C-564/15 Farkas

JUDGMENT OF THE COURT (Fourth Chamber)

26 April 2017 ( *1 )

‛Reference for a preliminary ruling — Plea alleging infringement of EU law raised by the Court of its own motion — Principles of equivalence and effectiveness — Common system of value added tax — Directive 2006/112/EC — Right to deduct input tax — Reverse charge system — Article 199(1)(g) — Application only in the case of immovable property — Undue payment of the tax by the purchaser of property to the seller as a result of an incorrectly drawn up invoice — Tax authority’s decision holding that the property purchaser has an outstanding tax liability, refusing payment of the deduction sought by the purchaser, and imposing a penalty tax’

In Case C‑564/15,

REQUEST for a preliminary ruling under Article 267 TFEU from the Kecskeméti közigazgatási és munkaügyi bíróság (Administrative and Labour Court, Kecskemét, Hungary), made by decision of 7 October 2015, received at the Court on 4 November 2015, in the proceedings

Tibor Farkas

v

Nemzeti Adó- és Vámhivatal Dél-alföldi Regionális Adó Főigazgatósága

THE COURT (Fourth Chamber),

composed of T. von Danwitz, President of the Chamber, E. Juhász, C. Vajda, K. Jürimäe and C. Lycourgos (Rapporteur), Judges,

Advocate General: M. Bobek,

Registrar: I. Illéssy, Administrator,

having regard to the written procedure and further to the hearing on 7 September 2016,

after considering the observations submitted on behalf of:

the Hungarian Government, by M.M. Tátrai, M.Z. Fehér and G. Koós, acting as Agents,

the Estonian Government, by K. Kraavi-Käerdi, acting as Agent,

the European Commission, by L. Lozano Palacios and L. Havas, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 10 November 2016,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation 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’), and the principles of fiscal neutrality and proportionality.

2The request has been made in proceedings between Mr Tibor Farkas and the Nemzeti Adó- és Vámhivatal Dél-alföldi Regionális Adó Főigazgatósága (Dél-alföld Regional Tax Directorate, part of the National Treasury and Customs Authority, Hungary, ‘the Hungarian tax authority’) concerning the latter’s decision that Mr Farkas has an outstanding tax liability and imposing a tax penalty on him as a result of the non-application of national provisions on the reverse charge system.

Legal context

EU law

3Recital 42 of Directive 2006/112 states: ‘Member States should be able, in specific cases, to designate the recipient of supplies of goods or services as the person liable for payment of VAT. This should assist Member States in simplifying the rules and countering tax evasion and avoidance in identified sectors and on certain types of transactions.’

4Article 167 of that directive provides:

‘A right of deduction shall arise at the time the deductible tax becomes chargeable.’

5Article 168(a) of Directive 2006/112 states:

‘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 [value added tax (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;

…’

6Article 178(a) and (f) of Directive 2006/112 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;

…

when required to pay VAT as a customer where Articles 194 to 197 or Article 199 apply, he must comply with the formalities as laid down by each Member State.’

7Under Article 193 of the Directive, VAT is to be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199 and Article 202 of that directive.

8Article 199(1)(g) of the directive provides:

‘Member States may provide that the person liable for payment of VAT is the taxable person to whom any of the following supplies are made:

…

the supply of immovable property sold by a judgment debtor in a compulsory sale procedure.

…’

9Article 226(11a) of Directive 2006/112 provides:

‘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:

…

(11a) where the customer is liable for the payment of the VAT, the mention “Reverse charge”.’

10According to Article 395 of that directive:

‘1. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.

…

2. A Member State wishing to introduce the measure referred to in paragraph 1 shall send an application to the Commission and provide it with all the necessary information. …

Once the Commission has all the information it considers necessary for appraisal of the request it shall within one month notify the requesting Member State accordingly and it shall transmit the request, in its original language, to the other Member States.

3. Within three months of giving the notification referred to in the second subparagraph of paragraph 2, the Commission shall present to the Council either an appropriate proposal or, should it object to the derogation requested, a communication setting out its objections.

4. The procedure laid down in paragraphs 2 and 3 shall, in any event, be completed within eight months of receipt of the application by the Commission.’

Hungarian law

11Paragraph 142 of the általános forgalmi adóról szóló 2007. évi CXXVII. törvény (Law CXXVII of 2007 on value added tax), in the version applicable to the main proceedings (‘the Law on VAT’), provides the following:

‘1. The tax shall be paid by the taxable person receiving the goods or services:

…

in the case of the supply of capital goods of the business, and the supply of other goods or services with an open market value of Hungarian forints 100000 [(HUF) (approximately EUR 324)] at the time of supply, if the taxable person supplying the goods or services is the subject of bankruptcy proceedings or any similar insolvency proceedings in which it has been definitively established that he is unable to pay his debts;

…

7. Where subparagraph (1) applies, the supplier of the goods or services shall issue an invoice which does not indicate either the amount of the output VAT or the rate referred to in Paragraph 83.

…’

12Paragraph 169(n) of the Law on VAT provides:

‘The invoice shall be required to contain the following text:

…

where the customer is liable to pay the VAT, the words “Reverse charge”;

…’

13Paragraph 170(1) and (2) of the adózás rendjéről szóló 2003. évi XCII. törvény (Law XCII of 2003 on the rules governing taxation), in the version applicable to the facts of the main proceedings (‘the Law on the Tax Procedure Code’) provides:

‘1. If the tax payment is insufficient, this shall give rise to a tax penalty. The amount of the penalty, save as otherwise provided for in this law, shall be 50% of the unpaid amount. The amount of the penalty shall be 200% of the unpaid amount if the difference compared with the amount to be paid is connected with the concealment of income, or the falsification or destruction of evidence, accounting ledgers or registers. A tax penalty shall also be imposed by the tax authority where the taxpayer makes an application, without being entitled to do so, for a tax refund or aid, or makes a declaration relating to an asset, aid or refund, and the authority has found that the taxpayer has no such entitlement before allocation. In such a situation, the penalty shall be based on the amount wrongly claimed.

2. The difference in the tax payable by the taxpayer, in the case of a reverse charge, is to be regarded as insufficient payment of the tax only where that difference was not paid before the due date, or where the taxpayer received budgetary aid. ...’

14Under Paragraph 171 of the Law on the Tax Procedure Code:

‘1. The amount of the fine may be reduced, or even remitted, either ex officio or on request, in exceptional circumstances which lead to the conclusion that the taxable person, or the taxable person’s representative, employee, member or agent responsible for the tax liability, acted with the discernment that could reasonably have been expected from him in those particular circumstances. The reduction of the fine should be made by weighing up all the circumstances of the case in question, in particular the size of the tax liability, the circumstances of how it arose, and the seriousness and frequency of the taxable person’s unlawful conduct (act or omission).

2. There are no grounds for reducing the fine, whether ex officio or on request, where the tax liability is connected with the concealment of revenue, or the falsification or destruction of evidence, accounts or registers.

…’

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

15As part of an electronic auction organised by the tax authorities, Mr Farkas purchased a mobile hangar from a limited liability company with an outstanding tax liability. The seller in question issued the invoice, which included the VAT relating to that transaction, in accordance with the rules applicable to the ordinary tax system. When Mr Farkas paid the auction selling price, he included the VAT indicated by the seller, who paid that tax to the Hungarian tax authority.

