Kittel v Belgian State
A trader who knew or should have known that his purchase was connected with fraudulent evasion of VAT loses the right to deduct input VAT, even if his own transaction meets the objective criteria.
Facts
Mr Kittel was the liquidator of a Belgian company which had bought computer components from suppliers which, it later emerged, were part of a carousel fraud, in which goods were traded through a chain of companies and one of them disappeared without paying the VAT it had collected. The Belgian tax authorities refused to allow the company to deduct the input VAT it had paid on the purchases, on the ground that the contracts were void because of the fraud. The Belgian court referred questions to the Court of Justice, together with a related case.
Legal principle
The Court of Justice held that, where a taxable person did not know and could not have known that the transaction concerned was connected with a fraud committed by the seller, the right to deduct input VAT could not be refused on the ground that the contract was void under national law. However, where it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, the national court must refuse him the right to deduct, even if the transaction met the objective criteria for a supply. A person who knew or should have known of the fraud is to be regarded as a participant in it. The Kittel principle is central to the treatment of missing trader fraud.
Related cases on vAT and indirect taxes
- Card Protection Plan Ltd v Customs and Excise Commissioners (1999) Case C-349/96
- Esso Petroleum Co Ltd v Commissioners of Customs and Excise [1976] 1 WLR 1
- Halifax plc v Customs and Excise Commissioners (2006) Case C-255/02
- Littlewoods Ltd v Revenue and Customs Commissioners [2017] UKSC 70
- Revenue and Customs Commissioners v Procter & Gamble UK [2009] EWCA Civ 407
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