Abstract

http://ssrn.com/abstract=2097781
 


 



Mahagében KFT & Péter Dávid: Re-Directing the EU VAT's Perfect Storm


Richard Thompson Ainsworth


Boston University - School of Law; NYU - Graduate Tax Program

July 2, 2012

Boston Univ. School of Law, Public Law Research Paper No. 12-35

Abstract:     
On June 21, 2012 the Court of Justice of the European Union (CJEU) rendered judgment on two Hungarian references, Mahagében kft v. Nemzeti Adó-és Vámhivatal Dél-dunántúli Regionális Adó Fölgazgatósága and Péter Dávid v. Nemzeti Adó-és Vámhivatal Dél-dunántúli Regionális Adó Fölgazgatósága (Mahagében/Dávid). The Mahagében/Dávid decisions clarify the CJEU’s earlier holdings in the joined cases of Alex Kittel v. Belgium and Belgium v. Recolta Recycling SPRL (Kittel/Recolta).

Kittel/Recolta is a critically important decision. It is central to the EU’s anti-fraud effort. It is one of three legal imperatives that earlier this year appeared to be coalescing into a Perfect (enforcement) Storm.

After Mahagében/Dávid the Perfect Storm needs to be re-assessed, because Mahagében/Dávid limits Kittel/Recolta in some respects, while it broadly re-affirms it in others. This paper examines the relationship between Mahagében/Dávid and Kittel/Recolta and then updates the analysis of the Perfect Storm.

Kittel/Recolta stands for the proposition that a trader who enters into a transaction knowing or having the means to know that by doing so he is a participant in fraud, forfeits the right to deduct input tax incurred on purchases that were related to the fraud. Both the standards that are applied (the “known/should have known” formulation) and the scope of its application have been debated. Mahagében/Dávid largely resolves these debates.

First, in terms of the Kittel/Recolta standards the CJEU has told the legal community that it will translate the expression aurait dû savoir (should have known in the official English translation of Kittel/Recolta) as ought to have known. The narrower definitions that have been argued for will not be used.

Secondly, in terms of the scope of Kittel/Recolta, the CJEU has indicated that Kittel/Recolta is not limited to privity relationships, and it is applicable throughout the supply chain (but not at all in the customer chain).

The consequence is that the Perfect Storm needs to be modified by removing Stage 2, and Hypo III. These no longer apply because they are dealing with fraud in the customer chain.

Number of Pages in PDF File: 12

Keywords: Mahagében kft, Péter Dávid, Court of Justice of the European Union, Alex Kittel, Recolta Recycling SPRL, Customer chain, Supply chain, Privity, Known or should have known, Ought to have known, impliquée dans, savait ou aurait dû savoir

JEL Classification: K14, K33, K34, K39

working papers series





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Date posted: July 3, 2012  

Suggested Citation

Ainsworth, Richard Thompson, Mahagében KFT & Péter Dávid: Re-Directing the EU VAT's Perfect Storm (July 2, 2012). Boston Univ. School of Law, Public Law Research Paper No. 12-35. Available at SSRN: http://ssrn.com/abstract=2097781 or http://dx.doi.org/10.2139/ssrn.2097781

Contact Information

Richard Thompson Ainsworth (Contact Author)
Boston University - School of Law ( email )
765 Commonwealth Avenue
Boston, MA 02215
United States
NYU - Graduate Tax Program ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
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