Invoice issued by a non-existent entity may authorise to VAT deduction
In principle, the taxable person cannot be refused the right to deduct VAT due or paid in respect of goods that were delivered to him on the grounds that the invoice was issued by an entity which is to be regarded as a non-existent entity, and that it is impossible to determine the identity of the actual supplier of the goods. As an exception, the tax authority may refuse the right to deduction if it is established that the taxable person knew, or should have known, that the transaction was connected with value-added-tax fraud. Such conclusion comes from the judgment given by the Court of Justice of the European Union on 22 October 2015 in Case C-277/14 PPUH Stehcemp sp.j. Florian Stefanek, Janina Stefanek, Jarosław Stefanek v Director of the Tax Chamber in Łódź.
In 2004, a partnership named PPUH Stehcemp Sp. j. made a number of purchases of diesel fuel which it used in the course of its economic activity. The invoices relating to those fuel purchases were issued by a company named Finnet sp. z o.o. The partnership deducted the VAT disclosed in the invoices it received. However, the purchaser was refused the right of deduction by the tax authority which, following a tax inspection, found that the invoices had been issued by an entity regarded by Polish regulations as a non-existent entity. The circumstances indicated as supporting such argumentation included the fact that the company was not registered for VAT purposes, did not file tax returns, did not pay any taxes, did not file annual financial statements and did not have the required licence for the activity. Furthermore, the tax authority noted that the building designated as its corporate seat had been in a dilapidated state, making any economic activity impossible, and that it had been impossible to establish any contact with the company selling fuel and its president. The purchaser brought an action against the decision of the tax authority, however, the Regional Administrative Court in Łódź dismissed the action on the ground that the seller was a non-existent entity and that the purchaser had not demonstrated due diligence by reason of its failure to ascertain whether those transactions were connected with fraud. In an appeal on a point of law, the purchaser noted the principle of neutrality of VAT and submitted that a taxable person acting in good faith cannot be refused the right of deduction. The purchaser had a number of documents which were to indicate that the company was operating lawfully (extract from the commercial register, certificate of allocation of NIP tax identification number, certificate of allocation of REGON statistical identification number). The Supreme Administrative Court had doubts whether the transaction could be regarded as the supply of goods and whether the partnership had the right to deduct VAT and so it referred questions to the CJEU for a preliminary ruling.
Adjudicating in the case, the CJEU noted that the criterion that the supplier must exist or be entitled to issue invoices, as included in the Polish legal regime, does not feature among the conditions giving rise to deduction identified in the Sixth Directive. The Directive notes, however, that the supplier should have the status of a taxable person. According to the Directive, a taxable person is any person who independently carries out any economic activity of producers, traders and persons supplying services, whatever the purpose or results of that activity. So in the opinion of the CJEU, it cannot be ruled out that the seller carried out such economic activity. That conclusion is not called into question by the argument, submitted by the Polish authorities, of very dilapidated state of the company’s corporate seat, or impossibility of establishing any contact. In addition, the Directive does not indicate that the status of a taxable person depends on any authorisation or licence, or on whether the taxable person complies with the obligations to file a tax return and pay VAT. The more so, the status of a taxable person cannot be connected with the obligation to publish annual financial statements. The recipient of goods has a right to deduct even if the supplier is a taxable person who is not registered for VAT, where the invoices contain all of the required information, in particular the information necessary to identify the person who drew up those invoices and to ascertain the nature of the goods. What is more, even possible lack of power to dispose of the goods by the seller could not rule out the fact of supply of those goods, provided that they have been actually delivered to the purchaser. Furthermore, the CJEU reminded that the Polish partnership actually paid VAT arising from the invoices received.
The judgment under discussion is of key significance for entities that effected purchase transactions, acting not-knowingly and in good faith, with entities regarded by Polish law as non-existent entities. Where the goods have been delivered, the taxable person has made payment and the invoice received includes all elements required by law, there are no reasons to refuse the status of a taxable person to the supplier, and consequently to deprive the purchaser of the right to deduct VAT. At the same time, the CJEU indicated in the judgment when the purchaser should be deprived of the right to deduction – the authority is responsible for proving, on the basis of objective factors, that the exercise of the right to deduction would be connected with a fraud or abuse. It would happen if the taxable person knew, or should have known, that, by acquiring the goods, he was taking part in a transaction connected with VAT fraud. It is for the tax authorities to establish that the taxable person had, or should have had, such knowledge.