16Mr Farkas deducted the output VAT recorded in that invoice. The Nemzeti Adó- és Vámhivatal Bács-Kiskun Megyei Adóigazgatósága (the Bács-Kiskun Provincial Tax Directorate, part of the National Treasury and Customs Authority, Hungary) then carried out checks on the refunds requested by Mr Farkas in the VAT declarations for the fourth quarter of 2012. That tax authority found that the rules governing the reverse charge system, for the purposes of Paragraph 142(1)(g) of the Law on VAT, according to which it fell to Mr Farkas, as purchaser of the property, to pay the VAT directly to the Treasury, had not been complied with. By decision of 11 July 2014, confirmed by decision of 7 November 2014, the Hungarian tax authority consequently found that Mr Farkas was liable for the tax difference of HUF 744000 (approximately EUR 2400), rejected his request for a refund of the VAT paid to the vendor in question and imposed a tax penalty in the sum of HUF 372000 (approximately EUR 1200).

17Mr Farkas claims that the Hungarian tax authority deprived him of his right to deduct VAT as a result of a formal defect, that is to say, the invoice in question had been issued in accordance with the ordinary tax system, rather than the reverse charge system, and thus infringed EU law. He submits that the decision making him liable for the tax difference is unjustified because the seller in question paid the VAT in question to the Treasury. Mr Farkas brought an action before the referring court in order to ask the Court of Justice whether the refusal of his right to make a deduction is compatible with EU law.

18The referring court takes the view that the Hungarian tax authority did not deny Mr Farkas his right to deduct VAT, but required him to pay the VAT due in accordance with the rules of the reverse charge system, pursuant to Paragraph 142(1)(g) of the Law on VAT. The difference in tax for which he is liable corresponds to the VAT indicated on the invoice for the transaction in question. According to the referring court, following the decisions of the Hungarian tax authority, although Mr Farkas paid the VAT to the seller in question, he is treated as being liable to the Treasury. Thus, since the Hungarian tax authority does not dispute his right to deduct the VAT paid, it deducted from the amount which he is seeking to have refunded the tax difference which they consider him to be liable for. Since the two sums are equal, they cancel each other out. The referring court also states that the seller paid the VAT to the Treasury, so that the Treasury suffered no loss as a result of the fact that the invoice in question was wrongly issued under the ordinary tax system, instead of the reverse charge system. In addition, according to that court, there is no indication of any tax evasion or of an intention to obtain a tax advantage.

19The referring court considers that, in practice, the decision of the Hungarian tax authority effectively prevents Mr Farkas from exercising his right to make a deduction. Bearing in mind that, in accordance with Directive 2006/112 and the Court’s case-law, the right to deduct VAT may be denied only where tax evasion has been proven, that decision does not appear to be proportionate to the aim which the reverse charge procedure seeks to achieve.

20In those circumstances, the Kecskeméti közigazgatási és munkaügyi bíróság (Administrative and Labour Court, Kecskemét, Hungary) decided to stay the proceedings and refer the following questions to the Court for a preliminary ruling:

Is a practice of the tax authority, based on the provisions of the Law on VAT, compatible with the provisions of Directive 2006/112, in particular the principle of proportionality with the objectives of fiscal neutrality and the prevention of tax evasion, if, by that practice, that authority declares that the purchaser of an item of property (or recipient of a service) is liable for a tax difference in a situation in which the seller of the property (or supplier of the service) issues an invoice in accordance with the ordinary tax system for a transaction to which the reverse charge procedure applies and declares and pays to the Treasury the tax relating to that invoice, and the purchaser of the item of property (or recipient of the service), for his part, deducts the VAT paid to the issuer of the invoice, even though he may not exercise his right to deduct the VAT declared as a tax difference?

Is the imposition of a penalty for selecting an incorrect method of taxation in the case of a declaration of a tax difference, which also entails the imposition of a tax fine of 50%, proportionate where the Treasury has not incurred any loss of revenue and there is no evidence of abuse?’

Consideration of the questions referred

Preliminary observations

21It is apparent from the order for reference that the transaction at issue in the main proceedings involves the purchase by Mr Farkas of a mobile hangar at an electronic auction organised by the national tax authorities. Pursuant to Paragraph 142(1)(g) of the Law on VAT which, according to the referring court, transposes Article 199(1)(g) of Directive 2006/112, those authorities considered that that transaction was subject to the reverse charge mechanism and demanded that Mr Farkas pay the VAT relating to that sale, whilst imposing a tax penalty on him.

22In response to a question asked by the Court at the hearing, the Hungarian Government indicated that the transaction at issue in the main proceedings concerns the delivery of movable property and that Paragraph 142(1)(g) of the Law on VAT applies to movable and immovable property alike.

23In that regard, it should be noted that, under Article 193 of Directive 2006/112, VAT is payable by any taxable person carrying out a taxable supply of goods, except where it is payable by another person in the cases referred to in Articles 194 to 199 and Article 202 of that directive. Under Article 199(1)(g) of Directive 2006/112, Member States may provide that a taxable person who is supplied with immovable property sold by a judgment debtor in a compulsory sale procedure will be the person liable for the VAT.

24It follows from recital 42 of Directive 2006/112 that the objective of Article 199(1)(g) is to enable Member States to introduce a reverse charge mechanism in certain sectors or for certain transactions in order to simplify the rules and counter tax evasion and avoidance. That provision thus allows the tax authorities to collect VAT imposed on the transactions at issue in cases where the debtor’s ability to pay that tax is compromised (judgment of 13 June 2013, Promociones y Construcciones BJ 200, C‑125/12, EU:C:2013:392, paragraph 28).

25The Court has already held that Article 199(1)(g) of Directive 2006/112 constitutes an exception to the principle set out in Article 193 of that directive according to which VAT is payable by any taxable person carrying out a taxable supply of goods or services, and must therefore be interpreted strictly. Article 199 allows Member States to introduce a reverse charge mechanism, in the situations referred to in paragraphs 1(a) to (g) of that article, whereby the person liable for the payment of VAT is the taxable person who is the recipient of the transaction subject to VAT (see, to that effect, judgment of 13 June 2013, Promociones y Construcciones BJ 200, C‑125/12, EU:C:2013:392, paragraphs 23 and 31).

26As the Advocate General made clear in point 28 of his Opinion, the fact that the reverse charge mechanism is an exception to the principle laid down in Article 193 of Directive 2006/112 means that derogations from that principle should be allowed only if they are expressly provided for in that directive.

27Article 199(1)(g) of Directive 2006/112 refers only to immovable property and not movable property. Therefore, the sale of movable property in an auction, such as the one at issue in the main proceedings, falls outside its scope.

28It is true that Article 395 of Directive 2006/112 provides that Member States are able to request the right to introduce special measures for derogation from the provisions of that directive in order to simplify the procedure for collecting VAT and to prevent certain forms of tax evasion or avoidance. However, the Hungarian Government confirmed at the hearing that Hungary has not been granted any such derogation in relation to Article 199(1)(g) of Directive 2006/112.

29In those circumstances, it should be pointed out that Paragraph 142(1)(g) of the Law on VAT extends the application of the reverse charge regime to the supply of movable property, beyond what is permitted under Article 199(1)(g) of Directive 2006/112, which only covers transfers of immovable property. Therefore, the application of the reverse charge regime and the imposition of the tax penalty at issue in the main proceedings would be incompatible with that directive, if the auction sale at issue in the main proceedings concerned movable property.

