ECJ judgments

The CJEU confirms that the “state of knowledge” of the invoice recipient is irrelevant when the invoiced transaction did not take place

C-501/24 – Klinka Geo Trans Földmunkavégző Ipari, Kereskedelmi és Szolgáltató Kft.

The Court of Justice of the European Union (CJEU) has confirmed that if the transaction specified on the invoice did not actually occur, the deduction of VAT based on that invoice may be denied without the tax authority having to assess the taxpayer’s “state of knowledge.”

In the case at hand, a Hungarian company received VAT invoices for security services, the sale of reinforced concrete panels, and the treatment and disposal of hazardous waste. The company deducted the VAT charged on these invoices. Following a tax audit, the National Tax and Customs Administration (NAV) determined that none of the invoiced transactions had actually taken place and therefore denied the VAT deductions. The second-instance tax authority upheld the first-instance decision. The company challenged the decision of the tax authority in court. The Budapest-Capital Regional Court annulled the NAV’s decision on the grounds that the tax authority had failed to examine the taxpayer’s state of knowledge. NAV submitted a petition for judicial review to the Curia (Hungarian Supreme Court). The Curia overturned the judgment of the Regional Court and ordered a new procedure, instructing the lower court to apply its Opinion No. 5/2016 (IX. 26.) KMK, which is based on European case law, as authoritative in determining whether it is relevant what the taxpayer knew or should have known at the time of receiving the invoice. In the repeated proceedings, the Regional Court submitted a request for a preliminary ruling to the CJEU.

In its Order in Case C-501/24, the CJEU confirmed that if the invoiced economic transactions did not occur, there is no supply of goods or services that could be used for a taxable economic activity, and therefore the issue of the taxpayer’s good or bad faith does not arise in the context of VAT deduction based on such invoices. The CJEU also reaffirmed that where a national court has been instructed by a higher court to conduct new proceedings, the lower court must disregard any instructions from the higher court that are contrary to EU law, as established by the CJEU’s jurisprudence.

The order is only available in Hungarian and French language.

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