ECJ - Recent Developments in Value Added Tax

S. 326I. Introduction

On 21 February 2006, the grand chamber of the CJEU delivered the groundbreaking judgment in Halifax, stating that the principle of prohibiting abusive practices applies to VAT. The CJEU states in this case that EU Law cannot be relied upon for fraudulent or abusive ends. In the case of abusive practices, the right to deduct input VAT may be rejected with retroactive effect, when the right to deduct has been exercised abusively.

Later the same year, on 6 July 2006, the CJEU delivered its judgment in the Kittel case. Unlike the Halifax case, which deals with lawful actions, the Kittel case concerns unlawful fraudulent transactions, more particularly carousel fraud. According to Kittel, a national court may refuse the right to deduct input VAT where it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT. The court should refuse the entitlement of deduction even where the transaction in question meets the objective criteria, which form the basis of the concepts of ‘supply of goods effected by a taxable person acting as suc...