C-566/16 Vámos

JUDGMENT OF THE COURT (Fifth Chamber)

17 May 2018 ( *1 )

(Reference for a preliminary ruling — Common system of value added tax — Directive 2006/112/EC — Articles 282 to 292 — Special scheme for small enterprises — Exemption scheme — Obligation to opt for the application of the special scheme in the reference calendar year)

In Case C‑566/16,

REQUEST for a preliminary ruling under Article 267 TFEU from the Nyíregyházi Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, Nyíregyháza, Hungary), made by decision of 25 October 2016, received at the Court on 10 November 2016, in the proceedings

Dávid Vámos

v

Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága,

THE COURT (Fifth Chamber),

composed of J.L. da Cruz Vilaça, President of the Chamber, E. Levits (Rapporteur), A. Borg Barthet, M. Berger and F. Biltgen, Judges,

Advocate General: N. Wahl,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

the Hungarian Government, by M.Z. Fehér and E.E. Sebestyén, acting as Agents,

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

after hearing the Opinion of the Advocate General at the sitting on 23 November 2017,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of EU law and, in particular, of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, ‘the VAT Directive’).

2The request has been made in proceedings between Mr Dávid Vámos and the Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága (Appeals Directorate of the National Tax and Customs Administration, Hungary, ‘the Appeals Directorate’), concerning that directorate’s decision finding a value added tax (VAT) debt owed by Mr Vámos and imposing on him a financial penalty and interest for late payment.

Legal context

EU law

3Article 9 of the VAT Directive states:

‘1. “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.

…’

4Article 213(1) of that directive provides:

‘Every taxable person shall state when his activity as a taxable person commences, changes or ceases.

Member States shall allow, and may require, the statement to be made by electronic means, in accordance with conditions which they lay down.’

5Article 214 of the VAT Directive provides:

‘1. Member States shall take the measures necessary to ensure that the following persons are identified by means of an individual number:

every taxable person, with the exception of those referred to in Article 9(2), who within their respective territory carries out supplies of goods or services in respect of which VAT is deductible, other than supplies of goods or services in respect of which VAT is payable solely by the customer or the person for whom the goods or services are intended, in accordance with Articles 194 to 197 and Article 199;

…’

6Article 272 of that directive provides:

‘1. Member States may release the following taxable persons from certain or all obligations referred to in Chapters 2 to 6:

…

taxable persons covered by the exemption for small enterprises provided for in Articles 282 to 292;

…’

7Article 273 of the VAT Directive states:

‘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.’

8Article 281 of that directive provides:

‘Member States which might encounter difficulties in applying the normal VAT arrangements to small enterprises, by reason of the activities or structure of such enterprises, may, subject to such conditions and limits as they may set, and after consulting the VAT Committee, apply simplified procedures, such as flat-rate schemes, for charging and collecting VAT provided that they do not lead to a reduction thereof.’

9Article 282 of the VAT Directive, in Section 2 entitled ‘Exemptions or graduated relief’, of Chapter 1 of Title XII of the VAT Directive, entitled ‘Special Schemes’, provides:

‘The exemptions and graduated tax relief provided for in this Section shall apply to the supply of goods and services by small enterprises.’

10Article 287 of the VAT Directive provides:

‘Member States which acceded after 1 January 1978 may exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of the following amounts at the conversion rate on the day of their accession:

…

Hungary: EUR 35000;

…’

11Article 290 of that directive states:

‘Taxable persons who are entitled to exemption from VAT may opt either for the normal VAT arrangements or for the simplified procedures provided for in Article 281. In this case, they shall be entitled to any graduated tax relief provided for under national legislation.’

Hungarian law

The VAT Law

12Paragraph 2 of the az általános forgalmi adóról szóló 2007. évi CXXVII. törvény (Law CXXVII of 2007 on value added tax; ‘the VAT Law’) states:

‘In accordance with the present Law, the following shall be subject to [VAT]:

the supply of goods or services for consideration in the national territory by a taxable person acting as such …’

13Paragraph 187 of that law provides:

A taxable person who is established in the national territory for an economic purpose, or who is not so established but whose address or place of habitual residence is in the national territory, has a right to opt for the personal exemption in accordance with the provisions of this Chapter.

In the event that the taxable person exercises the right to opt for an exemption referred to in paragraph 1, during the period of the personal exemption and in his capacity as an exempt person,

he shall not be subject to payment of the tax;

he shall not be authorised to deduct input tax;

he may only issue an invoice in which the amount of the tax charged and the rate laid down in Paragraph 83 do not appear.’

14Paragraph 188(1) of the VAT Law states:

‘The personal exemption may be opted for if the amount of the consideration paid or owed in respect of all the supplies of goods or services by the taxable person in accordance with Paragraph 2(a), expressed in [Hungarian forints (HUF)] and accumulated annually, does not exceed the upper limit laid down in subparagraph 2.

neither actually in the calendar year preceding the reference calendar year,

neither actually nor reasonably foreseeably in the reference calendar year.’

15Paragraph 188(2) of the VAT Law, in the version applicable until 31 December 2012, stated that the maximum threshold giving entitlement to the personal exemption was set at HUF 5000000 (approximately EUR 16040). From 1 January 2013, that threshold was raised to HUF 6000000 (approximately EUR 19250).

The Code of fiscal procedure

16Article 16 of the adózás rendjéről szóló 2003. évi XCII. törvény (Law No XCII of 2003 on General Taxation Procedure, ‘the Code of fiscal procedure’) is worded as follows:

Only a taxable person who has been issued with a tax identification number may pursue a taxable activity, without prejudice to the provisions of Paragraphs 20 and 21.