30However, subject to the necessary checks to be carried out by the referring court, it is clear from the documents submitted by the referring court and the oral arguments at the hearing held before the Court of Justice that the issue of the compatibility of Paragraph 142(1)(g) of the Law on VAT with Article 199(1)(g) of Directive 2006/112 was not raised in the main proceedings.

31In that regard, it should be recalled that, according to the Court’s settled case-law, in the absence of EU rules on a procedural question, it is for the national legal order of each Member State to establish them in accordance with the principle of procedural autonomy, on condition, however, that those rules are not less favourable than those governing similar domestic situations (principle of equivalence) and that they do not make it excessively difficult or impossible in practice to exercise the rights conferred by EU law (principle of effectiveness) (see, to that effect, judgments of 7 June 2007, van der Weerd and Others, C‑222/05 to C‑225/05, EU:C:2007:318, paragraph 28 and the case-law cited, and of 17 March 2016, Bensada Benallal, C‑161/15, EU:C:2016:175, paragraph 24 and the case-law cited).

32First, it must be recalled that EU law, and in particular the principle of effectiveness, does not, as a rule, require national courts to raise of their own motion an issue concerning the breach of provisions of EU law, where examination of that issue would oblige them to go beyond the ambit of the dispute defined by the parties themselves and rely on facts and circumstances other than those on which the party with an interest in application of those provisions has based his claim (see, to that effect, inter alia, judgments of 14 December 1995, van Schijndel and van Veen, C‑430/93 and C‑431/93, EU:C:1995:441, paragraph 22, and of 7 June 2007, van der Weerd and Others, C‑222/05 to C‑225/05, EU:C:2007:318, paragraph 36).

33That limitation on the power of the national court is justified by the principle that, in a civil suit, it is for the parties to take the initiative and that, as a result, where national procedural law provides a genuine opportunity for the party concerned to raise a plea based on EU law, the national court is able to act of its own motion only in exceptional cases where the public interest requires its intervention (see, to that effect, judgment of 7 June 2007, van der Weerd and Others, C‑222/05 to C‑225/05, EU:C:2007:318, paragraphs 35 and 41 and the case-law cited).

34In the present case, it must be pointed out that it is not apparent from the information in the documents before the Court that the applicant in the main proceedings was prevented by national procedural law from raising a plea alleging the possible incompatibility of Paragraph 142(1)(g) of the Law on VAT with Article 199(1)(g) of Directive 2006/112 (see, by analogy, judgment of 7 June 2007, van der Weerd and Others, C‑222/05 to C‑225/05, EU:C:2007:318, paragraph 41).

35Secondly, it must be pointed out that respect for the principle of equivalence requires that, where the provisions of national law relating to procedural rules confer on a court the obligation to raise of its own motion a plea based on the infringement of national law, such an obligation must prevail in the same way for the same type of plea based on the infringement of EU law (see, to that effect, judgments of 14 December 1995, van Schijndel and van Veen, C‑430/93 and C‑431/93, EU:C:1995:441, paragraph 13, and of 17 March 2016, Bensada Benallal, C‑161/15, EU:C:2016:175, paragraph 30). The same applies if national law confers on the court the power to raise such a plea of its own motion (see, to that effect, judgment of 14 December 1995, van Schijndel and van Veen, C‑430/93 and C‑431/93, EU:C:1995:441, paragraph 14).

36In that regard, in reply to a question asked by the Court at the hearing, the Hungarian Government indicated that, under national law, the referring court had the possibility of raising of its own motion a plea alleging infringement of a rule of national law, just as it did for a plea alleging infringement of a rule of EU law.

37It should be recalled that, in proceedings under Article 267 TFEU, which are based on a clear separation of functions between the national courts and the Court of Justice, the national court alone has jurisdiction to find and assess the facts in the case before it and to interpret and apply national law (see, inter alia, judgments of 18 July 2007, Lucchini, C‑119/05, EU:C:2007:434, paragraph 43, and of 26 May 2011, Stichting Natuur en Milieu and Others, C‑165/09 to C‑167/09, EU:C:2011:348, paragraph 47).

38In addition, it is also clear from settled case-law that it is for the Court of Justice to provide the national court with an answer which will be of use and to enable it to determine the case at issue (judgment of 11 September 2014, B., C‑394/13, EU:C:2014:2199, paragraph 21 and the case-law cited).

39In the present case, given that it is for the referring court to establish, first, whether a mobile hangar, such as the one delivered in the transaction at issue in the main proceedings, is movable or immovable property, and secondly, whether the referring court is able to raise of its own motion the incompatibility of Paragraph 142(1)(g) of the Law on VAT with Article 199(1)(g) of Directive 2006/112, it is possible that the reply to the questions raised is still relevant for the purposes of resolving the dispute in the main proceedings. It is therefore appropriate to answer those questions.

The first question

40By its first question, the referring court asks in essence whether the provisions of Directive 2006/112 and the principles of fiscal neutrality and proportionality must be interpreted to the effect that, in a situation such as that in the main proceedings, they preclude the purchaser of an item of property from being deprived of the right to deduct the VAT which he paid to the seller when that tax was not due, on the basis of an invoice drawn up in accordance with the rules of the ordinary VAT regime, where the relevant transaction came under the reverse charge mechanism, and the seller paid that tax to the Treasury.

41It must be recalled that, under the reverse charge regime, no VAT payment takes place between the seller and the purchaser of the property, the purchaser being liable, in respect of the transactions carried out, for the input VAT, while being able, in principle, to deduct that tax so that no amount is payable to the tax authorities (see, to that effect, judgment of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraph 29 and the case-law cited).

42It must also be pointed out that the right of deduction forms an integral part of the VAT scheme and in principle may not be limited (judgments of 15 July 2010, Pannon Gép Centrum, C‑368/09, EU:C:2010:441, paragraph 37; of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraph 30; and of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 30).

43The deduction rules thus established are intended to free the taxable person completely of the burden of the VAT accruing or paid in all its economic activities. The common system of VAT therefore ensures that all economic activities, whatever their purpose or results, provided that they are, in principle, themselves subject to VAT, are taxed in a neutral way (see judgments of 22 February 2001, Abbey National, C‑408/98, EU:C:2001:110, paragraph 24; of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraph 31; and of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 29).

44It should also be recalled that, as regards the rules governing the exercise of the right to deduct VAT in the reverse charge procedure under Article 199(1) of Directive 2006/112, a taxable person who is liable as the purchaser of an item of property for the VAT relating thereto is not obliged to hold an invoice drawn up in accordance with the formal requirements of that directive in order to be able to exercise his right to deduct, and only has to fulfil the formalities laid down by the Member State concerned in the exercise of the option conferred by Article 178(f) of that directive (see, to that effect, judgment of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraphs 32 and 33).

45In the present case, it is clear from the request for a preliminary ruling that the invoice at issue in the main proceedings does not contain the words ‘reverse charge’, contrary to the requirements of Paragraph 169(n) of the Law on VAT and that Mr Farkas incorrectly paid the VAT, wrongly referred to in that invoice, to the seller in question in the main proceedings, whereas, under the reverse charge regime, he should, as the recipient of the property, have paid the VAT to the tax authority in accordance with Article 199(1)(g) of Directive 2006/112. Thus, besides the fact that that invoice does not meet the formal requirements provided for by the national legislation, a substantive requirement of that regime has not been satisfied.

