EU Court of Justice rules that company could be held responsible for employee issuing blank invoice

EU Court of Justice rules that company could be held responsible for employee issuing blank invoice

The case (C-442/22) concerned a firm in Poland operating a petrol station

The Court of Justice of the European Union (CJEU) has ruled that a taxpayer should not be liable to pay Value Added Tax (VAT) on an ‘empty invoice’ issued by an employee. However, this was provided that the false invoice was issued without the knowledge of the employer. But the employer was liable to pay the VAT on the invoice if he did not exercise due diligence to control the actions of the dishonest employee.

The audit revealed that the company, operating a petrol station, issued almost 1,700 invoices with a VAT amount that did not reflect the actual sales of goods for a total amount of approximately PLN 1,5 million.

The invoices were not recorded in the company's accounts and were issued by a long-standing employee of the company without the knowledge and consent of the company's management. The invoices were then sold by the employee to the entities indicated on the invoice to deduct VAT.

The Court held that the company should pay the tax shown on the invoices, as it had not exercised caution to avoid fraud. It stated that no document specified the duties of the employee who, under her functions, could issue invoices outside the company's accounting system and without the approval of the management.

After a preliminary question from the Supreme Administrative Court, the case was referred to the CJEU. It was to decide if an employee of a taxable person issued a false VAT invoice using the employer's identity without his knowledge, who out of the two was liable for paying the tax.

The CJEU ruled that the person responsible for paying VAT on an empty invoice would not always be the person named as the issuer, particularly when another person committed the fraud. The details of the taxable person were provided in good faith to the employee. Moreover, the tax authority knew the identity of the person who issued the fake invoices.

The Court pointed out that it was not contrary to the European Union laws to require a trader to take reasonable steps to ensure that the transactions did not involve him in VAT fraud. Therefore, a taxable person, acting in good faith, can be considered to have failed to exercise due diligence. The employer was required to control the actions of his employees and avoid the possibility of fraud being committed. Therefore, the employer was liable for the payment of VAT on invoices.

The CJEU concluded that it was important for the organization to develop procedures to be cautious in the supervision of employees, particularly those responsible for issuing invoices. It further stated that training or written instructions for the relevant departments could be helpful.

The Court added that the matter should be seen in a broader perspective. The mandatory national e-invoicing system coming into force would be based on an appropriate authorization and verification process for employees issuing invoices.

The judgment also paved the way for the reopening of proceedings for the companies that were involved in disputes with the tax authorities in cases involving the employees issuing empty/fake invoices.