Court of Justice of the European Communities (including Court of First Instance Decisions)

OPINION OF ADVOCATE GENERAL

COLLINS

delivered on 28 September 2023(1)

Case C‑341/22

Feudi di San Gregorio Aziende Agricole SpA

v

Agenzia delle Entrate

(Request for a preliminary ruling from the Corte suprema di cassazione (Supreme Court of Cassation, Italy))

(Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/EC – Taxable person – Non-operational company – Rebuttable presumption based on a proportion of the value of economic transactions as compared to fixed assets – Limitation of the right to deduction – Principle of VAT neutrality – Proportionality – Legal certainty – Legitimate expectations)

 I.      Introduction

1.        Does Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (2) (‘the VAT Directive’) permit a Member State to enact legislation whereby a company registered as a taxable person may be deemed non-operational so that, without prejudice to its right to offset input VAT paid against VAT charged in respect of its output transactions, if that company does not meet a minimum threshold of output transactions subject to VAT for three consecutive tax years, it loses the right to carry forward any VAT credit to a subsequent tax period unless it can show that it was unable to meet that threshold for objective reasons?

 II.      National law

2.        Under Article 30 of legge n 724 – Misure di razionalizzazione della finanza pubblica, of 23 December 1994 (Law No 724/1994 on measures to rationalise public finances; ‘Law No 724/1994’), (3) entitled ‘Shell companies. Valuation of securities’, in the version applicable to the dispute in the main proceedings:

‘(1)      For the purposes of this Article, unless there is evidence to the contrary, public limited companies, partnerships limited by shares, limited liability companies, general partnerships and limited partnerships, as well as non-resident companies and entities of any kind, with a permanent establishment in State territory, shall be deemed non-operational if the total amount of revenues, increase in inventories and income, excluding extraordinary income as evidenced by the income statement, where required, is below the sum of the amounts obtained by applying the following percentages:

…

(c) 15% to the value of the other fixed assets, including leasing contracts.

…

(4)      In the case of non-operating companies and entities, any excess of credit resulting from a declaration submitted for the purposes of VAT shall not be eligible for reimbursement, nor may it be offset … or transferred … Where, for three consecutive tax periods, a non-operating company or entity does not carry out relevant transactions for VAT purposes of a value not less than the amount resulting from the application of the relevant percentage referred to in paragraph 1, any such excess of credit may not be carried forward for the purpose of offsetting the VAT payable in respect of subsequent tax periods.

(4a)      Where objective circumstances have rendered it impossible to achieve the revenues, increases in inventory or income determined in accordance with this article, or have made it impossible to carry out the relevant transactions for VAT purposes referred to in paragraph 4, the company concerned may request that the relevant anti-avoidance provisions … be disapplied.

…’

 III.      Background to the dispute in the main proceedings, the request for a preliminary ruling and the procedure before the Court

3.        In order to sell wine that it produced in Campania (Italy), since 1996, Vigna Ottieri s.r.l. has invested in production facilities, equipment and a trademark. In December 2005, Vigna Ottieri leased its tangible and intangible assets to Feudi di San Gregorio Aziende Agricole SpA (‘Feudi’) for valuable consideration. At that time, Feudi owned 22.7% of Vigna Ottieri.

4.        In 2007, the Commission initiated infringement proceedings against Italy, challenging the compatibility with the VAT Directive of Article 30 of Law No 724/1994. (4) After an exchange of correspondence, the Commission closed that infringement procedure in September 2010.

5.        In December 2010, the Italian tax authority served a notice of assessment to VAT on Vigna Ottieri. That notice purported to treat Vigna Ottieri as non-operational for the 2008 tax year on the basis that the value of the output transactions subject to VAT which that company had recorded was below the threshold under which companies are presumed to be non-operational for the purposes of Article 30 of Law No 724/1994. (5) The only revenue that Vigna Ottieri had apparently received in that tax year were the fees that Feudi had paid to it for the use of its trademark, the lease of its equipment and the sale of certain second-hand equipment. When it applied the thresholds in Article 30 of Law No 724/1994, the tax authority disregarded that revenue since it took the view that the fees that Vigna Ottieri had received from Feudi related to a transfer of part of a business and therefore fell outside of the scope of VAT. The notice also found that the value of Vigna Ottieri’s output transactions had not reached the applicable threshold during three consecutive tax years. The tax authority thus rejected Vigna Ottieri’s claim for a VAT credit in respect of 2009.

