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

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 21 September 2023 (1)

Case C‑442/22

P sp. z o.o.

v

Dyrektor Izby Administracji Skarbowej w Lublinie,

interested party:

Rzecznik Małych i Średnich Przedsiębiorców

(Request for a preliminary ruling from the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland))

(Request for a preliminary ruling – Value added tax – Directive 2006/112/EC – Person liable to pay VAT under Article 203 of the VAT Directive – Invoice for fictitious transactions (fake invoice) – Determination of the issuer of the invoice – Issuing of an invoice by an unauthorised third party – Issuing of a fake invoice by an employee without the knowledge of the employer – Attribution of criminal conduct by a third party – Test of good faith – Fault in selection and supervision on the part of a taxable person)

I.      Introduction

1.        This request for a preliminary ruling relates to the topic of combating fraud which has dominated VAT law for years. Once again it concerns the extent of the ‘liability of an undertaking’ which was involved in some way in VAT fraud perpetrated by another taxable person. As is well known, it is sufficient for such liability that the undertaking ought to have known that by its purchase it was taking part in a transaction connected with VAT fraud. (2) In such a case it can be refused deduction of input tax or an exemption, or possibly even both together. (3)

2.        There is now also a third possibility: an additional tax debt in respect of unduly entered VAT. This is, in essence, where an undertaking is liable for its employees who, without its knowledge, have intentionally assisted other taxable persons, in an organised and criminal manner, in committing VAT fraud (probably together with income tax fraud). Thus, staff at a petrol station collected discarded payment receipts and then, using a second ‘entry system’, created new invoices for the amounts of fuel indicated on those receipts, which they sold to interested persons. Those persons used the amounts for fuel supplies (which never actually took place) for deduction of input tax in their VAT return and probably also for deduction of operating expenses in their income tax return. The Polish State was able to uncover the fraud, but was not able entirely to remedy the loss of VAT from the persons who committed the fraud. The tax authority is therefore once again taking action against the undertaking which, while duly paying tax on its own transactions, ostensibly created the fake invoices itself.

3.        The point at issue in this case is therefore whether an undertaking’s VAT liability changes if its staff assisted VAT fraud perpetrated by a third party by creating fake invoices under the name of the undertaking. The taxable person (the employer) is thus ‘penalised’ (by way of liability) for the criminal conduct of its own employees who participated in VAT fraud perpetrated by a third party. This is new ground in so far as liability for tax debts arising from incorrect invoices always related to the undertaking’s own misconduct. ‘Liability’ for participation in VAT fraud perpetrated by third party, on the other hand, has thus far always been linked to a failure to exercise due diligence in connection with the performance of transactions in the context of a chain of transactions. In this case, however, the undertaking cannot be criticised in respect of the transactions actually carried out.

4.        Combating tax fraud is one of the great challenges in a system of indirect taxation involving deduction of input tax. It is universally agreed how important combating such fraud is. However, there must be limits, in particular having regard to the fundamental rights of the undertakings concerned. The Court can now define those limits more precisely.

II.    Legal framework

A.      European Union law

5.        The legal framework is formed by Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’). (4) Article 203 of the VAT Directive regulates the tax liability resulting from the entering of VAT on an invoice and states:

‘VAT shall be payable by any person who enters the VAT on an invoice.’

B.      Polish law

6.        Poland implemented the VAT Directive by the Ustawa o podatku od towarów i usług (Law on the tax on goods and services) of 11 March 2004 (Dz. U. 2011, nr 177, poz. 1054), as amended. Article 108(1) of that law provides:

‘If a legal person, an unincorporated organisational unit or a natural person issues an invoice in which the amount of tax is shown, he or she is obliged to pay that tax.’

III. Facts and preliminary ruling procedure

7.        From 2001 to 2015, the appellant – the company P Sp. z o.o. (‘P’) – was in the business of selling fuel, publishing, leasing commercial space and property development. It kept full accounts, was registered as a VAT taxable person and had approximately 14 employees.

8.        As a result of an audit conducted by the Tax Administration, it was determined that between January 2010 and April 2014 a total of 1 679 fraudulent VAT invoices (not reflecting actual sales of goods) were issued under the name of P for a total VAT amount of 1 497 847 zlotys (PLN) (currently around EUR 335 000) to entities which subsequently accounted for the VAT shown in those invoices in their tax settlements. These fraudulent invoices were not recorded in P’s sales register. The VAT was neither paid to the central budget nor accounted for by P.

9.        As a result of the findings of the tax audit, the chair of the board of P conducted an internal investigation into the matter, which revealed that the fraudulent invoices had been issued and sold by an employee of the company (‘P.K.’) without the knowledge or consent of the company’s board.

10.      P.K. was employed as the manager of a petrol station owned by P from 25 November 2005 until 24 May 2014, when her employment was terminated on grounds of misconduct. Her duties included operating the cash register, making out invoices and preparing documents for the chief accountant.

11.      According to P.K.’s statements, from 2010 she had issued summary invoices for receipts collected by employees at the petrol station she managed. The receipts were found in rubbish bins. Receipts for each invoice, segregated by year, were kept in the petrol station’s boiler room, which was meant to ensure that the invoices under the name of the petrol station for the fake transactions did not cover amounts of fuel greater than those actually sold by the petrol station. The entire practice was not intended to cause damage to P. The fraudulent invoices were saved on a computer in the office (in an access-protected file).

