The European Court has taken a position on several procedural issues in the Hungarian case of Global Ink Trade
C‑537/22. – Global Ink Trade Ltd. | The plaintiff in the case is a commercial company engaged in agency wholesale trade, which acquired various office supplies and claimed a deduction for the VAT incurred on the purchases.
The majority of the procurement invoices were issued by Office Builder Ltd., which the tax authority found had not submitted a VAT return and failed to meet its VAT payment obligation. At the time of the purchases, the managing director, serving a prison sentence, denied any connection to Global Ink Trade Ltd. and denied issuing an invoice to this company. Furthermore, the email address used for correspondence was not the official email address of Office Builder Ltd. The occurrence of the economic events was supported only by witness testimonies.
Based on the evidence, the tax authority concluded that the issuer of the invoices did not perform the product sales and denied the plaintiff’s VAT deduction on the ground of passive participation in tax evasion. The tax authority reproached the plaintiff for not verifying its business partner in the manner required by the National Tax and Customs Administration (NAV) guidelines (No. 3012/2017), thus failing to demonstrate the reasonable diligence expected of it.
The plaintiff filed a lawsuit with the Budapest Metropolitan Court for the review of the tax authority’s decision. The Budapest Metropolitan Court deemed that, based on the judicial practice of the Supreme Court, the lawsuit should be rejected. However, in light of the European Court judgments C-610/19 and C-611/19 issued in September 2020, the judicial practice would not be sustainable. Therefore, the Budapest Metropolitan Court referred detailed procedural questions to the European Court for a preliminary ruling.
The European Court, in its judgment, confirmed that the principle of primacy of EU law requires the national court to disregard a Supreme Court decision conflicting with EU law, but the internal law of the Member State may require justification for deviating from judicial practice.
Subsequently, in the context of the principle of legal certainty, the European Court elaborated on the criteria that an official guideline should satisfy when setting out the expectations in terms of due care for the avoidance of tax evasion. According to the judgment, legal certainty is ensured when it is clear from the guidelines that proving tax evasion and the taxpayer’s awareness is the tax authority’s obligation, and beyond the requirement of increased diligence in suspicious circumstances, no complex and thorough control obligation can be imposed on the taxpayer. The European Court also considered it a requirement that the guidelines be clearly formulated and that the tax authority consistently adhere to what is written in the guidelines during its proceedings. In the same judgment, the European Court confirmed that being part of a circular invoicing chain (carousel fraud) alone cannot justify denying VAT deduction, but it cannot be required of the tax authority to identify all participants in the chain if the taxpayer has indisputably proven the facts in question.
