C-329/18 Altic

JUDGMENT OF THE COURT (Third Chamber)

3 October 2019 ( *1 )

(Reference for a preliminary ruling — Value added tax (VAT) — Directive 2006/112/EC — Procurement of food products — Deduction of input tax — Refusal of deduction — Possibly fictitious supplier — VAT fraud — Requirements relating to knowledge on the part of the purchaser — Regulation (EC) No 178/2002 — Obligations of traceability of foodstuffs and identification of the supplier — Regulations (CE) No 852/2004 and (EC) No 882/2004 — Registration obligations of operators in the food sector — Effect on the right to deduct VAT)

In Case C‑329/18,

REQUEST for a preliminary ruling under Article 267 TFEU from the Augstākā tiesa (Supreme Court, Latvia), made by decision of 10 May 2018, received at the Court on 17 May 2018, in the proceedings

Valsts ieņēmumu dienests

v

‘Altic’ SIA,

THE COURT (Third Chamber),

composed of A. Prechal, President of the Chamber, F. Biltgen (Rapporteur), J. Malenovský, C.G. Fernlund and L.S. Rossi, Judges,

Advocate General: M. Bobek,

Registrar: M. Aleksejev, Head of Unit,

having regard to the written procedure and further to the hearing on 6 March 2019,

after considering the observations submitted on behalf of

‘Altic’ SIA, by A. Purmalis, advokāts,

the Latvian Government, by I. Kucina and V. Soņeca, acting as Agents,

the Spanish Government, by L. Aguilera Ruiz, acting as Agent,

the European Commission, by L. Lozano Palacios, J. Jokubauskaitė and A. Sauka, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 22 May 2019,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), as amended by Council Directive 2010/45/EU of 13 July 2010 (OJ 2010 L 189, p. 1) (‘Directive 2006/112’).

2This request was made in the context of a dispute between the Valsts ieņēmumu dienests (Latvian tax administration; ‘the tax administration’) and ‘Altic’ SIA concerning a payment demand made to Altic for the amount of value added tax (VAT) on the purchase of rapeseed paid upstream and deducted by Altic, together with a fine and default interest.

Legal context

EU law

3Under Article 168(a) of Directive 2006/112:

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

the VAT due or paid in that Member State in respect of supplies to him of goods and services, carried out or to be carried out by another taxable person.’

4Article 178(a) of that directive provides:

‘In order to exercise the right of deduction, a taxable person must meet the following conditions:

for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI.’

5The first paragraph of Article 273 of that directive states:

‘Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent fraud, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.’

6Recitals 28 and 29 of Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety (OJ 2002 L 31, p. 1), state:

Experience has shown that the functioning of the internal market in food or feed can be jeopardised where it is impossible to trace food and feed. It is therefore necessary to establish a comprehensive system of traceability within food and feed businesses so that targeted and accurate withdrawals can be undertaken or information given to consumers or control officials, thereby avoiding the potential for unnecessary wider disruption in the event of food safety problems.

It is necessary to ensure that a food or feed business including an importer can identify at least the business from which the food, feed, animal or substance that may be incorporated into a food or feed has been supplied, to ensure that on investigation, traceability can be assured at all stages.’

7For the purposes of that regulation, Article 3, point 15, thereof defines the term ‘traceability’ as ‘the ability to trace and follow a food, feed, food-producing animal or substance intended to be, or expected to be incorporated into a food or feed, through all stages of production, processing and distribution’.

8Under the third paragraph of Article 17(2) of the regulation:

‘Member States shall also lay down the rules on measures and penalties applicable to infringements of food and feed law. The measures and penalties provided for shall be effective, proportionate and dissuasive.’

9Article 18 of the same regulation, entitled ‘Traceability’, reads as follows:

‘1. The traceability of food, feed, food-producing animals, and any other substance intended to be, or expected to be, incorporated into a food or feed shall be established at all stages of production, processing and distribution.

2. Food and feed business operators shall be able to identify any person from whom they have been supplied with a food, a feed, a food-producing animal, or any substance intended to be, or expected to be, incorporated into a food or feed.

To this end, such operators shall have in place systems and procedures which allow for this information to be made available to the competent authorities on demand.

…’

10Article 6(2) of Regulation (EC) No 852/2004 of the European Parliament and of the Council of 29 April 2004 on the hygiene of foodstuffs (OJ 2004 L 139, p. 1), provides:

‘In particular, every food business operator shall notify the appropriate competent authority, in the manner that the latter requires, of each establishment under its control that carries out any of the stages of production, processing and distribution of food, with a view to the registration of each such establishment.

Food business operators shall also ensure that the competent authority always has up-to-date information on establishments, including by notifying any significant change in activities and any closure of an existing establishment.’

11Article 31(1) of Regulation (EC) No 882/2004 of the European Parliament and of the Council of 29 April 2004 on official controls performed to ensure the verification of compliance with feed and food law, animal health and animal welfare rules (OJ 2004 L 165, p. 1, and corrigendum OJ 2004 L 191, p. 1), provides:

Competent authorities shall establish procedures for feed and food business operators to follow when applying for the registration of their establishments in accordance with Regulation (EC) No 852/2004, [Council] Directive 95/69/EC [of 22 December 1995 laying down the conditions and arrangements for approving and registering certain establishments and intermediaries operating in the animal feed sector and amending Directives 70/524/EEC, 74/63/EEC, 79/373/EEC and 82/471/EEC (OJ 1995 L 332, p. 15)] or with the future regulation on feed hygiene;

They shall draw up and keep up to date a list of feed and food business operators which have been registered. Where such a list already exists for other purposes, it may also be used for the purposes of this regulation.’

Latvian law

12Article 10(1)(1) of the likums par pievienotās vērtības nodokli (Law on VAT), in its version in force on the date of the facts in the main proceedings, is worded as follows:

‘Only a taxable person registered with the [tax administration] shall be entitled, in his VAT return, to deduct from the amount of tax to be paid to the Treasury, as input tax, the amount of tax shown on invoices received from other taxable persons for goods acquired or services received in order to carry out his own taxable transactions, including transactions carried out abroad which would have been taxable if they had been carried out in the national territory.’

13Article 10(12) of that law provides:

‘The amount of tax indicated on invoices relating to goods and services received shall be deductible after receipt of the invoice relating to the said goods and services received, or after payment of the amount of tax indicated on the invoice as an advance.’

The dispute in the main proceedings and the questions referred for a preliminary ruling

14Altic purchased rapeseed from ‘Sakorex’ SIA during the months of July and August 2011 and from ‘Ulmar’ SIA in October 2011. It is apparent from the order for reference that those companies contacted Altic, referring to Altic’s media and internet advertisements. That rapeseed was received and stored in a warehouse owned by ‘Vendo’ SIA. Altic deducted the VAT paid on those purchases.

15Following an audit carried out at Altic, the tax administration took the view that the purchase transactions had not actually taken place. It ordered Altic to pay to it the VAT deducted, together with a fine and default interest.

16The Administratīvā rajona tiesa (District Administrative Court, Latvia) upheld the action brought by Altic for annulment of the tax administration’s decision. The decision of that court was confirmed by the Administratīvā apgabaltiesa (Regional Administrative Court, Latvia).

17The latter court noted that it was not in dispute that the rapeseed had been received in the warehouse on the dates and in the quantity indicated in Vendo’s accompanying documents. It held that, in the circumstances, Altic acted in good faith and relied fully on the ability of Sakorex and Ulmar to deliver the contracted goods, an ability which Altic was not responsible for verifying. In that regard, the tax authorities did not state which specific actions arising from the relevant rules Altic had failed to take to carry out such verification.

18The tax administration appealed in cassation to the referring court, namely the Augstākā tiesa (Supreme Court, Latvia). It argues that, in accordance with Regulation No 178/2002, food business operators must be able to identify any substance intended or likely to be incorporated into food or feed and must, to that end, have systems and procedures in place to make the information available to the competent authorities. However, Altic did not carry out any minimum checks on its contracting partners or ascertain that they were registered with the Latvian Food and Veterinary Agency. That means that Altic knew or should have known that it was involved in a misuse of the common system of VAT.

