CJEU, judgment of 1 December 2022 — C-512/21, Aquila Part Prod Com, ECLI:EU:C:2022:950 · Full text (PDF)
The case
Aquila Part Prod Com, a Romanian company registered for VAT in Hungary, acted as an intermediary in the wholesale food trade and had delegated the operational buying and selling to another company under a mandate contract (para 16). Following an audit of August to November 2012, the Hungarian tax administration assessed additional VAT of roughly EUR 680,000 in total, plus a fine and default interest: the taxpayer was said to have participated in a carousel fraud, evidenced inter alia by breaches of food-chain-safety rules, low trading margins and an invoicing chain designed to reroute goods from Slovakia to Hungary (paras 17 et seq.). The authority further relied on the fact that the managing director of the mandated company knew of the circumstances constituting the fraud and had previously been involved in VAT evasion (para 19). Aquila invoked its internal procurement rules, including supplier vetting and a ban on cash payments (paras 20, 47).
The court’s reasoning
The Court first systematises the three refusal scenarios — the trader’s own evasion, actual knowledge, constructive knowledge (para 39) — and then consolidates the evidential requirements: the tax authority must establish to the requisite legal standard “both the objective factors constituting the VAT evasion itself and those establishing that the taxable person committed that evasion or knew or should have known” that the transaction relied on was connected with it (para 33). Then comes the sentence that gives the judgment its rank — rendered here from the German text of the judgment: “That requirement of proof prohibits, irrespective of the type of fraud or the acts examined, recourse to suppositions or presumptions which would have the effect, by reversing the burden of proof, of undermining the fundamental principle of the common system of VAT constituted by the right to deduct and, therefore, the effectiveness of EU law” (para 34). Circular invoicing is a serious indication of evasion, but the authority may not confine itself to showing that the transaction forms part of such a chain (para 35); it must identify precisely the constituent elements of the evasion and prove the fraudulent acts — though without necessarily naming every participant and each one’s conduct (paras 36 et seq.). Nor is the mere fact that the members of the chain knew one another sufficient (para 44).
On the standard of care, the Court states what is now the governing graduated formula: which measures may reasonably be required depends on the circumstances of the case, in particular on whether indications of irregularity existed at the time of the purchase; where there are indications of evasion, increased diligence may be expected of the trader, but he cannot be required to carry out complex and far-reaching checks of the kind the tax administration itself is able to perform (para 52; see also paras 48–51). Whether internal procurement rules and a no-cash policy evidence sufficient diligence is for the national court alone to assess (para 53). Two holdings narrow the defensive space: where the authority alleges active participation, it may additionally or in the alternative rely on evidence of constructive knowledge (paras 43, 45); and a taxable person cannot escape attribution by routing the transactions through an agent — the knowledge of the agent’s legal representative is imputed to him (paras 66–68).
Where the judgment sits in the case-law
Aquila consolidates the burden-of-proof line begun with CJEU, judgment of 21 June 2012 — Joined Cases C-80/11 and C-142/11, Mahagében and Dávid, and continued in CJEU, judgment of 11 November 2021 — C-281/20, Ferimet, condensing it into a twofold duty of proof (the fraud plus the participation/knowledge) with an express ban on presumptions. The graduated formula of para 52 became the verbatim template for CJEU, judgment of 11 January 2024 — C-537/22, Global Ink Trade (there paras 39, 55–57), and shapes the debate on the de facto allocation of the burden of proof in German proceedings under Section 25f of the VAT Act. New — and consequential for group and agency structures — is the attribution of an agent’s knowledge (paras 67 et seq.), which places the taxpayer’s organisational responsibility at centre stage.
Academic commentary
Heidner records the Aquila line’s evidential requirements in the commentary on Section 25f (Heidner, in: Bunjes, UStG, 24th ed. 2025, § 25f Rn. 9). Spilker reads the strict burden of proof as confirmation that German refusal practice must be kept narrow in conformity with EU law (Spilker, UR 2023, 589 (590)). Vobbe/Pötters stress the gatekeeping function of the law of evidence against excessive recourse to honest traders (Vobbe/Pötters, UR 2023, 777 (781)); Wäger situates the decision within the practical development of the carousel case-law (Wäger, UR 2025, 81 (109 et seq.)).