12.      P.K. issued those invoices in a format which differed from that of the correct invoices and did so only when her deputy was absent. She did not print copies of the invoices so as not to create a paper trail. She did not submit the invoices to the accounting department either. She used the details of P, indicating it as the issuer of the invoices and using its tax identification number. The invoices bore P.K.’s signature and stamp, and from 2014 only a computer-generated signature with no stamp. All the employees involved who worked under P.K. at the petrol station profited from the arrangement. They received sums equivalent to the amount of fuel indicated in the receipts provided, which were used to issue the fraudulent invoices. It is unclear exactly how and where the invoices were created. According to the observations submitted by P, it did not appear to be done using the computer or on the premises of the petrol station.

13.      As a result of the findings of the audit, the tax authority issued a decision against P determining a VAT liability for the period from January 2010 to April 2014. P lodged an appeal against that decision. By decision of 31 October 2017, the appeal body, the Dyrektor Izby Administracji Skarbowej w Lublinie (Director of the Tax Administration Chamber, Lublin), upheld the decision determining the VAT liability.

14.      On the basis of the established facts, both authorities found, and the parties did not deny, that the fraudulent invoices had documented supplies of goods and services that had not actually been made. Those invoices simulated actual transactions for the purpose of enabling third parties to obtain undue tax refunds.

15.      Both authorities found that P, as the employer, had failed to exercise due diligence in preventing the issuing of fraudulent invoices. P.K. did not possess a precisely defined written job description. Her broad responsibilities included the issuing of VAT invoices for receipts outside the BOS computer system in Excel format without the employer’s additional approval. Since the chair of P’s board of directors was aware that invoices which accompanied receipts were issued at the petrol station, without accounting checks, he could and should have foreseen that that facilitated the issuing of fraudulent invoices. It was due to the lack of proper supervision and organisation that the chair of the company’s board only discovered the practice in question after an audit had been conducted by the tax authority.

16.      According to the administrative authorities, P.K. was not a third party in relation to P. She was the manager of a petrol station owned by P, and therefore an employee who was authorised to issue invoices and who was in charge of the staff at the petrol station. Furthermore, the authorities found that, despite the measures taken to exclude the counterparties who used the fraudulent VAT invoices from settlements, the loss of tax revenue was not prevented in a timely manner.

17.      In its judgment of 23 February 2018, the Wojewódzki Sąd Administracyjny (Regional Administrative Court, Poland) dismissed the appeal lodged by P against the decision of the Director of the Tax Administration Chamber, Lublin), accepting the reasoning of the appeal body. P lodged an appeal on a point of law against that judgment at the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland). That court has stayed the proceedings and referred two questions to the Court of Justice for a preliminary ruling under Article 267 TFEU:

‘(1)      Must Article 203 of the VAT Directive be interpreted as meaning that in a situation where an employee of a VAT taxable person has issued a fraudulent invoice showing VAT, on which he or she has included the employer’s details as the taxable person, without that employer’s knowledge and consent, the person who enters the VAT on the invoice and who is thus liable to pay the VAT is to be considered:

–      the VAT taxable person whose details were unlawfully used in the invoice; or

–      the employee who unlawfully entered VAT on that invoice using the details of the VAT taxable person?

(2)      In connection with the question of who is to be considered, within the meaning of Article 203 of the VAT Directive, the person who enters VAT on the invoice and is thus liable to pay VAT in the circumstances described in Question 1, is it relevant whether the VAT taxable person that employs the employee who unlawfully entered that taxable person’s details on a VAT invoice may be considered to have failed to exercise due diligence in supervising that employee?’

18.      In the proceedings before the Court, P, the Polish tax authority, the Polish Ombudsman for Small and Medium-sized Enterprises and the European Commission submitted written observations. In accordance with Article 76(2) of the Rules of Procedure, the Court did not consider it necessary to hold a hearing.

IV.    Legal assessment

A.      The questions referred and the course of the investigation

19.      The two questions referred for a preliminary ruling, which should be examined together, essentially ask what risks must be borne by a taxable undertaking under VAT law if it has been defrauded by its employees. In the present case, they created fake invoices under the name of the undertaking and without its knowledge, which they sold, for their own account, to third parties for purposes of tax fraud.

20.      In this connection, the question arises once again (5) of the interpretation of Article 203 of the VAT Directive. That provision is intended to counter the risk of an unjustified deduction by the recipient of an invoice by imposing a corresponding tax debt on the issuer of the invoice. It must therefore be clarified, first of all, who is the issuer of the invoice for these purposes – the issuer of the invoice or the person designated as the issuer on the invoice (see B.). If it is only the person who actually issued the invoice, the question then arises of the conditions for attributing (criminal) conduct by another person (a third party) to the ostensible issuer of the invoice (see C.).

B.      The issuer of an invoice for the purposes of Article 203 of the VAT Directive

1.      Spirit and purpose of Article 203 of the VAT Directive

21.      Under Article 203 of the VAT Directive, VAT is payable by any person who enters the VAT on an invoice. As the Court (6) has ruled in this regard, Article 203 of the VAT Directive covers ‘only’ wrongly invoiced VAT, that is to say, VAT which is not legally due but is nevertheless stated on an invoice.