19According to the referring court, it is not in dispute that there are indications that Sakorex and Ulmar are fictitious undertakings and that the origin of the goods in question cannot be established. Consequently, the question arises as to whether Altic knew or should have known that the transactions in question in the main proceedings amounted to VAT fraud.

20In that regard, the referring court notes that there is no evidence to confirm that the rapeseed purchased was exclusively intended for use in the production of fuel, as alleged by Altic, or at least that it was in no way linked to the food chain. Consequently, there is support for the view that, as regards those operations, Altic was required to comply with the provisions of Regulation No 178/2002.

21That court states that Article 18 of that regulation lays down the general principles for the traceability of foodstuffs and the identification of their suppliers. With regard to that identification, it notes that, although that regulation does not specify to what extent an undertaking must identify its supplier, it follows from the Guidelines for the implementation of Articles 11, 12, 14, 17, 18, 19 and 20 of Regulation No 178/2002 of 26 January 2010, in the Conclusions of the European Commission’s Standing Committee on the Food Chain and Animal Health, that undertakings are required to keep information on the name and address of the supplier of the product and on the product identification.

22The referring court entertains doubts, however, as to whether the objective of Regulation No 178/2002, namely to guarantee the safety of food, does not require proof of greater diligence on the part of the food business operator as regards the choice of its contracting partner, which would require it to carry out checks on that partner, in particular on its registration with the competent authorities, and whether, in the absence of such diligence, that operator may be refused the right to deduct VAT. In that regard, the referring court also queries whether, in the light of that same objective, Altic’s verification of the quality of the goods delivered could be such as to reduce that obligation to carry out a more detailed investigation into the contracting partner.

23The referring court further notes that, according to the tax administration, Altic’s failure to ascertain whether the contracting parties were registered with the Food and Veterinary Agency shows that that company knew or should have known that the transactions at issue in the main proceedings amounted to VAT fraud. However, that court is of the view that, although the verification of registration of a food business provided for in Regulations No 852/2004 and No 882/2004 ensures that it participates legally in the food chain, the registration of a business does not rule out its economic activity being fictitious and, conversely, the absence of registration does not automatically establish that it is fictitious, so that the lack of verification cannot decisively support the tax administration’s finding.

24In those circumstances, the Augstākā tiesa (Supreme Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Having regard to the aim of ensuring food safety established in [Regulation No 178/2002] (which is achieved, amongst other means, by ensuring food traceability), should Article 168(a) of [Directive 2006/112] be interpreted as not precluding a refusal to allow deduction of input tax where the taxable person involved in the food chain, in choosing his co-contractor, has failed to demonstrate greater diligence (beyond normal commercial practice) entailing, in essence, a requirement to carry out checks on his co-contractor, but where he has at the same time verified the quality of the foodstuffs, thus meeting the aim of [Regulation No 178/2002]?

Does the requirement in Article 6 of Regulation No 852/2004 and in Article 31 of Regulation No 882/2004 concerning regulation of a food business, as interpreted in the light of Article 168(a) of [Directive 2006/112], require a party that contracts with that business to check that the business is registered, and is that check relevant for the purposes of determining whether that party knew or should have known that it was taking part in a transaction with a fictitious undertaking, having regard to the particular characteristics of the transaction in question?’

Consideration of the questions referred

The first question

25By its first question, the referring court asks, in essence, whether Article 168(a) of Directive 2006/112 must be interpreted as precluding a taxable person who participates in the food chain from being denied the right to deduct input VAT on the ground that he has failed to comply with his obligations under Article 18(2) of Regulation No 178/2002 to identify his suppliers for the purposes of the traceability of foodstuffs.

26First, it must be borne in mind that, in accordance with the settled case-law of the Court, the right of taxable persons to deduct from the VAT that they are liable to pay the VAT due or paid on goods purchased and services received by them as inputs is a fundamental principle of the common system of VAT. The deduction system is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities, provided that his activities are themselves subject, in principle, to VAT (see, to that effect, judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraphs 35 and 37 and the case-law cited).

27The right of deduction is an integral part of the VAT mechanism and cannot, in principle, be limited if the material and formal requirements or conditions to which this right is subject are respected by taxable persons wishing to exercise it (see, to that effect, judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraphs 36 and 38 and the case-law cited).

28In addition to those requirements or material and formal conditions, which derive from Article 168(a) and Article 178(a) of Directive 2006/112 (see, to that effect, judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraphs 39 and 40), Article 273 of that directive allows the Member States, subject to certain conditions, to impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent fraud.

29Second, it must also be borne in mind that the prevention of tax evasion, tax avoidance and potential abuse is an objective recognised and promoted by Directive 2006/112. The Court has held that EU law cannot be relied on by individuals for abusive or fraudulent ends. Accordingly, it is for the national courts and authorities to refuse the right of deduction, if it is shown, in the light of objective evidence, that that right is being relied on for fraudulent or abusive ends (judgment of 13 March 2014, FIRIN, C‑107/13, EU:C:2014:151, paragraph 40 and the case-law cited).

30If that is the case where tax evasion is committed by the taxable person himself, it is also the case where a taxable person knew or should have known that, by his acquisition, he was involved in a transaction involving VAT fraud (judgment of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, paragraph 48 and the case-law cited).

31It is for the tax authorities, having found fraud or irregularities committed by the issuer of the invoice in question, to establish, in the light of objective factors and without requiring the addressee of that invoice to carry out checks which are not his responsibility, that the addressee knew or should have known that the transaction relied on to establish the right of deduction was involved in VAT fraud (judgment of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, paragraph 50 and the case-law cited).

32As regards the level of diligence required of a taxable person wishing to exercise his right to deduct VAT, the Court has held that traders who take every precaution which could reasonably be required of them to ensure that their transactions are not connected with fraud, be it the fraudulent evasion of VAT or other fraud, must be able to rely on the legality of those transactions without the risk of losing their right to deduct the input VAT, the determination of the measures which may, in a particular case, reasonably be required of a taxable person to that end depending essentially on the circumstances of that particular case (see, to that effect, judgments of 21 June 2012, Mahagében and Dávid, C‑80/11 and C‑142/11, EU:C:2012:373, paragraphs 53 and 59, and of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, paragraph 51).

33In the main proceedings, the tax administration, taking the view that Altic’s suppliers were fictitious companies and that there was therefore a question of fraud of the common VAT system, refused Altic the right to deduct VAT. In particular, it was of the opinion that Altic, as a food business operator, was required to carry out a thorough verification of its contracting parties in accordance with Article 18(2) of Regulation No 178/2002. Failure to comply with such an obligation shows that Altic knew or ought to have known that it was a party to transactions involved in that fraud.

34However, on the one hand, as the Advocate General noted point 46 of his Opinion, the refusal of the right to deduct VAT as a consequence of the failure to comply with the obligations arising from that provision of Regulation No 178/2002 has no legal basis in Directive 2006/112. The obligations laid down in Regulation No 178/2002 are not related to the requirements or the material and formal conditions attaching to the right of deduction laid down in that directive. Nor it is apparent from the evidence before the Court that that ground for refusal is based on the relevant national VAT legislation.

35On the other hand, and with regard to the fact that, according to the findings of the referring court, Altic was involved in the food chain and therefore had to comply with the provisions of Regulation No 178/2002, it should be noted that the obligation relating to the traceability of foodstuffs laid down in Article 18(2) of that regulation pursues a purpose different from that of detecting VAT fraud. Indeed, it follows from recitals 28 and 29 of that regulation that the obligation to identify food suppliers is intended to allow targeted and precise withdrawals of foodstuffs and to inform consumers or official inspectors, in order to avoid the possibility of more significant and unnecessary disruption to the internal market. Failure to comply with that obligation may result in penalties under national law, in accordance with the third subparagraph of Article 17(2) of that regulation.

