law, which has been extensively harmonised under Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’). (2)

2. The national authorities and courts must therefore refuse to grant the rights to deduct, exempt or refund VAT provided for in the VAT Directive if they are claimed fraudulently or abusively. The question now arises as to whether that applies also to use of a small enterprise scheme, which the Member States may (but need not) provide for pursuant to Article 287 of the VAT Directive.

3. In the main proceedings, the Croatian tax authorities are seeking to refuse the taxable person the right to use the Croatian small enterprise scheme on the grounds of an allegedly abusive practice, notwithstanding the fact that Croatian law does not provide any basis for such a refusal. An opportunity thus presents itself to provide clarification on the scope and limits of the case-law of the Court of Justice of the European Union (‘the Court’) concerning the general prohibition of abusive practices in VAT law.

4. The question also arises as to the relationship between that general principle and the general principles of legal certainty, protection of legitimate expectations and legality of taxation, which are also enshrined in EU law.

II. Legal framework

A. European Union law

5.Article 281 et seq. of the VAT Directive lays down special rules for small enterprises. Article 282 of the VAT Directive, in the version applicable to the case in the main proceedings, states:

‘The exemptions and graduated tax relief provided for in this Section shall apply to the supply of goods and services by small enterprises.’

6. Point (19) of Article 287 of the VAT Directive, in the version applicable to the dispute in the main proceedings, states:

‘Member States which acceded after 1 January 1978 may exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of the following amounts at the conversion rate on the day of their accession: …

(19) Croatia: EUR 35 000.’

7. Article 1 of the Council Implementing Decision of 25 September 2017 (3) authorises the Republic of Croatia, by way of derogation from point (19) of Article 287 of Directive 2006/112, to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 45 000 at the conversion rate on the day of its accession.

B. Croatian law

8.Article 287 of the VAT Directive was transposed into national law by Article 90 of the Zakon o porezu na dodanu vrijednost (Law on Value Added Tax, ‘Zakon o PDV’).

9. That provision provides, mutatis mutandis, that a domestic legal or natural person can be treated as a small enterprise if its turnover during the previous calendar year did not exceed 300 000 Kuna (HRK) (more than EUR 39 000). A small enterprise is exempt in principle from VAT but, conversely, it is not entitled to deduct input VAT.

III. Factual background

10. The referring court set out the relevant facts very succinctly as follows:

11. In the case of the Croatia-based company, UP CAFFE d.o.o. (‘the applicant’) the Croatian tax administration (‘the defendant’) carried out a special VAT investigation. In the course of that investigation, the defendant established that the applicant had continued the business activities of SS-UGO d.o.o. (‘the former company’) to which it remained tied.

12. The defendant thus concluded that the formation of the applicant company and the transfer of the business to it did not interrupt the continuity of the former company’s business activities. On that basis, it calculated the VAT payable by the applicant without applying the small enterprise scheme that was claimed. At the same time, however, it granted the applicant a corresponding entitlement to deduct input VAT.

13. Subsequently, on 17 October 2018, the defendant issued the applicant with a VAT assessment notice. In that notice, the defendant set VAT and default interest for the period from 1 January 2018 to 31 July 2018. The applicant lodged an appeal against that notice, which was rejected by the defendant by decision of 24 August 2020.

14. The applicant then brought an action against that decision before the referring court. It claims, in particular, that it fulfils all of the conditions for classification as a small enterprise. In addition, the applicant argues that it was only after the expiry of the tax period that, by amendments to the Opći porezni zakon (Tax Code), a general provision preventing abuse was introduced in Article 12a thereof. Likewise, the possibility of treating several persons as one tied person, and therefore as a single taxable person, was provided for only subsequently pursuant to the amendments to Article 49(1)(4) of the Opći porezni zakon. The retroactive effect of legislation would, however, run contrary to the Ustav Republike Hrvatske (Constitution of the Republic of Croatia).

15. Those rudimentary statements of fact are substantiated by the following consistent statements submitted by the parties to the main proceedings:

16. Originally, there was a restaurant business which was registered as a taxable person for VAT purposes from 1 January 2013 to 12 July 2017. The restaurant business was subsequently continued by the former company, which was set up by the owner of the restaurant business on 28 June 2017. The former company exercised the option granted to it under Article 90(1) of the Law on Value Added Tax to be treated as a small enterprise for VAT purposes.

17. Due to the level of turnover achieved by the former company in 2017, it no longer met the conditions for continued application of the small enterprise scheme in 2018. The company ceased most of its catering business activities at the end of 2017.

18. At that same time, the applicant was created – apparently by a person other than the owner of the former company. From 2018, the applicant exercised the option to be taxed as a small enterprise. It also operated a restaurant business on the same premises and with the same employees and suppliers as the former company.

19. During the course of the special investigation, the defendant also established that the managing director and owner of the former company was employed by the applicant. However, it appears – at least as the observations of the European Commission suggest – that he is neither a shareholder nor a managing director of the applicant. However, he was jointly and severally liable, together with the applicant, for the rental payments due on the business premises and was the sole signatory of the company’s bank account.

IV. Reference for a preliminary ruling

20. The Upravni sud u Zagrebu (Administrative Court, Zagreb, Croatia), which has jurisdiction to hear the dispute in the main proceedings, decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling under Article 267 TFEU:

‘Does EU law impose an obligation on the national authorities and courts to determine liability for value added tax (and not to refuse a claim for a refund) where the objective facts of the case indicate that VAT fraud has been committed through the creation of a new company, that is to say, by interrupting the continuity of the previous company’s taxable activity, in the case where the taxable person knew, or ought to have known, that it was participating in such an activity, and where, at the time when the chargeable event occurred, national law did not provide for such a determination of liability?’

21. In the proceedings before the Court, the applicant, the Republic of Croatia and the European Commission submitted written observations. In accordance with Article 76(2) of the Rules of Procedure of the Court of Justice, the Court did not consider it necessary to hold a hearing.

V. Legal assessment

A. Admissibility and clarification of the question referred for a preliminary ruling

22. The European Commission has doubts as to whether the referring court’s request for a preliminary ruling meets the requirements of Article 94 of the Rules of Procedure of the Court of Justice. According to that provision, the request must contain, inter alia, a summary of the relevant findings of fact as determined by the court, or, at least, an account of the facts on which the question is based.

23. The order for reference contains only extremely brief information on the relevant facts. In particular, the specific factual circumstances that demonstrate how a potential abuse of rights may have occurred have not been explained in sufficient detail. However, the explanations provided by the referring court are just sufficient to understand the factual context of the dispute in the main proceedings. Furthermore, both the applicant and the Republic of Croatia have made consistent submissions on the facts of the case and have thus contributed to establishing an understanding of the factual background.

24. However, it is also the case that the question referred for a preliminary ruling does not relate to a specific provision of EU law. The provisions of the VAT Directive cited by the referring court in the grounds for the request...