CJEU - C 419/14 / Judgment WebMindLicenses Kft. v Nemzeti Adó- és Vámhivatal Kiemelt Adó- és Vám Főigazgatóság

Key facts of the case:

Request for a preliminary ruling under Article 267 TFEU from the Fővárosi Közigazgatási és Munkaügyi bíróság (Administrative and Labour Court, Budapest, Hungary), made by decision of 3 September 2014, received at the Court on 8 September 2014, in the proceedings WebMindLicenses Kft. v Nemzeti Adó- és Vámhivatal Kiemelt Adó- és Vám Főigazgatóság.

1. This request for a preliminary ruling concerns the interpretation of Articles 2(1)(c), 24(1), 43 and 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’), of Council Regulation (EU) No 904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the field of value added tax (OJ 2010 L 268, p. 1), of Article 4(3) TEU and Articles 49 TFEU, 56 TFEU and 325 TFEU, and of Articles 7, 8, 41, 47, 48, 51 and 52 of the Charter of Fundamental Rights of the European Union (‘the Charter’).

Results (sanctions) and key consequences of the case:

...the Court (Third Chamber) hereby rules:

1. EU law must be interpreted as meaning that, in order to determine whether, in circumstances such as those of the main proceedings, a licensing agreement concerning the making available of know-how enabling operation of a website by which interactive audiovisual services were supplied, concluded with a company established in a Member State other than that in which the company granting the licence is established, arose from an abuse of rights designed to benefit from the fact that the rate of value added tax applicable to those services was lower in that other Member State, the fact that the manager and sole shareholder of the latter company was the creator of that know-how, that that same person exercised influence or control over the development and exploitation of that know-how and over the supply of the services which were based on it and that management of the financial transactions, staff and technical instruments necessary for the supply of those services was carried out by subcontractors, and the reasons which may have led the company granting the licence to make the know-how at issue available to a company established in that other Member State instead of exploiting it itself, do not appear decisive in themselves.

It is incumbent upon the referring court to analyse all the circumstances of the main proceedings in order to determine whether that agreement constituted a wholly artificial arrangement concealing the fact that the services at issue were not actually supplied by the company acquiring the licence, but were in fact supplied by the company granting it, examining in particular whether the establishment of the place of business or fixed establishment of the company acquiring the licence was not genuine, whether that company, for the purpose of engaging in the economic activity concerned, did not possess an appropriate structure in terms of premises and human and technical resources and whether it did not engage in that economic activity in its own name and on its own behalf, under its own responsibility and at its own risk.

2. EU law must be interpreted as meaning that, if an abusive practice is found which has resulted in the place of supply of services being fixed in a Member State other than the Member State where it would have been fixed in the absence of that abusive practice, the fact that value added tax has been paid in that other Member State in accordance with its legislation does not preclude an adjustment of that tax in the Member State in which the place where those services have actually been supplied is located.

3. Council Regulation (EU) No 904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the field of value added tax must be interpreted as meaning that the tax authorities of a Member State which are examining whether value added tax is chargeable in respect of supplies of services that have already been subject to that tax in other Member States are required to send a request for information to the tax authorities of those other Member States when such a request is useful, or even essential, for determining that value added tax is chargeable in the first Member State.

4. EU law must be interpreted as not precluding, for the purposes of the application of Article 4(3) TEU, Article 325 TFEU and Articles 2, 250(1) and 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, the tax authorities from being able, in order to establish the existence of an abusive practice concerning value added tax, to use evidence obtained without the taxable person’s knowledge in the context of a parallel criminal procedure that has not yet been concluded, by means, for example, of the interception of telecommunications and seizure of emails, provided that the obtaining of that evidence in the context of the criminal procedure and its use in the context of the administrative procedure do not infringe the rights guaranteed by EU law.

In circumstances such as those of the main proceedings, by virtue of Articles 7, 47 and 52(1) of the Charter of Fundamental Rights of the European Union it is incumbent upon the national court which reviews the legality of the decision founded on such evidence adjusting value added tax to verify, first, whether the interception of telecommunications and seizure of emails were means of investigation provided for by law and were necessary in the context of the criminal procedure and, secondly, whether the use by the tax authorities of the evidence obtained by those means was also authorised by law and necessary. It is incumbent upon that court, furthermore, to verify whether, in accordance with the general principle of observance of the rights of the defence, the taxable person had the opportunity, in the context of the administrative procedure, of gaining access to that evidence and of being heard concerning it. If the national court finds that the taxable person did not have that opportunity or that that evidence was obtained in the context of the criminal procedure, or used in the context of the administrative procedure, in breach of Article 7 of the Charter of Fundamental Rights of the European Union, it must disregard that evidence and annul that decision if, as a result, the latter has no basis. That evidence must also be disregarded if the national court is not empowered to check that it was obtained in the context of the criminal procedure in accordance with EU law or cannot at least satisfy itself, on the basis of a review already carried out by a criminal court in an inter partes procedure, that it was obtained in accordance with EU law.

Paragraphs referring to EU Charter: 

 

67. Thirdly, an adjustment of VAT after an abusive practice has been found, such as the adjustment which is the subject-matter of the main proceedings, constitutes implementation of Articles 2, 250(1) and 273 of the VAT Directive and Article 325 TFEU and, therefore, of EU law, for the purposes of Article 51(1) of the Charter (see, to this effect, judgment in Åkerberg Fransson, C‑617/10, EU:C:2013:105, paragraphs 25 to 27).

68. It follows that EU law does not preclude the tax authorities from being able in the context of an administrative procedure, in order to establish the existence of an abusive practice concerning VAT, to use evidence obtained in the context of a parallel criminal procedure that has not yet been concluded, provided that the rights guaranteed by EU law, especially by the Charter, are observed.