36It follows that such an obligation cannot, as such, be regarded as a measure which the taxable person may reasonably be required to adopt in order to ensure that his transactions are not involved in fraud against the common VAT system. Accordingly, as the Advocate General pointed out in point 56 of his Opinion, any breach of that obligation cannot in itself and automatically justify the refusal to allow that taxable person to deduct VAT.

37In that context, it is also necessary to recall that the obligation referred to in Article 18(2) of Regulation No 178/2002 consists, in the very terms of that provision, in the identification of any supplier of a foodstuff and in the establishment of systems and procedures to ensure that such information is made available to the competent authorities at their request.

38As regards the data required for that identification, the view must be taken that those data must make it possible to achieve the objective of traceability, as described in paragraph 35 of this judgment, so that, in principle, it is sufficient to identify suppliers by their name and address. It follows that the argument put forward by the tax administration before the referring court and by the Latvian Government in its written observations that the regulation generally requires a thorough check of the contracting partner cannot be accepted.

39It would be otherwise only if it were duly established that, because of particular circumstances, the purchaser of the foodstuffs concerned should have had serious doubts as to the true existence or identity of the supplier of the foodstuffs whom Regulation No 178/2002 requires him to identify, in such a way that he is careful to be certain of that identity, which it will be for the referring court to ascertain, if necessary.

40Assuming that to be the case, that fact could constitute one of a number of indications which, taken together and in a consistent manner, tend to show that that taxable person knew or should have known that he was involved in a transaction involving VAT fraud.

41In the light of the foregoing considerations, the answer to the first question is that Article 168(a) of Directive 2006/112 must be interpreted as precluding a taxable person who participates in the food chain from being refused the right to deduct input VAT on the sole ground, assuming that it has been duly established, that that taxable person has not complied with his obligations under Article 18(2) of Regulation No 178/2002 to identify his suppliers for the purposes of traceability of foodstuffs, which it is for the referring court to ascertain. Non-compliance with those obligations may, however, constitute one element among others which, taken together and in a consistent manner, tends to show that the taxable person knew or should have known that he was involved in a transaction involving VAT fraud, which it is for the referring court to assess.

The second question

42By its second question, the referring court asks, in essence, whether Article 168(a) of Directive 2006/112 must be interpreted as meaning that the failure by a taxable person who participates in the food chain to ascertain that his suppliers are registered with the competent authorities, in accordance with Article 6(2) of Regulation No 852/2004 and Article 31(1) of Regulation No 882/2004, is relevant for the purpose of determining whether the taxable person knew or should have known that he was involved in a transaction involving VAT fraud.

43In that regard, Article 6(2) of Regulation No 852/2004 provides that a food business operator is to inform the appropriate competent authority of each of its establishments involved in the production, processing and distribution of foodstuffs with a view to their registration. In accordance with Article 31(1)(a) and (b) of Regulation No 882/2004, the competent authorities are required to define the procedures to be followed by those operators when applying for the registration of their establishments and to maintain an up-to-date list of registered operators.

44It must be noted that Regulations No 852/2004 and No 882/2004 do not contain any obligation for a food business operator to check whether its suppliers are registered in accordance with the requirements of those regulations. Nor does such an obligation to make checks, for the purposes of VAT deduction, arise from Directive 2006/112.

45However, as pointed out in paragraph 31 of this judgment, where tax authorities, having found fraud or irregularities committed by the issuer of the invoice in question, seek to establish that the addressee of that invoice knew or should have known that the transaction relied on to establish the right of deduction was involved in VAT fraud, they may not require that addressee to carry out checks which are not his responsibility (see, to that effect, judgment of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, paragraph 50).

46In that context, the Court has previously held that tax authorities cannot require the taxable person wishing to exercise the right to deduct VAT to produce documents issued by his supplier of bovine animals mentioning the eartags of the animals subject to the identification and registration system established by Regulation (EC) No 1760/2000 of the European Parliament and of the Council of 17 July 2000 establishing a system for the identification and registration of bovine animals and regarding the labelling of beef and beef products and repealing Council Regulation (EC) No 820/97 (OJ 2000 L 204, p. 1) (see, to that effect, judgment of 18 July 2013, Evita-K, C‑78/12, EU:C:2013:486, paragraph 42).

47Similarly, for the purposes of establishing that a taxable person who participates in the food chain knew or should have known that his suppliers were involved in VAT fraud, tax authorities cannot require that taxable person to verify that those suppliers have complied with their registration obligations as required by EU law on the regulation of foodstuffs.

48Consequently, the answer to the second question is that Article 168(a) of Directive 2006/112 must be interpreted as meaning that the failure, by a taxable person who participates in the food chain, to ascertain that his suppliers are registered with the competent authorities, in accordance with Article 6(2) of Regulation No 852/2004 and Article 31(1) of Regulation No 882/2004, is not relevant for the purpose of determining whether the taxable person knew or should have known that he was involved in a transaction involving VAT fraud.

Costs

49Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Third Chamber) hereby rules:

Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, must be interpreted as precluding a taxable person who participates in the food chain from being refused the right to deduct input value added tax (VAT) on the sole ground, assuming that it has been duly established, that that taxable person has not complied with his obligations under Article 18(2) of Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety, to identify his suppliers for the purposes of traceability of foodstuffs, which it is for the referring court to ascertain. Non-compliance with those obligations may, however, constitute one element among others which, taken together and in a consistent manner, tend to show that the taxable person knew or should have known that he was involved in a transaction involving VAT fraud, which it is for the referring court to assess.

Article 168(a) of Directive 2006/112, as amended by Directive 2010/45, must be interpreted as meaning that the failure, by a taxable person who participates in the food chain, to ascertain that his suppliers are registered with the competent authorities, in accordance with Article 6(2) of Regulation (EC) No 852/2004 of the European Parliament and of the Council of 29 April 2004 on the hygiene of foodstuffs and Article 31(1) of Regulation (EC) No 882/2004 of the European Parliament and of the Council of 29 April 2004 on official controls performed to ensure the verification of compliance with feed and food law, animal health and animal welfare rules, is not relevant for the purpose of determining whether the taxable person knew or should have known that he was involved in a transaction involving VAT fraud.

Signatures

[Signatures]

( *1 ) Language of the case: Latvian.

OPINION OF ADVOCATE GENERAL

BOBEK

delivered on 22 May 2019 ¹

(Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Right to deduct VAT — Refusal — Supply by co-contractors involved in tax fraud — Duty of care of the taxable person — Relevance of compliance by the taxable person with sectorial obligations — Regulation (EC) No 178/2002 — Obligation of traceability — Regulation (EC) No 852/2004 — Regulation (EC) No 882/2004 — Registration of food business operators)

I. Introduction

1SIA Altic bought rapeseed from two other companies and deducted the input value added tax (VAT) paid on those transactions. A subsequent inspection carried out by the Latvian tax authorities revealed that those companies were fictitious. The tax authorities therefore considered that the transactions had not taken place and ordered SIA Altic to pay the corresponding VAT. SIA Altic sought the annulment of that decision. Both the first- and the second‑instance national courts ruled in its favour.

2The Augstākā tiesa (Supreme Court, Latvia), seised on appeal on a point of law, harbours doubts as to the correct interpretation of Directive 2006/112/EC on the common system of value added tax ² read in conjunction with the requirements of sectorial legislation in the field of food law. Those doubts concern the argument by the Latvian tax authorities that SIA Altic should have known about the involvement of its co-contractors in VAT fraud, because it was active in the food sector and it was therefore obliged to verify its business partners to the higher standard applicable in that sector, in accordance with the obligations imposed by Regulations (EC) No 178/2002, ³ (EC) No 852/2004, ⁴ and by (EC) No 882/2004. ⁵

3The present case gives the Court the opportunity to refine its case-law on the criteria to determine whether an operator ‘knew or should have known’ that he was participating in an operation connected with VAT fraud for the purposes of refusing the right to deduct. In particular, the Court is asked to what extent, if at all, specific sectorial obligations applicable to operators active in certain fields, such as those pertaining to food law, are of relevance for the general tax assessment of whether or not an operator was or should have been aware that he was involved in a transaction connected with VAT fraud.

