Prof. Kino Lazarov
On the 3rd of January 2014 the Sofia City Court rendered a judgment on a claim for damages against the State for breach of EU law, the breach having been admittedly committed by the Supreme Administrative Court in a final judgment, allegedly incompatible with EU law, in particular with Directive 2006/112. The liability of the State for breached of EU law stems from the constant case law of the Court of Justice of the EU since Köbler (C-224/01), which imposes the duty on each Member State to repair the damages resulting from a breach of EU law committed by any State authority, including national courts of last instance.
The Sofia City Court dismissed the application, because it found, in substance, that the Supreme Administrative Court had not, in the first place, breached EU law. This article examines this judgment, as well as the arguments put forward by the applicant, against the case law of the Court of Justice of the EU. It argues that the both the judgment of the Sofia City Court and that of the Supreme Administrative Court are consistent with EU law, as interpreted by the Luxembourg Court.
In particular, the article argues that, according to Directive 2006/112 and the constant case law of the Court of Justice of the EU, the right to VAT deduction is directly linked to the existence of an actual physical delivery. The Directive in its article 168(d) provides that VAT deduction is possible in cases where a registered entity has executed a delivery for the benefit of another member State registered entity. The Court of Justice of the EU follows the same line of reasoning – an economic operator would be entitled to VAT deduction when an actual delivery has taken place.
Neither the Directive nor the ECJ in its case law limit in any way the duty of the national court to examine whether the delivery did indeed take place or it was no more than a written invoice.
A thorough analysis of the grounds of the judgments of the Supreme Administrative Court shows that the actual reason for the denial of VAT deduction was not the fact that the applicant had insufficient staff at its disposal, as the applicant argued in its claim for damages, but the inexistence of an actual delivery. The applicant further argued that VAT deduction can be refused only if the taxpayer knew or ought to know that the operation in question was part of a tax evasion scheme. This would allow a taxpayer who did not know or did not have to know about the tax evasion scheme, to claim VAT deduction. This line of reasoning is not however convincing enough, since the Court of Justice of the EU has set up two cumulative conditions for the exercise of the right to VAT deduction, namely: (1) the actual existence of the delivery; and (2) the possession of an invoice for the delivery in question.
After finding that there had been no actual physical delivery, for which deduction could be claimed, the Bulgarian Supreme Administrative Court was no longer obliged to examine whether the taxpayer knew of the fraudulent character of the operation. The aforementioned condition is only applicable after finding that the delivery actually took place.
The question of whether the Supreme Administrative Court was under an obligation to make a reference to the Court of Justice of the EU could be answered by referring to the case was of this Court which had already clearly laid down the applicable rules. Therefore, and given that the Bulgarian Supreme Administrative Court had no doubts in the interpretation of EU law, it had found it unnecessary to refer a preliminary question to the Court of Justice of the EU.
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Линк към статията на български език: ПЪРВОТО БЪЛГАРСКО РЕШЕНИЕ ПО ИСК ЗА ВРЕДИ, ПРИЧИНЕНИ ОТ ТВЪРДЯНО НАРУШЕНИЕ НА ПРАВОТО НА ЕВРОПЕЙСКИЯ СЪЮЗ
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