VAT De-registration: the CJEU decision in the Promexor case

08 December 2021

On 18 November 2021, the Court of Justice of the European Union (the “CJEU”) delivered its judgment in Case C-385/20 (Promexor Trade SRL v Directia Generala a Finantelor Publice Cluj – Administratia Judeteana a Finantelor Publice Bihor). Promexor is a Romanian company whose VAT number was revoked by the local tax authorities following a period of six months in which its VAT returns did not record any transactions subject to VAT. Under Romanian legislation, a company whose VAT number has been revoked could re-register and retroactively deduct input VAT for the period when it was not registered. However, in this case, Promexor was prevented from doing so because its director was also a shareholder of a company that was going through insolvency proceedings.

The key reasons for the CJEU finding for the taxpayer were:

  • The deduction of input tax must be allowed if the substantive requirements are satisfied, even if certain formal requirements are not.
  • The principle enshrined in Ablessio (C-527/11) that a Member State cannot refuse to assign a VAT number to a taxable person without legitimate grounds was reaffirmed.
  • Refusing to assign a VAT number to a company merely because its director is a partner in another company which is subject to insolvency proceedings is not a legitimate ground.
  • A country can continue to levy output VAT on the transactions of a taxpayer that no longer has a VAT number, provided that taxpayer can re-register for VAT purposes and deduct the input VAT paid.

CJEU Judgements after Brexit

Following the European Union (Withdrawal) Act 2018 (the “WA”), UK courts are no longer bound by principles laid down by the CJEU and general principles of EU law are not part of UK domestic law if they were not recognised as such in a case decided before Brexit. In addition, Chapter 5 of the Trade and Cooperation Agreement between the UK and the EU, which governs tax issues, does not establish any exceptions regarding VAT legislation, only obligations related to fraud.  The WA, however, does allow UK courts to consider CJEU decisions post-Brexit if they are relevant to any matter before a UK court.

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Increased Investment in Personal Tax Compliance in the UK (Published in Thought Leaders 4 Private Client)

Advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. To compound the issue, the Russian invasion of Ukraine and the corresponding economic fallout prompted domestic governments to increase transparency in relation to investments held by wealthy foreign individuals (with a focus on oligarchs).

In the UK, in the context of the cost-of-living crisis, public opinion certainly seems to be in favour of increased accountability for high-net-worth individuals (eg, on 9 October 2022, 63% of Britons surveyed thought that “the rich are not paying enough and their taxes should be increased”).1

HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work; they are well placed to take advantage of new international efforts to increase tax compliance, particularly considering the already extensive network of 130 bilateral tax treaties in the UK (the largest in the world).2 The UK was also a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.

This article discusses the main developments in support of the increased focus on international transparency and personal tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.

It should be noted that a somewhat piecemeal approach, with constant tinkering makes compliance difficult for the taxpayer and is often criticised for lacking the certainty that a stable tax system needs to thrive.

This article was first published with ThoughtLeaders4 Private Client Magazine

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