Value Added Tax Law within the European Union

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Optigen and Fulcrum

The companies Optigen and Fulcrum bought CPUs from companies established in the U and resold them to companies established in other Member States.166 Optigen claimed a refund of input VAT of GBP 7 million in its VAT return, while Fulcrum claimed a refund of nearly GBP 7,2 million in June and GBP 4 million in July.167 The Commissioners disallowed Optigen’s claim for a refund and partially disallowed the refund claim made by Fulcrum.
168 The Commissioners based their refusal on the declaration that the companies’ purchases lacked economic substance and that they were not part of any economic activity. 169 Both companies appealed against the Commissioners’ decision before the VAT and Duties Tribunal in London.170
Optigen and Fulcrum were not involved in the fraud and they did not have any reasons to believe that they were part of the fraud, other than as ordinary buyers. The companies did not trade with the missing trader or the trader using the hijacked VAT number.171

Bond House

Bond House bought CPUs from companies in the UK and resold them to companies in another Member State. The company claimed a refund of GBP 16,3 million for input VAT for these supplies. The Commissioners decided that Bond House was only allowed to reclaim GBP 2,7 million, since the transactions formed part of supply chain which involved a defaulting trader.172 Bond House appealed against the decision, before the VAT and Duties Tribunal in Manchester.173
Bond House was not suspected of any VAT fraud. Bond House had no knowledge of the existing fraud and they did not act irresponsibly nor did they trade with any of the fraudulent traders. All Bond House transactions were legitimate, meaning that the goods and the money were in fact exchanged on every transaction.174

Community Legislation

The supply of goods for consideration within the Member State by a taxable person acting as such shall be subject to VAT.175 The definition of a taxable person is any person who independently
carries out any economic activity no matter what the purpose or result of that activity is.176 Furthermore, the supply of goods shall mean the transfer of the right to dispose of tangible property as an owner.177

The Questions Referred

The national court wanted to know if the transactions in question, constituted a supply of goods effected by a taxable person acting as such and an economic activity within the meaning of the VAT Directive.178 The transactions were not themselves fraudulent, however they formed part of a supply chain in which a former or subsequent transaction was, but without the trader connected with the honest transaction knew or had any way of knowing that part of the supply chain was involved in a carousel fraud. The national court also wanted to know if the right to deduct VAT might be limited for traders in such a situation.
The Optigen case is important in two different ways. Firstly, the ECJ is answering the question if a transaction forming part of a supply chain in which a former or subsequent transaction was fraudulent constitutes a supply of goods effected by a taxable person and an economic activity within the meaning of the VAT Directive. Secondly, the ECJ answers if the right to deduct may be limited in such a situation.

1 Introduction 
1.1 Background
1.3 Method and Materials.
1.4 Language .
1.5 Delimitations.
1.6 Outline
2 Value Added Tax Law within the European Union
2.1 Application of the Value Added Tax Directive
2.1.1 Introduction.
2.1.2 Economic Activity.
2.1.3 Taxable Person
2.1.4 Taxable Transaction
2.1.5 Conclusion
2.2 General Principles
2.2.1 The VAT Directive
2.2.2 Case Law
3 The Right to Deduct
3.1 Deduction in General.
3.3 The Origin Principle and the Destination Principle
3.4 The VAT Information Exchange System
4 Carousel Fraud in General
4.1 History
4.2 Carousel Fraud in Practise
4.3 Case Law .
5 The Right to Deduct in Case of Carousel Fraud
5.1 Case Law
5.2 Optigen
5.3 FTI
5.4 Kittel
5.5 Awareness
5.6 Conclusion
6 Final Conclusion

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Value Added Tax The Right to Deduct in Case of Carousel Fraud