The right to deduct VAT
In this issue:ECJ Decision in the case C-329/18 Altic
ECJ Case C-329/18 Altic
The case analyzes the possibility of deducting VAT by the taxable person who has not carried out checks of his suppliers to establish the traceability of the food products and regarding their registration with the competent authorities.
Facts of the case and Court Decision
Altic purchased rapeseed from ‘Sakorex’ SIA during the months of July and August 2011 and from ‘Ulmar’ SIA in October 2011. That rapeseed was received and stored in a warehouse, and Altic deducted the VAT paid on those purchases.
Following an audit carried out at Altic, the tax administration took the view that the purchases had not actually taken place. It ordered Altic to pay to it the VAT deducted, together with a fine and default interest.
The Regional Administrative Court of Latvia noted that Altic acted in good faith and relied fully on the ability of Sakorex and Ulmar to deliver the contracted goods, an ability which Altic was not responsible for verifying.
The tax administration argues that, in accordance with Regulation no. 178/2002, food business operators must be able to identify any substance intended or likely to be incorporated into food for either humans or animals and must, to that end, have systems and procedures in place to make the information available to the competent authorities. However, Altic did not carry out any minimum checks on its contracting partners or ascertain that they were registered with the Latvian Food and Veterinary Agency.
According to the referring court, it is not in dispute that there are indications that Sakorex and Ulmar are fictitious undertakings and that the origin of the goods in question cannot be established. Consequently, the question arises as to whether Altic knew or should have known that the transactions in question in the main proceedings amounted to VAT fraud.
In those circumstances, the national court decided to ask the ECJ the following questions:
1. Article 168(a) of Directive 2006/112 having regard to the aim of ensuring food safety established in Regulation No 178/2002 (which is achieved, amongst other means, by ensuring food traceability), should be interpreted as not precluding a refusal to allow deduction of input tax where the taxable person involved in the food distribution chain, in choosing his co-contractor, has failed to demonstrate greater diligence (beyond normal commercial practice) entailing, in essence, a requirement to carry out checks on his co-contractor, but where he has at the same time verified the quality of the foodstuffs, thus meeting the aim of Regulation no. 178/2002?
2. Does the requirement in Article 6 of Regulation No 852/2004 and in Article 31 of Regulation no. 882/2004 concerning regulation of a food business, as interpreted in the light of Article 168(a) of Directive 2006/112, require a party that contracts with that business to check that the business is registered, and is that check relevant for the purposes of determining whether that party knew or should have known that it was taking part in a transaction with a fictitious undertaking, having regard to the particular characteristics of the transaction in question?’
ECJ decided that the right to deduct input value added tax (VAT) on the sole ground couldn’t be refused to a taxable person who participates in the food distribution chain only for the reason that the taxable person has not complied with his obligations to identify his suppliers for the purposes of traceability of foodstuffs. Non-compliance with those obligations may, however, constitute one element among others which, taken together and in a consistent manner, tend to show that the taxable person knew or should have known that he was involved in a transaction involving VAT fraud, which it is for the referring court to assess.
The failure, by a taxable person who participates in the food distribution chain, to ascertain that his suppliers are registered with the competent authorities, in accordance with Regulation (EC) no. 852/2004 and Regulation (EC) no. 882/2004, is not relevant for the purpose of determining whether the taxable person knew or should have known that he was involved in a transaction involving VAT fraud.
Impact of the decision
In view of the decision discussed, it should be noted that only the failure to comply with the obligation to identify suppliers for food traceability does not affect the right to deduct VAT, but may be taken into account when determining the buyer's diligence in identifying VAT fraud.
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