Glencore Agriculture Hungary Kft (Case C-189/18) concerned a case in which the Hungary-based taxpayer contested two decisions of the Hungarian tax authority denying a tax deduction on the basis that the taxpayer was aware or should have been aware that some of its suppliers were committing tax fraud and had issued fictitious VAT invoices. The Advocate General said that it is for the tax administration to establish – in the light of objective factors and without requiring that taxpayer to carry out checks which are not their responsibility – that the latter knew or should have known that their counterparty was involved in VAT fraud. The fact that certain documents are transferred from one procedure to another does not, per se, result in a breach by the taxable person. However, if a tax authority is relying on such documents, it must: (i) give the taxable person access to the documents it seeks to rely on, not merely a summary, as well as documents which may be favourable to the taxpayer; (ii) give the taxable person the opportunity to give evidence to dispute/comment on those documents; and (iii) set out an explanation of how the relevant documents support its decision and deal with any counter-arguments made by the taxpayer. This must take place before the tax authority reaches its final conclusion and not merely during later court proceedings. Finally, a national court hearing an action against a decision adopted by a tax authority must be able to review all elements of fact and law in that decision, including the lawfulness of the manner in which the evidence was collected.

DLA Piper comment: The opinion highlights that where a tax authority refuses a taxpayer an input tax deduction, its decision must be a self-standing one in which its conclusions are adequately justified and which provides a useful analysis of the admissibility of evidence and appropriate procedures for tax authorities to follow in cases of suspected involvement in fraud. The single EU member state must grant the taxpayer the right to defend themself with access to all the evidence collected (even in third-party case law). However, such access to see the complete file may be restricted in those cases where it is necessary to ensure that important public interests are protected or that other people’s fundamental rights are not unduly affected (for example, the confidentiality of personal data or of business secrets). The main aspect highlighted by the Advocate General is that the national judge must also be able to verify, in the context of interlocutory proceedings, the lawfulness, in the light of EU law, of the evidence used against the taxable person, including that transferred from other proceedings (C-419/14).

SIA Altic (C-329/18) concerned a case in which the taxpayer was fraudulently sold rapeseed oil by two fictitious companies. The Latvian tax authority denied the taxpayer input VAT recovery on the basis that the taxpayer would have known about the fraud had it checked the food regulation registry, as required to do under EU food safety law. The Advocate General surmised that non-compliance with such non-VAT regulatory obligations imposed on a taxable person cannot automatically be equated with a finding that the taxable person should have known that the operation was connected to VAT fraud. Further, it was not necessarily incumbent on a taxpayer to check the relevant food registry since the regulations controlling the safety of the food chain have different objectives and follow a different regulatory logic from VAT.

DLA Piper Comment: The Advocate General specifies that the right to recover input VAT would have to be refused only where it can be proved by the tax authority that the taxable person was aware or should have been aware of taking part in a fraudulent scheme. The non-compliance with regulation for a specific market (i.e. food sector) regarding, for instance, the counterpart registration in a specific public register constitutes just one of the objective factors indicating that the taxable person was aware or should have been aware that they were taking part in a VAT fraud. Non-compliance with this element cannot per se be conclusive on the recoverability of input VAT. On this point the Advocate General remarked that, as already clarified in the past by the CJEU itself (PPUH Stehcemp sp, C-277/14), the duty of care required by VAT rule cannot include the specific controls that the legal framework delegates to the Public Authority.