Court of Justice (Third Chamber) 6 July 2006, C-439/04 and C-440/04 (Axel Kittel v Belgian State (C-439/04) and Belgian State v Recolta Recycling SPRL (C-440/04).)

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The Court of Justice ruled that Article 17 of the Sixth VAT Directive precludes national rules from denying a taxable person the right to deduct input tax solely because a contract of sale is incurably void under domestic law due to a seller's fraud, provided the purchaser did not and could not have known of the connection to such fraud. However, the principle of fiscal neutrality does not protect a taxable person who knew or should have known that their purchase was part of a transaction connected with fraudulent evasion of value added tax. Consequently, national courts must refuse the right to deduct where objective factors establish that the taxable person was a participant in the fraud, regardless of whether they profited from the resale.AI