Is VAT due by the supplier even if the customer did not exercise his right to deduction?
A Dutch company addressed invoices including VAT to its subsidiary. During an audit, it was established that, according to his own general ledger, the supplier did not report nor pay that VAT. The tax authorities therefore claimed for the payment of the VAT and imposed penalties.
As the subsidiary did deliberately not deduct the charged VAT, the supplier questioned his VAT liability and the level of the penalties.
It was actually disputed before the Supreme Court (“Hoge Raad”) whether it was the intention of the supplier to have failed to pay the invoiced VAT and, if that question was answered in the affirmative, whether the penalty imposed was appropriate.
The Supreme Court confirmed the previous judgement: the supplier can be blamed for not paying the invoiced VAT. At the time when he should have reported and paid the VAT, the supplier was aware that the charged VAT was due and that he knowingly chose not to report this in his VAT return. The fact that the customer did not exercise his right to deduction is irrelevant.
The Supreme Court also reminded that it is reserved to the judge (of the Court of Appeal of 's-Hertogenbosch in the case at hand), who decides on the facts, to assess whether the penalty is appropriate in the light of all circumstances to be taken into account. The weighting of the various circumstances taken into account need not to be justified. The circumstances that may be taken into account when assessing whether a fine is appropriate may also include the fact that the treasury did not experience a net loss as a result of the taxpayer's conduct. In the case at hand, the Court of Appeal stated that the subsidiary did not request a refund of the input VAT, but it did not consider this circumstance to be of sufficient weight to reduce the fine.