A taxable person who wishes to pursue a taxable activity must be registered with the State tax authority in order to be allocated a tax identification number.’

17Paragraph 17(1)(a) of the Code of fiscal procedure states that ‘if a taxable person’s tax liability or taxable activity corresponds to that of a sole trader by virtue of the Law governing the activities of sole traders, that person must apply for a tax identification number by registering with the authority responsible for matters relating to the activities of sole traders (submitting a duly completed registration form), and in that way he will comply with the obligation to register with the State tax authority’.

18Paragraph 22(1)(a) of that code provides:

‘The person liable to value added tax shall indicate at the time of stating when his taxable activity commences that he opts for the personal exemption.’

19Paragraph 172(1)(c) of that code states:

‘Except as provided for in subparagraph 2, a fine of up to HUF 200000 [approximately EUR 640] may be imposed in the case of individuals, and of up to HUF 500000 [approximately EUR 1600] in the case of other taxable persons, if they fail to comply with the obligation to register (initial registration and communication of any changes), provide data or open a current account, or with the obligation to submit tax returns.’

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

20At the end of an inspection, the Hungarian tax authority found that, from 2007 until 22 January 2014, Mr Vámos had made 778 sales of electronic items on two online platforms, without registering as a taxable person for VAT purposes or declaring the income from those sales and, consequently, imposed a financial penalty on him.

21That tax authority also determined that, in the period between 1 January 2012 and 31 December 2013, Mr Vámos had been engaged in sales activity for which he obtained income which did not exceed the maximum threshold giving entitlement to the personal exemption laid down in Paragraph 188(2) of the VAT Law, and that between 1 and 22 January 2014, Mr Vámos was also engaged in sales activity, which brought him negligible income.

22On 22 January 2014, Mr Vámos registered as a person liable to VAT, and opted for the personal exemption, a VAT tax exemption scheme for small enterprises set out in Paragraph 187 et seq. of the VAT Law.

23In proceedings different from those which had led to a financial penalty being imposed on Mr Vámos, the Hungarian tax authority carried out an ex post inspection of the tax returns corresponding to all of Mr Vámos’s taxes and public subsidies for the tax years 2012 to 2014. At the end of that inspection, the tax authority found a VAT debt owed by Mr Vámos for the period between the first quarter of 2012 and the first quarter of 2014, and imposed on him a further financial penalty plus interest for late payment on the basis of the tax arrears thereby made apparent.

24Mr Vámos filed an administrative appeal against that decision, although the Appeals Directorate upheld that decision. The Appeals Directorate referred, first, to Paragraph 187(1) of the VAT Law, on the basis of which Mr Vámos was permitted to opt for the personal exemption, and stated, secondly, that Paragraph 22(1)(c) of the code of fiscal procedure only allowed the personal exemption to be opted for at the time of stating when the taxable activity commences and that that option could no longer be exercised thereafter. According to the Appeals Directorate, since Mr Vámos had registered with the tax authority and opted for the personal exemption only on 22 January 2014, he was entitled to benefit from that personal exemption only as from that date.

25Mr Vámos challenged the Appeal Directorate’s decision before the referring court, arguing that the pursuit of an economic activity within the meaning of Paragraph 6 of the VAT Law only entails being subject to VAT and implies, therefore, an obligation to make the statement in accordance with Article 213(1) of the VAT Directive and Paragraph 16 of the Code of fiscal procedure, but not an obligation to pay VAT. Since Mr Vámos’s income, as established by the Hungarian tax authority, did not exceed, either for 2012 or 2013, the maximum threshold giving entitlement to the personal exemption, the Hungarian tax authority should not have required him to pay VAT for the tax years 2012 and 2013, but should by contrast have been required to ask him, in the context of the ex post inspection, whether he wished to opt for the personal exemption.

26In those circumstances the Nyíregyházi Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, Nyíregyháza, Hungary) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘Is national legislation pursuant to which the tax authority may, when carrying out an ex post tax inspection, preclude the possibility of opting for the personal exemption, on the basis that the taxable person only has that possibility at the time of stating when his taxable activity commences, contrary to EU law?’

Consideration of the question referred

27By its question, the referring court asks, in essence, whether EU law must be interpreted as precluding national legislation which excludes a special VAT taxation scheme providing for an exemption for small enterprises — that scheme having been adopted in accordance with the provisions of Section 2 of Chapter I of Title XII of the VAT Directive — from being applied to a taxable person who fulfils all the material conditions but did not exercise the right to opt for the application of that scheme at the same time as he declared the commencement of his economic activities to the tax authority.

28In that regard, it must be borne in mind, first of all, that Articles 282 to 292 and, in particular, Article 287(12) of the VAT Directive provide that Member States may grant an exemption from VAT to small enterprises.

29It must be pointed out, next, that Article 290 of that directive provides that taxable persons who are entitled to exemption from VAT may opt either for the normal VAT arrangements or for the simplified procedures provided for in Article 281 of that directive.

30In addition, in accordance with the wording of Articles 281 and 284 to 287 of the VAT Directive, Member States may introduce and retain special schemes for taxing VAT, if those schemes comply with the VAT rules. Furthermore, recital 49 of that directive states that Member States should be allowed to continue to apply their special schemes for small enterprises.

