Irregularities committed by the issuer of a tax invoice should not limit input VAT deduction (Mahageben case)
Posted on: 05 Feb 2013
On 21st June 2012, the Court of Justice of the European Court (CJEU) decided in joined Cases C-80/11 and C-142/11, Mahag?ben and P?ter D?vid, that the deduction of VAT cannot be refused, in principle, because of irregularities committed by the issuer of the invoice. However, that deduction must be refused if the taxable person knew, or ought to have known, that the transaction relied on as a basis for the right to deduct was connected with fraud. In terms of VAT directive 2006/112/EC VAT deduction depends, inter alia, on the possession of a proper tax invoice. Hungarian law requires taxable persons to act with all due diligence in order to satisfy themselves as to the propriety of transactions which give rise to VAT. Mahag?ben, a Hungarian business, sought to deduct input VAT incurred on the acquisition of acacia logs but the deduction was refused by the tax authority after an inspection revealed irregularities in the accounting data of the supplier and the orders invoiced to Mahag?ben. The tax authority also criticised Mahag?ben on the ground that it had failed to satisfy itself as to the status of its supplier and failed to check whether that supplier had complied with its statutory obligations in respect of VAT. A ruling was sought from the CJEU as to whether the deduction of VAT may be refused in the case of irregularities on the part of the supplier.
This decision is welcome and consolidates the CJEU’s jurisprudence and stand on VAT neutrality. It?is in line with a number of previous decisions which confirmed that the right to input VAT deduction should not be limited on account of lack of formalities in the tax invoice itself or minor irregularities on the part of the supplier.
For further information about VAT contact Damien Fiott.