The deduction of VAT cannot be refused, in principle, because of irregularities committed by the issuer of the invoice. However, a deduction may be refused if the taxable person knew, or should have known, that the transaction in question was connected with fraud

In delivering its judgement on two cases referred to it by Hungary, the ECJ has ruled that a taxable person's right to deduct input VAT should not be dependent on whether the VAT payable on the prior or subsequent transactions relating to the goods or services concerned has or has not been paid to the tax authorities. However, Member States may refuse to allow the right to deduct VAT where it is established that the taxable person to whom goods or services were supplied knew, or ought to have known, that that transaction was connected with fraud previously committed by the supplier. According to the ECJ, it is the responsibility of the tax authority to establish that the taxable person was aware, or ought to have been aware, of the existence of such fraud.

For full details of the judgment, go to http://curia.europa.eu