In this article, we aim to revisit an older case managed by Costaș, Negru & Asociații lawyers, which was successfully resolved. The issue concerns the exercise of the right to deduct VAT in the case of cattle purchases whose reality was contested by the tax authority.
Specifically, a company involved in cattle trade exercised its right to deduct VAT, in July 2019, for cattle purchases from three suppliers. Subsequently, these cattle were delivered intra-community or externally. The tax inspection team, which refused the right to deduct VAT, mainly reproached the company for the fact that, from the analysis of the ear tag movement documents, it results that the cattle highlighted by the taxpayer as intra-community deliveries or external deliveries were owned by the supplying companies, before leaving the territory of Romania. In addition, it was noted that the company was not licensed by the veterinary authorities. For all these reasons, it was concluded that the purchases of 780 cattle were not real. Art. 11 of the Fiscal Code was applied and the entire amount requested was rejected for reimbursement.
The Bihor Tribunal, entrusted with resolving the annulment action, held that the plaintiff company documented the purchases and deliveries of cattle (to companies in Italy, Croatia and Serbia) with purchase invoices, receipt notes, warehouse records, live animal movement documents, namely external invoices, intra-community trade certificates, consignment notes (CMR).
When resolving the case, the judgment of the Court of Justice of the European Union in case C-430/19, C.F. was retained, more specifically the arguments relating to the circumstance that the right to deduct VAT cannot be limited unless it is established, in relation to objective elements, that it is invoked fraudulently or abusively. In the light of the case-law in Glencore Agriculture Hungary, case C-189/18, such a situation exists where fraud is committed by the taxable person himself, or where the taxable person knew or should have known that, by his purchase, he was participating in an operation involved in VAT fraud. Also, with reference to the judgment of the Court of Justice in case C-78/12, Evita-K EOOD, the Bihor Court held that the national courts are required to carry out an overall assessment of all the elements and factual circumstances in order to determine whether the supplies of goods in question were actually made and whether, where appropriate, the right of deduction can be exercised for those supplies.
In this case, through a tax expert examination, the entire chain of purchases and sales was determined and it was concluded that all operations were properly recorded in the accounting records, being supported by supporting documents.
Taking into account these findings, the Bihor Tribunal showed that the VAT Directive, the Fiscal Code and the methodological rules do not contain any condition for the exercise of the right to deduct VAT on the presentation, by the taxpayer, of the animal passports or on the mention in the purchase and sale invoices of the animal ear tags. The court applied the judgment of the Court of Justice of the European Union in case C-78/12, Evita-K EOOD, where it was explicitly stated that art. 226 point 6 of the VAT Directive must be interpreted as not requiring the taxable person who makes deliveries of goods having as object animals subject to the identification and registration system established by Regulation (EC) no. 1760/2000 of the Council and of the European Parliament of 17 July 2000 establishing a system for the identification and registration of bovine animals and concerning the labelling of beef and veal and beef products to mention the animals’ ear tags on the invoices relating to these deliveries.
In a global assessment of all the relevant elements, the lower court considered that the traceability of the animals could be established. Thus, with reference to art. I point 6 of Order no. 40/2020 of the National Sanitary Veterinary and Food Safety Authority, the judge distinguished between the owner and the keeper of the animals, permanent or temporary. It was shown that in the case the applicant company had concluded service contracts with three companies so that they would receive, keep in appropriate sanitary and veterinary conditions and feed the cattle before intra-community or export delivery. The existence of these contracts was corroborated with the price paid for the services, respectively with witness statements (the drivers who transported the cattle).
In addition, the Bihor Tribunal held that for similar operations, the company was fully entitled to deduct VAT both before and after July 2019.
For these reasons, by civil sentence no. 330/10.05.2024, the Bihor Tribunal admitted the action, annulled the decision to resolve the appeal, the tax decision and the tax inspection report and ordered the VAT to be reimbursed, with tax interest of 0.02% per day of delay from the date of expiry of a period of 45 days from the date of the VAT refund request.
The Oradea Court of Appeal, by civil decision no. 552 of November 14, 2024, upheld the solution of the trial court. In its argument, the appeal court held that the lack of information in the supporting documents was related to the atypical way of entering into management of the cattle in question. However, in the case at hand, the distinction between the owner of the cattle (the company that exercised its right to deduct VAT) and the possessors of the cattle (the three companies that were in possession of the cattle, within their own agricultural holdings) was relevant. The complexity of the legal mechanism or its difficulty in understanding by the tax authorities does not affect the conditions for exercising the right to deduct VAT, which were met in this case.
We are pleased to recall this case, resolved with the help of Costaș, Negru & Asociații lawyers, coordinated by av. dr. Cosmin Flavius Costaș. It reveals the importance of a detailed analysis of the fiscal situation, through the lens of all relevant elements, but also of the compliant and complete administration of evidence. Unfortunately, in many situations, such effective and efficient administration of evidence is done only in the judicial phase and not where it should be, in the tax inspection.
Costaș, Negru & Asociații is a civil law firm with offices in Cluj-Napoca, Bucharest and Arad, which offers assistance, legal representation and consultancy in several areas of practice through a team of 16 lawyers and consultants. Details regarding legal services and the composition of the team can be found on the website https://www.costas-negru.ro. All rights for the materials published on the company’s website and through social networks belong to Costaș, Negru & Asociații, their reproduction being permitted only for information purposes and with correct and complete citation of the source.