31Lastly, the personal exemption scheme, provided for under Hungarian law, is a special scheme which enables undertakings whose turnover does not exceed a certain threshold from benefiting from a VAT exemption. That exemption scheme, applicable to small enterprises, implies, in accordance with Paragraph 187(2) of the VAT Law, that the taxable person is not subject to the payment of VAT, is not authorised to deduct input VAT and may only issue an invoice in which the amount of the VAT does not appear. In the context of its observations to the Court, the Hungarian Government observed that the right to opt for the tax exemption may still be exercised after the statement of commencement of activity, but it only has prospective effect.

32In the present case, the taxable person had requested to be able to benefit from the personal exemption, which he was denied on the ground that the right to opt for that exemption ought to have been exercised during the calendar year in which he wished to benefit from that exemption.

33As regards the obligation to state when an economic activity commences, the Court has held that the VAT Directive does not preclude national legislation requiring a taxable person to make such a statement where the proceeds of that activity do not exceed the maximum threshold giving entitlement to the exemption scheme for small enterprises (see, to that effect, order of 30 September 2015, Balogh, C‑424/14, not published, EU:C:2015:708, paragraph 30). It has also held that the VAT Directive does not preclude a taxable person’s failure to comply with his obligation to make that statement from being penalised by an administrative fine, provided that that fine is proportionate (see, to that effect, order of 30 September 2015, Balogh, C‑424/14, not published, EU:C:2015:708, paragraph 37).

34In the present case, it must be examined whether a Member State may make the benefit of an exemption scheme conditional upon the taxpayer opting for that scheme at the same time as he submits the declaration of commencement of activity and, in the absence of that choice being made at that time, automatically apply the normal arrangements for the taxation of VAT.

35The Court points out, first, that, in the light of the provisions mentioned in paragraph 30 above, the application of the special scheme for small enterprises is a voluntary option available to Member States in order to organise their systems of taxation.

36Secondly, under the first paragraph of Article 273 of the VAT Directive, Member States may impose obligations other than those prescribed by that directive, but which they deem necessary to ensure the correct collection of VAT and to prevent evasion.

37In that regard, the Court has established that it follows from that provision that every Member State is under an obligation to take all legislative and administrative measures appropriate for ensuring collection of all the VAT due on its territory and for preventing evasion (judgment of 9 July 2015, Cabinet Medical Veterinar Dr. Tomoiagă Andrei, C‑144/14, EU:C:2015:452, paragraph 25 and the case-law cited).

38The Court has also held that, outside the limits laid down therein, Article 273 of the VAT Directive does not specify either the conditions or the obligations which the Member States may impose and therefore gives the Member States a margin of discretion with regard to the means of ensuring collection of all the VAT due on their territory and for combating fraud (judgment of 26 October 2017, BB construct, C‑534/16, EU:C:2017:820, paragraph 21 and the case-law cited).

39It is indeed true that, under Article 272(1)(d) of the VAT Directive, it is open to Member States to release taxable persons covered by the exemption scheme for small enterprises from certain or all obligations referred to in Chapters 2 to 6 of Title XI of that directive. However, this is merely an option, so that Member States are not required to release taxable persons from such obligations.

40Consequently, it must be found, as is apparent from points 34 and 46 of the Advocate General’s Opinion, that the decision of the Hungarian legislature to set up an exemption scheme but to subject its application to certain procedural requirements falls within the discretion that the VAT Directive leaves to Member States.

41However, while the Member States have discretion in the choice of measures to be adopted in order to ensure the correct collection of VAT and to prevent evasion, they must, however, exercise that power in accordance with EU law and its general principles, and, in particular, in accordance with the principle of proportionality (see, to that effect, judgment of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraph 50 and case-law cited), and the principles of fiscal neutrality and legal certainty.

42Accordingly, first, as regards the principle of proportionality, it must be found, as the Advocate General observed in points 57 and 58 of his Opinion, that the requirement to pay VAT for past sales is not a penalty for the failure to comply with the obligation to declare the commencement of activity and to opt for an exemption scheme, but the recovery of the VAT which became payable when an operator such as Mr Vámos began exercising his economic activity.

43In addition, in the judgment of 9 September 2004, Vermietungsgesellschaft Objekt Kirchberg (C‑269/03, EU:C:2004:512), the Court held that EU law, and in particular the principle of proportionality, does not preclude a Member State, which has exercised the power to allow its taxpayers a right of option for a special taxation scheme, from adopting legislation which makes full deduction of the input VAT paid conditional upon non-retroactive, prior approval of the tax authorities.

44The Court made clear, in that connection, that the lack of retroactivity of the approval process does not make that process disproportionate (judgment of 9 September 2004, Vermietungsgesellschaft Objekt Kirchberg, C‑269/03, EU:C:2004:512, paragraph 29).

45It is apparent from paragraph 34 above that, in a situation such as that at issue in the main proceedings, the normal arrangements for the taxation of VAT are to apply when the taxable person has not opted for the personal exemption scheme. Consequently, national legislation which declines to grant the VAT exemption, in a situation such as that at issue in the main proceedings, does not go beyond what is necessary for the correct collection of VAT.

46Secondly, as regards the principle of fiscal neutrality, which was intended by the EU legislature to reflect, in matters relating to VAT, the general principle of equal treatment (judgment of 26 October 2017, BB construct, C‑534/16, EU:C:2017:820, paragraph 29), it has been held that the measures that Member States may adopt in order to ensure the correct collection of VAT and to prevent evasion may not be used in such a way that they would have the effect of undermining the neutrality of VAT (see, to that effect, judgment of 11 April 2013, Rusedespred, C‑138/12, EU:C:2013:233, paragraphs 28 and 29 and the case-law cited).

