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Fraudulently issued invoices: who pays VAT?

The Court of Justice of the European Union (CJEU) commented on who is considered a person liable to pay tax for invoices fraudulently issued by a company’s employee.

An employee fraudulently issued tax documents (invoices) without the consent or knowledge of the company that employed her. The invoices indicated VAT which related to transactions that were actually carried out but with entities other than those stated in the invoices. The invoices were not recorded in the company's accounts and the corresponding VAT was not paid by the company to the state budget or reported in its tax returns.

The CJEU clarified that an issuer of an invoice is obliged to pay the VAT entered in the invoice even in the absence of an actual taxable transaction and irrespective of any fault if there is a risk of loss of tax revenue. In the present case, the employee was found to have issued the invoices for fraudulent purposes: the VAT was invoiced falsely to enable the recipients of those invoices to fraudulently obtain the right to deduct that VAT.
According to the CJEU, the company failed to exercise the due diligence required to prevent the issuance of the fraudulent invoices. The employee was in charge of invoicing and could, among other things, issue VAT invoices outside the company’s electronic invoicing system, and without having to obtain specific consent from her employer. In such a situation, the employee's fraudulent conduct can be attributed to the employer, and the employer must therefore be considered the person who entered the VAT in the invoices.

The duty of care under Article 203 of the VAT Directive is owed by an employer to their employee, in particular where that employee is authorised to issue invoices stating VAT in the name and on behalf of their employer.
In its conclusion, the CJEU held that the employee who had issued false VAT invoices using the identity of their employer as a taxable person without that employer’s knowledge or consent would have been considered the person who had entered the VAT had the company exercised the due diligence reasonably required to monitor the conduct of that employee.