69. Article 52(1) of the Charter states regarding the scope and interpretation of the rights guaranteed by it that any limitation on the exercise of the rights and freedoms recognised by the Charter must be provided for by law and respect the essence of those rights and freedoms. In observance of the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the European Union or the need to protect the rights and freedoms of others.

70. In this instance, as regards, in the first place, the obtaining of the evidence in the context of the criminal procedure, it should be noted that Article 7 of the Charter, concerning the right to respect for private and family life, contains rights which correspond to those guaranteed by Article 8(1) of the ECHR and that, in accordance with Article 52(3) of the Charter, Article 7 thereof is thus to be given the same meaning and the same scope as Article 8(1) of the ECHR, as interpreted by the case-law of the European Court of Human Rights (judgments in McB., C‑400/10 PPU, EU:C:2010:582, paragraph 53, and Dereci and Others, C‑256/11, EU:C:2011:734, paragraph 70).

71. Thus, since interception of telecommunications constitutes interference with the exercise of the right guaranteed by Article 8(1) of the ECHR (see, inter alia, European Court of Human Rights, Klass and Others v. Germany, 6 September 1978, § 41, Series A no. 28; Malone v. the United Kingdom, 2 August 1984, § 64, Series A no. 82; Kruslin v. France and Huvig v. France, 24 April 1990, § 26 and § 25, Series A nos. 176-A and 176-B; and Weber and Saravia v. Germany (dec.), no. 54934/00, § 79, ECHR 2006-XI), it also constitutes a limitation on the exercise of the corresponding right laid down in Article 7 of the Charter.

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79. So far as concerns, in the second place, the gathering and use of the evidence by the tax authorities, there is no need in this instance to examine whether transmission of the evidence by the department responsible for the criminal investigation and the gathering thereof by the department conducting the administrative procedure with a view to its use interfere with the right, guaranteed by Article 8 of the Charter, to the protection of personal data. WML is not a natural person and therefore cannot invoke that protection as its official title does not identify any natural person (see, to this effect, judgment in Volker und Markus Schecke and Eifert, C‑92/09 and C‑93/09, EU:C:2010:662, paragraphs 52 and 53).

80. On the other hand, in the light of Article 7 of the Charter, use by the tax authorities of evidence obtained, in the context of a criminal procedure that has not been concluded, by means of the interception of telecommunications and seizure of emails constitutes as such a limitation on the exercise of the right guaranteed by that article. It must therefore be examined whether that use also satisfies the requirements set out in Article 52(1) of the Charter.

81. In that regard, the requirement that any limitation on the exercise of that right must be provided for by law implies that the legal basis which permits the tax authorities to use the evidence referred to in the preceding paragraph must be sufficiently clear and precise and that, by defining itself the scope of the limitation on the exercise of the right guaranteed by Article 7 of the Charter, it affords a measure of legal protection against any arbitrary interferences by those authorities (see, inter alia, European Court of Human Rights, Malone v. the United Kingdom, 2 August 1984, § 67, Series A no. 82, and Gillan and Quinton v. the United Kingdom, 12 January 2010, no. 4158/05, § 77, ECHR 2010).

82. When considering the necessity for such use in the main proceedings, it must be assessed in particular, as the Advocate General has observed in point 133 of his Opinion, whether the use is proportionate to the aim pursued, examining whether all the necessary information could not have been obtained by means of investigation that interfere less with the right guaranteed by Article 7 of the Charter than interception of telecommunications and seizure of emails, such as a simple inspection at WML’s premises and a request for information or for an administrative enquiry sent to the Portuguese authorities pursuant to Regulation No 904/2010.

83. In addition, with regard to observance of the rights of the defence and of the principle of good administration, it is to be observed that Articles 41 and 48 of the Charter, which are mentioned by the referring court, are not relevant in the main proceedings. First, it is clear from the wording of Article 41 of the Charter that it is addressed not to the Member States but solely to the institutions, bodies, offices and agencies of the European Union (judgments in YS and Others, C‑141/12 and C‑372/12, EU:C:2014:2081, paragraph 67, and Mukarubega, C‑166/13, EU:C:2014:2336, paragraph 44). Secondly, Article 48 of the Charter protects the presumption of innocence and rights of the defence of which must be enjoyed by a person ‘who has been charged’ and is therefore not applicable in the main proceedings.

84. Nevertheless, observance of the rights of the defence is a general principle of EU law which applies where the authorities are minded to adopt in respect of a person a measure which will adversely affect him. In accordance with that principle, the addressees of decisions which significantly affect their interests must be placed in a position in which they can effectively make known their views as regards the information on which the authorities intend to base their decision. The authorities of the Member States are subject to that obligation when they take decisions which come within the scope of EU law, even if the EU legislation applicable does not expressly provide for such a procedural requirement (judgment in Sabou, C‑276/12, EU:C:2013:678, paragraph 38 and the case-law cited).

85. In this instance, it appears from WML’s written observations and the submissions made during the hearing that the tax authorities granted WML access to the transcripts of telephone conversations and emails used as evidence in support of the decision adjusting the tax and that WML had the opportunity to be heard on that evidence before the decision was adopted, a matter which is, however, for the referring court to verify.

86. As regards, in the third place, the right to an effective judicial remedy, guaranteed by Article 47 of the Charter, and the conclusions to be drawn from an infringement of the rights guaranteed by EU law, it should be noted that, under Article 47, everyone whose rights and freedoms guaranteed by EU law are violated has the right to an effective remedy before a tribunal in compliance with the conditions laid down in that article.

87. In order for the judicial review guaranteed by that article to be effective, the court reviewing the legality of a decision implementing EU law must be able to verify whether the evidence on which that decision is founded has been obtained and used in breach of the rights guaranteed by EU law and, especially, by the Charter.