6.        Vigna Ottieri brought proceedings to seek the annulment of the notice of assessment. It claimed that the revenue it had obtained from the lease of its assets exceeded the thresholds set by Article 30 of Law No 724/1994. It further submitted that there had been no transfer of part of a business since the tax authority had not demonstrated that Feudi was carrying on the activity that Vigna Ottieri had previously carried out. In April 2012, the Commissione tributaria provinciale di Avellino (Provincial Tax Court, Avellino, Italy) rejected Vigna Ottieri’s action for annulment. Vigna Ottieri lodged an appeal against that judgment.

7.        In September 2012, Feudi took over ownership of Vigna Ottieri.

8.        In October 2013, the Commissione tributaria regionale della Campania (Regional Tax Court, Campania, Italy) dismissed Vigna Ottieri’s appeal. That court held that non-operational companies often allow third parties, usually their shareholders, to use their assets on favourable terms. In such circumstances, companies that own those assets can be treated as non-operational. It also ruled that, by the lease of its assets to Feudi, including the right to use its trademark, Vigna Ottieri had, in reality, transferred part of its business to Feudi, thereby placing the transaction outside of the scope of VAT.

9.        In March 2014, Feudi appealed that decision to the Corte suprema di Cassazione (Supreme Court of Cassation, Italy). It claimed that the right to deduct VAT can only be limited in the situations that the Sixth Council Directive (6) expressly contemplates. In accordance with Article 27 of that directive, the Council may, by unanimity, authorise national measures intended to prevent tax evasion or tax avoidance. In the absence of such authorisation, Feudi contended that Article 30 of Law No 724/1994 infringed the Sixth Directive.

10.      The tax authority contended that it had correctly applied Article 30 of Law No 724/1994, which seeks to prevent legal persons that are formally carrying on an economic activity, but are in reality non-operational, from benefitting from tax advantages. Since Vigna Ottieri was not a taxable person for the purposes of Article 9 of the VAT Directive, it was correct to refuse it the right to deduct VAT.

11.      The Corte suprema di Cassazione (Supreme Court of Cassation) observes that Article 30 of Law No 724/1994 seeks to discourage the creation of non-operational companies that exist for the sole purpose of obtaining advantageous tax conditions for the management of their shareholders’ assets. By reference to average profitability ratios for company assets, Article 30 of Law No 724/1994 establishes thresholds in order to identify when a company is non-operational. The presumption that companies that do not reach those thresholds are non-operational is grounded upon the observation that genuine business is not carried on in the absence of some minimal continuity of revenue. A company can rebut that presumption by showing that, due to objective circumstances, it was impossible to earn that minimum level of revenue.

12.      The Corte suprema di Cassazione (Supreme Court of Cassation) explains that a non-operational taxable person loses the right to the reimbursement of any excess VAT credit (7) that it claimed in its tax declaration, the right to use that credit to offset it against other liabilities to VAT and the right to transfer that credit to a third party. While that taxable person retains the right to carry forward that credit and deduct it from VAT payable in subsequent tax periods, that right is lost should it fail to meet the thresholds to which point 11 of the present Opinion refers for three consecutive tax years. The right to deduct VAT arises where a taxable person supplies goods or services to another taxable person to be used by the latter as inputs for the purposes of its taxed output transactions. National tax authorities cannot impose additional conditions. It is in that context that the Corte suprema di Cassazione (Supreme Court of Cassation) is uncertain whether it is possible to withdraw the status of taxable person, within the meaning of Article 9(1) of the VAT Directive, from a company that does not meet the test laid down in Article 30 of Law No 724/1994 because it carries out an insufficient volume of output transactions subject to VAT, even where the grounds for that refusal may be rebutted.

13.      The VAT Directive also recognises that the prevention of fraud, tax evasion and abuse are legitimate objectives. The right to deduct may be refused where the taxable person, under the pretext of pursuing an economic activity, in fact seeks to acquire, as his or her private assets, goods in respect of which a deduction could have been made had they been acquired in pursuit of that economic activity. Tax authorities cannot, however, establish rules of evidence, such as a presumption of the existence of abuse or fraud where an investment is abandoned, that would make it virtually impossible or excessively difficult for taxable persons to exercise the right to deduct VAT. The Corte suprema di Cassazione (Supreme Court of Cassation) thus has doubts as to whether the presumption established by Article 30 of Law No 724/1994 complies with the principle of proportionality, notwithstanding that, in response to a question in the European Parliament, the Commission replied that it did so. (8)

14.      Lastly, the Corte suprema di Cassazione (Supreme Court of Cassation) has doubts as to whether Article 30 of Law No 724/1994 infringes the principles of legal certainty and the protection of legitimate expectations. A taxable person carrying out a transaction will be uncertain as to whether it may give rise to a right to deduct, or to obtain a refund of VAT, since the exercise of those rights will be conditional on that taxable person receiving a certain level of income in a given tax year.