22.      The purpose of Article 203 of the VAT Directive is to eliminate the risk of loss of tax revenue which might be entailed by an unjustified (7) deduction being claimed by the recipient of an invoice on the basis of that invoice. (8) This risk of loss is illustrated by the situation in the present case.

23.      The right to deduct may be exercised only in respect of taxes corresponding to a transaction subject to VAT. (9) However, there is a risk of loss of tax revenue as long as the addressee of an invoice incorrectly mentioning VAT could still use it for the purposes of such deduction under Article 168 of the VAT Directive. (10) That is because it cannot be ruled out that the tax authorities will not be able to determine in good time that substantive considerations preclude the exercise of the formally existing right of deduction.

24.      Thus, in cases where VAT is stated incorrectly, Article 203 of the VAT Directive seeks a comparable parallelism between the deduction by the recipient of the invoice and the tax liability of the issuer of the invoice, as normally exists in the case of a correct invoice between the supplier and the recipient of the supply. (11) According to the wording of Article 203 of the VAT Directive, however, it is not necessary that the recipient of the invoice has actually made a deduction. It is sufficient that there is a risk of such an (unjustified) deduction being made.

25.      Consequently, the issuer of the invoice is strictly liable for the (abstract) risk of the recipient of the invoice being able to make an unjustified deduction on the basis of that (incorrect) invoice. Therefore, there is not any real tax liability, but liability for risk on the part of the issuer of the invoice, as the Court has already made clear. (12)

26.      That liability applies not only in the case of an error as to the correct rate of tax (the invoice mentions the statutory rate of tax rather than the reduced rate), but also in the case of billing for fictitious transactions. (13)

27.      Article 203 of the VAT Directive therefore sets out the criteria for an abstract strict liability offence, under which the issuer of the invoice is strictly liable for the risk created by him or her if he or she issues fake invoices for fictitious transactions. The consequence is then that he or she is liable to pay the incorrectly shown VAT.

2.      Intrinsic limits of the strict liability offence

28.      This abstract strict liability offence, under which the issuer of an invoice is strictly liable for incorrectly shown VAT, does have its limits, however. If that liability is not to be arbitrary having regard to the fundamental rights of the person concerned (P relies inter alia on Article 17 of the Charter), there must be both an objective reason (that is, a risk of loss of tax revenue – see (a)) and a subjective attribution of the risk of loss (see (b)).

(a)    Need for a risk of loss

29.      As the Court has recently ruled, the strict liability offence under Article 203 of the VAT Directive does not apply if there is no risk of loss of VAT revenue per se. (14) This was confirmed by the Court in a case where it was clear that the deficient invoices were created only for final consumers who did not have a right to deduct input VAT. (15)

30.      There is also no such risk of loss per se where, as in this case, the tax authority has already uncovered the organised fraud by the employees of P, with the result that the buyers of the fake invoices are known and could be successfully and definitively refused the right of deduction. According to the request for a preliminary ruling, the Polish State succeeded in that regard to a certain extent. To that extent the question therefore no longer arises as to the applicability of Article 203 of the VAT Directive, but the point at issue is at most the penalising of the buyers and sellers of the fake invoices. However, that is normally a matter of criminal law, not of tax law. As the Court has already made clear, (16) Article 203 of the VAT Directive does not have the character of a penalty.

31.      An additional tax debt for the issuer of the invoice (whether it be P or P.K.) in such a case would result in the ‘enrichment of the State’ in connection with an instance of VAT fraud. This would manifestly go beyond what is necessary in order to combat fraud. It would also be a strange outcome if a State based on the rule of law could generate a higher tax revenue as a result of uncovered VAT fraud than without such fraud. If no deduction could be claimed, Poland’s VAT revenue would be increased even though no transaction was carried out. That outcome would likewise be incompatible with the character of a rule on liability (for details, see point 22 et seq. above).

32.      Accordingly, the Court ruled at an early stage that, even though the VAT Directive does not contain any provisions relating to the adjustment by the issuer of the invoice of VAT which has been improperly invoiced, (17) it is for the Member States to provide a solution in that regard. (18) The Court has developed two approaches for that solution, which must be taken into account by the Member States.

33.      Accordingly, in order to ensure neutrality of VAT, it is for the Member States, first of all, to provide for the possibility in their internal legal systems of adjusting any tax improperly invoiced where the person who issued the invoice shows that he or she acted in good faith. (19) Second, the principle of the neutrality of VAT requires that VAT which has been improperly invoiced can be adjusted where the issuer of the invoice has, in sufficient time, wholly eliminated the risk of any loss of tax revenue; it is not possible for such an adjustment to be made conditional by the Member States upon the issuer of the relevant invoice having acted in good faith. (20)

34.      It cannot be material in respect of the latter point why there is no risk of loss of tax revenue – that is to say, whether the issuer of the invoice has actively eliminated it or the tax authority has succeeded in doing so. (21) The measures that the Member States may adopt in order to ensure the correct levying and collection of the tax and for the prevention of fraud must not go further than is necessary to attain such objectives. They may not therefore be used in such a way that they would have the effect of undermining VAT neutrality, which is a fundamental principle of the common system of VAT. (22) That applies in particular to an abstract strict liability offence (see point 26 et seq. above).

