See our previous post about this case HERE.
Article in the EU VAT Directive
Articles 90 and 273 of Council Directive 2006/112/EC
Question
Can Articles 90 and 273 of Council Directive 2006/112/EC of 28 November 2006 …, the principles of VAT neutrality and of proportionality and the fundamental economic freedoms be interpreted as permitting the Portuguese legislature, pursuant to Article 78(7)(b) of the Código do Imposto sobre o Valor Acrescentado (Value Added Tax Code), approved by Decree-Law No 394-B of 26 December 1984, to restrict adjustments of value added tax (VAT) for debts deemed irrecoverable in insolvency proceedings to the circumstances referred to in that article (that is, where the insolvency has been declared a simplified insolvency, once the ruling on the admission and ranking of claims referred to in the Código da Insolvência e da Recuperação de Empresas (Corporate Insolvency and Recovery Code), approved by Decree-Law No 53 of 18 March 2004, has become final, or following approval of the plan, where such plan exists, agreed under Article 156 of that code), with the result that rulings by courts of other Member States declaring debts claimed in insolvency proceedings irrecoverable are not recognised for that purpose?
Decision – arguments
When the answer to a question can be clearly deduced from the case-law or when the answer to the question raised leaves no room for reasonable doubt, the ECJ can rule by reasoned order.
Article 90 of the VAT Directive must be interpreted as meaning that a Member State must allow the reduction of the basis of taxation to VAT if the taxable person can demonstrate that the claim he holds against his debtor is definitely irrecoverable, which it is for the national courts to verify.
In the present case, it appears from the order for reference that Logisma was the subject of a judicial liquidation procedure, within the framework of which the competent court established the absence of property or rights in the patrimony of this company and ordered its removal from the commercial register.
Consequently, it appears that the claims held by Ramada Storax on Logisma are of an uncollectible nature.
The referring court indicates that the tax and customs administration nevertheless refuses the reduction in the VAT base requested by Ramada Storax, on the ground that, pursuant to Article 78 (7) (b) , of the CIVA, the adjustment of the VAT relating to receivables considered as irrecoverable in bankruptcy proceedings is only possible if this procedure is governed by national law. That administration would also interpret that provision as meaning that the system for adjusting the VAT relating to bad debts is applicable only when the creditor and the debtor are taxable persons established in the national territory. However, those conditions are not fulfilled in the main proceedings,Logisma having its registered office in Spain and the bankruptcy procedure having been initiated in that Member State.
This cannot be considered to be in conformity with Article 90 of the VAT Directive.
It should be added, in this context, that, according to the referring court, no evidence of collusion, concerted action or any other form of aggressive tax planning emerges from the facts of the main proceedings.
Article 90 (1) of the VAT Directive provides that the tax base is reduced ‘under the conditions determined by the Member States’. That provision gives Member States a margin of discretion in determining the formalities which must be completed by taxable persons in order to be able to obtain such a reduction (see, to that effect, judgment of 6 December 2018, Tratave, C ‑ 672 / 17, EU: C: 2018: 989, point 32 and the case-law cited). These formalities must be limited to those which justify that, after the conclusion of the transaction, part or all of the consideration will not be definitively collected (see, to this effect, judgment of 6 December 2018, Tratave, C ‑672/17, EU: C: 2018: 989, point 34 and the case-law cited). Furthermore, the measures thus adopted must not exceed what is necessary for that justification (see judgment of 15 May 2014, Almos Agrárkülkereskedelmi, C ‑ 337/13, EU: C: 2014: 328, paragraph 40).
Finally, if, under Article 273 of the VAT Directive, the Member States may lay down, under certain conditions, obligations which they consider necessary to ensure the correct collection of VAT and to avoid fraud, the The Court ruled that the fact of excluding any possibility of reduction of the tax base in the event of non-payment of a debt by an insolvent debtor, and of imposing on the subject creditor the burden of an amount of VAT that he would not have collected in the course of his economic activities, exceeds, in any event, the limits strictly necessary to achieve the objectives referred to in this article 273 (judgment of 8 May 2019, A-PACK CZ , C ‑ 127/18, EU: C: 2019: 377, point 27).
Order of the Court
In the light of all the foregoing considerations, the answer to the question raised must be that Articles 90 and 273 of the VAT Directive must be interpreted as meaning that they preclude the regulation of a Member State under which the right to reduce the VAT paid and relating to claims considered to be uncollectible at the end of bankruptcy proceedings is refused to the taxable person when the irrecoverability of the claims concerned has been established by a court of ‘another Member State on the basis of the law in force in that latter State.
Source
Reactions from other countries
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Spain: Reduction of the VAT taxable base due to bankruptcy of EU non-established clients after the Ramada Storax case (C-756/19). Possibility to apply for the correction of filed VAT returns on a retroactively basis? ivaconsulta
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