47In that regard, it must be found that to allow taxable persons to opt for an exemption scheme after the time limit set would confer on them an undue competitive advantage, to the detriment of operators who duly complied with the procedural obligations laid down in the national legislation at issue in the main proceedings. Those taxable persons would be in a position to choose after the event and, consequently, on the basis of the actual results of their activity, the tax arrangements which seem most advantageous to them.

48However, the principle of fiscal neutrality precludes, in particular, taxable persons who are in comparable situations and thus in competition with each other from being treated differently for VAT purposes.

49It follows that the principle of fiscal neutrality and, more generally, the principle of the equal treatment of taxable persons do not preclude national legislation which does not grant the VAT exemption to taxable persons who have failed to opt for one of the exemption schemes at the same time as they declare the commencement of their economic activity, even if the proceeds from their activity do not exceed the maximum threshold granting entitlement to the small enterprise exemption.

50Thirdly, it must be found that the principle of legal certainty must be observed not only by the EU institutions, but also by Member States in the exercise of the powers conferred on them under EU directives (see, to that effect, judgment of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraph 30 and the case-law cited)

51That principle requires the tax position of the taxable person not to be open to challenge indefinitely (see, to that effect, judgment of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraph 46).

52In addition, as mentioned in paragraph 31 above, given that the beneficiaries of the individual tax exemption do not pay VAT and do not, therefore, need to pass it on to their customers, it may be essential for the tax authorities to have advance knowledge of the taxable persons who have opted for that exemption scheme.

53Consequently, the national legislation at issue in the main proceedings is consistent with the principle of legal certainty.

54In the light of all the foregoing considerations, the answer to the question referred is that EU law must be interpreted as not precluding national legislation which excludes a special VAT taxation scheme providing for an exemption for small enterprises — that scheme having being adopted in accordance with the provisions of Section 2 of Chapter I of Title XII of the VAT Directive — from being applied to a taxable person who fulfils all the material conditions but did not exercise the right to opt for the application of that scheme at the same time as he declared the commencement of his economic activities to the tax authority.

Costs

55Since 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 (Fifth Chamber) hereby rules:

EU law must be interpreted as not precluding national legislation which excludes a special value added tax taxation scheme providing for an exemption for small enterprises — that scheme having been adopted in accordance with the provisions of Section 2 of Chapter I of Title XII of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax — from being applied to a taxable person who fulfils all the material conditions but did not exercise the right to opt for the application of that scheme at the same time as he declared the commencement of his economic activities to the tax authority.

Signatures

[Signatures]

( *1 ) Language of the case: Hungarian.

OPINION OF ADVOCATE GENERAL

WAHL

delivered on 23 November 2017 ¹

(Taxation — Common system of value added tax — Directive 2006/112/EC — Articles 281 to 294 — Special schemes for small enterprises — Exemption scheme — Obligation to opt for the application of the special scheme when declaring the commencement of taxable activities — No declaration of the commencement of taxable activities — Retroactive application of the scheme)

1In the matter under consideration, the Nyíregyházi Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, Nyíregyháza, Hungary) asks the Court whether EU law precludes national legislation prohibiting the retroactive application of a special tax scheme granting an exemption to small enterprises — adopted pursuant to the provisions of Title XII, Chapter 1, Section 2, of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’) ² — to a taxable person who fulfilled all the material conditions but did not declare the commencement of his activities to the tax authorities at the appropriate time, and did not opt for the application of that scheme.

I. Legal framework

A. EU law

2According to Article 9(1) of the VAT Directive, ‘“taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity’.

3Article 213(1), first subparagraph, of the VAT Directive provides:

‘Every taxable person shall state when his activity as a taxable person commences, changes or ceases.

…’

4In accordance with Article 282 of the VAT Directive:

‘The exemptions and graduated tax relief provided for in this Section shall apply to the supply of goods and services by small enterprises.’

5Article 287 of the VAT Directive provides:

‘Member States which acceded after 1 January 1978 may exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of the following amounts at the conversion rate on the day of their accession:

…

Hungary: EUR 35000;

…’

6Article 289 of the VAT Directive states:

‘Taxable persons exempt from VAT shall not be entitled to deduct VAT in accordance with Articles 167 to 171 and Articles 173 to 177, and may not show the VAT on their invoices.’

7Under Article 290 of that directive:

‘Taxable persons who are entitled to exemption from VAT may opt either for the normal VAT arrangements or for the simplified procedures provided for in Article 281. In this case, they shall be entitled to any graduated tax relief provided for under national legislation.’

B. Hungarian law

1. Law CXXVII of 2007 on value added tax

8Paragraph 2(a) of the Az általános forgalmi adóról szóló 2007. évi CXXVII. törvény (Law CXXVII of 2007 on value added tax; ‘the VAT Law’) states:

‘In accordance with the present Law, the following shall be subject to [VAT]:

the supply of goods or services for consideration in the national territory by a taxable person acting as such …’

9Paragraph 187 of the VAT Law states:

‘(1) A taxable person who is established in the national territory for an economic purpose, or who is not so established but whose address or place of habitual residence is in the national territory, has a right to opt for the personal exemption in accordance with the provisions of this Chapter.