35.      The question therefore arises whether P is liable in respect of the fake invoices issued by P.K. only in so far as the deduction of input tax by the buyers could not be prevented and thus in so far as loss to Poland’s tax revenue still exists.

(b)    Subjective attribution: the issuer of an invoice

36.      In so far as such loss still exists, it would also have to be attributed to P, as Article 203 of the VAT Directive covers only the issuer of those invoices. A peculiar feature of the situation at issue is that the supplier shown on the invoice (in this case, P), which normally creates the invoice, did not actually create that invoice. It was created by P.K., who merely used the name of her employer. Ostensibly, even though a different invoice format was used, it looks as though P created those invoices. Its name, address and tax number were used.

37.      If P.K. were a third party at arm’s length who had utilised P’s data more or less by chance in order to create and sell fake invoices (there have been such cases), the answer would be clear. In the absence of attribution of the conduct of that third party, liability on the part of P would be arbitrary and disproportionate and, as the tax authority also submits, P could therefore never be regarded as the issuer of those invoices.

38.      Unlike with the creation of fake invoices by a third party at arm’s length, in this case, there is a certain proximity between the actual issuer of the invoice (P.K.) and the ostensible issuer of the invoice (P) on account of the employment relationship that existed at the time. P.K. deliberately exploited her knowledge, obtained at P, of the amounts of fuel for which sales receipts were discarded, the invoicing details relating to P and its tax number.

39.      It is clear, on the other hand, that that (criminal) selling of fake invoices under the name of P took place without the knowledge of P, was unwanted by it, and was not covered by the responsibilities conferred by the employment relationship or a contractual power of attorney.

40.      The crucial question is who is the issuer of the invoice for the purposes of Article 203 of the VAT Directive in such a case. It must therefore be clarified whether and under what conditions the tortious conduct of employees (in this case, in the form of organised crime) can be attributed to an employer and the employer may be exonerated in that regard on grounds of its good faith.

41.      According to the wording of Article 203 of the VAT Directive, VAT is payable by any person who enters the VAT on an invoice. It is satisfied by any person – it need not be a taxable person – who enters the VAT on an invoice. Furthermore, the directive requires an action (‘enters’). However, the VAT was not entered by P, but by its employee P.K. In accordance with the wording of the VAT Directive, P.K. is therefore liable to pay the VAT incorrectly entered by her. P is only ostensibly the issuer of the invoice.

42.      The spirit and purpose described above (point 22 et seq.) as liability for risk militates against holding the ‘ostensible issuer’ liable in addition to the issuer. Article 203 of the VAT Directive is not concerned with penalisation or doubling tax revenue, but with covering the risk of loss of tax revenue. Consequently, only one person can be the issuer for the purposes of Article 203 of the VAT Directive. This also follows from the possibility of adjustment which the Court accords even to an issuer who has acted culpably. Accordingly, the Member States must provide for the possibility that any tax improperly invoiced can be adjusted by the person who issued the invoice if he or she shows that he or she acted in good faith. (23) This presupposes, however, that that person also knows the recipients to whom he or she issued the incorrect invoices. The buyers of the invoices are not known to P. Only P.K. has that information.

43.      Consequently, in so far as a risk of loss (or damage) to Polish tax revenue still exists, P.K., as the issuer of the fake invoices, is in principle liable to pay the VAT incorrectly entered on them.

C.      Attribution of criminal conduct by a third party

44.      It can be otherwise only if the criminal conduct by P.K. can somehow be attributed to the taxable person (in this case, P). In particular, the Polish tax authority claims a kind of ‘fault in supervision’. Because P knew that P.K. was also able to create invoices manually outside the normal invoicing system, P ought to have known that fake invoices were being created. In the absence of appropriate supervisory measures, the conduct of P.K. is attributable to P.

1.      Attribution of third-party criminal conduct according to the ‘principle’ of the prohibition of fraud?

45.      This approach taken by Poland follows similar lines to the Court’s case-law concerning refusal of deduction (or exemption or possibly even both at the same time) where the taxable person knew or ought to have known that, by his or her purchase, he or she was taking part in a transaction connected with VAT fraud. (24)

46.      In the view of the Court, such a taxable person must, for the purposes of the VAT Directive, be regarded as participating in or facilitating fraud, whether or not he or she profits from the resale of goods or the use of services in the context of taxable transactions subsequently carried out by him or her. (25) It is therefore for national authorities and courts to refuse the right to deduct if it is established, on the basis of objective elements, that this right is being relied on for fraudulent or abusive ends. (26) On this basis the Court has even developed a special, apparently VAT-related ‘principle of the prohibition of fraud’. (27)

47.      Irrespective of the fact that this case-law is far-reaching and raises subsequent questions, (28) in the case at issue P is not claiming a deduction or an exemption, that is to say, rights with an asset value. P merely wishes not to be liable for the economic advantage gained by a third party (the buyers of the fake invoices, with whom it has no links). It is not therefore a matter of combating fraud within a chain of transactions but of liability for the shortfall in tax revenues (29) for ‘anyone’.

