On 13 February 2014, the ECJ issued its decision in this case, which concerns a Bulgarian company, Maks Pen, which deducted the input VAT invoiced by its goods/services suppliers.
The Bulgarian tax authorities had doubts as to the reality of the purchases performed by the company and, consequently, also
doubted whether it had the right to deduct VAT, since they decided that its suppliers did not hold the resources necessary to perform those supplies. Since Maks disagreed with this approach, the ECJ was asked whether (1) these operations constitute fraudulent transactions and whether (2) taxable persons in this position may be denied the right to deduct the input VAT.
The ECJ ruled that the right to deduct VAT may be denied when, even though the supply has been made, it is apparent that the supply was not actually made by that supplier/its subcontractor either because they did not have the necessary means or because there is no record of the costs of making the supply in their accounts or because the identification of individuals signing various documents as suppliers has been shown to be inaccurate.
However, the ECJ underlined that the right to deduct VAT may be denied under these circumstances only if the operations constitute fraudulent transactions and if the relevant tax authorities objectively prove that the beneficiary knew or should have known about the fraud.
Consequently, this decision has reiterated that the payment of the tax included in a purchase invoice is not sufficient to
exercise the right to deduct VAT.