46As the Court found in the judgment of 6 February 2014, Fatorie, (C‑424/12, EU:C:2014:50, paragraph 38), such a situation prevented the Hungarian tax authority from investigating the application of the reverse charge regime and led to a risk of a loss of tax revenue for the Member State concerned.

47Moreover, it must be stated that the right to deduct can be exercised only in respect of taxes actually due, that is to say, the taxes corresponding to a transaction subject to VAT or paid in so far as they were due (see, to that effect, judgment of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraph 39). As it happens, the VAT paid by Mr Farkas to the seller of the mobile hangar at issue in the main proceedings was not due.

48Thus, since the VAT was not due and the payment was made in breach of a substantive requirement of the reverse charge regime, Mr Farkas cannot claim the right to deduct that VAT.

49However, Mr Farkas may claim reimbursement of the tax unduly paid to the seller of the mobile hangar in accordance with national law (see, to that effect, judgment of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraph 42).

50In that regard, the Court has already held that, in the absence of EU rules on applications for the repayment of taxes, it is for the domestic legal system of each Member State to lay down the conditions under which such applications may be made; those conditions must observe the principles of equivalence and effectiveness, that is to say, they must not be less favourable than those relating to similar claims founded on provisions of domestic law or framed so as to render virtually impossible the exercise of rights conferred by the EU legal order (see, to that effect, judgment of 15 March 2007, Reemtsma Cigarettenfabriken, C‑35/05, EU:C:2007:167, paragraph 37).

51Given that, in principle, it falls to the Member States to determine the conditions in which improperly invoiced VAT may be adjusted, the Court has accepted that a system in which, first, the seller of the property who has paid the VAT to the tax authority in error may seek to be reimbursed and, secondly, the purchaser of that property may bring a civil law action against that seller for recovery of the sums paid but not due, observes the principles of neutrality and effectiveness. Such a system enables the purchaser who bore the tax invoiced in error to obtain reimbursement of the sums unduly paid (see, to that effect, judgment of 15 March 2007, Reemtsma Cigarettenfabriken, C‑35/05, EU:C:2007:167, paragraphs 38 and 39 and the case-law cited).

52In addition, according to settled case-law, in the absence of relevant EU rules, the detailed procedural rules designed to ensure the protection of the rights which individuals acquire under EU law are a matter for the domestic legal order of each Member State, under the principle of the procedural autonomy of the Member States (see, inter alia, judgments of 16 May 2000, Preston and Others, C‑78/98, EU:C:2000:247, paragraph 31, and of 15 March 2007, Reemtsma Cigarettenfabriken, C‑35/05, EU:C:2007:167, paragraph 40).

53However, if reimbursement of the VAT becomes impossible or excessively difficult, in particular in the case of the insolvency of the seller, the principle of effectiveness may require that the purchaser of the property concerned be able to address his application for reimbursement to the tax authority directly. Thus, the Member States must provide for the instruments and the detailed procedural rules necessary to enable the purchaser to recover the unduly invoiced tax in order to respect the principle of effectiveness (see, to that effect, judgment of 15 March 2007, Reemtsma Cigarettenfabriken, C‑35/05, EU:C:2007:167, paragraph 41).

54As regards the main proceedings, it should also be pointed out, first, that it is clear from the request for a preliminary ruling that the seller who transferred the mobile hangar at issue in the main proceedings is subject to insolvency proceedings, which may mean that it is excessively difficult or impossible for Mr Farkas to be able to obtain a refund of the VAT which that seller unduly invoiced. Secondly, following the decisions of the Hungarian tax authority, Mr Farkas was considered to be liable for that VAT to the Treasury, even though he had paid the tax to the seller. It is for the referring court to ascertain whether Mr Farkas is entitled to be reimbursed by the seller for the undue tax.

55Moreover, it should be added that, according to the information provided by the referring court, there is no evidence of tax evasion in the present case, and the seller, who issued the invoice in question in the main proceedings, paid the VAT to the Treasury, so that the Treasury suffered no loss as a result of the fact that that invoice was wrongly issued under the ordinary tax system, instead of the reverse charge system.

56In those circumstances, to the extent that reimbursement of the VAT, unduly invoiced by the seller in question in the main proceedings, to Mr Farkas, the purchaser of the property concerned, becomes impossible or excessively difficult, in particular in the case of the insolvency of the seller, Mr Farkas must be able to address his application for reimbursement to the tax authority directly.

57In the light of the foregoing considerations, the answer to the first question is that the provisions of Directive 2006/112 and the principles of fiscal neutrality, effectiveness and proportionality must be interpreted to the effect that, in a situation such as that in the main proceedings, they do not preclude the purchaser of an item of property from being deprived of the right to deduct the VAT which he paid to the seller when that tax was not due, on the basis of an invoice drawn up in accordance with the rules of the ordinary VAT regime, where the relevant transaction came under the reverse charge mechanism, and the seller paid that tax to the Treasury. However, to the extent that reimbursement of the unduly invoiced VAT by the seller to the purchaser becomes impossible or excessively difficult, in particular in the case of the insolvency of the seller, those principles require that the purchaser be able to address his application for reimbursement to the tax authority directly.

The second question

58By its second question, the referring court asks, in essence, whether the principle of proportionality must be interpreted to the effect that it precludes national tax authorities, in a situation such as that in the main proceedings, from imposing on a taxable person, who purchased an item of property the transfer of which comes under the reverse charge regime, a tax penalty of 50% of the amount of VAT which he is required to pay to the tax authority, where that authority suffered no loss of tax revenue and there is no evidence of tax evasion.

59It is necessary to point out that, in the absence of harmonisation of EU legislation in the field of sanctions applicable where conditions laid down by arrangements under that legislation are not complied with, Member States remain empowered to choose the sanctions which seem to them to be appropriate. Nevertheless, the Member States must exercise that power in accordance with EU law and its general principles and, consequently, in accordance with the principle of proportionality (see, to that effect, inter alia, judgments of 7 December 2000, de Andrade, C‑213/99, EU:C:2000:678, paragraph 20, and of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraph 50).

60Thus, such penalties must not go beyond what is necessary to attain the objectives of ensuring the correct levying and collection of the tax and preventing fraud. In order to assess whether a penalty is consistent with the principle of proportionality, account must be taken inter alia of the nature and the degree of seriousness of the infringement which the penalty seeks to sanction, and of the means of establishing the amount of the penalty (see, to that effect, judgments of 8 May 2008, Ecotrade, C‑95/07 and C‑96/07, EU:C:2008:267, paragraphs 65 to 67, and of 20 June 2013, Rodopi-M 91, C‑259/12, EU:C:2013:414, paragraph 38).

61Although it falls to the referring court to assess whether the amount of the penalty does not go beyond what is necessary to attain the objectives set out in the previous paragraph (judgment of 20 June 2013, Rodopi-M 91, C‑259/12, EU:C:2013:414, paragraph 39), it is appropriate to inform that court of certain aspects of the main proceedings which would enable it to determine whether the penalty imposed on Mr Farkas, on the basis of the provisions of the Law on the Tax Procedure Code, is compatible with the principle of proportionality.