48.      The fact that it knew or ought to have known that a third party at arm’s length was creating and selling fake invoices using its own name cannot, however, establish liability on the basis of the wording of Article 203 of the VAT Directive. It is not ‘anyone’, but rather the Member State, that is responsible for combating crime. Without a specific ground for attribution in respect of that third party, (30) the taxable person cannot be refused an ‘advantage’ (exemption and/or deduction) and, a fortiori, it is not on ‘anyone’ that liability (in the form of an additional tax debt) can be imposed.

2.      Attribution of criminal conduct by employees by reference to the test of bad faith

49.      The solution does not therefore follow from the abovementioned case-law on combating fraud, but from the principle of neutrality and the Court’s case-law on Article 203 of the VAT Directive, according to which it is for the Member States to provide for the possibility in their internal legal systems, in order to guarantee the neutrality of VAT, of correcting any tax improperly invoiced where the person who issued the invoice – who, as the Commission correctly states in its observations, need not be a business – shows that he or she acted in good faith. (31)

50.      This relates to the issuer of an invoice, which P is not. However, as the Commission also appears to suggest, this approach can be applied to the person who is ostensibly to be regarded as the issuer of an invoice (ostensible issuer). If that person acted in good faith, he or she is the victim rather than the perpetrator and cannot come under Article 203 of the VAT Directive. If, on the other hand, he or she did not act in good faith and the conduct of the issuer of the invoice can be attributed to him or her (on account of particular proximity or responsibility), he or she can also be held liable as the issuer of the incorrect invoice.

51.      It should be borne in mind that the employee’s criminal activity, namely issuing and selling fake invoices, was not directly connected with her position in P’s undertaking by virtue of the employment relationship. Rather, that position merely afforded her the opportunity to carry on that activity, which was, however, prohibited under employment law. Consequently, the issuing of those invoices cannot be readily attributed to P, unlike where employees issue invoices (possibly improperly) for fuel supplies in the course of business. A distinction should thus be made in this regard between the issuing of invoices in the name of P (as part of employment responsibilities) and the issuing of invoices under the name of P (so to speak, as part of organised crime and without its knowledge).

52.      Nevertheless, as the tax authority correctly asserts, there is a certain proximity and responsibility between the employer and its employees. The crucial factor is therefore the criteria on the basis of which an employer can be said to have acted in good faith.

3.      The test of good faith in the context of Article 203 of the VAT Directive

53.      Good faith is ruled out where the employer knew of its employee’s conduct and did not take action, even though it was able to do so. In such a case, it intentionally accepts the employee’s conduct as its own. Because of the appearance given by the fake invoices, which it intentionally tolerated, it is then to be regarded as the sole issuer of those invoices. That is not the case here, however.

54.      The Court has developed criteria for attribution in connection with the reduction of agricultural subsidies on grounds of infringements of the rules on subsidies by a third party (the contractor). It ruled that in the event of an infringement by a third party who carries out certain work on the instructions of a beneficiary of aid, the beneficiary may be held responsible for the infringement if he or she acted intentionally or negligently as a result of the choice or the monitoring of the third party or the instructions given to him or her, independently of the intentional or negligent nature of the conduct of the third party itself. (32) This cannot be applied as such to the situation at issue, however. First, P.K. was not instructed by P with regard to the creation of fake invoices, but acted intentionally of her own motion outside her ‘instructions’. Second, P is also not enriched by State resources which are to be withdrawn from it again on grounds of failure to meet the intended purpose.

55.      Nevertheless, recourse can be had to the idea addressed in that case-law of a person’s own fault in selection and supervision (in this case, on the part of the employer) where the person concerned is a taxable person for the purposes of VAT law. Taxable persons occupy a special position in the operation of the system of value added tax. The Court thus describes them as tax collectors for the State. (33)

56.      The indirect system of value added tax is very susceptible to abuse specifically because of the separation between persons who have to bear the tax and persons liable to pay VAT. This risk is further increased by the deduction of input tax by a taxable person in a chain of transactions. Nevertheless, it is the legislature that is primarily responsible for preventing this systemic risk of fraud.

57.      This applies especially in a European Union in which particular importance is attached to the rule of law. The Court thus increasingly points out the fact that the European Union is composed of States which respect and share the values referred to in Article 2 TEU. (34) The values referred to in Article 2 TEU, on which the European Union is founded, include in particular the principle of the rule of law. A Member State cannot therefore unilaterally pass on this risk, which it has itself created, to private entities. It is, first and foremost, the responsibility of the State, not of a private entity, to combat tax fraud. As the Commission correctly states in its observations, even the safeguarding of tax revenue cannot result in VAT being charged to a taxable person who has nothing to do with the fraud (in this case, the selling of fake invoices).

58.      However, in an indirect system of taxation, the State, as the tax creditor, is necessarily reliant on assistance from taxable persons as tax collectors. Even though they must cooperate in the collection of VAT on a compulsory, unremunerated basis, it is not disproportionate if a certain non-excessive degree of diligence is required. Accordingly, as a tax collector for the State, a taxable person is not permitted to turn a blind eye and knowingly accept VAT fraud. This also has implications for the attribution of fraudulent conduct by an undertaking’s own employees under EU law.

