EU court bars Germany from deferring margin-scheme good faith to equity track

The General Court ruled on 14 October 2026 in case T-569/25EuropaEuropa, on a reference from the Bundesfinanzhof, that Article 314 of Council Directive 2006/112/EC (the VAT Directive), read in the light of the principle of effectiveness, precludes a national practice under which a reseller's good faith about the margin scheme is examined only in a separate equity procedureEuropa. The dispute concerned X-GmbH, a German jewellery and watch trader that applied the margin scheme under Paragraph 25a of the Umsatzsteuergesetz to resales declared for 2013 and 2014. Following an audit, Finanzamt Y concluded that X's suppliers had wrongly invoiced under the scheme because the watches were new, recalculated VAT on the full consideration by assessments of 19 February 2020, and rejected X's objections.

Before the Finanzgericht, the assessments were upheld: the suppliers had indicated the margin scheme on their invoices by reference to Paragraph 25a of the Umsatzsteuergesetz, but they were not entitled to do so, and the UStG provides no protection of the taxpayer's good faith when the conditions of that provision are examinedEuropa. Under settled national case law, legitimate expectations can be considered in the Paragraph 155 assessment procedure only where statute so providesEuropa, so X's reliance on the invoices could be weighed only in the separate equity procedure under Paragraphs 163 and 227Europa.

The Court recalled that the margin scheme of Articles 313 to 315 of the VAT Directive is a special derogating regime: a taxable dealer pays VAT only on the profit margin, the difference between sale and purchase price, on supplies of second-hand goods, works of art, collectors' items or antiques acquired from the persons listed in Article 314(a) to (d), who share the trait of never having been able to deduct input VAT. Where those conditions are not met, refusal of the scheme is in principle required even if the supplier applied it, where the right is invoked fraudulently or abusively. But following the Court of Justice's Litdana judgment (C-624/15)Europa of 18 May 2017Europa, Article 314 precludes refusing the scheme to a taxable person who received an invoice bearing margin-scheme references, even where a later check shows the supplying dealer wrongly applied it, unless the authorities establish that the person did not act in good faith or take all reasonable measures to avoid participating in tax fraudEuropa.

Whether that good-faith examination may be deferred to a separate equity procedure was then tested against the principle of effectivenessEuropa, the only principle put to the CourtEuropa. In the absence of Union procedural rules, Member States designate the competent authorities and procedures under national procedural autonomy, subject to equivalence and effectiveness. Applying the Gryczara (C-746/24) frame, the Court found the German practice capable of making the exercise of the margin-scheme right excessively difficultEuropa: duplicated advisory and court costs across two administrative objections, two court actions and possible Revision appealsEuropa, with the value of the dispute counted twice for court-fee purposesEuropa; combined proceedings lasting several yearsEuropa, since the authority may await the final ruling on the assessment before examining good faith in the equity procedureEuropa; and an evidence regime in which only the elements the taxable person puts forward are generally examined in the equity procedureEuropa, reversing the assessment procedure's ex officio establishment of all material facts including those favourable to the partiesEuropa. Schmeink & Cofreth and Strobel (C-454/98) did not save the practiceEuropa: it let Member States choose the regularisation procedureEuropa but did not rule on burdens of this kindEuropa.

Legal basis: Article 314 of Directive 2006/112/EC as interpreted by the General Court (Second Chamber, five judges) in T-569/25 of 14 October 2026, following Litdana C-624/15.Europa