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16 October 2000
Schmeink & Cofreth AG & Co KG issued to another company, in which it owned shares, an invoice, including a sum for VAT, for advisory services which had never been provided. The company returned the invoice, and did not claim a VAT deduction. In the second proceeding, Strobel, in order to appear profitable, issued invoices for goods which had never been delivered.
Schmeink & Cofreth AG & Co KG issued to another company, in which it owned shares, an invoice, including a sum for VAT, for advisory services which had never been provided. The company returned the invoice, and did not claim a VAT deduction. In the second proceeding, Strobel, in order to appear profitable, issued invoices for goods which had never been delivered.
In both proceedings, the applicants were assessed to VAT under German law reflecting Article 21(1)(c) of European Community Council Directive 77/388. This provided that any person who mentioned VAT on an invoice was liable to pay VAT. The applicants appealed.
The Bundesfinanzhof (the German Federal Finance Court) asked the European Court of Justice for a ruling as to whether, in all cases of VAT invoiced improperly, the person who issued the invoice had to have demonstrated good faith in order for the adjustment of liability to arise.
The European Court of Justice said that the requirement that the issuer of the invoice had to have acted in good faith in order for an adjustment to VAT to be made was necessary only where the risk of any tax loss had not been ruled out. In the case before the court, this risk had been eliminated in time, and therefore there could be an adjustment without the precondition of good faith, i.e., there was no risk of VAT loss or tax evasion.
It was for Member States to take responsibility for deciding the rules under which improperly invoiced VAT could be adjusted, provided that the adjustment did not depend on the tax authorities' discretion.
(Schmeink & Cofreth AG & Co KG v Finanzamt Borken; Strobel v Finanzamt Esslingen (Case C-454/98), European Court of Justice, 19 September 2000.)
In both proceedings, the applicants were assessed to VAT under German law reflecting Article 21(1)(c) of European Community Council Directive 77/388. This provided that any person who mentioned VAT on an invoice was liable to pay VAT. The applicants appealed.
The Bundesfinanzhof (the German Federal Finance Court) asked the European Court of Justice for a ruling as to whether, in all cases of VAT invoiced improperly, the person who issued the invoice had to have demonstrated good faith in order for the adjustment of liability to arise.
The European Court of Justice said that the requirement that the issuer of the invoice had to have acted in good faith in order for an adjustment to VAT to be made was necessary only where the risk of any tax loss had not been ruled out. In the case before the court, this risk had been eliminated in time, and therefore there could be an adjustment without the precondition of good faith, i.e., there was no risk of VAT loss or tax evasion.
It was for Member States to take responsibility for deciding the rules under which improperly invoiced VAT could be adjusted, provided that the adjustment did not depend on the tax authorities' discretion.
(Schmeink & Cofreth AG & Co KG v Finanzamt Borken; Strobel v Finanzamt Esslingen (Case C-454/98), European Court of Justice, 19 September 2000.)