59.      As I have already stated in my Opinion in a case concerning the recovery of agricultural aid, a principle of attributing the misconduct of auxiliary persons irrespective of any fault on the principal’s part is basically alien to the laws of many Member States in the field of tort. (35) According to a possible unwritten legal principle in EU law, a principal is not therefore automatically liable for the misconduct of his or her auxiliary personnel in the same way as for his or her own, but at most in so far as he or she has made a wrong choice or failed to perform proper supervision, for example.

60.      In connection with Article 203 of the VAT Directive, this means that P must be considered to have acted in good faith provided it cannot be reproached for any fault of its own. Therefore, the fact that it generally ‘ought to have known’ does not in itself establish fault of its own, but only if it has made a wrong choice or failed to perform proper supervision in respect of its employees. In the present case, no fault in selection is evident, with the result that only fault in supervision is a possibility.

61.      It is for the referring court to decide whether such fault is present here. However, a different standard applies from that developed by the Court in its case-law on refusal of deduction or exemption in chains of transactions ‘vitiated by fraud’. In particular, it can be taken into consideration as an indicator of good faith whether and how the taxable person cooperated with the tax authority in establishing the extent of the organised crime (the damage was caused primarily by the buyers of the fake invoices).

62.      Contrary to the view seemingly taken by the Tax Administration, it is irrelevant in this regard that P.K. did not possess a written job description. The existence of a written job description reduces the risk of criminal conduct by the employee at best negligibly. For this reason, contrary to the view expressed by the Ombudsman in his observations, it is immaterial whether or not issuing invoices is, in principle, one of the employee’s responsibilities. An employee who wishes to create fake invoices can do so at any time, whether or not issuing correct invoices is one of his or her responsibilities.

63.      Furthermore, the fact that normal invoices could also be created, and were actually created, by P.K. outside the BOS system does not mean that the employer should have foreseen that its employees were creating and selling on fake invoices. In so far as the accounting system (within and outside the BOS system) had not previously indicated any irregularities, the points highlighted by the Tax Administration do not reveal any fault in supervision. As P rightly claims in its observations, it is difficult for private entities (as employers) to prevent ‘organised crime’ of the kind committed by P.K., the other employees and the buyers of the invoices.

64.      In this regard, a distinction would appear to have to be made depending on whether or not there are specific reasons or specific grounds – as the Commission correctly states – for special supervision. Without a specific reason, a taxable person could be expected to have at most a simple internal risk management system; the taxable person cannot blindly trust its employees. However, as soon as the taxable person has specific grounds, it may also be required to adopt more specific supervisory measures, including seeking the involvement of the law enforcement agencies. This is ultimately an overall assessment, taking into account all the circumstances, which must be made by the referring court.

V.      Conclusion

65.      I therefore propose that the Court answer the questions referred for a preliminary ruling by the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland) as follows:

Article 203 of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

must be interpreted as meaning that the ostensible issuer of an invoice for fictitious transactions is liable to pay the VAT entered on them only if (1) the recipient of the invoice could not be refused deduction of input tax, (2) the issuing of the invoice by a third party is to be attributed to him or her on account of particular responsibility (or proximity) and (3) he or she did not act in good faith. Good faith can be ruled out only where the ostensible issuer is himself or herself at fault. In the case of a taxable person, the culpably deficient selection or supervision of that person’s employees can also constitute such fault.

1      Original language: German.

2      Judgments of 24 November 2022, Finanzamt M (Scope of the right to deduct VAT) (C‑596/21, EU:C:2022:921, paragraph 25); of 11 November 2021, Ferimet (C‑281/20, EU:C:2021:910, paragraphs 46 and 47); of 20 June 2018, Enteco Baltic (C‑108/17, EU:C:2018:473, paragraph 94); of 22 October 2015, PPUH Stehcemp (C‑277/14, EU:C:2015:719, paragraph 48); of 13 February 2014, Maks Pen (C‑18/13, EU:C:2014:69, paragraph 27); of 6 September 2012, Mecsek-Gabona (C‑273/11, EU:C:2012:547, paragraph 54); of 6 December 2012, Bonik (C‑285/11, EU:C:2012:774, paragraph 39); and of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 56).

3      With regard to the resulting problem of overcompensation for the resulting damage, see my Opinion in Vetsch Int. Transporte (C‑531/17, EU:C:2018:677, point 39 et seq.).

4      Council Directive of 28 November 2006 (OJ 2006 L 347, p. 1) in the version applicable in the years at issue (2010 to 2014).

5      The Court addressed the interpretation of Article 203 of the VAT Directive in more detail most recently in the judgment of 8 December 2022, Finanzamt Österreich (Wrongly invoiced VAT to final consumers) (C‑378/21, EU:C:2022:968).

6      Judgment of 8 December 2022, Finanzamt Österreich (Wrongly invoiced VAT to final consumers) (C‑378/21, EU:C:2022:968, paragraphs 21 and 23).

