On July 10 2025, the Court of Justice of the European Union (CJEU) delivered its judgment in Case C-276/24. The ruling interprets Article 205 of the VAT Directive in light of the principle of proportionality and, more concretely, clarifies whether a member state may both, and at the same time:
Deny a purchaser the right to deduct input VAT because it knew, or should have known, of fraud; and
Hold that same purchaser jointly and severally liable for the supplier’s unpaid output VAT.
In very brief terms, the case involves a company that bought motor fuel during 2013 from another company. Subsequent tax inspections uncovered a carousel‐type fraud involving both entities. The supplier was reassessed for output VAT that it never paid (transferring the liability to its counterparty), and the buyer was refused its input tax deduction.
The purchaser argued that denying deduction and enforcing joint liability for the same transaction offends the principles of neutrality and equal treatment, effectively forcing the purchaser to “pay VAT on the same transaction three times”: once to the supplier, again when deduction is refused, and when the supplier’s tax debt is reclaimed from the purchaser.
Analysis of the case
The preliminary question referred to the court sought to clarify whether Article 205 of the VAT Directive, interpreted in light of the principle of proportionality, allows a national practice under which the recipient of a supply is held jointly liable for the supplier’s VAT, even when that recipient has already been denied the right to deduct input VAT due to its involvement (whether intentional or negligent) in fraud.
Article 205 empowers member states to impose joint liability where a person knew, or ought to have known, that VAT linked to the relevant transaction, or a prior/subsequent one, would go unpaid. Such liability is acceptable as long as the presumptions can be challenged and the principle of proportionality is respected.
Following settled case law from the CJEU, the right to deduct input VAT must be refused not only to fraudsters but also to traders who, aware of the fraud, facilitate it; they are deemed accomplices, irrespective of any profit obtained. In such circumstances, one cannot rely on neutrality to claim the deduction.
The decisive issue was whether the simultaneous application of both measures (denial of input VAT and imposition of joint liability) goes far beyond what is necessary to secure tax revenue. If this were the case, the measure would not respect the principle of proportionality.
The court held that the directive does not prevent tax authorities from applying both measures to the same person, provided proportionality is respected. Where the purchaser knew, or should have known, of fraud, dual application is legitimate.
Denying deduction fights fraud by removing a benefit to the dishonest trader, whereas joint liability ensures efficient collection by shifting the unpaid tax to another actor involved in the fraudulent chain. The measures pursue “distinct and complementary” aims. Requiring authorities to choose would undermine neutrality and revenue protection.
If taxable persons denied deduction could never be held jointly liable, only traders acting in good faith (who retain their deduction) could be pursued for the supplier’s debt, meaning bad-faith actors would enjoy a more favourable treatment. Such a result would be contrary to the principle of equal treatment.
The parties involved even argued that the simultaneous application of these measures could result in a form of unjust enrichment. The court, however, without further explanation, states that the tax authorities are merely applying the provisions of the law, without considering that, in some cases, these measures might lead to a surplus of VAT remaining with the treasury.
Consequently, according to the court’s reasoning, Article 205 of the VAT Directive does not ban a national practice that cumulatively denies deduction and imposes joint liability on a purchaser who knew, or should have known, of fraud.
Implications of the CJEU ruling
This judgment confirms and extends the CJEU’s anti-fraud jurisprudence. One aspect is particularly relevant from this case: cumulative remedies are lawful. Tax administrations may both refuse deduction and pursue joint liability. This may serve to deter deliberate participation in fraud.
The ruling strikes a pragmatic balance. It reinforces the message that professional operators must carry out robust supplier checks (especially when payments are routed through foreign accounts, which happened in this case). At the same time, it preserves a proportionality safeguard by requiring proof (or irrefutable presumptions) of knowledge.
Failure to detect fraud risks both loss of deduction and exposure to the supplier’s tax debt. From a policy point of view, the court supports giving national authorities a range of tools they can use flexibly to ensure compliance with existing VAT rules and to prevent fraud. This helps to protect the integrity of the EU VAT system without adding new rules to the directive.
