On March 21, 2018, the ECJ issued its decision in the case C-533/16 (Volkswagen).
Context: Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Articles 167 to 171 — Right to deduct VAT — Right to refunds of VAT for taxable persons not established in the Member State of refund — Article 178(a) — Rules governing the exercise of the right to deduct VAT — Directive 2008/9/EC — Detailed rules for the refund of VAT — Limitation period — Principle of fiscal neutrality — VAT charged and paid several years after delivery of the goods in question — Refusal to allow the exercise of the right to a refund due to the expiry of the time limit which should have started to run from the date of supply of the goods
Articles in the EU VAT Directive
Articles 167 to 171 of the EU VAT Directive 2006/112/EC
Facts
The Slovak company supplied the German company Volkswagen AG with molds for the production of headlights. She issued invoices without VAT on this account. After 6 years of such practice, the company concluded that the practice was incorrect. For this reason, after 6 years, she issued invoices with the VAT indicated (she corrected the declarations, paid the outstanding tax).
The recipient of the invoice – the German company Volkswagen AG – applied to the Slovak tax authority for a refund of the input tax charged pursuant to Directive 2008/9.
The authority partially refused the refund because it considered that 3 out of 6 years had already been time-barred according to Slovak law. The right to VAT refund arose at the original moment when VAT was due on delivery, and therefore the 5-year period for applying for a refund has already expired.
The essence of the problem
Is it lawful to refuse to refund input tax on the grounds that the limitation period for returning this tax has expired in a situation where the taxpayer could not apply for a refund in due time because he did not have an invoice?
Adjudication of the CJEU
If the taxpayer has received invoices showing the tax due after the deadline for the return of input tax, then the refusal of the right to deduct due to the expiry of this deadline is unacceptable.
Question
(1) Must Directive 2008/9 and the right to a tax refund be interpreted to the effect that the cumulative satisfaction of two conditions is required to exercise the right to a VAT refund, namely:
(a) the supply of the goods or services and
(b) the inclusion of VAT on the invoice by the supplier?
In other words, is it possible for a taxable person who has not been charged VAT on an invoice to claim a tax refund?
(2) Is it in accordance with the principle of proportionality or VAT fiscal neutrality for the time limit for the tax refund to be calculated from a point at which not all the substantive law conditions required to exercise the right to a tax refund were satisfied?
(3) Are Articles 167 and 178(a) of [Directive 2006/112], in the light of the principle of fiscal neutrality, to be interpreted to the effect that, in circumstances such as those of the present case, and assuming that the other substantive law and procedural law conditions required to claim a right to a tax deduction are satisfied, they preclude an approach by the tax authorities which refuses the taxable person the right, claimed within the time limit under Directive 2008/9, to be refunded VAT which was charged to it by the supplier on the invoice and [collected] by the supplier before the expiry of the limitation period for relying upon the right under national law?
(4) Did the Slovak tax authorities, in the light of the principle of neutrality and the principle of proportionality, which are the fundamental principles of the common system of VAT, exceed the limits of what was necessary for achieving the objective defined by the VAT Directive when they refused the taxable person the right to a refund of the deducted tax on the ground that the limitation period laid down by national law for claiming a tax refund had expired, even though the taxable person could not exercise its right to a tax refund within that period and even though the tax was correctly collected and the risk of tax evasion or non-payment of the tax had been completely excluded?
(5) May the principles of legal certainty, legitimate expectations and the right to good administration under Article 41 of the Charter of Fundamental Rights of the European Union be interpreted as precluding an interpretation of the national legislation under which, for the purposes of observance of the time limit for claiming a tax refund, the time of the decision of the administrative authority on the tax refund is decisive, and not the time at which the tax refund is claimed by the taxable person?
AG Opinion
Articles 167, 168 and 178 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as well as the principles of fiscal neutrality and proportionality, preclude a refusal of the right to deduct VAT in the case of a taxable person who has acted in good faith in circumstances such as those in the main proceedings where it was thought, wrongly, that a supply of goods was not taxable but some years later the necessary adjustment was made and the VAT paid.
Decision
EU law must be interpreted as meaning that it precludes legislation of a Member State under which, in circumstances such as those at issue in the main proceedings in which the value added tax (VAT) was charged to the taxable person and paid by it several years after delivery of the goods in question, the benefit of the right to claim a refund of VAT is denied on the grounds that the limitation period provided for by that legislation for the exercise of that right began to run from the date of supply and expired before the application for a refund was submitted.
Source
Summary
- It should be noted that Directive 2008/9 aims to lay down detailed rules for the VAT refund provided for in the VAT Directive. However, the aim of this Directive 2008/9 is not to define the conditions for the right to deduct (refund) tax. The right to deduct input tax is defined in the VAT Directive (34-36).
- [the theses on the right to deduct and the neutrality of VAT regularly cited by the Court – 37-39]
- The right to deduct is subject to substantive and formal conditions (40).
- As for formal reasons, the taxpayer should have an invoice (42).
- Although the right to deduct arises when the tax becomes chargeable, the exercise of this right is only possible when the taxpayer obtains the invoice (43).
- The right to deduct is exercised immediately – however, the taxpayer may be entitled by the Member State to make the deduction at a later date if the conditions laid down by national law are met (45).
- At the same time, the possibility of exercising the right to deduct ‘indefinitely’ would run counter to the principle of legal certainty.
- A deadline may result in the loss of the right to deduct if two conditions are met. First, the deadline is the same for national taxes and EU law taxes (principle of equivalence). Second, it does not make it practically impossible or excessively difficult to exercise the right to deduct VAT (47).
- In addition, the measures adopted by the Member States to prevent abuses must not go beyond what is necessary to achieve such objectives (48).
- As presented in the facts, Volkswagen AG was not in a position to exercise its right of reimbursement prior to the supplier’s correction as it did not have any invoices beforehand and it did not know that the tax was due (49).
- Only as a result of the correction were the material and formal conditions fulfilled. The company has not shown any lack of diligence and is not fraudulent (50).
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