15.      In those circumstances, the Corte suprema di Cassazione (Supreme Court of Cassation) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1)      Is Article 9(1) of [the VAT Directive] to be interpreted as meaning that the status of taxable person, and consequently the right to deduct input VAT paid or to be reimbursed input VAT paid, may be refused where, in three consecutive years, the relevant transactions for VAT purposes carried out are of a value which is not deemed commensurate – in that it is too low – with what may, according to criteria pre-determined by law, reasonably be expected from the available assets and the person or entity concerned is unable to demonstrate, as justification for that fact, the existence of objective circumstances which have caused that result?

(2)      In the event that the first question is answered in the negative, do Article 167 of [the VAT Directive], the general principle of VAT neutrality and the general principle that any restriction of the right to deduct VAT must be proportionate preclude a provision of national law such as Article 30(4) of Law No 724 of 1994, under which the right to deduct input VAT paid on purchases or to be reimbursed such VAT or to use such VAT in a subsequent tax period may be refused where, in three consecutive tax periods, the relevant transactions for VAT purposes carried out are of a value which is not deemed commensurate – in that it is too low – with what may, according to criteria pre-determined by law, reasonably be expected from the available assets for three consecutive years and the taxable person concerned is unable to demonstrate, as justification for that fact, the existence of objective circumstances which have caused that result?

(3)      In the event that the second question is answered in the negative, do the EU law principles of legal certainty and of the protection of legitimate expectations preclude a provision of national law such as Article 30(4) of Law No 724 of 1994, under which the right to deduct input VAT paid on purchases or to be reimbursed such VAT or to use such VAT in a subsequent tax period may be refused where, in three consecutive tax periods, the relevant transactions for VAT purposes carried out are of a value which is not deemed commensurate – in that it is too low – with what may, according to criteria pre-determined by law, reasonably be expected from the available assets for three consecutive years and the taxable person concerned is unable to demonstrate, as justification for that fact, the existence of objective circumstances which have caused that result?’

16.      Feudi, the Italian Government and the Commission submitted written observations. At the hearing of 14 June 2023, those parties presented oral argument and replied to the Court’s questions.

 IV.      Assessment

 A.      The first question

17.      Feudi submits that the first question should be answered in the negative. The status of taxable person is a consequence of carrying out an economic activity, irrespective of its profitability or the value of its output transactions. According to case-law, the fact that property is suitable for economic use is normally sufficient to support a finding that its owner uses it for the purposes of economic activity and, consequently, earns a continuous income from that use. Where property is capable of being used for both economic and private purposes, all of the circumstances of its use must be examined in order to determine whether it is in fact used to obtain a continuous income. (9) Feudi points out that its assets, in the form of facilities, equipment and a trademark, can be used only for the purpose of selling wine. Article 9(1) of the VAT Directive thus prevents the application of a presumption by reference to the value of output transactions subject to VAT.

18.      The Italian Government contends that Article 9(1) of the VAT Directive is not an obstacle to national legislation such as that at issue in the main proceedings, which aims to prevent the abusive use of companies to obtain tax advantages. A company that does not deliver goods or services on a market cannot be regarded as carrying on an economic activity. By introducing a rebuttable presumption by reference to the value of output transactions subject to VAT, the application of which is subject to judicial review, the national legislation merely seeks to identify situations where a company does not in fact carry on a genuine economic activity.

19.      The Commission observes that the Italian legislation seeks to prevent abuses that occur where companies hold productive assets that do not generate taxable revenue. It identifies those companies by comparing the value of the assets that they hold with certain revenue thresholds. Where the taxable revenue declared falls below those thresholds in a given period, a company is deemed to be non-operational unless it can explain why it received such a low amount of revenue. Italian law also subjects such companies to corporate tax at a rate calculated by reference to a presumed minimum income. Article 30 of Law No 724/1994 limits non-operational companies’ right to deduct VAT in three ways. First, a non-operational company cannot obtain reimbursement of excess VAT paid in a tax year during which it is deemed to have been non-operational. (10) Second, a company cannot offset excess VAT paid against other taxes or charges due and cannot transfer a VAT credit to a third party in a tax year during which it is deemed to have been non-operational. Third, while in principle a non-operational company can carry forward a VAT credit to the next tax year, that right is lost where it is deemed to have been non-operational during three consecutive tax years.