Three levels — kept strictly apart
Operative holding: To establish a carousel fraud, the authority may not confine itself to finding that the transaction forms part of circular invoicing; it must identify precisely the constituent elements of the evasion, prove the fraudulent acts, and establish the taxable person’s active participation or his knowledge or constructive knowledge (para 37). Where there are indications, increased diligence may be expected of the trader, but complex and far-reaching checks of the administrative kind may not be demanded (para 54). Administrative practice: There is no express German administrative rule on this judgment’s evidential requirements; in general terms, sec. 25f.1 of the VAT Application Decree (UStAE, Federal Ministry of Finance circular of 15 June 2022 — III C 5 - S 7429-b/21/10003 :001, Federal Tax Gazette I 2022, 1001) acknowledges that the burden of establishing the facts lies with the tax administration. Our conclusion for the defence: In our assessment Aquila is the evidential backbone of the defence: bundles of indicia drawn from chain proximity, trade customs and acquaintanceships do not replace the twofold proof — while the attribution holding (paras 67 et seq.) compels businesses to bring agents and service providers within their own control system.
Levers for the defence
- Demand the twofold proof: assessments must be tested on whether the authority has concretely established, first, the evasion itself (constituent elements, fraudulent acts) and, secondly, the client’s participation or (constructive) knowledge (paras 33, 36) — if one level is missing, the refusal fails.
- Use the presumption ban as a screening grid: phrases such as “it must be assumed” or “everything suggests” indicate impermissible reliance on presumptions (para 34); such passages should be identified one by one in the objection and court proceedings.
- Deflate chain arguments: participation in a conspicuous invoicing chain (para 35) and acquaintance among chain members (para 44) are expressly insufficient — which devalues two standard building blocks of many audit reports.
- Document graduated diligence: internal procurement rules, supplier vetting and a no-cash policy are precisely the categories the national court must assess (paras 47, 53); a documented VAT control system supplies that court with the material for a favourable assessment — without amounting to any guarantee of success.
- Close the agency gap organisationally: because of knowledge attribution (paras 67 et seq.), the selection, instruction and supervision of agents and purchasing service providers should be documented — as our own assessment: whoever delegates must make the delegation controllable.
Defence assessment: POSITIVE · Keywords: ban on presumptions, twofold official proof, circular invoicing, increased diligence, knowledge attribution, burden of proof
FAQ
Is it enough for refusal that our transaction formed part of a conspicuous supply chain?
No. The Court makes clear that circular invoicing is a serious indication, but the authority may not confine itself to finding that the transaction belongs to such a chain (para 35). It must identify and prove the evasion itself with precision and additionally establish the business’s active participation or its knowledge or constructive knowledge (paras 33, 36 et seq.). Suppositions and presumptions which in effect reverse the burden of proof are prohibited (para 34). That the members of the chain knew one another is, taken alone, likewise insufficient (para 44).
How much verification does a business owe when warning signs appear?
Where there are indications of irregularity, increased diligence may be expected — for instance, making enquiries about the intended trading partner (paras 49, 52). The outer limit stands, however: complex and far-reaching checks of the kind the tax administration itself can undertake may not be demanded of the business (paras 50–52). Whether the measures taken suffice is assessed by the national court in the light of all the circumstances (paras 53 et seq.). In practice that means: capture the warning signs, document the response, make the escalation demonstrable — it is precisely this trail that will later be assessed.
We take the audit report apart along the Aquila criteria: where is there proof — and where mere presumption? → Confidential first assessment Whether your procurement rules, red-flag responses and agent controls meet the graduated diligence standard is what the structured self-test shows. → VAT CMS Quick Scan
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