Case C‑564/15

Tibor Farkas

v

Nemzeti Adó- és Vámhivatal Dél-alfödi Regionális Adó Főigazgatósága

(Reference for a preliminary ruling
from the Kecskeméti közigazgatási és munkaügyi bíróság)

(Reference for a preliminary ruling — Plea alleging infringement of EU law raised by the Court of its own motion — Principles of equivalence and effectiveness — Common system of value added tax — Directive 2006/112/EC — Right to deduct input tax — Reverse charge system — Article 199(1)(g) — Application only in the case of immovable property — Undue payment of the tax by the purchaser of property to the seller as a result of an incorrectly drawn up invoice — Tax authority’s decision holding that the property purchaser has an outstanding tax liability, refusing payment of the deduction sought by the purchaser, and imposing a penalty tax)

Summary — Judgment of the Court (Fourth Chamber), 26 April 2017

1. Harmonisation of fiscal legislation—Common system of value added tax—Obligations of persons liable for the tax—Article 199(1)(g) of Directive 2006/112—Applicability—Scope

   (Council Directive 2006/112, as amended by Directive 2010/45, Art. 199(1)(g))

2. Harmonisation of fiscal legislation—Common system of value added tax—Deduction of input tax—Reverse charge procedure—Taxable person liable for value added tax as the recipient of goods or services—No right to deduct tax in the case of undue payment of the tax by the purchaser of property to the seller as a result of an incorrectly drawn up invoice—Lawfulness—Conditions—Possibility of the purchaser being reimbursed for the unduly invoiced tax either by the seller or by the tax authority

   (Council Directive 2006/112, as amended by Directive 2010/45)

3. Harmonisation of fiscal legislation—Common system of value added tax—Deduction of input tax—Reverse charge procedure—Taxable person liable for value added tax as the recipient of goods or services—Undue payment of the tax by the purchaser of property to the seller as a result of an incorrectly drawn up invoice—No loss of tax revenue or evidence of tax evasion—Imposition of a tax penalty of 50% of the amount of the tax—Not permissible

   (Council Directive 2006/112, as amended by Directive 2010/45)

1.  Article 199(1)(g) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, must be interpreted to the effect that it applies to the supply of immovable property sold by a judgment debtor in a compulsory sale procedure.

   (see operative part 1)

2.  The provisions of Directive 2006/112, as amended by Directive 2010/45, and the principles of fiscal neutrality, effectiveness and proportionality must be interpreted to the effect that, in a situation such as that in the main proceedings, they do not preclude the purchaser of an item of property from being deprived of the right to deduct the value added tax which he paid to the seller when that tax was not due, on the basis of an invoice drawn up in accordance with the rules of the ordinary value added tax regime, where the relevant transaction came under the reverse charge mechanism, and the seller paid that tax to the Treasury. However, to the extent that reimbursement of the unduly invoiced value added tax by the seller to the purchaser becomes impossible or excessively difficult, in particular in the case of the insolvency of the seller, those principles require that the purchaser be able to address his application for reimbursement to the tax authority directly.

   Given that, in principle, it falls to the Member States to determine the conditions in which improperly invoiced VAT may be adjusted, the Court has accepted that a system in which, first, the seller of the property who has paid the VAT to the tax authority in error may seek to be reimbursed and, secondly, the purchaser of that property may bring a civil law action against that seller for recovery of the sums paid but not due, observes the principles of neutrality and effectiveness. Such a system enables the purchaser who bore the tax invoiced in error to obtain reimbursement of the sums unduly paid (see, to that effect, judgment of 15 March 2007, Reemtsma Cigarettenfabriken, C‑35/05, EU:C:2007:167, paragraphs 38 and 39 and the case-law cited).

   However, if reimbursement of the VAT becomes impossible or excessively difficult, in particular in the case of the insolvency of the seller, the principle of effectiveness may require that the purchaser of the property concerned be able to address his application for reimbursement to the tax authority directly. Thus, the Member States must provide for the instruments and the detailed procedural rules necessary to enable the purchaser to recover the unduly invoiced tax in order to respect the principle of effectiveness (see, to that effect, judgment of 15 March 2007, Reemtsma Cigarettenfabriken, C‑35/05, EU:C:2007:167, paragraph 41).

   (see paragraphs 51, 53, 57, operative part 2)

3.  The principle of proportionality must be interpreted to the effect that it precludes national tax authorities, in a situation such as that in the main proceedings, from imposing on a taxable person, who purchased an item of property the transfer of which comes under the reverse charge regime, a tax penalty of 50% of the amount of value added tax which he is required to pay to the tax authority, where those authorities suffered no loss of tax revenue and there is no evidence of tax evasion, this being a matter for the referring court to determine.

   It is necessary to point out that, in the absence of harmonisation of EU legislation in the field of sanctions applicable where conditions laid down by arrangements under that legislation are not complied with, Member States remain empowered to choose the sanctions which seem to them to be appropriate. Nevertheless, the Member States must exercise that power in accordance with EU law and its general principles and, consequently, in accordance with the principle of proportionality (see, to that effect, inter alia, judgments of 7 December 2000, de Andrade, C‑213/99, EU:C:2000:678, paragraph 20, and of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraph 50).

   Thus, such penalties must not go beyond what is necessary to attain the objectives of ensuring the correct levying and collection of the tax and preventing fraud. In order to assess whether a penalty is consistent with the principle of proportionality, account must be taken inter alia of the nature and the degree of seriousness of the infringement which the penalty seeks to sanction, and of the means of establishing the amount of the penalty (see, to that effect, judgments of 8 May 2008, Ecotrade, C‑95/07 and C‑96/07, EU:C:2008:267, paragraphs 65 to 67, and of 20 June 2013, Rodopi-M 91, C‑259/12, EU:C:2013:414, paragraph 38).

   (see paragraphs 59, 60, 67, operative part 3)