20.      Article 9 of the VAT Directive defines ‘economic activity’ very widely to cover any permanent activity carried on in return for remuneration, irrespective of the purpose or result of that activity. The Commission takes the view that a company does not necessarily lose its status as a taxable person as a result of it being deemed to be non-operational under the applicable national legislation. The status of taxable person, as defined by Article 9 of the VAT Directive, is independent of the profitability of the economic activities that it carries on. A non-operational company may always indicate that it has not acquired goods or services for the purposes of its taxed output transactions, in which case it does not have the right to deduct any VAT paid, pursuant to Article 168 of the VAT Directive. According to the Commission, the Italian tax authority did not dispute the economic nature of Vigna Ottieri’s activities, but rather deemed that company non-operational due to the insufficient profitability of its output transactions subject to VAT.

21.      The concept of ‘taxable person’ for the purposes of the VAT Directive is defined by reference to the term ‘economic activity’ in the second subparagraph of Article 9(1) thereof. It is the existence of economic activity that confers the status of ‘taxable person’ under the first subparagraph of Article 9(1) of that directive. (11)

22.      The second subparagraph of Article 9(1) of the VAT Directive defines the concept of ‘economic activity’ as encompassing any activities of producers, traders and persons supplying services, to include ‘the exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis’. The word ‘exploitation’, in accordance with the principle of VAT neutrality, refers to all transactions, whatever their legal form, that seek to obtain income from property on a continuing basis. (12) The number or value of transactions are not valid criteria to distinguish between the activities of an operator who acts in a private capacity, which falls outside of the scope of VAT, and those of an operator whose transactions constitute economic activity. (13)

23.      The terms ‘supply of goods’ and ‘supply of services’ are objective in nature and apply without regard to the purpose or the results of those transactions. (14) It is irrelevant that the transactions aim at making a profit. (15) That the price paid for an economic transaction is higher or lower than its open market value is, accordingly, irrelevant in order to establish whether it was effected for consideration. (16)

24.      Neither the acquisition nor the sale of an asset constitutes the exploitation of an asset intended to produce income on a continuing basis for the purposes of the second subparagraph of Article 9(1) of the VAT Directive, since the only consideration for such transactions is that of a possible profit on the sale of the asset. (17) Nor is simply holding assets considered as economic activity for the purposes of the VAT Directive. (18) The first paragraph of Article 19 of the VAT Directive, which provides that, in the event of a transfer, whether or not for consideration, of all or part of the assets, Member States may consider that no supply of goods has taken place, reflects that. That provision is intended to enable Member States to facilitate transfers of undertakings or parts of undertakings by simplifying them and preventing the transferee from being liable to pay a disproportionate charge to tax that would, in any event, be ultimately recovered by deducting the VAT paid. (19) Having regard to that purpose, the concept of a transfer, whether or not for consideration or as a contribution to a company, of a totality of assets or a part thereof, includes the transfer of a business or of an independent part of an undertaking, including tangible and intangible elements which, together, constitute an undertaking or a part of an undertaking capable of carrying on an independent economic activity. That concept does not include a simple transfer of assets, such as the sale of a stock of products. (20) A transfer of assets may also occur where business premises are made available to the transferee under a lease, or if the transferee has appropriate premises to which all of the goods transferred can be moved and from where it may continue to carry on the same economic activity. (21)

25.      While the transfers to which Article 19 of the VAT Directive refers are those where the transferee intends to operate the business or that part of the undertaking transferred, nothing in that provision requires that, prior to the transfer, the transferee pursued the same economic activity as the transferor. (22)

26.      A transaction constitutes a supply of goods or services and is thus an economic activity once it satisfies the objective criteria on which that concept is based. That is the case even where a transaction is carried out with the sole objective of obtaining a tax advantage. (23)

27.      It follows that the status of taxable person applies to any person who independently carries on an economic activity that seeks to obtain income on a continuing basis, irrespective of the results of that activity. The VAT Directive thus precludes national legislation that makes the status of taxable person conditional upon the receipt of a certain level of income from an economic activity.

28.      I accordingly propose that the Court reply to the referring court’s first question that Article 9(1) of the VAT Directive is to be interpreted as meaning that the status of taxable person may not be refused where, in three consecutive years, the relevant transactions for VAT purposes carried out are of a value which is deemed not to be commensurate with the income which the available assets may be reasonably expected to yield.