(2) In the event that the taxable person exercises the right to opt for an exemption referred to in subparagraph 1, during the period of the personal exemption and in his capacity as an exempt person,

he shall not be subject to payment of the tax:

he shall not be authorised to deduct input tax;

he may only issue an invoice in which the amount of the tax charged and the rate laid down in Paragraph 83 do not appear.’

10Under paragraph 188(1) of the VAT Law:

‘The personal exemption may be opted for if the amount of the consideration paid or owed in respect of all the supplies of goods or services by the taxable person in accordance with Paragraph 2(a), expressed in Hungarian forints and accumulated annually, does not exceed the upper limit laid down in subparagraph 2

neither actually in the calendar year preceding the reference calendar year,

neither actually nor reasonably foreseeably in the reference calendar year.’

11Paragraph 188(2) of the same law, in the version applicable until 31 December 2012, stated that the maximum threshold below which there is a right to opt for the personal exemption is Hungarian forints (HUF) 5000000. From 1 January 2013, the threshold was raised to HUF 6000000.

2. Law XCII of 2003 on General Taxation

12Paragraph 16 of the Az adózás rendjéről szóló 2003. évi XCII. Törvény (Law XCII of 2003 on General Taxation; ‘the Law on General Taxation’) reads:

‘(1) Only a taxable person who has been issued with a tax identification number may pursue a taxable activity, without prejudice to the provisions of Paragraphs 20 and 21.

(2) A taxable person who wishes to pursue a taxable activity must be registered with the State tax authority in order to be allocated a tax identification number [“TIN”].’

13Paragraph 17(1)(a) of the Law on General Taxation states that ‘if a taxable person’s tax liability or taxable activity corresponds to that of a sole trader by virtue of the Law governing the activities of sole traders, that person must apply for a TIN by registering with the authority responsible for matters relating to the activities of sole traders (submitting a duly completed registration form), and in that way he will comply with the obligation to register with the State tax authority’.

14Pursuant to Paragraph 22(1)(c) of that law:

‘The person liable to value added tax shall indicate at the time of stating when his taxable activity commences that he opts for the personal exemption.’

15According to Paragraph 172(1)(c) of that law:

‘Except as provided for in subparagraph 2, a fine of up to HUF 200000 may be imposed in the case of individuals, and of up to HUF 500000 in the case of other taxable persons, if they fail to comply with the obligation to register (initial registration and communication of any changes), provide data or open a current account, or with the obligation to submit tax returns.’

II. Facts, procedure and the questions referred

16From 2007 until 22 January 2014, Mr Dávid Vámos made 778 sales of electronic items on two online platforms. He did not register as a taxable person and did not declare the income from these sales.

17The Hungarian tax authority carried out an inspection in respect of Mr Vámos. In the administrative procedure, that authority found that Mr Vámos had not complied with the obligation to register laid down in the domestic legislation, as a result of which it imposed on him a financial penalty. The tax authority also found that Mr Vámos had pursued his activity without authorisation, without a tax identification number, without being a member of a company and without issuing supporting documents, receipts or sales invoices.

18On 22 January 2014, Mr Vámos registered as a person liable to value added tax, and opted for the ‘personal exemption’, a Hungarian tax exemption scheme for small enterprises set out in Paragraph 187 and following of the VAT Law, enacted by the Hungarian authorities in application of Articles 281 to 292 of the VAT Directive. After that date, Mr Vámos conducted business as a sole trader and was, at the same time, employed by another undertaking for over 36 hours per week.

19Independently of the first set of proceedings that led to the imposition of the financial penalty, the tax authority initiated a second set of proceedings with regard to Mr Vámos’ tax returns for the years 2012 to 2014. As a result of that investigation, the tax authority found a VAT debt (in addition to debts relating to income tax and social security contributions) for the period between the first quarter of 2012 and the first quarter of 2014, and imposed on Mr Vámos financial penalties and interest for late payment.

20Upon an administrative appeal, the Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága (Appeals Directorate of the National Tax and Customs Administration, Hungary) concluded that Mr Vámos had been engaged in the commercial sale of goods on a permanent and regular basis, which constituted an economic activity, and that he was subject to VAT. As far as the personal exemption is concerned, the tax authority took the view that national law did not allow taxable persons to opt for that exemption retroactively. It thus found that, since Mr Vámos had not registered with the tax authority until 22 January 2014, he was not entitled to opt for the personal exemption for the period before that date.

21Mr Vámos challenged that decision before the Nyíregyházi Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, Nyíregyháza) arguing that the tax authority should have asked him whether he wished to opt for the application of the personal exemption to the sales he made before registering as a taxable person, given that he complied with the material conditions to benefit from the scheme.

22Entertaining doubts as to the interpretation of the relevant provisions of the VAT Directive, the referring court decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Is national legislation pursuant to which the tax authority may, when carrying out an ex post tax inspection, preclude the possibility of opting for the personal exemption, on the basis that the taxable person only has that possibility at the time of stating when his taxable activity commences, contrary to EU law?’

23Written observations have been submitted by the Hungarian Government and the Commission. In accordance with Article 76(2) of the Rules of Procedure of the Court of Justice, no hearing was held.

III. Analysis

24From the outset, it should be borne in mind that Title XII, Chapter 1, of the VAT Directive allows Member States to introduce (or retain) three types of special schemes for small enterprises: (i) simplified procedures for charging and collecting VAT (Article 281 of the directive); (ii) exemptions (Articles 282 to 290 of the directive); and (iii) graduated relief (Articles 282 to 285, and 291 of the directive).

