On 21 June 2012, the ECJ ruled on two Hungarian VAT cases
concerning denial of VAT credit based on actions/omissions of the
supplier and lack of documents other than the invoice for
evidencing a supply.
From Bulgarian perspective, the ECJ ruling concerns the arguable
practice of the local tax authorities and courts to deny VAT credit
in case of “lack of actual supply” of goods and
The ECJ ruled that the revenue authorities may not refuse VAT
credit deduction regarding received services, unless they could
objectively prove that the taxpayer knew, or ought to have known,
that the transaction was tainted with fraud.
The practice of the Supreme Administrative Court of Bulgaria has
not been to enquire whether the taxpayer is acting in good faith
but to look at whether the supplier has the wherewithal to provide
the relevant service. According to the ECJ, this is irrelevant and
what matters is whether the revenue authorities can prove
involvement in VAT fraud.
The ECJ also ruled that the right to deduct input VAT cannot be
denied simply because the taxpayer cannot prove:
- that the supplier is a taxable person; or
- that the supplier had the relevant goods and was in a
position to supply them (including means of transportation);
- that the supplier has satisfied his VAT obligations as
regards declaration and payment; or
- from documents other than the invoice that the statutory
requirements for a VAT deduction have been fulfilled,
while at the same time, the revenue authorities cannot prove that
the taxpayer knew, or ought to have known, that the transaction was
fraudulent on the part of the supplier.
Based on the above, we expect that the local revenue authorities
and the courts will have to reconsider their “lack of actual
supply” mantra and especially, the statement that the invoice
itself can never be sufficient to evidence a supply and that the
burden of prove regarding the right to VAT credit should be with
the recipient, no matter what.
We would recommend keeping this ECJ ruling on the top shelf in case
of a VAT audit.
Further, we are expecting the ECJ rulings on several Bulgarian
cases which will shed more light on the above practice of VAT
credit denial. We will keep you updated.
Case-law: Law: Mahagében (C-80/11) and Dávid (C-142/11)