Is Article 9(1) of [the VAT Directive] to be interpreted as meaning that the status of taxable person, and consequently the right to deduct input VAT paid or to be reimbursed input VAT paid, may be refused where, in three consecutive years, the relevant transactions for VAT purposes carried out are of a value which is not deemed commensurate – in that it is too low – with what may, according to criteria pre-determined by law, reasonably be expected from the available assets and the person or entity concerned is unable to demonstrate, as justification for that fact, the existence of objective circumstances which have caused that result?

Article 9(1) of the VAT Directive must be interpreted as meaning that it may not lead to a person being denied the status of taxable person for VAT purposes where that person, during a given tax period, carries out transactions that are subject to VAT and the economic value of which does not reach the threshold prescribed by national legislation.

In the event that the first question is answered in the negative, do Article 167 of [the VAT Directive], the general principle of VAT neutrality and the general principle that any restriction of the right to deduct VAT must be proportionate preclude a provision of national law such as [Article 30(4) of Law No 724/1994], under which the right to deduct input VAT paid on purchases or to be reimbursed such VAT or to use such VAT in a subsequent tax period may be refused where, in three consecutive tax periods, the relevant transactions for VAT purposes carried out are of a value which is not deemed commensurate – in that it is too low – with what may, according to criteria pre-determined by law, reasonably be expected from the available assets for three consecutive years and the taxable person concerned is unable to demonstrate, as justification for that fact, the existence of objective circumstances which have caused that result?

Article 167 of the VAT Directive and the principles of VAT neutrality and of proportionality must be interpreted as precluding national legislation under which the taxable person is denied the right to deduct input VAT on account of the transactions subject to output VAT carried out by that taxable person being considered insufficient.

In the event that the second question is answered in the negative, do the EU law principles of legal certainty and of the protection of legitimate expectations preclude a provision of national law such as [Article 30(4) of Law No 724/1994], under which the right to deduct input VAT paid on purchases or to be reimbursed such VAT or to use such VAT in a subsequent tax period may be refused where, in three consecutive tax periods, the relevant transactions for VAT purposes carried out are of a value which is not deemed commensurate – in that it is too low – with what may, according to criteria pre-determined by law, reasonably be expected from the available assets for three consecutive years and the taxable person concerned is unable to demonstrate, as justification for that fact, the existence of objective circumstances which have caused that result?

There is no need to answer the third question due to the negative answer to the second question.

Denying VAT status based on transaction value threshold is incompatible with EU law.

European Court of Justice (Third Chamber) · 7 maart 2024 · Judgment · Preliminary ruling

(Reference for a preliminary ruling – Taxation – Common system of value added tax (VAT) – Directive 2006/112/EC – Right to deduct VAT – Concept of taxable person – Principle of fiscal neutrality – Principle of proportionality – Non-operating company – National legislation denying the right of deduction, refund or offsetting of input VAT)

Rechtsvraag

Whether national legislation denying the status of a taxable person and the right to deduct input VAT based on the economic value of transactions not reaching a prescribed threshold is compatible with EU VAT Directive and the principles of VAT neutrality, proportionality, legal certainty, and protection of legitimate expectations.

Regel

Article 9(1), VAT Directive (Defines 'taxable person' as any person who independently carries out any economic activity)
Article 167, VAT Directive (Right of deduction arises at the time the deductible tax becomes chargeable)
Principle of VAT neutrality (Ensures complete neutrality of taxation of all economic activities)
Principle of proportionality (Measures adopted by Member States must not go beyond what is necessary to prevent fraud and abuse)

Conclusie

The Court concluded that Article 9(1) and Article 167 of the VAT Directive, along with the principles of VAT neutrality and proportionality, preclude national legislation that denies the status of a taxable person and the right to deduct input VAT based on the economic value of transactions not reaching a prescribed threshold. The refusal to grant the right to deduct VAT must be based on objective evidence of fraud or abuse, not on income thresholds.

Tijdlijn

23-12-1994 Article 30 of Law No 724/1994 - Measures to rationalize public finances - enacted, targeting shell companies.
22-12-2010 The tax authority issued a tax assessment notice to Vigna Ottieri Srl, declaring the company non-operational for the 2008 tax period and refusing the deduction of the VAT credit of EUR 42108 for the 2009 tax period.
18-04-2012 The Provincial Tax Court of Avellino dismissed the action brought by Vigna Ottieri Srl against the tax assessment notice.
27-09-2012 Feudi di San Gregorio Aziende Agricole SpA took over Vigna Ottieri Srl.
27-03-2014 Feudi di San Gregorio Aziende Agricole SpA brought an appeal on a point of law before the Corte suprema di cassazione (Supreme Court of Cassation, Italy).
19-05-2022 The Supreme Court of Cassation, Italy, made a decision to request a preliminary ruling from the Court of Justice of the European Union.
25-05-2022 The Court of Justice of the European Union received the preliminary ruling request from the Supreme Court of Cassation.
14-06-2023 The Court of Justice of the European Union held a hearing regarding the preliminary ruling request.
28-09-2023 The Advocate General delivered their opinion on the case.
07-03-2024 The Court of Justice of the European Union delivered its judgment, ruling that Article 9(1) of Directive 2006/112/EC does not allow for denial of taxable person status based on economic thresholds and that national legislation denying the right to deduct input VAT based on insufficient output transactions is precluded by Article 167 and the principles of VAT neutrality and proportionality.