Judgement of the Court of the EU in case C-550-11 PIGI
VAT DEDUCTION ADJUSTMENT IN CASE OF THEFT
Case C-550/11 PIGI – Pavleta Dimova ET v NRA
SUMMARY
The adjustment to the VAT deduction enjoyed at the acquisition of goods, where those goods have been stolen, does not run contrary to the provisions of Directive 2006/112/EC.
INTRODUCTION
The basic principle of neutrality of the VAT system is found on the deduction of input tax. The deduction system is designed to relive the taxable persons of the tax burden and in principle may not be limited. However, the VAT deduction is subject to one major condition – the goods or services whose acquisition have given rise to the deduction must be used for the purposes of the person’s taxable supplies.
This raises the question what happens if the link between the input VAT and the output supplies is broken because the goods no longer exist or are not in the possession of the taxable person due to theft?
FACTS AND QUESTIONS REFERRED FOR A PRELIMINARY RULING
The Bulgarian sole trader ET PIGI – Pavleta Dimova (“PIGI”) operates in inter alia the manufacture, purchase and marketing of agricultural products, the manufacture and sale of alcoholic and non-alcoholic drinks and trade in foodstuffs.
On 3 January 2007 packaged products and cigarettes for a total amount of BGN 6 417.16 were stolen from PIGI’s premises. The Public Prosecution launched a criminal investigation against an unknown perpetrator which did not result in the identification and indictment of the offender.
Following a tax audit for the period 01.08.2005 – 30.09.2010 the Bulgarian tax authorities found that the input VAT deducted by PIGI upon the acquisition of the stolen goods must be adjusted pursuant to the provisions of the Bulgarian VAT Act1. The revenue authorities also held that PIGI could not rely on any of the exceptions to the adjustment rule, including force majeure2.
