In the case of deduction of input tax, the preliminary question is referred to the Court of Justice of the European Union
20 April, 2018
On April 13, the Department of Administrative Cases of the Supreme Court, when reviewing the cassation complaint submitted by SIA “Kuršu zeme” against the judgment of the Administrative Regional Court, decided to stay the proceedings in the case and address the Court of Justice of the European Union. The Supreme Court had doubts as to the interpretation of Article 168(a) of Directive 2006/112/EC – whether this provision contains prohibition to deduct input tax solely on the basis of a conclusion on person's deliberate involvement in the execution of simulation transactions but without identifying the way how and which individuals could have obtained an unjustified fiscal advantage in the result of these transactions, as compared to a situation in which the transactions would have been executed according to their actual circumstances. Therefore, the Supreme Court considers that the preliminary question should be referred to the Court of Justice of the European Union. The proceedings in the case are stayed until the Court of Justice of the European Union gives a ruling on the question referred.
In the particular case, it is being decided whether the taxpayer is justly denied the right to deduct the input tax provided for in Section 10, Paragraph one, Clause 1 of the Law "On Value Added Tax", which, in turn, includes the provisions of the Directive, about the interpretation of which the Supreme Court has doubts.
The circumstances of the case:
The main activity of the applicant SIA "Kuršu zeme" is the processing and canning of fishery products. Between February and December 2012, the applicant declared the purchase transactions of the relevant goods and deducted input tax for these transactions.
The State Revenue Service (hereinafter – the Service), when carrying out tax audit, found that the declared transactions of the applicant had not actually taken place, but the applicant had in fact obtained goods in question from the Lithuanian company by bringing goods from Klaipeda, Lithuania, to their production facility in Tukums municipality, Latvia.
The State Revenue Service established the execution of several successive purchase transactions of the relevant goods between several companies. According to the documents drawn up, the Lithuanian company sold the goods to companies registered in Latvia, which then sold them to another company, which sold them further to another company, which finally sold the goods to the applicant. The Service found that the companies involved in the transactions chain did not actually carry out any activities for the implementation of these transactions, and only the accompanying documents of the goods were drawn up on behalf of those persons, and the Service was unable to find a logical explanation for such transactions.
The Service concluded that the applicant could not be unaware of the simulation of the transactions chain. In the opinion of the Service, the applicant, having received the goods from a Lithuanian company, but having registered the acquisition of goods from a company founded in Latvia, obtained the right to deduct input tax. Thus, as the Service concluded, the applicant systematically and continuously reduced the value added tax payable in the budget by deducting input tax for transactions not actually carried out.
The administrative process ended with the decision adopted by the State Revenue Service of April 29, 2014.
The applicant filed an appeal against the decision of the Service to the District Administrative Court.
The District Administrative Court and Regional Administrative Court dismissed the application.
Baiba Kataja, the Press Secretary of the Supreme Court
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