In its ruling of 30 January 2024 in Case C-442/22, the Court of Justice of the European Union ruled that a taxpayer should not be liable to pay VAT on a so called ‘empty invoices’ issued by an employee, provided that such a false empty invoice was issued without the knowledge and consent of the employer. However, the employer will be liable to pay the VAT on such a false invoice if he has not exercised due diligence to control the actions of the dishonest employee.

Background to the empty invoice case

The case concerned a company operating a petrol station. As a result of an audit, it was found that this company had issued almost 1,700 invoices with a VAT amount that did not reflect to the actual sales of goods for a total amount of approx. PLN 1,5 million. These invoices were not recorded in the company's accounts and were issued by a long-standing employee of the company without the consent and knowledge of the company's management. The issued invoices were then sold by the employee to the entities indicated on the invoice for the purpose of deducting VAT. The authority took the view that the company should pay the tax shown on the invoices because it had not exercise the due diligence to avoid this practice. The authority argued that no document specified the specific duties of the employee who, by virtue of her functions, could issue invoices outside the company's accounting system and without the approval of the management.

Reasons for the CJEU's judgment

Following a preliminary question from the Supreme Administrative Court, the case was referred to the CJEU. The CJEU was asked to decide whether, in a situation where an employee of a taxable person has issued a false VAT invoice using the employer's identity as the taxable person without the employer's knowledge and consent, it is the employee who is liable for payment of the VAT on the invoices issued, or the employer whose details appear on the invoice as the issuer / seller.

The CJEU confirmed that the person responsible for the payment of VAT on an empty invoice will not always be the person named as the issuer on the invoice, particularly where another person who has committed fraud essentially appropriates the details of the taxable person (acting in good faith) and the tax authority knows the identity of the person who actually issued the fake invoice.

The Court also points out that it is not contrary to European Union law to require a trader to take all reasonable steps to ensure that the transaction he is carrying out does not involve him in VAT fraud. Therefore, a taxable person acting in good faith cannot be considered to have failed to exercise due diligence. In this case, it is the due diligence required to control the actions of his employee and thus avoid the possibility of that employee using his identification data to commit fraud (for example, by issuing empty invoices). In those circumstances, the employer would be liable for the payment of VAT on invoices issued in that way.

The CJEU concluded that in order to establish the existence of good faith on the part of the employer, an overall assessment of all the relevant circumstances must be made in order to determine whether the taxpayer, whose identification data for VAT purposes has been misappropriated by his employee in order to issue false invoices with a view to committing fraud, has exercised the due diligence required to control the actions of that employee.

Conclusions on the CJEU's position on false invoices

The CJEU has again focused on the question of the taxpayer's good faith The CJEU's position does not provide clear guidance on the requirements for a taxpayer to be considered to have acted in good faith.

From the point of view of the organisation's activities, it is first and foremost important to develop procedures that allow for due diligence in the supervision of employees, in particular those responsible for issuing invoices. Training or written instructions for the relevant departments can help in this respect. It is also worth putting the case into a wider context, for example when the mandatory national e-Invoicing system comes into force, which will be based on an appropriate authorisation and verification process for employees issuing invoices.

The judgment also paves the way for the reopening of proceedings for those companies that have been involved in disputes with the tax authorities in cases involving the issuing of empty/fake invoices by employees.