25The present case concerns a special scheme, enacted by the Hungarian authorities, which grants an exemption to enterprises not exceeding a certain turnover threshold (‘the exemption scheme’). The referring court asks, in essence, whether the VAT Directive precludes national legislation that makes it impossible for a taxable person to request a retroactive application of the exemption scheme when the taxable person fulfilled all the material requirements for it, but did not declare the commencement of his activities at the appropriate time and did not explicitly opt for the application of that scheme.

26To answer that question, it is necessary to determine whether Member States may, when they decide to establish an exemption scheme for small enterprises in accordance with the provisions of Title XII, Chapter 1, Section 2, of the VAT Directive, make the application of such a scheme subject to the condition that the taxable person has duly declared the commencement of his activities and expressly opted for the application of that scheme.

27For the reasons that will be illustrated in the following, I believe that that question should be answered in the affirmative.

A. The obligation to register

28According to Article 272(1)(d) of the VAT Directive, Member States are free to release taxable persons covered by an exemption scheme for small enterprises from certain or all obligations referred to in Chapters 2 to 6 of Title XI of the VAT Directive. Among those obligations is, notably, that of stating the commencement of activity as a taxable person provided for in Article 213 of the VAT Directive. The Hungarian authorities, however, decided not to do so, and that choice has been held to be lawful by the Court in Balogh. ³

29In that case — which concerned the same Hungarian tax exemption scheme and was referred by the same court as in the present case — the Court found that the VAT Directive does not preclude national legislation requiring a taxable person to declare when he commences his economic activity, even if his annual turnover does not exceed the threshold of the exemption scheme for small enterprises. The Court added that Member States may also impose an administrative fine penalising the failure by a taxable person to comply with that obligation, provided that the fine is proportionate. ⁴

30It is thus clear that, in the case at hand, the requirement under Hungarian law for Mr Vámos to declare the commencement of his activities to the domestic tax authorities is lawful under EU law. For his failure to do so, the tax authority was, therefore, entitled to impose a financial penalty on him.

31Against that background, the next issue to examine is whether there are provisions of EU law that preclude Member States from (i) requiring taxable persons who have declared the commencement of activities to also choose, in that context, the tax regime they wish to enjoy, among those that may be available to them, and (ii) deciding that any choice in that regard may produce effects for the future only.

B. The special schemes for small enterprises

32In the first place, the wording of Articles 281, 284, 285, 286 and 287 of the VAT Directive states that Member States may, but are not obliged to, establish any of the special tax schemes provided therein. That is confirmed by recital 49 of the directive, according to which Member States ‘should be allowed to continue to apply their special schemes for small enterprises’.

33That recital also makes clear that those schemes are to be applied ‘in accordance with the common provisions and with a view to closer harmonisation’. Consequently, the special schemes for small enterprises constitute, for the time being, ⁵ a matter not fully harmonised at the EU level ⁶ and in which Member States necessarily benefit from some leeway, provided that their national rules comply with the relevant provisions of EU law. In particular, the VAT Directive contains only a limited number of provisions governing the manner in which those schemes are to be designed and operated, thereby leaving broad discretion to the Member States.

34None of those provisions can, in my view, be read as explicitly granting small enterprises an unfettered right to enjoy the application of an exemption scheme. In particular, there is no textual basis in the VAT Directive for the view that a taxable person should have the right to enjoy such a scheme retroactively, in the absence of an express choice on its part. For that reason, the decision of the Hungarian authorities to set up such a scheme but to subject its application to certain procedural requirements falls, in my view, within the discretion that the VAT Directive leaves to the Member States.

35That conclusion is, therefore, in conformity with the division of competences set out in Title XII, Chapter 1, of the VAT Directive as regards special schemes for small enterprises.

36In the second place, I am not persuaded by the arguments put forward by the Commission that an unfettered right to enjoy an exemption scheme (including, if need be, retroactively) derives implicitly from a systemic interpretation of other provisions of the VAT Directive and/or stems from the principles of fiscal neutrality and proportionality. It seems to me that the provisions and principles referred to by the Commission, especially when interpreted in the light of existing case-law, rather support the opposite view.

C. Article 290 of the VAT Directive

37As both the Commission and the Hungarian Government pointed out, it stems from Article 290 of the VAT Directive that, if a Member State enacts an exemption scheme for small enterprises, the application of that scheme to the taxable persons entitled to participate is optional, not compulsory. Indeed, the taxable persons may also choose to be subject to the normal VAT regime, or to the special scheme provided for in Article 281 (should any such scheme exist in the relevant Member State). If the latter scheme is chosen, and the relevant conditions are satisfied, the taxable person may also benefit from the graduated tax relief (again, should any such relief exist in the Member State concerned). Therefore, by virtue of Article 290 of the VAT Directive, small enterprises may have — depending on the relevant national legislation — up to three different VAT regimes for which they can opt.

38As the Commission acknowledges, none of the three regimes is, as a matter of principle, preferable or more convenient for all taxable persons. Indeed, whether one or the other is more suitable or financially sound for a taxable person depends on many variables, and especially on how he has organised and operates his economic activity.

39More particularly, since the application of the exemption scheme deprives, pursuant to Article 289 of the VAT Directive, taxable persons of the possibility of deducting VAT, it cannot be presumed that, failing any express choice on their part, all taxable persons entitled to the exemption intend to opt for it. For example, small enterprises that, to start their business, need to make substantial investments may well prefer to have the ordinary regime applied in order to be able to deduct the significant input VAT paid. There is, in other words, no basis to consider that, when an exemption scheme for small enterprises exists, the application of that scheme to the taxable persons fulfilling the requirements is or should be automatic.

