On 21 September 2023, CJEU’s Advocate General issued her opinion in the Polish case C-442/22 relating to the liability of an employer, who is a taxable person, to pay VAT fraudulently entered on invoices by its employees in respect of fictitious transactions without the employer’s knowledge or consent.

In this case, a Polish taxable person (Company) was engaged in the business of selling fuel. Following an audit, a tax authority found that an employee of the Company working at one of its petrol stations fraudulently issued summary invoices on behalf of the Company based on receipts collected by station’s staff. The authority claimed that the Company should pay the VAT entered on those fraudulent invoices as this is required under Article 108 of the Polish VAT Act, which says that a taxable person who has issued an invoice with VAT on it must pay the tax. The authority’s determination was appealed all the way to the Supreme Administrative Court, which turned to CJEU with a question whether VAT entered on invoices fraudulently issued without the Company’s knowledge by its employees in respect of fictitious transactions shall be payable by the Company or the employees.

According to Advocate General, the Company that should be responsible for its employee issuing fraudulent invoices for fictitious transactions, on condition that:

  • the Company was aware of the fraud,
  • the Company committed gross negligence by failing to properly supervise its accounting operations despite having notice of irregularities, and
  • the invoice recipient may no longer be refused deduction of input tax.

Thus, in the opinion of the Advocate General, if the Company exercised due care supervising its invoice-issuing employees and did not know of their tax fraud, the related VAT must be payable not by the Company but exclusively by its employee who actually issued incorrect invoices.

CJEU is yet to decide the case and Advocate General’s opinion is not binding for this purpose, but practice shows that a great majority of the court’s judgments follow AG’s opinions.

If this issue pertains to your business and you are interested in our assistance, please contact us.

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