62In that regard, such a penalty appears to create an incentive for taxable persons to rectify as quickly as possible instances of insufficient payment of the tax and therefore to achieve the objective of ensuring the correct collection of that tax.

63According to Paragraph 170(1) of that law, the amount of the penalty is set, by default, at 50% of the amount of the VAT which the taxable person is required to pay to the tax authority. Paragraph 171(1) of that law stipulates that the amount of the fine may be reduced, or even remitted, either ex officio or on request, in exceptional circumstances which lead to the conclusion that the taxable person responsible for the tax liability, among others, acted with the discernment that could reasonably have been expected from him in those particular circumstances. That provision also provides that the reduction of the fine should be made by weighing up all the circumstances of the case in question, in particular the size of the tax liability, the circumstances of how it arose, and the seriousness and frequency of the taxable person’s unlawful conduct.

64As the Advocate General stated in point 63 of his Opinion, those detailed rules for determining the penalty, in principle, make it possible to ensure that it does not go beyond what is necessary to attain the objectives of ensuring the correct collection of tax and preventing evasion.

65As regards the proportionality of the penalty imposed on Mr Farkas in the main proceedings, it is clear that, in relation to the nature and seriousness of the infringement at issue in the main proceedings, as the Commission submitted in its written observations, that infringement consists of an error relating to the application of the VAT mechanism, which is an infringement of an administrative nature and which, in view of the information in the case file sent to the Court, first, did not cause the tax authority any loss of revenue, and secondly, shows no evidence of fraud.

66In those circumstances, the imposition on Mr Farkas of a fine of 50% of the amount of the VAT applicable to the operation at issue appears to be disproportionate, this being a matter for the referring court to determine.

67Having regard to the foregoing considerations, the answer to the second question is that the principle of proportionality must be interpreted to the effect that it precludes national tax authorities, in a situation such as that in the main proceedings, from imposing on a taxable person, who purchased an item of property the transfer of which comes under the reverse charge regime, a tax penalty of 50% of the amount of VAT which he is required to pay to the tax authority, where that authority suffered no loss of tax revenue and there is no evidence of tax evasion, this being a matter for the referring court to determine.

Costs

68Since 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 (Fourth Chamber) hereby rules:

Article 199(1)(g) 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 to the effect that it applies to the supply of immovable property sold by a judgment debtor in a compulsory sale procedure.

The provisions of Directive 2006/112, as amended by Directive 2010/45, and the principles of fiscal neutrality, effectiveness and proportionality must be interpreted to the effect that, in a situation such as that in the main proceedings, they do not preclude the purchaser of an item of property from being deprived of the right to deduct the value added tax which he paid to the seller when that tax was not due, on the basis of an invoice drawn up in accordance with the rules of the ordinary value added tax regime, where the relevant transaction came under the reverse charge mechanism, and the seller paid that tax to the Treasury. However, to the extent that reimbursement of the unduly invoiced value added tax by the seller to the purchaser becomes impossible or excessively difficult, in particular in the case of the insolvency of the seller, those principles require that the purchaser be able to address his application for reimbursement to the tax authority directly.

The principle of proportionality must be interpreted to the effect that it precludes national tax authorities, in a situation such as that in the main proceedings, from imposing on a taxable person, who purchased an item of property the transfer of which comes under the reverse charge regime, a tax penalty of 50% of the amount of value added tax which he is required to pay to the tax authority, where those authorities suffered no loss of tax revenue and there is no evidence of tax evasion, this being a matter for the referring court to determine.

Signatures

[Signatures]

( *1 ) Language of the case: Hungarian.

OPINION OF ADVOCATE GENERAL

BOBEK

delivered on 10 November 2016 ¹

‛Common system of value added tax — Directive 2006/112/EC — Reverse charge mechanism — Article 199(1)(g) — Decision of tax authorities establishing a ‘tax difference’ owed by the receiver of goods — Impossibility to deduct the input VAT — Imposition of a fine — Proportionality of the fine’

I – Introduction

1Mr Farkas (the ‘Applicant’) bought a mobile hangar from an insolvent company (the ‘Seller’) at an auction. The Applicant paid the sale price as well as the amount of VAT charged by the Seller on that supply. Subsequently, he sought to have this amount deducted in his VAT returns. However, the tax authorities indicated that the transaction should have been subjected to the reverse charge mechanism. Under that mechanism the Applicant was obliged to pay that VAT to the authorities. The tax authorities therefore requested that payment and, in addition, fined the Applicant in the amount of 50% of the VAT due.

2The referring court asks the Court of Justice whether such decisions of the tax authorities comply with Directive 2006/112/EC (the ‘VAT Directive’). ²

3However, before any such assessment can be made, a preliminary issue needs to be addressed first. That preliminary issue, incidentally opened by the questions posed by the referring court, relates to the proper implementation of Article 199(1)(g) of the VAT Directive and the classification of the supply in this case as movable or immovable property.

II – Applicable law

A – EU law

4Article 193 of the VAT Directive provided, at the time relevant for the present case, that ‘the VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199 and Article 202’.

5Article 199(1)(g) of the VAT Directive enables Member States to provide that the person liable for the payment of VAT is the taxable person who receives ‘the supply of immovable property sold by a judgment debtor in a compulsory sale procedure’.

6Article 226(11) of the VAT Directive states that where the customer is liable for payment of VAT, only the following details are, in principle, required for VAT purposes on invoices: ‘reference to the applicable provision of this Directive, or to the corresponding national provision, or any other reference indicating that the supply of goods or services is exempt or subject to the reverse charge procedure’.

B – National law

7Paragraph 142(1) of the az általános forgalmi adóról szóló 2007. évi CXXVII. Törvény (Law CXXVII of 2007 on value added tax, ‘Law on VAT’) provides that the ‘tax shall be paid by the taxable person receiving the goods or services … (g) in the case of the supply of capital goods of the business, and the supply of other goods or services with an open market value of HUF 100000 at the time of supply, if the taxable person supplying the goods or services is the subject of liquidation proceedings or any similar insolvency proceedings in which it has been definitively established that he is unable to pay his debts’.

8If Paragraph 142(1)(g) is applicable to a transaction, then, pursuant to Paragraph 142(7) of the Law on VAT, ‘the supplier of the goods or services shall issue an invoice which does not indicate … the amount of the output VAT …’.

9According to Article 169(n) of the Law on VAT where the VAT is payable by the customer, invoices shall contain ‘the words “fordított adózás” (“reverse charge procedure”)’.

III – Facts, national procedure and the questions referred

10The Applicant bought a mobile hangar at an electronic auction, in a compulsory sale of the Seller’s assets organised by the tax authorities.

11The Seller issued an invoice in accordance with the rules of the ordinary VAT system, showing 26 November 2012 as the date of supply. The order for reference states that the Applicant paid the sale price inclusive of VAT (‘first amount of VAT’). He subsequently applied for a corresponding VAT deduction in his VAT returns.