40Since the special schemes for small enterprises constitute an (optional) exception to the ordinary regime, I see no reason why a Member State should not be allowed to consider that, in the absence of a choice expressed by the taxable person, the applicable regime should be the normal VAT arrangements.

41In that regard, the Hungarian Government explains that there are specific reasons why it requires small enterprises to make an express and ex ante choice of the tax regime they wish to have applied. In particular, it points out that the choice of a specific regime has a number of consequences for both the tax administration and the taxable person. There might, in particular, be different procedural obligations for the taxable person (for example, concerning invoicing, accounting or reporting), and the tax authority might also have to follow different procedures when applying, and ensuring compliance with, the VAT rules (for example, for charging and collecting VAT due).

42A retroactive application of a tax regime choice might, furthermore, have certain consequences for the traders that have made transactions with the taxable person in question. For instance, taxable persons who benefit from the exemption do not generally pay VAT and thus need not pass VAT on to their customers. Conversely, taxable persons subject to the normal regime (or to the simplified procedures and tax relief regime) must pay VAT, and that tax is thus to appear on their invoices. In the latter case, unlike in the former, the customers of the taxable person may deduct that VAT. A retroactive application of a tax regime different from that initially applied may thus lead to uncertainty regarding the VAT status of those transactions.

43In the light of the above, the arguments put forward by the Hungarian Government — relating especially to good administration and legal certainty — to explain why the tax authority requires taxable persons to make an express and ex ante choice of the VAT regime they wish to have applied seem to me reasonable.

D. The principle of fiscal neutrality

44The Commission, however, also argues that the national legislation at issue is contrary to the principle of fiscal neutrality. It refers to the Opinion of Advocate General Saugmandsgaard Øe in Plöckl, ⁷ in which he infers from the principle of fiscal neutrality a principle of EU VAT law which he calls ‘the principle of rejection of formalism’. According to the Commission, the principle of rejection of formalism implies that a taxable person who does not fulfil the formal requirements of an exemption scheme cannot, for that reason alone, be deprived of his right to enjoy the scheme.

45In that regard, I observe that, in his Opinion, Advocate General Saugmandsgaard Øe inferred the existence of such a principle from several cases in which the Court held, for example, that the right to deduction ⁸ or exemption of VAT in case of intra-EU supplies ⁹ should not be denied for the simple reason that, despite observance of the substantive requirements, the taxable person has failed to meet certain formal requirements. ¹⁰

46However, regardless of the existence and scope of such a principle, it is in my view clear that the situation at hand is fundamentally different from the types of cases examined by Advocate General Saugmandsgaard Øe. Both the right to deduction ¹¹ and the right to exemption in case of intra-EU supply ¹² are rights which a taxable person derives directly from EU law and are simply implemented by national legislation. Conversely, as explained, the enactment of an exemption scheme for small enterprises is merely an option open to Member States, which also enjoy, within the limits referred to above, broad discretion concerning their design and operation.

47In the cases where the Court rejected a formalistic approach, the aim was to ensure that, despite a minor procedural error committed by the taxable person, transactions would still be taxed according to their objective characteristics. ¹³ Member States cannot penalise a failure to adhere strictly to formal requirements in a manner which risks undermining the neutrality of the system, for example treating competing undertakings differently, or rendering ineffective key provisions of the VAT Directive.

48Yet, that logic is not applicable in the case at hand. First, it is doubtful that the failure to comply with the obligation to declare the commencement of activities, provided for in Article 213(1) of the VAT Directive, can always be regarded as a minor procedural error: that obligation may be important to ensure the correct levying and collection of the tax and to prevent fraud. ¹⁴ It is certainly a formal requirement, but, as one might say, it is a not a formalistic requirement.

49In addition, the failure to declare the commencement of activity and expressly opt for one specific tax regime does not lead to any transaction being taxed in disregard of its objective characteristics. Indeed, the transactions concluded by a taxable person such as Mr Vámos in the past are merely taxed according to one tax regime instead of another, both regimes being possible and lawful.

50Furthermore, it seems to me that the national legislation at issue is in line with the principle of fiscal neutrality viewed as a reflection, in matters relating to VAT, of the principle of equal treatment. ¹⁵ That principle precludes treating similar goods, which are in competition with each other, differently for VAT purposes, ¹⁶ thereby distorting competition. ¹⁷

51In the present case, it appears that allowing taxable persons who failed to declare the commencement of their activities to opt retroactively for the tax exemption scheme may give them an unfair advantage, distorting competition in their favour. When a taxable person registers and opts for the application of a specific tax regime, he necessarily bases his choice on predictions about his future business. Conversely, a taxable person who never registers and who makes his choice only later — for example if and when he is subject to controls by the tax authorities — is able to choose the regime that, with the benefit of hindsight, appears to be the most advantageous for him.

52The result is paradoxical: the taxable person who makes the procedural error may actually profit from that error, and thus be in a better position than competing traders who, instead, duly complied with all procedural obligations laid down in the relevant national laws.

53Such an advantage might, in turn, encourage undertakings to breach the law by not declaring the commencement of activities, therefore making tax evasion more likely. In that regard, it suffices to point out that pursuant to Article 273 of the VAT Directive, ‘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 …’.

54For that reason, the argument put forward by the Hungarian Government that the prohibition to apply retroactively a regime such as the tax exemption scheme is not only consistent with the principle of fiscal neutrality, but also intended to prevent tax evasion and fraud, seems plausible to me.