29.      I nevertheless observe that, at the hearing, the Commission represented that, in so far as a taxable person who does not reach the required level of revenue may partially offset input VAT paid against VAT charged in the context of its output transactions, the national legislation at issue does not affect the status of taxable person. The only consequence of the failure to reach the relevant income threshold for three consecutive tax years is that the taxable person cannot carry forward any credit for the excess input VAT paid and thus loses the right to claim that credit. Although it is a matter for the referring court to verify, should that be the case, it would appear that the national legislation under consideration does not in fact make the status of taxable person conditional upon it reaching a certain income threshold in a given tax period.

 B.      The second question

30.      In accordance with the principle of VAT neutrality, Feudi claims that the right to deduct input VAT cannot be subject to conditions other than the carrying on of an economic activity and the use of the goods and services acquired for that purpose. A taxable person has the right to deduct input VAT once its output transactions are subject to that tax. While a tax authority may refuse the right to deduct in cases of tax evasion or fraud, as demonstrated by reference to objective elements, Feudi submits that it cannot rely on a presumption for that purpose. In any event, a criterion based on the volume of output transactions subject to VAT is an inappropriate measure by which to assess the presence of fraud.

31.      The Italian Government claims that its national legislation does not render impossible or excessively difficult the exercise of the right to deduct VAT, since companies can demonstrate that they are in fact engaged in economic activity notwithstanding that they are in receipt of a low level of revenue. Article 30 of Law No 724/1994 therefore complies with the principles of VAT neutrality and of proportionality.

32.      According to the Commission, provided that a taxable person uses goods or services for the purpose of taxed transactions, he or she is entitled to deduct the VAT paid or payable in respect of those goods or services. That deduction is, in principle, calculated by subtracting from the total amount of VAT due for a given tax period the total amount of VAT in respect of which the right to deduct arises during that same period. Where the amount of deductions for a given tax period exceeds the amount of VAT due, Member States may either refund the excess or carry it forward to the next tax period.

33.      In the case before the referring court, the right to carry forward the VAT credit was refused because Feudi did not, for three consecutive tax years, reach the minimum threshold of output transactions subject to VAT established by the Italian legislation. The Commission submits that, in so far as the Italian legislation considers certain taxable persons as non-operational, it does so on the basis that a taxable person may have carried out input VAT transactions without also carrying out a sufficient volume of output transactions subject to VAT. Since in those circumstances a taxable person has no right to deduct the excess input VAT paid, the principle of VAT neutrality does not preclude that interpretation of the Italian legislation.

34.      The Commission also considers that Article 30 of Law No 724/1994 is proportionate to the objective of preventing a company from unduly deducting input VAT, as long as that company is entitled to provide evidence, under conditions that are not excessively difficult, that it entered into the input transactions for the purposes of carrying out output transactions subject to VAT.

35.      The deduction system that the VAT Directive establishes is so designed as to relieve an economic operator of the entire burden of VAT paid or payable in the course of all of its economic activities. The common system of VAT seeks to ensure complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that those activities are subject to VAT. (24) The right to deduct is an integral part of the VAT system. Provided that taxable persons wishing to exercise that right respect the material and formal requirements or conditions to which it is subject, the application of that right cannot be limited in principle. (25)

36.      Under Article 168 of the VAT Directive, a taxable person has the right to deduct input VAT provided that the goods and services acquired are used for the purposes of its taxed transactions. (26) Where goods or services a taxable person acquires are used for purposes of transactions that are exempt or do not fall within the scope of VAT, output tax cannot be collected nor can input tax be deducted. (27)

37.      In accordance with the first paragraph of Article 273 of the VAT Directive, Member States may impose obligations, other than those provided for by that directive, where they consider such obligations necessary to ensure the correct collection of VAT and to prevent evasion. Such measures must not go beyond what is necessary to achieve the objectives pursued and cannot be used in such a way as to systematically undermine the right to deduct VAT and, consequently, the neutrality of that tax. (28)

38.      EU law cannot be relied on for abusive or fraudulent purposes. The benefit of EU law does not apply to transactions that are not carried out in the context of normal commercial operations but solely in order to obtain, wrongfully, an advantage for which EU law provides. The prohibition of abusive practices applies equally to VAT and the VAT Directive recognises and encourages the prevention of possible tax evasion, avoidance and abuse. (29)

39.      In the VAT system, an abusive practice exists only if, first, notwithstanding the formal application of the conditions laid down by the relevant provisions of the VAT Directive and the national legislation transposing it, the transactions concerned result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions. Second, it must also be apparent that the essential aim of the transactions concerned is to obtain a tax advantage. (30)

40.      The second question, which requires a response in the light of my proposed answer to the first question, falls to be answered in the light of the foregoing considerations.

