Is the right to deduct VAT allowed even in case of doubt by the tax authorities?
According to European case-law, a taxable person may be denied the right to deduct VAT only if it is established, on the basis of objective factors, that that taxable person, to whom the goods or services on which the right to deduct is based were supplied, knew or should have known that, by acquiring those goods or services, he was participating in a transaction involving VAT fraud committed by the supplier or another trader involved in the input or output chain of those supplies.
While such a taxable person may be obliged, where he has evidence of the existence of irregularities or fraud, to obtain information on the trader from whom he intends to purchase goods or services in order to ascertain the reliability of that trader, the competent national tax administration may not, however, require such a taxable person as a general rule, firstly, to verify that the invoicing party had the goods in question and was in a position to supply them and that he fulfilled his obligations to declare and pay VAT, in order to ensure that there are no irregularities or fraud at the level of the upstream operators, or to have documentation in that regard. Since the production of such additional documents is not provided for by the VAT directive and may disproportionately affect the exercise of the right to deduct and, therefore, the principle of neutrality, the competent national tax administration cannot, as a general rule, require such production.
The principles governing the application of VAT, in particular those of fiscal neutrality and legal certainty, must be interpreted as precluding, where the national tax authorities have mere and unsubstantiated suspicions that the economic transactions giving rise to the issue of a tax invoice have actually been carried out, business to whom that invoice is issued, from denying the right to deduct VAT if he is unable to provide, in addition to that invoice, other evidence of the reality of the economic transactions carried out