On November 18, 2020 the ECJ issued its decision in the case C-371/19 (Commission vs. Germany) related to refund of VAT to non-established entities in case of missing documents.
Context: Failure of a Member State to fulfil obligations – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Articles 170 and 171(1) – Refund of VAT to taxable persons who are not established in the Member State in which they acquire the goods or services or import goods subject to VAT, but in another Member State – Directive 2008/9/EC – VAT refund scheme – Articles 9 and 10 – Article 15(1) – Article 20 – No copy of the invoice or import document — Systematic rejection of incomplete applications for refunds — Refusal to ask the taxable person to complete his application after the expiry of the deadline for submitting an application — Principle of fiscal neutrality — Principle of proportionality — Admissibility
Summary
- The Court ruled that Germany failed to meet its obligations under EU VAT directives by systematically rejecting VAT refund applications from taxpayers not established in Germany without first requesting additional necessary information, violating the principles of VAT neutrality and the right to a refund.
- The judgment emphasized that the right to a VAT refund is a fundamental aspect of the EU VAT system, and refunds should not be denied solely based on formal deficiencies, such as missing invoice copies, if the substantive conditions are met.
- The Court highlighted that member states must utilize the provisions of Article 20 of Directive 2008/9, which allows them to request additional information to complete refund applications before rejecting them.
- Germany’s practice of rejecting applications without requesting supplementary information, especially when such requests could be made after the official deadline, was deemed contrary to the principles of the EU VAT framework.
Article in the VAT Directive
Articles 170 and 171 of Directive 2006/112/EC (Right to deduct VAT)
Article 170
All taxable persons who, within the meaning of Article 1 of Directive 86/560/EEC, Article 2(1) and Article 3 of Directive 2008/9/EC and Article 171 of this Directive, are not established in the Member State in which they purchase goods and services or import goods subject to VAT shall be entitled to obtain a refund of that VAT insofar as the goods and services are used for the purposes of the following:
(a) transactions referred to in Article 169;
(b) transactions for which the tax is solely payable by the customer in accordance with Articles 194 to 197 or Article 199.
Article 171
1. VAT shall be refunded to taxable persons who are not established in the Member State in which they purchase goods and services or import goods subject to VAT but who are established in another Member State, in accordance with the detailed rules laid down in Directive 2008/9/EC.
2. VAT shall be refunded to taxable persons who are not established within the territory of the Community in accordance with the detailed implementing rules laid down in Directive 86/560/EEC.
Facts
European Commission proceedings brought against Germany. The Commission claims that Germany has failed to comply with its obligations under Articles 170 and 171 of the VAT Directive and under Article 5 of Council Directive 2008/9/EC of 12 February 2008, laying down detailed rules for the refund of VAT to taxable persons not established in the Member State of refund but established in another Member State, by systematically refusing to request the information that is missing in an application for a VAT refund and, instead, immediately refusing the refund applications where such information can only be provided after the 30 September deadline.
Question
In support of its action, the European Commission relies on the following pleas in law:
- First plea in law — Infringement of the principle of neutrality of VAT
The Federal Republic of Germany infringed the principle of neutrality of VAT established in Articles 170 and 171 of Directive 2006/112 and Article 5 of Directive 2008/9, according to which, upon the acquisition of goods and upon the receipt of services, a settlement of the VAT paid at the preceding stage is to occur to the benefit of the taxable person.
The principle of neutrality of turnover tax requires that an entitlement to a refund is to be granted where the substantive conditions for that entitlement are fulfilled. Where there are doubts whether the substantive conditions for a refund are fulfilled, refund applications under Article 5 in combination with the first sentence of the first paragraph of Article 21 of Directive 2008/9 are to be refused only where requests for information from the Member State of refund under Article 20 of that directive are unsuccessful.
- Second plea in law — Infringement of the principle of the practical effectiveness of entitlements to VAT refunds
The interpretation of Article 20(1) of Directive 2008/9 adopted by the Republic of Germany hinders the effective exercise of the entitlement to a VAT refund by taxable persons not established in the Member State of refund. In this regard, the administrative practice of the German tax authorities undermines the rights of those taxable persons under Articles 170 and 171 of Directive 2006/112 and Article 5 of Directive 2008/9.
In order to do justice to the neutrality principle to the greatest extent possible, the practical effectiveness of Directives 2006/112 and 2008/9 requires that entitlements to VAT refunds existing in substantive terms be enforced. The legislation intended full settlement of the VAT paid at the preceding stage upon the acquisition of goods and upon the receipt of services and also thus sought to create broadly equal competition conditions for all taxable persons, including in cases of cross-border turnover. To that end, all the reasonable administrative measures provided for in the directive enabling the enforcement of entitlements to VAT refunds were to be taken.
- Third plea in law — Infringement of the principle of the protection of legitimate expectations
The Federal Republic of Germany’s systematic refusal to request further information and supporting documentation under Article 20(1) of Directive 2008/9 infringes the principle of the protection of legitimate expectations. After receiving the confirmation that the refund application has been received, every taxable person should be confident that his application will be processed in accordance with the provisions of that directive. If that does not occur, his confidence that lawful procedures are being applied will be undermined.
AG Opinion
None
Decision
- In violation of the principle of neutrality of VAT and the practical effectiveness of the claim of taxpayers not resident in the Member State of reimbursement to reimbursement of VAT, the Federal Republic of Germany has thereby violated its obligations under Articles 170 and 171 of Directive 2006/112/EC of Council of November 28, 2006 on the common value added tax system as amended by Council Directive 2008/8/EC of February 12, 2008 and from Art. 5 of Council Directive 2008/9/EC of February 12, 2008 on regulation reimbursement of VAT in accordance with Directive 2006/112/EC to taxpayers who are not resident in the Member State of reimbursement but in another Member State, in breach of the fact that they rejected the applications for reimbursement of VAT that were submitted before the September 30, of the calendar year following the reimbursement period, but which are not accompanied by copies of the invoices or import documents required by the legislation of the Member State of reimbursement in accordance with Article 10 of Directive 2008/9, without the applicant having previously requested to supplement their applications by submitting these copies – if necessary after this point in time – or to submit relevant information that enables these applications to be processed.
- Otherwise the action is dismissed.
- In addition to its own costs, the Federal Republic of Germany bears two thirds of the European Commission’s costs.
- The European Commission bears one third of its costs.
Source
Reference to other ECJ Cases
- Astone (C-332/15): This case is cited to support the principle that the right to a VAT refund is a fundamental aspect of the EU VAT system, emphasizing that VAT should be refunded when substantive conditions are met, regardless of whether certain formal requirements are fulfilled.
- Paper Consult (C-101/16): This case is referenced regarding the distinction between formal and substantive requirements for VAT refunds, indicating that a breach of formal requirements does not necessarily preclude the right to a refund unless it prevents establishing that substantive requirements have been met.
- Nestrade (C-562/17): This case is cited to reinforce the idea that the right to deduct VAT or obtain a refund should not be limited by additional conditions imposed by a member state when the necessary information is already available.
- Volkswagen (C-533/16): This case is mentioned in the context of confirming that the right to a refund and the right to deduct are integral parts of the VAT mechanism and cannot, in principle, be limited.
- Sea Chefs Cruise Services (C-133/18): This case is cited to further establish that the right to deduct and the right to a refund are fundamental principles of the VAT system, ensuring neutrality in taxation.
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