SECOND SECTION
CASE OF GOSPODĂRIA ŢĂRĂNEASCĂ ‘ALCAZ G.A.’
v. THE REPUBLIC OF MOLDOVA
(Application no. 72968/14)
JUDGMENT
STRASBOURG
1 March 2022
This judgment is final but it may be subject to editorial revision.
In the case of Gospodăria Ţărănească ‘Alcaz G.A.’ v. the Republic of Moldova,
The European Court of Human Rights (Second Section), sitting as a Committee composed of:
Egidijus Kūris, President,
Pauliine Koskelo,
Gilberto Felici, judges,
and Hasan Bakırcı, Deputy Section Registrar,
Having regard to:
the application (no. 72968/14) against the Republic of Moldova lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) on 9 November 2014 by a company registered in Moldova, Gospodăria Ţărănească ‘Alcaz G.A.’, (“the applicant”) which was represented by Mr I. Coban, a lawyer practising in Chișinău;
the decision to give notice of the complaint concerning Article 1 of Protocol No. 1 to the Convention to the Moldovan Government (“the Government”), represented by their Agent, Mr O. Rotari, and to declare inadmissible the remainder of the application;
the parties’ observations;
Having deliberated in private on 1 February 2022,
Delivers the following judgment, which was adopted on that date:
SUBJECT-MATTER OF THE CASE
1. The case concerns the deprivation of the applicant’s right to deduct the VAT it had paid on received goods because its supplier’s VAT registration had been cancelled.
2. On 18 May 2007 the applicant company paid for goods and on 16 August 2007 received from its supplier, G., the VAT invoice, for a total VAT amount of 16,666.66 Moldovan lei (equivalent at the time to 1,022 euros (EUR)). The applicant company declared the incoming VAT invoice and proceeded to the deduction of VAT.
3. In October 2009 and in June 2012 the State Tax Office (Inspectoratul Fiscal de Stat) conducted an audit of the applicant company with respect to its VAT obligations for 2007-2008 and for 2009-2011 respectively. None of the audits revealed any misgivings with the VAT invoice issued by G. although they have explicitly verified the tax authority’s database for delinquent transactions with “ghost companies”. In January 2013 a repeated audit of VAT obligations for 2007-2012 revealed that G. had its VAT registration cancelled on 21 May 2007 and had been declared “a ghost company” on 17 October 2007, and that, accordingly, the applicant was not entitled to deduct the VAT paid to G. Because previous audits did not reveal this misgiving, the applicant was not obliged to pay any penalties.
4. The applicant appealed the tax assessment and the decision depriving it of the right to deduct the VAT paid to G. On 12 July 2013 the Ungheni District Court upheld its claims finding that the domestic law did not oblige the applicant to verify if its suppliers had a valid VAT registration or if they had not been declared as “ghost” companies. On 14 May 2015 the Supreme Court of Justice finally rejected the applicant’s claims.
5. The applicant company complained of a violation of its rights under Article1 of Protocol No. 1 to the Convention.
THE COURT’S ASSESSMENT
ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL NO.1 TO THE CONVENTION
6. The applicant company exhausted the administrative tax proceedings and it was not necessary for it to pursue other remedies concerning the same matter, such as a civil claim against G. (Euromak Metal Doo v. the former Yugoslav Republic of Macedonia, no. 68039/14, §§ 36-38, 14 June 2018). In view of the above, the Court concludes that the applicant company exhausted the available domestic remedies in respect of the complaint submitted to the Court and that the Government have not put forward any argument capable of persuading it to reach a different conclusion in the present case.
7. The Court notes that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention or inadmissible on any other grounds. It must therefore be declared admissible.
8. The general principles concerning the deprivation of the right to deduct VAT paid on received goods have been summarized in “Bulves” AD v. Bulgaria (no. 3991/03, 22 January 2009) and Euromak Metal Doo v. the former Yugoslav Republic of Macedonia (cited above).
9. The applicant company declared VAT on all of the invoices that it had issued and received, including the one from G. (see paragraph 2 above) and otherwise complied with all of its VAT obligations by paying VAT to the State where applicable. This finds support in the two tax audits, which reviewed the applicant’s tax returns without making any remarks in respect of the invoice issued by G. (see paragraph 3 above). The conclusions drawn in respect of the applicant company’s supplier – namely, that G.’s VAT registration had been cancelled and that it had been declared a “ghost company” – was based on decisions taken by tax authorities roughly at the same time or shortly after the applicant’s transaction with that supplier (see paragraph 3 above).
10. The Government submitted that the decision about the cancellation of G.’s VAT registration was publicly available on the website of the State Tax Inspectorate (www.fisc.md) and that the purchase of goods was fictious. At the same time, the Government did not clarify if this information was publicly available at the time of the events, i.e. in May-August 2007, nor if the domestic law obliged the applicant company to check for such information before making any purchases. The Court therefore is not convinced that the applicant company had, and could have had, knowledge of whether its supplier had met its VAT obligations. There is also nothing in the materials of the case to suggest that the State considered that the applicant company had participated in any criminal activities perpetrated by the supplier or that the purchase was fictitious.
11. Moreover, the tax authorities themselves were unable to identify any misgivings in respect of the VAT invoice issued by G. during the first two tax audits, although they had verified their internal database explicitly for transactions with “ghost companies”. The authorities did not impute to the applicant company any fraud in relation to the VAT deduction of which the applicant company had knowledge or the means to obtain such knowledge. For this reason, the Court finds that the applicant should not have been required to bear the full consequences of its supplier’s failure to discharge its VAT obligations, by being refused the right to deduct the input VAT and, as a result, being ordered to pay the VAT a second time. This amounted to an excessive individual burden on the applicant company which upset the fair balance that must be maintained between the demands of the general interest of the community and the requirements of the protection of the right of property (Bulves” AD, cited above, § 71).
12. This is sufficient for the Court to conclude that there has been a violation of Article 1 of Protocol No. 1.
APPLICATION OF ARTICLE 41 OF THE CONVENTION
13. The applicant company claimed EUR 830 in respect of pecuniary damage, which represents the amount of VAT paid a second time. The applicant also claimed EUR 2,000 in respect of non-pecuniary damage and EUR 850 in respect of costs and expenses incurred before the Court. The applicant submitted proof of payment for legal services, post receipts and a description of legal services.
14. The Government submitted that the claims were excessive and that the legal fees had been partially paid by another person.
15. Having regard to the documents in its possession, the Court considers it reasonable to award in full the applicant’s claims, plus any tax that may be chargeable to the applicant.
16. The Court further considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
Declares the complaint concerning Article 1 of Protocol No. 1 to the Convention admissible;Holds that there has been a violation of Article 1 of Protocol No. 1 to the Convention;Holds(a) that the respondent State is to pay the applicant, within three months, the following amounts, to be converted into Moldovan lei at the rate applicable at the date of settlement:
(i) EUR 830 (eight hundred thirty euros), plus any tax that may be chargeable, in respect of pecuniary damage;
(ii) EUR 2,000 (two thousand euros), plus any tax that may be chargeable, in respect of non-pecuniary damage;
(iii) EUR 850 (eight hundred fifty euros), plus any tax that may be chargeable to the applicant, in respect of costs and expenses;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points.
Done in English, and notified in writing on 1 March 2022, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Hasan Bakırcı Egidijus Kūris
Deputy Registrar President