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

Non-exhaustive examples include:

• 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 late submission of evidence (Cases C-562/17, C-133/18, C-294/20)

• Limitation periods in general (Cases C-8/17, C-533/16) or relating to tax offences (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 CJEU case law (Cases C-326/15, C-605/15, C-251/16). Among them, the so-called Danish Grand Chamber judgments (Cases C-115/16, C-116/16, C-117/16, C-118/16, C-119/16 and 299/16).

• Indirect assessment of tax bases and rates (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, C-116/16, 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 addresses aspects that are crucial to tax law, such as: the right to good administration (art. 41), the right to access documents (art. 42), effective judicial protection (art. 47), principles of legality and proportionality in crimes and punishments (art. 49), non bis in idem (art. 50) or prohibition of abuse of rights (art. 54)

2. The increasing number of preliminary questions from national courts addressed to the CJEU for the interpretation of European rules 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 Article 273 of the Directive, they may establish obligations to ensure the correct collection of the Tax and prevent fraud. Sanctions for failure to comply with material or formal obligations must be proportionate to the seriousness 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 on a negligent subject sanctions for formal breaches that are less detrimental to neutrality than the complete denial of the right to deduct (Case C-45/20)

4. For the same fraudulent conduct, both an administrative sanction and a criminal sanction may be imposed, but only to the extent that the law provides for this compatibility in a foreseeable manner and that the law clearly establishes how to preserve proportionality, even between pecuniary and non-pecuniary sanctions (Case C-570/20).

Conclusion

When applying taxes, it is essential to interpret the regulations in light of the general principles of tax law. Principles such as good administration, right to defense, neutrality, proportionality, etc. They are playing an increasing role in the interpretation of tax regulations made by the most recent Spanish rulings and decisions.

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

In 21st century Spanish taxation, any interpretation of tax regulations by national administrative and judicial bodies must always take into account European law, including its jurisprudence.

However, this evolution raises some questions for the future:

1. In the event of a divergence between national and European case law, which interpretative criterion should prevail?

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