41.      Article 30 of Law No 724/1994 provides that, in principle, a non-operational company is one that does not carry out a minimum volume of economic transactions subject to VAT as compared with the value of the assets that that company holds. That presumption can be rebutted by providing evidence of the objective reasons for the company’s abnormally low volume of output transactions subject to VAT. Where the presumption applies, the non-operational company may carry forward the credit for the excess input VAT paid to the following tax year only. Where a company does not meet the reference income thresholds for three consecutive years, it cannot carry forward any VAT credit. As the Commission observed at the hearing, without the other parties contradicting it on this point, a non-operational company does not lose the right to deduct with respect to its output transactions subject to VAT, even where they fall below the threshold, by subtracting the input VAT paid from the VAT due.

42.      In so far as the Italian legislation provides that companies lose the right to deduct any excess input VAT paid where they carry out an insufficient volume of output transactions subject to VAT for three consecutive tax years, that legislation applies the principle contained in Article 168 of the VAT Directive, as interpreted by the case-law to which point 36 of the present Opinion refers, since a taxable person has the right to deduct input VAT paid only where the goods or services acquired are used for the purposes of its output transactions subject to VAT. It thus constitutes an anti-avoidance measure that pursues a legitimate goal, namely to prevent non-operational companies from abusing the VAT system, an aim which is consistent with Article 273 of the VAT Directive and the case-law to which points 38 and 39 of the present Opinion refer.

43.      As regards the principle of proportionality, the Court has held that Member States must employ means which, whilst enabling them effectively to achieve the objectives pursued by their domestic laws, cause the least possible detriment to the objectives and principles laid down in the relevant EU legislation. (31) National legislation that establishes a rebuttable presumption with a view to minimising the risks of tax avoidance and of evasion is thus not per se contrary to the principle of proportionality, provided that persons affected by such rules are afforded a real opportunity to furnish objective reasons to explain an abnormally low volume of output transactions subject to VAT in the relevant tax years. (32) Such evidence is to be adduced in accordance with the rules of national law, which cannot make it virtually impossible or excessively difficult to exercise the right to deduct VAT. (33) The standard of proof required to displace the presumption must not, moreover, be excessively high.

44.      In the present case, as the Italian Government pointed out, in order to rebut the presumption a company is not restricted to showing that it had met the revenue threshold. A company may also furnish adequate explanations as to the reasons why it carried out a very low value of output transactions during the relevant tax years (for instance, production problems or an economic downturn). The fact that the rebuttable presumption established by the Italian legislation applies where the revenue thresholds are not met during three consecutive tax years indicates that it is adequately designed to identify artificial arrangements. In the event of dispute, it is for the referring court to verify whether the rules of evidence under Italian law to rebut the presumption make it virtually impossible or excessively difficult for the persons concerned to exercise the right to deduct VAT.

45.      I therefore propose that the Court reply to the referring court’s second question that the principle of VAT neutrality and the principle of proportionality do not preclude national legislation under which the right to deduct input VAT paid on purchases or to be reimbursed such VAT or to use such VAT in a subsequent tax period may be refused where, in three consecutive tax years, the relevant transactions for VAT purposes carried out are of a value which is not deemed commensurate with the income which the available assets may reasonably be expected to yield and the taxable person concerned is unable to provide evidence of objective circumstances to explain that result. The conditions under which that evidence may be adduced must not make it virtually impossible or excessively difficult for the persons concerned to exercise the right to deduct VAT, which is a matter for the referring court to verify.

 C.      The third question

46.      In the light of my proposed response to the referring court’s second question, I will answer its third.

47.      Feudi argues that national legislation which creates a permanent situation of uncertainty as to the possibility of deducting input VAT paid is contrary to the principle of legal certainty.

48.      The Italian Government and the Commission submit that the Italian legislation is neither contrary to the principle of legal certainty nor to the principle of the protection of legitimate expectations, since it operates in the context of a clear legal framework which defines with precision the situations where a taxable person may lose the right to deduct input VAT paid. Nor can a company that does not carry out economic activity enjoy a legitimate expectation that it can deduct input VAT paid.

49.      As the Court has held on numerous occasions, EU legislation must be certain and its application foreseeable by those subject to it. That requirement of legal certainty must be observed all the more strictly in the case of rules liable to entail financial consequences, in order that those concerned may know precisely the extent of the obligations that legislation imposes upon them. (34)

50.      The national legislation at issue in the main proceedings consists of a rebuttable presumption that applies where the taxable person carries out an insufficient volume of output transactions subject to VAT as a percentage of the value of his or her assets during three consecutive tax years. The legislation thus lays down a clear rule, of which the taxable person has advance notice, that places limits upon the right to deduct input VAT paid. At the time a taxable person submits a VAT return, it knows with certainty whether that rule applies in its circumstances, in the same way as all other taxable persons establish their liability with respect to VAT for a given tax period upon the submission of a VAT return. The taxable person may, if necessary, show that its output transactions subject to VAT reached the relevant threshold or that it did not do so for objective reasons.

