Mahagében KFT & Péter Dávid
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.
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).
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