7      In so far as the Court states in the customary expression that Article 203 of the VAT Directive is intended to eliminate the risk of loss of tax revenue ‘which the right of deduction … might entail’, this is somewhat imprecise; see judgments of 8 December 2022, Finanzamt Österreich (Wrongly invoiced VAT to final consumers) (C‑378/21, EU:C:2022:968, paragraph 20); of 29 September 2022, Raiffeisen Leasing (C‑235/21, EU:C:2022:739, paragraph 36); of 8 May 2019, EN.SA. (C‑712/17, EU:C:2019:374, paragraph 32); of 11 April 2013, Rusedespred (C‑138/12, EU:C:2013:233, paragraph 24); and of 31 January 2013, Stroy trans (C‑642/11, EU:C:2013:54, paragraph 32). It is not a matter of the right of deduction, but solely of the risk of loss from an unjustified deduction. That also seems to be what is always meant, as a justified deduction cannot pose a risk of loss of tax revenue.

8      See, expressly, judgments of 18 March 2021, P (Fuel cards) (C‑48/20, EU:C:2021:215, paragraph 27); of 8 May 2019, EN.SA. (C‑712/17, EU:C:2019:374, paragraph 32); of 11 April 2013, Rusedespred (C‑138/12, EU:C:2013:233, paragraph 24); of 31 January 2013, Stroy trans (C‑642/11, EU:C:2013:54, paragraph 32); of 31 January 2013, LVK (C‑643/11, EU:C:2013:55, paragraphs 35 and 36); and of 18 June 2009, Stadeco (C‑566/07, EU:C:2009:380, paragraph 28 et seq.).

9      Judgment of 13 December 1989, Genius (C‑342/87, EU:C:1989:635, paragraph 13).

10      See, expressly, judgment of 18 June 2009, Stadeco (C‑566/07, EU:C:2009:380, paragraph 28 et seq.), referring to the judgment of 19 September 2000, Schmeink & Cofreth and Strobel (C‑454/98, EU:C:2000:469, paragraph 57).

11      See also in that respect my Opinion in EN.SA. (C‑712/17, EU:C:2019:35, point 31 et seq.).

12      See, expressly, judgment of 19 September 2000, Schmeink & Cofreth and Strobel (C‑454/98, EU:C:2000:469, paragraph 61).

13      See, inter alia, judgment of 8 May 2019, EN.SA. (C‑712/17, EU:C:2019:374, paragraph 26) in conjunction with my Opinion in EN.SA. (C‑712/17, EU:C:2019:35, point 30 et seq.). Making reference to this, judgment of 18 March 2021, P (Fuel cards) (C‑48/20, EU:C:2021:215, paragraph 30). See, previously, judgment of 15 October 2002, Commission v Germany (C‑427/98, EU:C:2002:581, paragraph 41) and, similarly, judgment of 29 September 2022, Raiffeisen Leasing (C‑235/21, EU:C:2022:739, paragraph 35).

14      Judgment of 8 December 2022, Finanzamt Österreich (Wrongly invoiced VAT to final consumers) (C‑378/21, EU:C:2022:968, paragraphs 24 and 25). Similarly, judgment of 11 April 2013, Rusedespred (C‑138/12, EU:C:2013:233, paragraphs 24 and 32 et seq.; in the case that the tax authority was already able definitively to refuse deduction).

15      Judgment of 8 December 2022, Finanzamt Österreich (Wrongly invoiced VAT to final consumers) (C‑378/21, EU:C:2022:968, paragraph 25).

16      Judgment of 31 January 2013, Stroy trans (C‑642/11, EU:C:2013:54, paragraph 34). Along similar lines, judgment of 2 July 2020, Terracult (C‑835/18, EU:C:2020:520, paragraph 37).

17      See, expressly, judgments of 18 March 2021, P (Fuel cards) (C‑48/20, EU:C:2021:215, paragraph 30); of 15 March 2007, Reemtsma Cigarettenfabriken (C‑35/05, EU:C:2007:167, paragraph 38); and of 19 September 2000, Schmeink & Cofreth and Strobel (C‑454/98, EU:C:2000:469, paragraph 48).

18      Judgments of 18 June 2009, Stadeco (C‑566/07, EU:C:2009:380, paragraph 35); of 6 November 2003, Karageorgou and Others (C‑78/02 to C‑80/02, EU:C:2003:604, paragraph 49); of 19 September 2000, Schmeink & Cofreth and Strobel (C‑454/98, EU:C:2000:469, paragraph 49); and of 13 December 1989, Genius (C‑342/87, EU:C:1989:635, paragraph 18).

19      Judgments of 18 March 2021, P (Fuel cards) (C‑48/20, EU:C:2021:215, paragraph 31); of 2 July 2020, Terracult (C‑835/18, EU:C:2020:520, paragraph 27); of 8 May 2019, EN.SA. (C‑712/17, EU:C:2019:374, paragraph 33); of 31 January 2013, Stroy trans (C‑642/11, EU:C:2013:54, paragraph 33); of 18 June 2009, Stadeco (C‑566/07, EU:C:2009:380, paragraph 36); and of 13 December 1989, Genius (C‑342/87, EU:C:1989:635, paragraph 18).