II. Legal framework

A. The VAT Directive

4According to Article 168 of the VAT Directive: ‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;

…’

5According to Article 178: ‘In order to exercise the right of deduction, a taxable person must meet the following conditions:

for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238, 239 and 240;

…’

6Article 220 of the VAT Directive provides that ‘every taxable person shall ensure that, in respect of the following, an invoice is issued, either by himself or by his customer or, in his name and on his behalf, by a third party:

supplies of goods or services which he has made to another taxable person or to a non-taxable legal person;

…’

7According to Article 226 of the VAT Directive:

‘Without prejudice to the particular provisions laid down in this Directive, only the following details are required for VAT purposes on invoices issued pursuant to Articles 220 and 221:

…

the customer’s VAT identification number, as referred to in Article 214, under which the customer received a supply of goods or services in respect of which he is liable for payment of VAT, or received a supply of goods as referred to in Article 138;

the full name and address of the taxable person and of the customer;

the quantity and nature of the goods supplied or the extent and nature of the services rendered;

…’

8Article 273 of the VAT Directive reads as follows:

‘Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.

The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.’

B. Regulation No 178/2002

9Recitals 28 and 29 of Regulation No 178/2002 are drafted in the following terms:

Experience has shown that the functioning of the internal market in food or feed can be jeopardised where it is impossible to trace food and feed. It is therefore necessary to establish a comprehensive system of traceability within food and feed businesses so that targeted and accurate withdrawals can be undertaken or information given to consumers or control officials, thereby avoiding the potential for unnecessary wider disruption in the event of food safety problems.

It is necessary to ensure that a food or feed business including an importer can identify at least the business from which the food, feed, animal or substance that may be incorporated into a food or feed has been supplied, to ensure that on investigation, traceability can be assured at all stages.’

10According to Article 3 of Regulation No 178/2002:

‘…

2“food business” means any undertaking, whether for profit or not and whether public or private, carrying out any of the activities related to any stage of production, processing and distribution of food;

3“food business operator” means the natural or legal persons responsible for ensuring that the requirements of food law are met within the food business under their control;

…

15“traceability” means the ability to trace and follow a food, feed, food‑producing animal or substance intended to be, or expected to be incorporated into a food or feed, through all stages of production, processing and distribution;

16“stages of production, processing and distribution” means any stage, including import, from and including the primary production of a food, up to and including its storage, transport, sale or supply to the final consumer and, where relevant, the importation, production, manufacture, storage, transport, distribution, sale and supply of feed;

…’

11Article 18 of Regulation No 178/2002 provides:

‘1. The traceability of food, feed, food-producing animals, and any other substance intended to be, or expected to be, incorporated into a food or feed shall be established at all stages of production, processing and distribution.

2. Food and feed business operators shall be able to identify any person from whom they have been supplied with a food, a feed, a food-producing animal, or any substance intended to be, or expected to be, incorporated into a food or feed.

To this end, such operators shall have in place systems and procedures which allow for this information to be made available to the competent authorities on demand.

3. Food and feed business operators shall have in place systems and procedures to identify the other businesses to which their products have been supplied. This information shall be made available to the competent authorities on demand.

4. Food or feed which is placed on the market or is likely to be placed on the market in the Community shall be adequately labelled or identified to facilitate its traceability, through relevant documentation or information in accordance with the relevant requirements of more specific provisions.

5. Provisions for the purpose of applying the requirements of this Article in respect of specific sectors may be adopted in accordance with the procedure laid down in Article 58(2).’

C. Regulation No 852/2004

12Article 6 of Regulation No 852/2004 (entitled ‘Official controls, registration and approval’) reads as follows:

‘1. Food business operators shall cooperate with the competent authorities in accordance with other applicable Community legislation or, if it does not exist, with national law.

2. In particular, every food business operator shall notify the appropriate competent authority, in the manner that the latter requires, of each establishment under its control that carries out any of the stages of production, processing and distribution of food, with a view to the registration of each such establishment.

…’

D. Regulation No 882/2004

13Article 31(1) of Regulation No 882/2004 provides that:

Competent authorities shall establish procedures for feed and food business operators to follow when applying for the registration of their establishments in accordance with Regulation (EC) No 852/2004, Directive 95/69/EC, or with the future regulation on feed hygiene;

They shall draw up and keep up-to-date a list of feed and food business operators which have been registered. Where such a list already exists for other purposes, it may also be used for the purposes of this Regulation.’

III. Facts, proceedings and the questions referred

14SIA Altic (‘the Respondent’) bought rapeseed from SIA Sakorex (in July and August 2011) and from SIA Ulmar (in October 2011). The rapeseed was duly received and kept in a store (silo) belonging to the company SIA Vendo. The Respondent deducted the input VAT paid on those transactions.

15An inspection by the Valsts ieņēmumu dienests (State Tax Authority, Latvia; ‘the VID’) revealed that SIA Sakorex and SIA Ulmar were fictitious companies. The VID ruled that the transactions between the Respondent and those companies had therefore not taken place and, in a decision dated 14 September 2012, it ordered the Respondent to pay the previously deducted VAT, a fine and late payment interest.

16The Respondent lodged an administrative appeal seeking the annulment of that administrative decision. The national courts of first and second instance ruled in its favour. In particular, the Administratīvā apgabaltiesa (Regional Administrative Court, Latvia) declared, inter alia, that there was no doubt that the goods in question had been deposited in the silo belonging to SIA Vendo in the quantity and on the dates stated in the relevant documents. The documents on the case record and the explanations provided by the Respondent demonstrated, moreover, that it had acted in good faith. Furthermore, the nature of the transaction did not require verification of the other parties’ capacity to provide the service, because the vendor delivered the goods at the delivery point stipulated in the contract. According to the contract between the Respondent and SIA Vendo, the latter was responsible for ensuring the accuracy of the information in the consignment note and for the consequences thereof. Finally, that court ruled that the VID had not stated which specific actions, stemming from a direct legal requirement, the Respondent should have taken but failed to take in order to verify the capacity of the other parties to the transaction to deliver the goods. Consequently, the Administratīvā apgabaltiesa (Regional Administrative Court) concluded that the evidence submitted in the case did not demonstrate that the Respondent had taken deliberate action in order to obtain an advantage in the form of the input VAT deduction.

17The VID lodged an appeal against that judgment before the Augstākā tiesa (Supreme Court), the referring court. The VID argues that the Administratīvā apgabaltiesa (Regional Administrative Court) erred in holding that there was no legal requirement to determine the origin of the goods acquired. Under Regulation No 178/2002, food business operators must be able to identify any substance intended to be, or expected to be, incorporated into a food or feed. To this end, operators must have in place systems and procedures allowing this information to be made available to the competent authorities on demand. Therefore, the Respondent was required, under Regulation No 178/2002, to undertake detailed checks on its co-contractors, given that they were involved in the food chain. The Respondent did not check that its co-contractors were registered with the Pārtikas un veterinārais dienests (Food and Veterinary Safety Agency, Latvia), and thus did not perform even minimal checks on the other parties. This demonstrates, according to the VID, that the Respondent knew or should have known that these transactions were part of a VAT fraud.

18The Respondent argues that the provisions invoked by the VID do not apply, because the seed it acquired was to be used to produce fuel and had no connection to any kind of food. There are therefore no grounds for applying the legislation regulating food business operators to the Respondent.

19In this context, the Augstākā tiesa (Supreme Court) decided to stay the proceedings and refer the following questions to the Court of Justice for a preliminary ruling:

Having regard to the aim of ensuring food safety established in [Regulation No 178/2002] (which is achieved, amongst other means, by ensuring food traceability), should Article 168(a) of [the VAT Directive] be interpreted as not precluding a refusal to allow deduction of input tax where the taxable person involved in the food chain, in choosing his co-contractor, has failed to demonstrate greater diligence (beyond normal commercial practice) entailing, in essence, a requirement to carry out checks on his co-contractor, but where he has at the same time verified the quality of the foodstuffs, thus meeting the aim of [Regulation No 178/2002]?

