EU limits third-party liabilities in VAT fraud

Advocate General says Belgian joint and several liability oversteps EU VAT Directive

On the 5th September, the EU Advocate General (AG) opinion on a Belgian VAT fraud case where a seller provides inadequate purchaser details on a VAT invoice to facilitate tax fraud. AG’s act as advisor to the judges of the Court of Justice of the EU (CJEU). An Advocate General (AG) assists the court by providing first opinions cases that the EJEU consider before giving judgment.

In the case of Dranken Van Eetvelde NV v. Belgium, Advocate General Juliane Kokott argued that Belgium should not hold a third party jointly and severally liable for VAT if the original tax debt is unknown or based on fictitious invoices.

This case involved black-market alcohol sales and the use of fraudulent VAT invoices, with Belgian tax authorities imposing significant penalties on Dranken. Kokott interpreted Article 205 of the VAT Directive to suggest that joint VAT liability should not extend to a third party when the actual tax debt is unclear or only presumed.

Kokott emphasized that imposing a 200% penalty on a third party for fraud they were not directly involved in is disproportionate and could shift the focus from prosecuting actual fraudsters to targeting third parties. She concluded that VAT obligations should be based on clear assessments, not presumed debts.

3 arguments of AG

1. The AG concluded that the principle of ne bis in idem, according to which the same person cannot be tried a second time in criminal proceedings for the same offence after a first definitive trial of a criminal nature (article 50 of the Charter of Fundamental Rights of the European Union), did not apply in the present case because the offences in question were not one and the same.
2. The AG found that article 205 of the VAT Directive (2006/112) could not be applied in the present case, as this article only allows for third party liability for tax debts where the person and its tax debt are known. Therefore, liability cannot be applied to unknown third parties on the basis of estimated tax debts. Instead, the present case may be governed by article 273 of the VAT Directive (2006/112).
3. The AG interpreted article 203 of the VAT Directive (2006/112) as preventing national legislation from imposing secondary VAT liability (where someone is held liable for someone else’s VAT debt) for incorrectly issued invoices in the context of VAT evasion, in particular where there is no possibility of correcting the error. It also precludes the imposition of an excessive fine, such as 200% of the amount of VAT involved, in addition to criminal sanctions.