20      Judgment of 2 July 2020, Terracult (C‑835/18, EU:C:2020:520, paragraph 28); of 8 May 2019, EN.SA. (C‑712/17, EU:C:2019:374, paragraph 33); of 31 January 2013, LVK (C‑643/11, EU:C:2013:55, paragraph 37); of 18 June 2009, Stadeco (C‑566/07, EU:C:2009:380, paragraph 37); of 6 November 2003, Karageorgou and Others  (C‑78/02 to C‑80/02, EU:C:2003:604, paragraph 50); and of 19 September 2000, Schmeink & Cofreth and Strobel (C‑454/98, EU:C:2000:469, paragraph 58).

21      See judgment of 11 April 2013, Rusedespred (C‑138/12, EU:C:2013:233, paragraph 24; refusal by the tax authority). See also, along similar lines, judgment of 6 November 2003, Karageorgou and Others  (C‑78/02 to C‑80/02, EU:C:2003:604, paragraph 52; amount which can in no event constitute VAT entails no risk of loss of tax revenue).

22      Judgment of 18 June 2009, Stadeco (C‑566/07, EU:C:2009:380, paragraph 39); see, by analogy, judgment of 19 September 2000, Schmeink & Cofreth and Strobel (C‑454/98, EU:C:2000:469, paragraph 59 and the case-law cited).

23      Judgments of 18 March 2021, P (Fuel cards) (C‑48/20, EU:C:2021:215, paragraph 31); of 2 July 2020, Terracult (C‑835/18, EU:C:2020:520, paragraph 27); of 8 May 2019, EN.SA. (C‑712/17, EU:C:2019:374, paragraph 33); of 31 January 2013, Stroy trans (C‑642/11, EU:C:2013:54, paragraph 33); of 18 June 2009, Stadeco (C‑566/07, EU:C:2009:380, paragraph 36); and of 13 December 1989, Genius (C‑342/87, EU:C:1989:635, paragraph 18).

24      See judgments of 24 November 2022, Finanzamt M (Scope of the right to deduct VAT) (C‑596/21, EU:C:2022:921, paragraph 25); of 11 November 2021, Ferimet (C‑281/20, EU:C:2021:910, paragraphs 46 and 47); of 20 June 2018, Enteco Baltic (C‑108/17, EU:C:2018:473, paragraph 94); of 22 October 2015, PPUH Stehcemp (C‑277/14, EU:C:2015:719, paragraph 48); of 13 February 2014, Maks Pen (C‑18/13, EU:C:2014:69, paragraph 27); of 6 September 2012, Mecsek-Gabona (C‑273/11, EU:C:2012:547, paragraph 54); of 6 December 2012, Bonik (C‑285/11, EU:C:2012:774, paragraph 39); and of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 56).

25      Judgments of 24 November 2022, Finanzamt M (Scope of the right to deduct VAT) (C‑596/21, EU:C:2022:921, paragraph 25), and of 11 November 2021, Ferimet (C‑281/20, EU:C:2021:910, paragraphs 46 and 47 and the case-law cited).

26      Judgments of 24 November 2022, Finanzamt M (Scope of the right to deduct VAT) (C‑596/21, EU:C:2022:921, paragraph 24), and of 11 November 2021, Ferimet (C‑281/20, EU:C:2021:910, paragraph 45 and the case-law cited).

27      Judgment of 24 November 2022, Finanzamt M (Scope of the right to deduct VAT) (C‑596/21, EU:C:2022:921, paragraphs 20 and 29).

28      This is shown by the never-ending requests for a preliminary ruling on these issues; see, only recently, judgments of 24 November 2022, Finanzamt M (Scope of the right to deduct VAT) (C‑596/21, EU:C:2022:921); of 15 September 2022, HA.EN. (C‑227/21, EU:C:2022:687); and of 11 November 2021, Ferimet (C‑281/20, EU:C:2021:910).

29      See, expressly, judgment of 19 September 2000, Schmeink & Cofreth and Strobel (C‑454/98, EU:C:2000:469, paragraph 61).

30      In its case-law on combating fraud, the Court would seem to place this in the existing chain of transactions and the assertion of an ‘advantage’ within that chain of transactions.

31      Judgments of 18 March 2021, P (Fuel cards) (C‑48/20, EU:C:2021:215, paragraph 31); of 2 July 2020, Terracult (C‑835/18, EU:C:2020:520, paragraph 27); of 8 May 2019, EN.SA. (C‑712/17, EU:C:2019:374, paragraph 33); of 31 January 2013, Stroy trans (C‑642/11, EU:C:2013:54, paragraph 33); of 18 June 2009, Stadeco (C‑566/07, EU:C:2009:380, paragraph 36); and of 13 December 1989, Genius (C‑342/87, EU:C:1989:635, paragraph 18).

32      Judgment of 27 February 2014, van der Ham and van der Ham-Reijersen van Buuren (C‑396/12, EU:C:2014:98, paragraph 53). See also my Opinion in van der Ham and van der Ham-Reijersen van Buuren (C‑396/12, EU:C:2013:698, point 73 et seq.).

33      Judgments of 20 October 1993, Balocchi (C‑10/92, EU:C:1993:846, paragraph 25), and of 21 February 2008, Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 21).

34      Judgment of 24 June 2019, Commission v Poland (Independence of the Supreme Court) (C‑619/18, EU:C:2019:531, paragraphs 42 and 43).

35      See my Opinion in van der Ham and van der Ham-Reijersen van Buuren (C‑396/12, EU:C:2013:698, point 76).

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