Does the requirement in Article 6 of Regulation No 852/2004 and in Article 31 of Regulation No 882/2004 concerning regulation of a food business, as interpreted in the light of Article 168(a) of [the VAT Directive], require a party that contracts with that business to check that the business is registered, and is that check relevant for the purposes of determining whether that party knew or should have known that it was taking part in a transaction with a fictitious undertaking, having regard to the particular characteristics of the transaction in question?’

20Written submissions were lodged by the Latvian and Spanish Governments, as well as by the European Commission. Those interested parties, as well as the Respondent, participated at the hearing that took place on 6 March 2019.

IV. Assessment

21This Opinion is structured as follows. After a few preliminary considerations (A), I shall outline the case-law regarding the diligence required in the field of VAT in situations where fraud is found to have been committed by co‑contractors (B). I will then examine the first question, related to the issue of whether non-compliance with sectorial obligations incumbent on a taxable person but unrelated to VAT, such as the traceability obligation of Article 18 of Regulation No 178/2002, should lead to the refusal of the right to deduct input VAT (C). I will then turn to the second question, which essentially asks whether failure to verify that co-contractors are in compliance with their own registration obligation following from Regulation No 882/2004 is relevant for the assessment of whether the taxable person should have known that he was taking part in an operation connected to VAT fraud (D).

A. Preliminary considerations

22The issues raised by this case exclusively concern whether a taxable person should be deprived of the right to deduct on the basis of its alleged lack of diligence, assessed by reference to its behaviour in relation to obligations imposed on it and its co-contractors by non-tax-related sectorial rules. It is therefore taken as a given that the material and formal conditions for the right to deduct would otherwise be fulfilled.

23There are two further factual statements ascertained by the referring court that I shall take as given.

24First, it is not disputed that the Respondent’s co-contractors turned out to be fictitious undertakings. While it was not possible to ascertain the origin of the goods, the goods were nevertheless delivered and apparently of good quality.

25Second, the referring court has found that there is no evidence in support of the Respondent’s claim that the seeds at issue were destined for fuel production. In the contracts concluded by the Respondent with both of the co-contractors, there was a term stipulating that the goods be compliant with the requirements of the Food and Veterinary Safety Agency. Moreover, the undertakings identified by the Respondent as its business partners are not active in the field of fuel production. Hence, having evaluated the evidence before it, the referring court came to the conclusion that the delivery in question (and hence also the Respondent with regard to that delivery) was subject to the obligations of Regulation No 178/2002.

B. Case-law on fraud and the right to deduct VAT

26The importance of the right to deduct has been stressed by this Court on a number of occasions. It has been described as a ‘fundamental principle of the common system of VAT’, ⁶ and an ‘integral part of the VAT scheme’ that may not, in principle, be limited. ⁷ It is central to the neutrality of the VAT system, as it is intended to relieve the operator entirely of the burden of the VAT due or paid in the course of all his economic activities. The common system of VAT therefore ensures that all economic activities are taxed in a neutral way, provided that they are in principle themselves subject to VAT. ⁸

27That also explains why the right to deduct cannot be affected by the fact that, in the chain of supply, another prior or subsequent transaction is vitiated by VAT fraud, without that taxable person knowing or having any means of knowing. ⁹

28However, in line with the general duty of national authorities to prevent and fight VAT fraud, those authorities are permitted to refuse the right of deduction (and, ultimately, to claim repayment) if it is established, on the basis of objective evidence, that that right is being relied on for fraudulent or abusive ends. ¹⁰

29That is the case not only where a tax fraud is committed by the taxable person but also when a taxable person ‘knew, or should have known, that, by his purchase, he was taking part in a transaction connected with VAT fraud’. ¹¹ In those circumstances, the taxable person is regarded ‘as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods’. ¹² This is because, in such a situation, the taxable person aids the perpetrators of the fraud and becomes their accomplice. ¹³

30However, the refusal of the right to deduct still remains an exception to the default, and indeed essential, right to deduct. The tax authority must therefore establish ‘to the requisite legal standard, the objective evidence which allows the conclusion to be drawn that the taxable person knew, or ought to have known, that the transaction relied on as a basis for the right to deduct was connected with fraud committed by the supplier or by another trader acting earlier in the chain of supply’. ¹⁴

31The Court has emphasised on several occasions that the responsibility to carry out controls lies with the competent authorities, warning against effectively shifting the obligation to carry out checks and verifications onto taxable persons. ¹⁵ It is indeed for the tax authorities themselves, having found fraud or irregularities committed by the issuer of an invoice, to establish that the recipient knew or should have known that the transaction was connected with fraud. This must be done based on objective factors ‘and without requiring the recipient of the invoice to carry out checks which are not his responsibility’. ¹⁶

32The Court has also clarified that tax authorities cannot, as a general rule, require the taxable person to ensure that the issuer of the invoice relating to the goods and services at issue also complied with his obligations as regards the declaration and payment of VAT and the possession of documents. ¹⁷ Similarly, the Court has found that tax authorities cannot require a taxable person to produce documents attesting that the supplier has complied with his own sectorial obligations imposed by EU law. ¹⁸

33The diligence of taxable persons is the decisive factor. That is because ‘traders who take every precaution which could reasonably be required of them to ensure that their transactions are not connected with fraud, be it the fraudulent evasion of VAT or other fraud, must be able to rely on the legality of those transactions without the risk of losing their right to deduct the input VAT’. ¹⁹

34The required level of diligence is context-sensitive. The case-law of the Court has consistently shown that the measures which may reasonably be required of a taxable person depend on the circumstances of the particular case. ²⁰ Indeed, the specific factual context may be such as to require a high degree of diligence on the part of the taxable person (for example, with reference to the value of the goods in the context of an acquisition). ²¹ When there are indications pointing to an infringement or fraud, and depending on the specific circumstances, traders may be required to make enquiries about their business partners in order to ascertain their trustworthiness. ²²

35However, two elements are of note. First, so far, the context-sensitive aspect of the level of diligence has revolved around different factual contexts, but always within the VAT Directive and its legal regime. Second, the case-law of the Court on the level of diligence required also makes clear that even when there are indications of an irregularity, tax authorities cannot, as a general rule, require taxable persons, first, to ensure that issuers of invoices were in possession of the goods or were in a position to supply them and that they had complied with their own VAT obligations, in order to be satisfied that there are no irregularities or, second, to be in possession of the corresponding documentation. ²³

36In sum, the right to deduct is to be refused only where it can be ascertained by the competent authorities that the taxable person knew or should have known that he was taking part in a transaction connected with VAT fraud. The level of diligence required from the taxable person to fulfil the duty of care may vary depending on the circumstances. However, the authorities must rely on objective factors in order to determine whether that taxable person was or should have been aware that he was participating in a transaction connected with VAT fraud. They are not allowed to shift onto the invoice recipient the burden of carrying out checks that are not his responsibility.

C. First question: right to deduct and Regulation No 178/2002

37By its first question, the referring court enquires about the relevance of compliance with the traceability obligation imposed by Article 18 of Regulation No 178/2002 for the purposes of assessing whether a taxable person, who is an operator in the food sector, knew or should have known that he was participating in a transaction connected to VAT fraud, in order to refuse the right to deduct.

38In my view, non-compliance with sectorial obligations incumbent on a taxable person but not imposed by the VAT rules themselves, such as the traceability obligation of Article 18 of Regulation No 178/2002, is not in itself decisive for refusing the right to deduct input VAT. In other words, potential non‑compliance with such sectorial obligations cannot automatically be equated with a finding that the taxable person should have known that the operation was connected to VAT fraud (1). Provided that the sectorial legislation indeed imposes on a taxable person a clear and broader legal duty to identify co-contractors, non‑compliance with such sectorial obligations may form part of the general assessment to be carried out by the referring court as one of the objective factors in determining what measures may be required of such a taxable person in order for him to satisfy himself that his transactions are not linked with VAT fraud committed by one of his suppliers (2).