E. The principle of proportionality

55Finally, the Commission argues that obliging an undertaking to pay VAT on the sales made before the declaration of the commencement of activities, in addition to the administrative fine, renders the penalty for the failure to declare the commencement of activities excessive, thereby infringing the principle of proportionality.

56As explained above, in Balogh ¹⁸ the Court held that an administrative fine can be imposed in order to penalise a failure to declare commencement of activities, as long as it is proportionate. It is for the national court to assess whether such a fine is proportionate. ¹⁹

57In that regard, it suffices to state that the recovery of the VAT cannot, in principle, be taken into account in the proportionality assessment of the penalty by the national court. Indeed, the requirement to pay VAT for past sales, which are subject to VAT but for which VAT has not been paid, is not a penalty, but merely the recovery of unpaid taxes.

58From the moment that Mr Vámos began exercising an economic activity within the meaning of Article 9 of the VAT Directive, he became a taxable person and, as a consequence, the obligations provided for in the applicable VAT rules applied to him. Among those obligations — it is hardly necessary to point out — is the obligation to pay the VAT that is due. ²⁰

59It may be helpful to state once again that the fact that, in the absence of explicit choice, the ordinary regime applied to Mr Vámos is by no means unlawful or exceptional. It is, indeed, one of the tax regimes that could be applied to him, and the one that was set as default regime in the national legislation. Mr Vámos deprived himself of the possibility of choosing the exemption scheme for certain years by neglecting to declare in due course the commencement of his activity and his wish to have that exemption scheme applied.

60I also note, in passing, that, according to the national legislation at issue, taxable persons who are entitled to enjoy the exemption scheme may, from one fiscal year to another, opt for the application of a different regime. Therefore, small enterprises are not ‘trapped’ by their initial failure to declare the commencement of their activity and to expressly opt for the VAT regime of their preference. Each year they have the possibility of complying with the registration obligation and of requesting application of the exemption scheme for the future, thereby avoiding more severe consequences.

IV. Conclusion

Conclusion

61In the light of the above, I propose that the Court answer the question referred for a preliminary ruling by the Nyíregyházi Közigazgatási és Munkaügyi Bíróság (Administrative and Labour Court, Nyíregyháza, Hungary) as follows:

European Union law does not preclude national legislation prohibiting the retroactive application of a special tax scheme granting an exemption to small enterprises — adopted pursuant to the provisions of Title XII, Chapter 1, Section 2, of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax — to a taxable person who fulfilled all the material conditions but did not declare the commencement of his activities to the tax authorities in due course, and did not opt for the application of that scheme.

¹ Original language: English.

² OJ 2006 L 347, p. 1.

³ Order of 30 September 2015, Balogh, C‑424/14, not published, EU:C:2015:708.

⁴ Order of 30 September 2015, Balogh, C‑424/14, not published, EU:C:2015:708, paragraphs 29, and 33 to 36.

⁵ Article 293 of the VAT Directive refers to ‘the need to ensure the long-term convergence of national regulations’ on special schemes for small enterprises and Article 294 of the same directive allows the Council to decide ‘whether a special scheme for small enterprises is necessary under the definitive arrangements’ and, if appropriate, to ‘lay down the common limits and conditions for the implementation of that scheme’.

⁶ That is further confirmed by recital 7 of the VAT Directive which reads: ‘The common system of VAT should, even if rates and exemptions are not fully harmonised, result in neutrality in competition, such that within the territory of each Member State similar goods and services bear the same tax burden, whatever the length of the production and distribution chain’ (emphasis added).

⁷ C‑24/15, EU:C:2016:204.

⁸ Judgments of 1 April 2004, Bockemühl, C‑90/02, EU:C:2004:206, paragraphs 49 to 52, and of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraphs 58 to 61. See also Opinion of Advocate General Saugmandsgaard Øe in Plöckl, C‑24/15, EU:C:2016:204, footnote 20.

⁹ Judgments of 27 September 2007, Collée, C‑146/05, EU:C:2007:549, paragraphs 29 to 31, and of 9 October 2014, Traum, C‑492/13, EU:C:2014:2267, paragraphs 35, 36 and 43. See also Opinion of Advocate General Saugmandsgaard Øe in Plöckl, C‑24/15, EU:C:2016:204, footnote 21.

¹⁰ Opinion of Advocate General Saugmandsgaard Øe in Plöckl, C‑24/15, EU:C:2016:204, point 87.

¹¹ Article 167 of the VAT Directive.

¹² Article 3 of the VAT Directive.

¹³ See, to that effect, judgment of 20 October 2016, Plöckl, C‑24/15, EU:C:2016:791, paragraph 37.

¹⁴ See, to that effect, judgment of 19 July 2012, Rēdlihs, C‑263/11, EU:C:2012:497, paragraph 45.

¹⁵ Judgment of 10 April 2008, Marks & Spencer, C‑309/06, EU:C:2008:211, paragraph 49.

¹⁶ Judgment of 10 April 2008, Marks & Spencer, C‑309/06, EU:C:2008:211, paragraph 47.

¹⁷ See recital 7 of the VAT Directive and, to that effect, judgment of 10 November 2011, Rank Group, C‑259/10 and C‑260/10, EU:C:2011:719, paragraph 35.

¹⁸ Order of 30 September 2015, Balogh, C‑424/14, not published, EU:C:2015:708.

¹⁹ See supra point 29.

²⁰ Articles 193 to 212 of the VAT Directive.