12However, when the Nemzeti Adó- és Vámhivatal Bács-Kiskun Megyei Adóigazgatósága (Bács-Kiskun Provincial Tax Directorate) (‘first-instance tax authority’) inspected the Applicant’s accounts, it stated that the reverse charge mechanism provided for in Paragraph 142(1)(g) of the Law on VAT should have been applied. As a result, the Applicant should have paid VAT on the transaction, as he was the purchaser of the hangar. The first-instance tax authority declared that the Applicant was liable for a ‘tax difference’ in the sum of HUF 744000. According to the first-instance tax authority that sum corresponded to the VAT owed on the transaction under the reverse charge mechanism (‘second amount of VAT’). The first-instance tax authority dismissed the Applicant’s request to have that sum refunded and imposed a fine of HUF 372000.

13That decision was confirmed by the second-instance tax authority, the Nemzeti Adó- és Vámhivatal Dél-alföldi Regionális Adó Főigazgatósága (Dél-alföld Regional Tax Directorate) (‘the Defendant’).

14The Applicant challenges that decision before the Kecskeméti Közigazgatási és Munkaügyi Bíróság (Kecskemét Administrative and Labour Court, Hungary). He alleges that such decisions taken by the national tax authorities infringe EU law. He states that the Defendant deprived him of his right to deduct VAT because of a mere error of form, as the invoice in question was issued by the Seller in accordance with the ordinary tax system instead of the reverse charge mechanism. He points out that the Seller paid the first amount of VAT to the Treasury. Therefore, the Treasury has suffered no loss and has had all the information necessary to determine the correct tax amount.

15The referring court shares some of the doubts advanced by the Applicant. It points out that there is no indication of tax evasion. It concludes that the tax authorities’ interpretative approach does not appear to be proportionate to the aim pursued by the reverse charge mechanism.

16In those circumstances, the Kecskeméti Közigazgatási és Munkaügyi Bíróság (Kecskemét Administrative and Labour Court) stayed the proceedings and referred the following questions to the Court of Justice:

Is a practice of the tax authority, based on the provisions of the Law on VAT, compatible with the provisions of the VAT Directive, in particular the principle of proportionality with the objectives of tax neutrality and the prevention of tax fraud, if, by that practice, that authority declares that a purchaser of an item of property (or recipient of a service) is liable for a tax difference in a situation in which the seller of the property (or supplier of the service) issues an invoice in accordance with the ordinary tax system for a transaction to which the reverse charge procedure applies and declares and pays to the Treasury the tax relating to that invoice, and the purchaser of the item of property (or recipient of the service), for his part, deducts the VAT paid to the issuer of the invoice, even though he may not exercise his right to deduct the VAT declared as a tax difference?

Is the imposition of a penalty for selecting an incorrect method of taxation in the case of a declaration of a tax difference, which also entails the imposition of a tax fine of 50%, proportionate where the Treasury has not incurred any loss of revenue and there is no evidence of abuse?’

17Written observations were submitted by the Estonian and Hungarian Governments as well as by the Commission. The Hungarian Government and the Commission presented oral argument at a hearing held on 7 September 2016.

IV – Assessment

18Article 199(1)(g) of the VAT Directive states that it applies only to ‘the supply of immovable property sold by a judgment debtor in a compulsory sale procedure’. Thus, that provision clearly limits its applicability to immovable property.

19In its request, the referring court states that the asset acquired by the Applicant is a ‘mobile hangar’. However, that court is silent on whether, on the facts of the case before it, it had qualified that hangar as movable or immovable property.

20Why that issue was of limited relevance to the referring court might be understandable in view of the wording of applicable national law (reproduced above in point 7 of this Opinion) which does not distinguish between movable and immovable property. That classification is, however, of crucial importance for the applicability of Article 199(1)(g) of the VAT Directive.

21Although that determination is ultimately for the referring court to make, I shall assume that a mobile hangar is, as its name in fact implies, movable property (A). I will then assess the unlikely scenario of a mobile hangar qualifying as immovable property (B).

A – If the mobile hangar were movable property

22There is no doubt that Article 199(1)(g) of the VAT Directive only applies to immovable property.

23The Hungarian Government confirmed at the hearing that Article 142(1)(g) of the Law on VAT is meant to implement Article 199(1)(g) of the VAT Directive. ³ It also confirmed that Article 142(1)(g) of the Law on VAT applies to movable and immovable property alike.

24It follows that if Article 142(1)(g) of the Law on VAT was applied to movable property, provided that the mobile hangar were to be classified as such, then the application of the reverse charge mechanism was extended beyond the material scope of Article 199(1)(g) of the VAT Directive.

25The correlating question is whether a Member State is entitled to extend the material scope of application of Article 199(1)(g) in this way. I think that it is not, for the following reasons.

26First, the basic rule as to who is liable to pay VAT is laid down by Article 193 of the VAT Directive. ⁴ It states that VAT is payable by the taxable person who carries out the taxable supply of goods or services.

27At the same time, that provision also stated, at the time relevant for the present case, that the tax may be payable ‘by another person’ under Articles 194 to 199 and 202 of the VAT Directive.

28It follows that the rule on the reverse charge mechanism anchored in those provisions represents an exception to the main rule laid down in Article 193. As a result, the scope of those provisions must be interpreted strictly. ⁵ In the present context, that means that derogations from the general rule should only occur when expressly provided for by the VAT Directive.

29Second, the combined reading of Articles 193 and 199(1)(g) of the VAT Directive shows that the determination of the person liable to pay VAT for a supply of immovable property in a compulsory sale procedure has been fully harmonised. As the Court has previously explained, Article 199(1)(g) was introduced, ⁶ together with other grounds for the application of the reverse charge mechanism contained in Article 199, to allow all Member States to apply derogating measures; previously these had been granted only to certain Member States to combat tax evasion and avoidance in certain sectors, or in respect of specific transactions. ⁷

30The resulting harmonisation thus does not allow the Member States to extend, of their own volition, the material scope of the exception provided for under Article 199(1)(g) of the VAT Directive.

31Third, the only possible way for an individual Member State to depart from the common rule contained in Articles 193 and 199(1)(g) is to obtain a derogation based on Article 395 of the VAT Directive. That provision gives the Member States the possibility to request the right to ‘introduce special measures for derogation from the provisions of [the VAT Directive], in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance’.

32Therefore, Hungary could have extended the scope of the exception under Article 199(1)(g) through a derogation granted by a decision of the Council based on Article 395 of the VAT Directive. ⁸

33At the hearing it was confirmed that Hungary has not been granted any such individual derogation.

34As Hungary has not been granted a derogation based on Article 395 of the VAT Directive, that Member State is prevented from applying the reverse charge mechanism to the supply of a movable hangar, as in the national proceedings.

35It follows that, in the circumstances of the national proceedings, the VAT Directive should be interpreted in a way that it precludes the extension of the application of the reverse charge mechanism to movable property supplied in a compulsory sale procedure.

36The facts provided by the referring court would indicate that the Applicant and the Seller acted in compliance with the VAT Directive when they subjected the supply of the movable hangar to the ordinary VAT regime.

37If the referring court considers, on the facts of the present case, that the mobile hangar is indeed movable property, then that court is obliged to draw the necessary conclusions from that fact in conformity with the established case-law of the Court of Justice.