1. Failure to ensure traceability does not equate to ‘should have known’ about a VAT fraud

39The Latvian Government is of the view that, even if there is no evidence in the present case that the Respondent knew that it was taking part in an operation connected with VAT fraud, numerous elements indicate that it should have been aware of that fact. The Respondent did not initiate contacts with its co-contractors. Rather, it was the latter that contacted the Respondent in response to advertisements in the media. The goods were not received directly by the Respondent but through an intermediary, who did not verify the information regarding the suppliers.

40Despite the fact that, according to national case-law, there is no general obligation to check business partners, the situation is different in the food sector. The Latvian Government submits that, as a result of the traceability obligation imposed by Regulation No 178/2002, undertakings active in the food sector are obliged to conduct in-depth checks on their co-contractors. Moreover, by stating that the seed was destined for fuel production, the Respondent has shown that it knew about the higher requirements applicable to the food industry and tried to evade them. At the hearing, the Latvian Government further explained that, in its view, the traceability obligation of Article 18(2) of Regulation No 178/2002 includes the obligation to check that co-contractors are duly registered with the Food and Veterinary Safety Agency.

41The Spanish Government submits that the Respondent did not comply with the obligation to identify the undertakings that supplied the rapeseed. That obligation emanates from Article 18 of Regulation No 178/2002. The failure to identify the suppliers had two consequences: a risk to food safety, and that the Respondent did not become aware of the fictitious character of its suppliers and the existence of fraud in the VAT chain. That breach of material requirements incumbent on the taxable person, although not of a tax nature, has had negative consequences for the collection of the VAT due.

42I am bound to disagree, both at the structural level (that is, that the potential non-compliance with sectorial obligations would have the necessary consequence of refusing the right to deduct input VAT), and also at the level of the specific obligation that Article 18(2) of Regulation No 178/2002 is said to contain. In this section, I shall explain why the proposition advanced by both governments is structurally incorrect. In the following section, I shall explain why I believe that their reading of the scope of the specific obligation imposed by Article 18(2) of the Regulation No 178/2002 is also problematic.

43As a preliminary point in the general discussion, it is important to note that the case-law of the Court has consistently confirmed that the principle of fiscal neutrality prevents any distinction between lawful and unlawful transactions for the purposes of VAT, as the fact that the activities at issue are illegal does not alter their economic character. ²⁴ That finding applies to activities that are themselves illegal, and also where there is proximity between the goods or services supplied and illegal activity. Thus, for example, in Coffeeshop ‘Siberië’, ²⁵ the Court concluded that hiring out a table to a third party to sell cannabis in a coffee shop in Amsterdam fell within the scope of the VAT rules, even if under national law that activity amounts to complicity in the offence of dealing in ‘soft drugs’.

44A fortiori in the context of the present case, the fact that an (as to its object, clearly lawful) operation is carried out in a context where one or more sectorial legal obligations are said to have been breached is much more remote from any illegality, and thus irrelevant, from an economic point of view, for the purposes of VAT. There is therefore no doubt that the operation at issue falls within the rules on VAT, including the right of deduction.

45There are at least three principled arguments why, in general, the interpretation outlined by the Latvian and Spanish Governments cannot be embraced: the imperative of legality; the differences in the logic and objectives of each regime; and the issue of (potential cumulation of) sanctions.

46First, there is simply no legal basis, either in EU or, apparently, in national law, for the automatic inclusion of (various) sectorial requirements in the general VAT regime. According to Article 178(a) of the VAT Directive, the exercise of the right of deduction is subject to the possession of an invoice and, according to Article 220(1) of that directive, such an invoice must be issued for every supply of goods or services, which a taxable person has made to another taxable person. Article 226 of the VAT Directive enumerates (exhaustively) the items that must appear on the invoice, amongst which is mentioned the full name and address of the taxable person and of the customer. The obligation to include those data is incumbent upon the issuer of the invoice and is to be considered amongst the formal requirements of valid invoices.

47In the present case, it follows from the submissions of the Respondent at the hearing that those requirements have been duly fulfilled in the present case and that, moreover, the Respondent has verified the registration of his suppliers in the VAT register.

48Beyond that clearly stated obligation in the context of VAT, pursuant to Article 273 of the VAT Directive, Member States may impose obligations other than those provided for by that directive, which they deem necessary to ensure the correct collection of VAT and to prevent evasion, so long as those obligations do not impose additional invoicing obligations, and only if such obligations do not go beyond what is necessary to achieve the objectives pursued. ²⁶

49Irrespective of the issue of whether additional obligations related to traceability of traders active in the food sector would in fact be compatible with Article 273 of the VAT Directive, it is apparent from the responses of the Latvian Government to the questions of the Court during the hearing that no such additional obligations were in fact laid down by national legislation.

50Thus, what is being suggested is apparently just a ‘matter of creative interpretation’ without any explicit legal basis in either national law or, for that matter, EU law. As far as specific and explicit requirements flowing from EU law are concerned, I shall return to the issue of what exactly is required by Article 18(2) of Regulation No 178/2002 in the next section. ²⁷

51Second, it is rather clear that each of the regimes, the general VAT system on the one hand, and the various instruments of food regulation in the internal market on the other, follows a different objective and regulatory logic. One is not there to reinforce the other. That also translates into the issue of sanctions for disregard for either of the instruments, which are also separate.

52Third, at the cross-section of both of the previous points lies not only the issue of potential sanction in the form of refusal to allow deduction of input VAT without a proper legal basis, but also the danger of effectively cumulating sanctions across legal regimes. Indeed, the interpretation put forward by the Latvian and Spanish Governments would transform the refusal of the right to deduct into an additional penalty connected to an irregularity committed by a taxable person in a different regulatory sphere. ²⁸ Specific consequences already attach to failure to comply with the obligations imposed by Regulation No 178/2002, as is readily apparent from Article 17(2), according to which Member States shall lay down rules on penalties applicable to infringements of food and feed law.

53In addition, there is a systemic argument that, to my mind, renders the arguments advanced by the Spanish and Latvian Governments impossible to embrace. Should the right to deduct VAT be made dependent on the existence and content of sectorial regulations and specific obligations unconnected with VAT? Should different yardsticks of diligence automatically apply as matter of fact depending on what is being sold under each contract? Would it then be possible that, in some sectors, the requirements could be even lower than those provided for by the VAT Directive?

54The systemic consequences of such an approach would indeed render the right of deduction a right à géométrie variable, as the conditions for such right would depend on whether there are additional sectorial obligations related to the obligation to check co-contractors.

55Finally, in support of its arguments, the Latvian Government refers to the case-law of the Court according to which ‘refusal of a right or an advantage on account of abusive or fraudulent acts is simply the consequence of the finding that, in the event of fraud or abuse of rights, the objective conditions required in order to obtain the advantage sought are not, in fact, met, and accordingly such a refusal does not require a specific legal basis’. ²⁹ Suffice it to state, in reply to that argument, that that case-law refers to the objective conditions contained in the taxation rules, and not in legislative instruments unconnected to the regulation of VAT, such as Regulation No 178/2002.

56In sum, the potential infringement of Regulation No 178/2002 does not have any automatic and direct consequence for the right to deduct VAT. The expression ‘knew or should have known’ in the case-law of the Court is used to establish a general standard of diligence within the VAT context. It does not permit equating failure to comply with any obligation imposed on a taxable person by any regulatory instrument with failure to meet the required duty of care for VAT purposes.

2. A potential element to be taken into account

57However, the specific sector in which a taxable person operates and the sectorial obligations to which he is subject may play a role in the assessment of whether a taxable person should have known that he was involved in a transaction connected with VAT fraud, taking due account of all the relevant specific circumstances of a given case.

58As the Commission rightly submits, failure to comply with the obligations stemming from sectorial rules in the field of food law may only be considered as one element amongst other objective factors, in the context of the examination to determine whether the taxable person knew or should have known that he was participating in an operation connected with VAT fraud. Indeed, as the Commission points out, a particularly high level of diligence is required in operations involving the food chain.