51.      The principle of the protection of legitimate expectations applies to any person to whom an administrative authority has provided precise assurances giving rise to a reasonable expectation in the mind of a prudent and well-informed trader, provided that that expectation is legitimate. (35)

52.      It is not apparent from the documents before the Court that the Italian tax authority gave any precise assurances to Vigna Ottieri that it would not be treated as a non-operational company during the relevant tax years, which is a matter for the referring court to establish. A non-operational taxable person cannot rely upon the principle of the protection of legitimate expectations to deduct input VAT paid where the goods and services it acquired were not used for the purposes of output transactions subject to VAT, as Article 168 of the VAT Directive requires.

53.      I therefore propose that the Court reply to the referring court’s third question that the principles of legal certainty and the protection of legitimate expectations do not preclude national legislation under which the right to deduct input VAT on purchases or to be reimbursed such VAT or to use such VAT in a subsequent tax period may be refused where, in three consecutive tax years, the relevant transactions for VAT purposes carried out are of a value which is not deemed commensurate with the income which the available assets may reasonably be expected to yield and the taxable person concerned is unable to provide evidence of objective circumstances to explain that result.

 V.      Conclusion

54.      In the light of the foregoing considerations, I suggest that the Court answer the questions referred for a preliminary ruling by the Corte suprema di Cassazione (Supreme Court of Cassation, Italy) as follows:

(1)      Article 9(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

must be interpreted as meaning that the status of taxable person may not be refused where, in three consecutive years, the relevant transactions for VAT purposes carried out are of a value which is deemed not to be commensurate with the income which the available assets may be reasonably expected to yield.

(2)      The principle of VAT neutrality and the principle of proportionality

must be interpreted as meaning that they do not preclude national legislation under which the right to deduct input VAT paid on purchases or to be reimbursed such VAT or to use such VAT in a subsequent tax period may be refused where, in three consecutive tax years, the relevant transactions for VAT purposes carried out are of a value which is not deemed commensurate with the income which the available assets may reasonably be expected to yield and the taxable person concerned is unable to provide evidence of objective circumstances to explain that result. The conditions under which that evidence may be adduced must not make it virtually impossible or excessively difficult for the persons concerned to exercise the right to deduct VAT, which is a matter for the referring court to verify.

(3)      The principle of legal certainty and the principle of the protection of legitimate expectations

must be interpreted as meaning that they do not preclude national legislation under which the right to deduct input VAT on purchases or to be reimbursed such VAT or to use such VAT in a subsequent tax period may be refused where, in three consecutive tax years, the relevant transactions for VAT purposes carried out are of a value which is not deemed commensurate with the income which the available assets may reasonably be expected to yield and the taxable person concerned is unable to provide evidence of objective circumstances to explain that result.

1      Original language: English.

2      OJ 2006 L 347, p. 1.

3      Gazzetta Ufficiale No 304 of 30 December 1994.

4      Infringement procedure No 2007/4392.

5      That is, the value of Vigna Ottieri’s output transactions subject to VAT was below 15% of the value of its assets.

6      Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1; ‘the Sixth Directive’). From 1 January 2007, the VAT Directive repealed and replaced the Sixth Directive.

7      The concept of ‘excess VAT credit’ applies where a company that has carried out more input transactions than output transactions subject to VAT may be unable to completely offset VAT paid against VAT charged in a given tax year.

8      See Commission’s response of 30 November 2010 to Parliamentary Question P‑9064/2010 (OJ 2011 C 249 E, p. 1).

9      Judgment of 20 June 2013, Finanzamt Freistadt Rohrbach Urfahr (C‑219/12, EU:C:2013:413, paragraph 20).

10      The Commission added at the hearing that a non-operational company does not lose the right to deduct with respect to output transactions subject to VAT, even where the volume of those transactions fall below the threshold. Article 30 of Law No 724/1994 only restricts the exercise of the right to deduct excess VAT paid.

11      Judgments of 15 September 2011, Słaby and Others (C‑180/10 and C‑181/10, EU:C:2011:589, paragraph 43), and of 20 January 2021, AJFP Sibiu and DGRFP Braşov (C‑655/19, EU:C:2021:40, paragraph 25).