38To the greatest extent possible, national legislation ought to be interpreted in conformity with relevant provisions of EU law. ⁹ However, as the Court has recognised, interpretation in conformity with EU law has its limits. In particular, it cannot serve as the basis for an interpretation of national law contra legem. ¹⁰ When interpretation in conformity with EU law proves impossible, the national court has the obligation to give EU law its full effect, if need be by setting aside incompatible provisions of national law without prior repeal of those provisions being necessary. ¹¹ Whether or not a national court is entitled to do so of its own motion is conditional upon the observance of the principle of equivalence, namely whether or not a national court would be obliged, in a comparable situation, to raise of its own motion points of national law. ¹²

B – If the mobile hangar were immovable property

39For the reasons outlined above, I believe that the assessment of this case can end here.

40If the referring court were nonetheless to conclude on the facts before it that the mobile hangar is immovable property, which by its very name seems quite unlikely, I offer concise alternative guidance in the following section, in order to fully assist the referring court.

41First, I will make several preliminary comments on the distinction that should be made between the payments of the first and second amounts of VAT (1). I will then turn to the question as to whether the tax authorities were entitled to request that the Applicant comply with his VAT obligations under the reverse charge mechanism while refusing the Applicant’s request for a deduction of his input VAT (2). Finally, I will assess the proportionality of the fine imposed on the Applicant (3).

1. Distinguishing the first and second amounts of VAT

42It ought to be clarified that the questions examined in the next subsection primarily concern the tax obligations and rights that arise for the Applicant in his relationship with the tax authorities with regard to the second amount of VAT. Conversely, these questions do not concern the rights and obligations that arise in the relationship between the Applicant, the Seller and the Treasury concerning the first amount of VAT.

43From the perspective of the application of the reverse charge mechanism, and assuming that that mechanism were indeed applicable to the transaction in question, the payment of the first amount of VAT was an error. That error should be corrected between the Applicant and the Seller, and between the Seller and the Treasury. ¹³

44The Court has previously held that the refund of incorrectly invoiced VAT is a matter for the Member States to regulate, ¹⁴ under conditions that respect the dual requirement of equivalence and effectiveness. ¹⁵ Concerning the requirement of effectiveness in particular, I note the rather specific circumstances in which the sale of the mobile hangar occurred, namely that the Seller was insolvent at the time of the sale and that the forced sale was organised by the tax authorities. ¹⁶

45Whatever the national procedure for the refund of the first amount of VAT, it is important to stress that that amount is, in principle, bound to be remitted by the Treasury back to the Seller and/or to the Applicant.

46This is why I am of the view that the first amount of VAT which has been paid to the Treasury is not directly relevant for the assessment of the Applicant’s obligations under the reverse charge mechanism. Nevertheless, that same fact bears, in my view, some relevance for the assessment of the Applicant’s right to deduct and for the evaluation of the proportionality of the fine.

2. The Applicant’s VAT liability and the right to deduct

47In the light of the foregoing observations, I am of the view that the first preliminary question should be interpreted as being aimed at ascertaining whether the principle of neutrality of VAT prevents the tax authorities from requesting a taxable person, who has paid undue VAT to the supplier, to pay the VAT under the reverse charge mechanism, and from denying that taxable person the right to deduct input VAT, where there is an absence of fraud on his or her part.

48Assuming that the reverse charge mechanism did apply in these circumstances, the Applicant was indeed liable for the VAT due for the supply of the hangar. That means that no VAT should have been charged on that supply and the invoice should have stated that the VAT charge was reversed, as provided for in paragraph 169(n) of the Law on VAT.

49That also means, as the Commission notes, that the Applicant had the obligation to declare the VAT to the tax authorities. Therefore, under the hypothesis of the hangar constituting an immovable property, these authorities were entitled to request that the Applicant comply with his obligations under the reverse charge mechanism. ¹⁷

50Whether they were entitled to reject the Applicant’s request for deduction of the input VAT is, however, a different matter.

51The Court held that the right of deduction is an integral part of the VAT scheme and may not be limited — subject to, in principle, cases of fraud or abuse. ¹⁸

52The referring court explains that there is no indication of any tax fraud committed by the Applicant. Interestingly, the tax authorities in the main proceedings recognised that the Applicant did indeed have the right to deduct the amount of the input VAT in question. The Hungarian Government agreed with this position.

53Despite the foregoing, the facts of this case show that the Applicant has ultimately been deprived of that right.

54How and why that happened remains unclear to me. I understand that when the tax authorities noted the Applicant’s failure to comply with the reverse charge mechanism, they declared that the second amount of VAT became a ‘tax difference’ — presumably a tax debt. Thus, it seems that by operation of law or by the administrative practice of the tax authorities, the second amount of VAT transformed into a tax debt to which the right to deduct no longer applies.

55That presumably means that the Applicant’s costs corresponding to that input VAT can no longer be deducted. In my view such a result is at odds with the principle of VAT neutrality, inherent in the common system of VAT, ¹⁹ in the sense that it aims at relieving the taxable person entirely of the burden of the VAT payable or paid in the course of all of his economic activities ²⁰ and ensuring that the end consumer alone bears the VAT burden. ²¹

56My interim conclusion is therefore that the principle of neutrality of VAT does not prevent the tax authorities from requesting a taxable person, who has paid undue VAT to the supplier, to pay the VAT under the reverse charge mechanism. However, the principle of neutrality of VAT prevents the tax authorities from denying that taxable person the right to deduct input VAT which the taxable person failed to declare correctly under the reverse charge mechanism, where there is no evidence of fraud on his or her part.

3. Proportionality of the fine

57The conclusion that the Applicant was incorrectly prevented from exercising his right to deduct does not mean that the tax authorities were not entitled to fine him for failure to comply with his obligations under the reverse charge mechanism. The right to deduct, and the obligation to pay a fine for failure to comply with the obligations conditioning the exercise of that right, are two separate issues.

58The Court held that, in the absence of a system of penalties in the VAT Directive sanctioning infringement of the obligations of taxable persons referred to in that directive; it is for the Member States to choose the penalties which they deem to be appropriate. They must, however, exercise that power in accordance with EU law and its general principles. ²²

59As the Commission noted in its written observations, the principle of proportionality is one of those principles. ²³

60To verify whether that principle is respected, the national court must make sure that the respective sanction does not go beyond what is necessary to attain the objectives of ensuring the correct collection of tax and preventing evasion. ²⁴ Account must also be taken inter alia of the nature and the degree of the seriousness of the infringement and of the means of establishing the amount of the penalty. ²⁵

61The Hungarian Government explained at the hearing that the applicable national rule, namely Article 170 of the adózás rendjéről szóló 2003. évi XCII. Törvény (Law XCII of 2003, ‘Law on Taxation’), provides for the default 50% fine rate. That rate was applied to the Applicant.

62The Hungarian Government also explained that pursuant to Article 171 of the Law on Taxation, the default 50% rate can be reduced, or that the fine will not be imposed at all - in exceptional situations when the taxable person acted with due diligence.

63The applicable national rules seem to allow for a sanction to be adapted and moderated according to the specifics of the concrete case. ²⁶ Therefore, assessed at an abstract level, the national rules appear to comply with the principle of proportionality.

64Whether or not the same rules were applied in a proportionate way in the individual case of the Applicant is for the referring court to verify. However, several elements are worth highlighting in the context of the present case.