59It is in this context that the national authorities could rely, in conjunction with other relevant elements, on the behaviour of the taxable person by reference to the specific obligations which are proper to the regulatory context in which that person develops his economic activity.

60That being said, it is still not entirely clear to me how such a general statement would be of much help to the national tax authority in the context of the present case, for a rather simple reason: in my view, the precise scope of the traceability obligation established by Article 18(2) of Regulation No 178/2002 is narrower than the one suggested by the Latvian Government.

61Article 18 of Regulation No 178/2002 and the traceability obligation laid down therein were introduced so that ‘targeted and accurate withdrawals can be undertaken or information given to consumers or control officials, thereby avoiding the potential for unnecessary wider disruption in the event of food safety problems’. ³⁰ For this purpose, Article 18(2) establishes the obligation on food and feed business operators to be able to identify any person from whom they have been supplied with a food, a feed, a food-producing animal, or any substance intended to be, or expected to be, incorporated into a food or feed. To this end, that provision establishes that such operators shall have in place systems and procedures which allow for this information to be made available to the competent authorities on demand.

62However, as the referring court correctly points out, the obligation of identification imposed by Article 18(2) of Regulation No 178/2002 is not developed any further. That provision does not state the way in which traceability is to be ensured. It does not specify the action that traders must take or what information must be verified.

63Therefore, the scope of the obligation must be taken at face value: the obligation to identify any person from whom they have been supplied, means, in my understanding, the obligation to be able to identify, upon request, the individual immediate supplier from whom the trader acquired foodstuff. Nothing more and nothing less. The ability to identify normally refers to the name and the address of that person. ³¹ Beyond that, it certainly cannot be stated that Article 18(2) of Regulation No 178/2002 imposes any systematic obligation to check the specific registration with the competent authorities.

64Such a failure to comply with the traceability obligation imposed by Article 18(2) of Regulation No 178/2002, understood as the obligation to identify by name and address the immediate suppliers, could then indeed be considered amongst other relevant elements in the framework of the overall assessment of the diligence required of a taxable person. ³²

65It is true that the information to be included in the invoice by the issuer for the purposes of VAT corresponds, as far as name and address are concerned, with the essential elements which should be verified under the traceability obligation of Article 18(2) of Regulation No 178/2002 in order to identify the immediate supplier in the food chain.

66It must, however, be stressed, in line with the considerations set forth in the previous section of this Opinion, that that correspondence does not allow for the two sets of obligations to be conflated with one another.

67As a closing remark, in some instances, it might be plausible to suggest that a diligent food business operator should have carried out additional verifications to identify his contracting partner in order to comply with the requirement of traceability, and thus failure to do so could be taken into account as one of the elements eventually leading, together with other factual findings, to the conclusion that such a trader knew or should have known of a VAT fraud. However, in other circumstances, in particular in the absence of any other factual indications, such a finding will be of limited or even zero value: the traceability obligation per se has little to do with VAT fraud. VAT fraud can be committed by an undertaking duly complying with all traceability requirements. Conversely, even an undertaking that fails for whatever reason to meet some traceability requirements in a particular case may still run, from the point of VAT, a legal and legitimate operation.

68As a result, non-compliance with the level of diligence required under the traceability obligation in Regulation No 178/2002 can only be relevant, in the context of the refusal of the right to deduct VAT, if, taking account of the particular circumstances, it constitutes one of the objective factors indicating that the taxable person knew or should have known that, despite the fact that the transaction at issue met the objective criteria for a ‘supply of goods’, it was participating in a transaction connected with fraudulent evasion of VAT. ³³

3. Interim conclusion

69As a result, it is my view that failure to comply with the traceability obligation in Article 18(2) of Regulation No 178/2002 cannot lead, automatically and as the sole decisive criterion, to the conclusion that a taxpayer ‘should have known’ that he was taking part in a transaction connected with VAT fraud.

70I therefore propose that the Court answer the first question in the sense that Article 168(a) of the VAT Directive precludes national authorities from refusing deduction of input VAT on the sole ground that a taxable person involved in the food chain has failed to carry out checks on his co-contractor in compliance with the traceability obligation laid down in Article 18 of Regulation No 178/2002. Non-compliance with the obligations imposed by that provision may be taken into account, together with other factors relevant to the circumstances of the case, in the framework of the overall assessment to be carried out by the referring court in order to assess the diligence of a taxable person.

D. Second question: an obligation to check registration?

71By its second question, the referring court asks whether Article 6 of Regulation No 852/2004 and Article 31 of Regulation No 882/2004 require a party that contracts with a food business operator to check that such business is duly registered. The referring court further wishes to know whether that verification is relevant for the purposes of determining whether that party knew or should have known that it was taking part in a transaction with a fictitious undertaking, for the purposes of VAT deduction.

72The Latvian Government states that participants in the food sector need to meet a higher standard of diligence, which encompasses the obligation to verify that their business partners are properly registered. According to that government, Article 6 of Regulation No 852/2004 and Article 31 of Regulation No 882/2004 impose that obligation on taxable persons in the food sector. As a consequence, such verification is relevant for the purposes of determining whether a taxable person knew or should have known that he was dealing with a fictitious company.

73The Commission considers it inconceivable to make the right to deduct subject to the condition that taxable persons verify the registration of their business partners in the specific national registers set up in the field of food safety. The Commission subscribes to the view expressed by the referring court, according to which the absence of registration does not automatically lead to the conclusion that the economic activity is fictitious or that the operation has not been concluded with the person that appears in the documents provided. Checking proper registration of a business partner does not provide any guarantee that the operation is not fraudulent, because fraud is not exclusively the province of non‑registered companies. However, if a taxable person enters into a contractual relationship with another party after having discovered that that party is not properly registered, that element can be taken into account by the competent authorities and national courts.

74I cannot but agree with the Commission.

75Regardless of the (doubtful) usefulness of checking such a register in order to prevent or identify fraud, ³⁴ the position of the Latvian Government is simply unsustainable. The arguments of the Latvian Government are based on the alleged failure by the Respondent to check that its co-contractors complied with the obligation of registration in the food business register. However, and aside from the fact that verifying that business partners comply with their own sectorial registration obligations goes beyond usual business practices, there is simply no legal basis for imposing any such obligation.

76Indeed, such an obligation has no legal basis either in Regulation No 852/2004 or in Regulation No 882/2004. According to Article 6 of Regulation No 852/2004, every food business operator shall notify the appropriate competent authority, in the manner that the latter requires, of each establishment under its control that carries out any of the stages of production, processing and distribution of food, with a view to the registration of each such establishment. For the purposes of the present case, this obligation would be incumbent upon the Respondent’s business partners, not the Respondent.

77Regulation No 882/2004 is concerned with the official controls that national authorities must perform in order to verify compliance with food law. Article 31 of that regulation imposes obligations exclusively on national authorities regarding registration procedures that must be established for feed and food business operators.

78Moreover, as stated in Section C of this Opinion, the obligation to check that business partners comply with their own registration obligations as mandated by specific sectorial food law does not stem from the traceability obligation imposed by Article 18(2) of Regulation No 178/2002 either.

79As a consequence, that obligation is not only nowhere to be found in the VAT Directive, it is also completely absent from the specific sectorial regulations in the field of food law. Thus, in contrast to the interpretation of Article 18(2) of Regulation No 178/2002, where some, albeit limited, discussion could be had about the precise scope of the obligation imposed by that provision with regard to question 1, there is nothing at all that would warrant the interpretation proposed by the Latvian Government with regard to question 2.

80It can only be repeated that the case-law of the Court makes clear that the duty of care and the standard of diligence required from traders cannot lead to shifting the responsibility of the authorities to carry out controls and verifications regarding the sectorial registration obligations onto undertakings in the sector by imposing on them the burden of ensuring that issuers of invoices comply with those obligations. Indeed, when national tax authorities, having found irregularities committed by the supplier, seek to establish that the recipient knew or should have known that the relevant transaction was connected with VAT fraud, they are not permitted to require the recipient to carry out checks, which are not his responsibility. ³⁵

81Regarding the situation raised by the Commission, where a taxable person conducts checks of his own motion and decides to engage with a business partner despite having discovered an irregularity, that consideration may form part of the overall assessment of the specific facts by the national courts and authorities, with a view to assessing whether the taxable person was or should have been aware of a fraud.