12      Judgments of 15 September 2011, Słaby and Others (C‑180/10 and C‑181/10, EU:C:2011:589, paragraph 45), and of 20 January 2021, AJFP Sibiu and DGRFP Braşov (C‑655/19, EU:C:2021:40, paragraph 27).

13      Judgments of 15 September 2011, Słaby and Others (C‑180/10 and C‑181/10, EU:C:2011:589, paragraph 37), of 17 October 2019, Paulo Nascimento Consulting (C‑692/17, EU:C:2019:867, paragraph 25), and of 20 January 2021, AJFP Sibiu and DGRFP Braşov (C‑655/19, EU:C:2021:40, paragraph 30).

14      Judgment of 2 June 2016, Lajvér (C‑263/15, EU:C:2016:392, paragraph 22).

15      Ibid., paragraph 35.

16      Ibid., paragraph 45.

17      Judgment of 20 January 2021, AJFP Sibiu and DGRFP Braşov (C‑655/19, EU:C:2021:40, paragraph 28).

18      See, to that effect, judgment of 20 June 1991, Polysar Investments Netherlands (C‑60/90, EU:C:1991:268, paragraphs 13 and 14), which establishes that a holding company is not a taxable person.

19      Judgment of 27 November 2003, Zita Modes (C‑497/01, EU:C:2003:644, paragraph 39).

20      Judgments of 27 November 2003, Zita Modes (C‑497/01, EU:C:2003:644, paragraph 40), of 10 November 2011, Schriever (C‑444/10, EU:C:2011:724, paragraphs 24 and 25), and of 19 December 2018, Mailat (C‑17/18, EU:C:2018:1038, paragraph 15).

21      Judgment of 10 November 2011, Schriever (C‑444/10, EU:C:2011:724, paragraph 29). The fact that business premises are leased, not sold, to the purchaser of the business, is no obstacle to the purchaser continuing the seller’s activity (ibid., paragraph 40).

22      Judgments of 27 November 2003, Zita Modes (C‑497/01, EU:C:2003:644, paragraphs 44 and 45), and of 10 November 2011, Schriever (C‑444/10, EU:C:2011:724, paragraph 37).

23      Judgment of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 60).

24      Judgments of 12 July 2012, EMS-Bulgaria Transport (C‑284/11, EU:C:2012:458, paragraph 43), and of 11 November 2021, Ferimet (C‑281/20, EU:C:2021:910, paragraph 30).

25      Judgments of 12 July 2012, EMS-Bulgaria Transport (C‑284/11, EU:C:2012:458, paragraph 44), and of 11 November 2021, Ferimet (C‑281/20, EU:C:2021:910, paragraph 31).

26      Judgment of 16 February 2012, Eon Aset Menidjmunt (C‑118/11, EU:C:2012:97, paragraphs 31 and 42).

27      Judgments of 16 February 2012, Eon Aset Menidjmunt (C‑118/11, EU:C:2012:97, paragraph 44), and of 12 November 2020, ITH Comercial Timişoara (C‑734/19, EU:C:2020:919, paragraph 42).

28      Judgments of 12 July 2012, EMS-Bulgaria Transport (C‑284/11, EU:C:2012:458, paragraph 47), and of 11 November 2021, Ferimet (C‑281/20, EU:C:2021:910, paragraph 32).

29      Judgment of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraphs 68 to 71).

30      Ibid., paragraphs 74 and 75.

31      Judgment of 28 February 2018, Pieńkowski (C‑307/16, EU:C:2018:124, paragraph 34)).

32      See, by analogy, the judgment of 21 November 2018, Fontana (C‑648/16, EU:C:2018:932, paragraphs 42 and 44), where the Court held that the principle of proportionality does not preclude national legislation which establishes a rebuttable presumption concerning the turnover subject to VAT, provided that the taxable person can challenge the tax assessment and that an excessively high standard of proof to succeed in that challenge is not required.

33      See, to that effect, judgments of 12 November 2020, ITH Comercial Timişoara (C‑734/19, EU:C:2020:919, paragraph 39), and of 11 November 2021, Ferimet (C‑281/20, EU:C:2021:910, paragraph 51).

34      Judgment of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 72 and the case-law cited).

35      See, to that effect, judgments of 9 July 2015, Salomie and Oltean (C‑183/14, EU:C:2015:454, paragraphs 44 and 45), and of 15 April 2021, Administration de l'Enregistrement, des Domaines et de la TVA (C‑846/19, EU:C:2021:277, paragraph 90).

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