In the most recent jurisprudence of the Court of Justice of the European Union (CJEU) on tax matters we find, with increasing frequency, rulings in whose reasoning the Court appeals to general principles of tax law in addition to the text of the European standard itself.

Non-exhaustively, the following can be mentioned:

• Right to defense: Burden of proof and legitimacy thereof (Cases C-419/14, C-108/17, C-648/16, C-310/16), right of access to the complete administrative file (Case C-298/16 ), preclusion of untimely provision of evidence (Cases C-562/17, C-133/18, C-294/20)

• Limitation/expiry periods in general (Cases C-8/17, C-533/16) or relating to tax crimes (Cases C-105/14, C-42/17)

• Legal security: protection of legitimate expectations (Cases C-108/17, C-81/17, C-424/12, C-144/14, C-532/16), temporary exercise of options in tax matters (Cases C-566 /16, C-661/18, C-45/20 and C-46/20)

• Retroactive application of the jurisprudence of the CJEU (Cases C-C-326/15, C-605/15, C-251/16). Among them, those known as Danish judgments of the Grand Chamber (Cases C-115/16, C116/16, C-117/16, C-118/16, C-119/16 and 299/16).

• Indirect estimation of tax bases and quotas (Cases C-576/15, C-648/16)

• Abuse of rights in tax matters (Cases C-662/13, C-251/16).  Grand Chamber (Cases C-115/16, C116/16, C-117/16, C-118/16, C-119/16 and 299/16).

Two reasons could explain this growing trend of the CJEU:

1. The application of the EU Charter of Fundamental Rights. This Charter contemplates such crucial aspects for tax law as: the right to good administration (art. 41), right of access to documents (art. 42), effective judicial protection (art. 47), principles of legality and proportionality in crimes and penalties (art. 49), non bis in idem (art. 50) or prohibition of abuse of rights (art. 54)

2. The growing preliminary questions from national courts addressed to the CJEU regarding the interpretation of European standards under these principles. 

This application by the CJEU of general principles is more frequent in VAT matters, as it is a strongly harmonized tax, with a much higher number of CJEU rulings dedicated to this Tax compared to other tax figures.

The principles of neutrality and proportionality in VAT. Recent pronouncements of the CJEU

The principle of neutrality in VAT aims to completely free the taxable person from the economic burden of VAT in the framework of their economic activities. The European VAT system guarantees perfect neutrality with respect to the tax burden of all economic activities, whatever their purposes or results, provided that these activities are, in principle, themselves subject to VAT.

In other words, VAT is a Tax that taxes the final consumption of goods and services, so it should not be financially borne by those who carry out an economic activity, for whom said Tax should be neutral.  

Some consequences of the principle of neutrality in VAT recently highlighted by the CJEU are:

1. That the right to deduct input VAT on acquisitions of goods and services intended to carry out an activity subject, in turn, to VAT must be guaranteed. That, in this context, failure to comply with certain formal requirements (accounting, billing and declaration, among others) should not prevent the deduction of input VAT, unless said failure prevents verification of the material requirements of the deduction (case C-45/20 and C-46/20).

2. Identical consequence regarding non-compliance with certain formal requirements vs. material requirements are interpreted with respect to VAT exemptions (case C-656/19)  

3. That if the refund of the excess input VAT does not occur within a reasonable period, late payment interest must be paid to the taxable person (case C-844/19)

4. The recovery of the output VAT must be guaranteed in the event of non-payment by the client, limiting the required formalities to proving that the consideration has not been fully received (case C-146/19)

5. In the case of VAT unduly paid (an aspect that the VAT Directive does not contemplate), its regularization must be guaranteed in domestic law, provided that the issuer of the invoice demonstrates its good faith (case C-48/20)

Under the principle of proportionality and art. 273 of the Directive can establish obligations to guarantee the correct collection of the Tax and prevent fraud. Sanctions for breaches of material or formal obligations must be proportionate to the severity of the breach. The CJEU has recently highlighted that:

1. In the case of formal non-compliance, a sanction consisting of absolutely denying the deduction of input VAT that a subject had the right to make is disproportionate in the event that fraud or damage to the Public Treasury has not been proven (case C-661/ 18)

2. It is disproportionate to force the deduction of input VAT on intra-Community acquisitions of goods declared after the deadline to be postponed to later periods (case C-895/19). In the reverse charge regime, in principle no amount is owed to the Tax Administration in terms of VAT quota (case C-835/18).

3. National authorities may impose sanctions on a negligent party for formal breaches that are less harmful to neutrality than the complete denial of the right to deduct (case C-45/20)

4. An administrative and a criminal sanction may be imposed for the same fraudulent conduct, but only to the extent that the law foreseeably establishes this compatibility and that the law clearly establishes how to preserve proportionality, even between pecuniary and non-pecuniary sanctions. (case C-570/20)

Conclusion

In the application of taxes, the interpretation of the regulations in light of the general principles of tax law is essential. Principles such as good administration, right to defense, neutrality, proportionality, etc. They are playing an increasing role in the interpretation of tax regulations by the most recent Spanish resolutions and sentences.

Within this interpretative compendium based on general principles, the jurisprudence of the CJEU takes on very special importance, with a constant and growing appeal to principles such as neutrality and proportionality, in their very diverse manifestations.

In Spanish taxation of the 21st century, any interpretation of tax regulations by national administrative and judicial bodies must always keep European law in mind, including its jurisprudence.

However, this evolution raises some questions for the future:

1. In case of divergence between national and European jurisprudence, what interpretative criterion should prevail?

2. Is a kind of general European tax law being created through the jurisprudence of the CJEU? And if so, is there a basis in European law for this and how does it fit with national jurisdiction in matters of procedural or sanctioning tax law?