82Therefore, Article 6 of Regulation No 852/2004 and Article 31 of Regulation No 882/2004 do not require a food business operator to check the registration of its business partners in the relevant food business register. A fortiori, failure to verify such registration is immaterial for the purposes of determining, in the context of the right to deduct VAT, whether that party knew or should have known that it was taking part in a transaction with a fictitious undertaking.

V. Conclusion

Conclusion

83In the light of the foregoing considerations, I propose that the Court answer the questions referred to it by the Augstākā tiesa (Supreme Court, Latvia) as follows:

Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax precludes national authorities from refusing deduction of input VAT on the sole ground that a taxable person involved in the food chain has failed to carry out checks on his co-contractor in compliance with of the traceability obligation laid down in Article 18(2) of Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety. Non-compliance with the obligations imposed by that provision may, however, ultimately be taken into account, together with other factors relevant to the circumstances of the case, in the framework of the overall assessment to be carried out by the referring court in order to assess the diligence of a taxable person.

Article 6 of Regulation (EC) No 852/2004 of the European Parliament and of the Council of 29 April 2004 on the hygiene of foodstuffs and Article 31 of Regulation (EC) No 882/2004 of the European Parliament and of the Council of 29 April 2004 on official controls performed to ensure the verification of compliance with feed and food law, animal health and animal welfare rules do not require a food business operator to check the registration of its business partners in the relevant food business register. The fact that a taxable person has not checked whether a co-contractor is registered in compliance with Article 6 of Regulation No 852/2004 is not relevant when it comes to examining, in the context of Article 168(a) of Directive 2006/112, whether an undertaking knew or should have known that it was taking part in a transaction with a fictitious undertaking.

¹ Original language: English.

² Council Directive of 28 November 2006 (OJ 2006 L 347, p. 1) (‘the VAT Directive’).

³ Regulation of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety (OJ 2002 L 31, p. 1; ‘Regulation No 178/2002’).

⁴ Regulation of the European Parliament and of the Council of 29 April 2004 on the hygiene of foodstuffs (OJ 2004 L 139, p. 1; corrigendum in OJ 2004 L 226, p. 3; ‘Regulation No 852/2004’).

⁵ Regulation of the European Parliament and of the Council of 29 April 2004 on official controls performed to ensure the verification of compliance with feed and food law, animal health and animal welfare rules (OJ 2004 L 165, p. 1; corrigendum in OJ 2004 L 191, p. 1; ‘Regulation No 882/2004’).

⁶ Judgment of 15 September 2016, Senatex (C‑518/14, EU:C:2016:691, paragraph 26 and the case-law cited).

⁷ Judgment of 6 September 2012, Tóth (C‑324/11, EU:C:2012:549, paragraph 24 and the case-law cited).

⁸ Judgment of 22 October 2015, PPUH Stehcemp (C‑277/14, EU:C:2015:719, paragraph 27 and the case-law cited).

⁹ Judgment of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraphs 45 and 46 and the case-law cited).

¹⁰ Judgment of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 55 and the case-law cited), or of 19 October 2017, Paper Consult (C‑101/16, EU:C:2017:775, paragraph 43).

¹¹ Judgment of 18 July 2013, Evita-K (C‑78/12, EU:C:2013:486, paragraph 40 and the case-law cited).

¹² Judgment of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 56).

¹³ Judgment of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 57).

¹⁴ Judgment of 21 June 2012, Mahagében and Dávid (C‑80/11 and C‑142/11, EU:C:2012:373, paragraph 49).

¹⁵ See, to that effect, judgment of 31 January 2013, Stroy trans (C‑642/11, EU:C:2013:54, paragraph 50) or of 19 October 2017, Paper Consult (C‑101/16, EU:C:2017:775, paragraph 51 and the case-law cited).

¹⁶ Judgment of 22 October 2015, PPUH Stehcemp (C‑277/14, EU:C:2015:719, paragraph 50 and the case-law cited).

¹⁷ Judgments of 21 June 2012, Mahagében and Dávid (C‑80/11 and C‑142/11, EU:C:2012:373, paragraph 61), and of 31 January 2013, LVK (C‑643/11, EU:C:2013:55, paragraph 61).

¹⁸ Judgment of 18 July 2013, Evita-K (C‑78/12, EU:C:2013:486, paragraph 42), concerning the relevance, for the purposes of the right to deduct, of the failure to produce documents issued by the issuer of the invoice mentioning the ear tags of animals subject to the identification and registration system established by Regulation (EC) No 1760/2000 of the European Parliament and of the Council of 17 July 2000 establishing a system for the identification and registration of bovine animals and regarding the labelling of beef and beef products and repealing Council Regulation (EC) No 820/97 (OJ 2000 L 204, p. 1), as amended by Council Regulation (EC) No 1791/2006 of 20 November 2006 (OJ 2006 L 363, p. 1).

¹⁹ Judgment of 21 June 2012, Mahagében and Dávid (C‑80/11 and C‑142/11, EU:C:2012:373, paragraph 53 and the case-law cited).

²⁰ Judgment of 21 June 2012, Mahagében and Dávid (C‑80/11 and C‑142/11, EU:C:2012:373, paragraph 59).

²¹ Judgment of 14 June 2017, Santogal M-Comércio e Reparação de Automóveis (C‑26/16, EU:C:2017:453, paragraph 74).

²² Judgment of 21 June 2012, Mahagében and Dávid (C‑80/11 and C‑142/11, EU:C:2012:373, paragraph 60).

²³ Judgment of 22 October 2015, PPUH Stehcemp (C‑277/14, EU:C:2015:719, paragraph 52, and the case-law cited).

²⁴ See, to that effect, judgments of 29 June 1999, Coffeeshop Siberië (C‑158/98, EU:C:1999:334, paragraphs 21 and 22), and of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 50 and the case-law cited).

²⁵ Judgment of 29 June 1999 (C‑158/98, EU:C:1999:334).

²⁶ See, to that effect, judgment of 19 October 2017, Paper Consult (C‑101/16, EU:C:2017:775, paragraphs 49 and 50 and the case-law cited).

²⁷ Points 60 to 63 below.

²⁸ Argumentum ad absurdum: why stop there, in fact? Should not an alleged failure of diligence by an undertaking in one sector or area of its activity (food supply) also determine whether that undertaking acted as a ‘diligent operator’ in other regimes involving public funds, or even private ones?

²⁹ Judgment of 22 November 2017, Cussens and Others (C‑251/16, EU:C:2017:881, paragraph 32).

³⁰ Recital 28 of Regulation No 178/2002.

³¹ This interpretation is confirmed by the Guidance on the implementation of Articles 11, 12, 14, 17, 18, 19 and 20 of Regulation No 178/2002 on general food law, adopted by the Commission’s Standing Committee on the Food Chain and Animal Health. Regarding Article 18, that guidance indicates that food operators must have in place a system enabling them to identify the immediate supplier(s) and immediate customer(s) of their products. With regard to the information that must be recorded, the Guidance mentions the name and address of the supplier.

³² Conversely, the more stringent obligations regarding traceability that are contained in Commission Implementing Regulation (EU) No 931/2011 of 19 September 2011 on the traceability requirements set by Regulation (EC) No 178/2002 of the European Parliament and of the Council for food of animal origin (OJ 2011 L 242, p. 2), which include the obligation to also identify the owner of products, cannot be relevant in order to assess whether the taxable person, in the present case, acted with the required diligence, since those obligations only concern food of animal origin.

³³ Judgment of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 59).

³⁴ With the closing remark made with regard to the traceability requirement in point 67 above being applicable a fortiori here.

³⁵ See, to that effect, judgment of 22 October 2015, PPUH Stehcemp (C‑277/14, EU:C:2015:719, paragraph 50 and the case-law cited).