65First, there appears to be no fraudulent behaviour on the part of the Applicant. Both the first and second amounts of VAT were paid to the tax authorities. Second, the order for reference does not mention any particular delay on the part of the Applicant for the payment of the second amount of VAT beyond the one that occurred because of the Applicant’s (mis)understanding of the reverse charge mechanism. Third, paragraph 142(7) of the Law on VAT indicates that the responsibility to issue the invoice in compliance with the reverse charge mechanism lies with the seller. It should be stressed that the Seller issued an invoice that did not comply with the applicable rules of the reverse charge mechanism, and, that this happened in a compulsory sale procedure organised by the tax authorities.

66When considering these specific elements, it is open to discussion, as suggested by the Commission, whether the application of the default 50% rate was made after a genuine individual assessment of the Applicant’s case. As noted above, however, whether the principle of proportionality has been respected in the present case is for the referring court to examine.

V – Conclusion

Conclusion

67In the light of the foregoing considerations, I propose that the Court answer the questions referred by the Kecskeméti Közigazgatási és Munkaügyi Bíróság (Kecskemét Administrative and Labour Court, Hungary) as follows:

In the absence of a specific derogation granted on the basis of Article 395 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, the supply of movable property within a compulsory sale procedure pursuant to Article 199(1)(g) of that directive cannot be made subject to the reverse charge mechanism.

¹ Original language: English.

² Council Directive of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

³ The Hungarian Government suggested that Article 142(1)(g) of the Law on VAT is meant to implement Article 199(1)(f) of the VAT Directive as well. However, it is difficult to see how that provision is relevant in the present case, because Article 199(1)(f) concerns ‘the supply of goods following the cession of a reservation of ownership to an assignee and the exercising of this right by the assignee’.

⁴ Opinion of Advocate General Kokott in Macikowski (C‑499/13, EU:C:2014:2351, point 29).

⁵ Judgment of 26 May 2016, Envirotec Denmark (C‑550/14, EU:C:2016:354, paragraph 33 and the case-law cited).

⁶ By Council Directive 2006/69/EC of 24 July 2006 amending Directive 77/388/EEC as regards certain measures to simplify the procedure for charging value added tax and to assist in countering tax evasion or avoidance, and repealing certain Decisions granting derogations (OJ 2006 L 221, p. 9). Judgment of 13 June 2013, Promociones y Construcciones BJ 200 (C‑125/12, EU:C:2013:392, paragraph 24).

⁷ See recital 1 of Directive 2006/69 and recital 42 of the VAT Directive, which set out the objective pursued by Article 199(1)(g) of the VAT Directive. As the Court noted, that ‘provision thus allows the tax authorities to collect VAT imposed on the transactions at issue in cases where the debtor’s ability to pay that tax is compromised’. Judgment of 13 June 2013, Promociones y Construcciones BJ 200 (C‑125/12, EU:C:2013:392, paragraphs 25 and 28).

⁸ Article 395(1) of the VAT Directive provides that: ‘The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance ...’.

⁹ Judgments of 19 April 2016, DI (C‑441/14, EU:C:2016:278, paragraph 42); of 15 January 2014, Association de médiation sociale (C‑176/12, EU:C:2014:2, paragraph 38); of 19 December 2013, Koushkaki (C‑84/12, EU:C:2013:862, paragraphs 75 to 76).

¹⁰ See judgments of 28 July 2016, JZ (C‑294/16 PPU, EU:C:2016:610, paragraph 33); of 19 April 2016, DI (C‑441/14, EU:C:2016:278, paragraph 32 and the case-law cited); of 11 November 2015, Klausner Holz Niedersachsen (C‑505/14, EU:C:2015:742, paragraphs 31 and 32 and the case-law cited); of 30 April 2014, Kásler and Káslerné Rábai (C‑26/13, EU:C:2014:282, paragraph 65).

¹¹ Recently, inter alia, judgment of 8 September 2015, Taricco and Others (C‑105/14, EU:C:2015:555, paragraph 49 and the case-law cited).

¹² See, in this sense, judgment of 12 February 2008, Kempter (C‑2/06, ECLI:EU:C:2008:78, paragraphs 45 and 46). Further, see judgments of 14 December 1995, van Schijndel and van Veen (C‑430/93 and C‑431/93, EU:C:1995:441, paragraphs 13, 14 and 22), and of 24 October 1996, Kraaijeveld and Others (C‑72/95, EU:C:1996:404, paragraphs 57, 58 and 60).

¹³ See, in that sense, judgment of 6 February 2014, Fatorie (C‑424/12, EU:C:2014:50, paragraphs 40 to 43).

¹⁴ Judgment of 11 April 2013, Rusedespred (C‑138/12, EU:C:2013:233, paragraphs 25 and 26 and the case-law cited).

¹⁵ Judgment of 15 March 2007, Reemtsma Cigarettenfabriken (C‑35/05, EU:C:2007:167, paragraphs 37 and 40 and the case-law cited).

¹⁶ See, by analogy, judgment of 15 March 2007, Reemtsma Cigarettenfabriken (C‑35/05, EU:C:2007:167, paragraph 41).

¹⁷ As the Court noted, under the reverse charge mechanism ‘no VAT payment takes place between the supplier and the recipient of the services, the recipient being liable, in respect of the transactions carried out, for the input VAT, while being able, in principle, to deduct that tax so that no amount is payable to the tax authorities’. Judgment of 6 February 2014, Fatorie (C‑424/12, EU:C:2014:50, paragraph 29).

¹⁸ See Opinion of Advocate General Szpunar in Joined Cases Staatssecretaris van Financiën and Others (C‑131/13, C‑163/13 and C‑164/13, EU:C:2014:2217, point 42). Judgment of 18 December 2014, Schoenimport Italmoda Mariano Previti and Others (C‑131/13, C‑163/13 and C‑164/13, EU:C:2014:2455, paragraph 48). See also judgment of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 84 and the case-law cited). See also, in this sense, judgment of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraphs 45 to 47).

¹⁹ Judgments of 2 July 2015, NLB Leasing (C‑209/14, EU:C:2015:440, paragraph 40 and the case-law cited), and of 23 April 2015, GST — Sarviz Germania (C‑111/14, EU:C:2015:267, paragraph 34 and the case-law cited).

²⁰ Judgment of 6 February 2014, Fatorie (C‑424/12, EU:C:2014:50, paragraph 31 and the case-law cited).

²¹ Judgment of 7 November 2013, Tulică and Plavoşin (C‑249/12 and C‑250/12, EU:C:2013:722, paragraph 34). See also Opinion of Advocate General Bot in Sjelle Autogenbrug (C‑471/15, EU:C:2016:724, point 24 in fine).

²² Judgment of 20 June 2013, Rodopi-M 91 (C‑259/12, EU:C:2013:414, paragraph 31 and the case-law cited).

²³ Judgment of 6 March 2014, Siragusa (C‑206/13, EU:C:2014:126, paragraph 34 and the case-law cited).

²⁴ Judgment of 23 April 2015, GST — Sarviz Germania (C‑111/14, EU:C:2015:267, paragraph 34 and the case-law cited).

²⁵ Judgment of 20 June 2013, Rodopi-M 91 (C‑259/12, EU:C:2013:414, paragraph 38 and the case-law cited).

²⁶ Judgment of 20 June 2013, Rodopi-M 91 (C‑259/12, EU:C:2013:414, paragraph 40). Contrast with the judgment of 19 July 2012, Rēdlihs (C‑263/11, EU:C:2012:497, paragraphs 50 to 52).