Roadtrip through ECJ Cases – Bad debts (Art. 90, 185)

Issue

Output VAT is due by the supplier to the authorities when he sends an invoice to its customer
In case the invoice remains unpaid due to bankruptcy, failure of the customer, this is considered being a bad debt.
Since the supplier paid the output VAT to the authorities but not reimbursed by the customer, the supplier may ask the output VAT back from the authorities to avoid a VAT leakage.
The procedure and the conditions to recover the VAT on the Bad Debt is pretty country dependant, although ECJ has clarified aspects of Bad Debts in many ECJ cases.

Relevant articles in the EU VAT Directive 2006/112/EU

Article 90 (Taxable amount)
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.
2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.

Article 185 (Adjustment of deductions)
1. Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.
2. By way of derogation from paragraph 1, no adjustment shall be made in the case of transactions remaining totally or partially unpaid or in the case of destruction, loss or theft of property duly proved or confirmed, or in the case of goods reserved for the purpose of making gifts of small value or of giving samples, as referred to in Article 16.
However, in the case of transactions remaining totally or partially unpaid or in the case of theft, Member States may require adjustment to be made.

Article 273 (Miscellaneous provisions)
Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.
The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.

ECJ Cases Decided