ECJ C-487/20 (Philips Orăştie) – Decision – A Member State can not introduce less favorable procedural rules for claims for VAT refund

On February 10, 2022, the ECJ issued its decision in the case C-487/20 (Philips Orăştie RO).

Context: Reference for a preliminary ruling – Harmonization of tax laws – Common system of value added tax (VAT) – Directive 2006/112/EC – Articles 179 and 183 – Right to deduct VAT – Rules – Withdrawal or refund of excess VAT – Additional obligations for payment – Principle of fiscal neutrality – Principles of equivalence and effectiveness’

Articles in the EU VAT Directive

Articles 179 and 183 of the EU VAT Directive 2006/112/EC.

Article 179 (Right to deduct VAT)

The taxable person shall make the deduction by subtracting from the total amount of VAT due for a given tax period the total amount of VAT in respect of which, during the same period, the right of deduction has arisen and is exercised in accordance with Article 178. However, Member States may require that taxable persons who carry out occasional transactions, as defined in Article 12, exercise their right of deduction only at the time of supply.

Article 183
Where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period. However, Member States may refuse to refund or carry forward if the amount of the excess is insignificant.

Facts

The applicant, SC Philips Orăștie SRL, is a Romanian legal person with registered offices in the municipality of Orăștie, in Hunedoara County.
On 14 September 2016, the competent tax authority, Direcția Generală de Administrare a Marilor Contribuabili (Directorate-General for the Administration of Large-scale Taxpayers, ‘the DGAMC’) issued tax assessment notice No 423 establishing a liability on the part of the applicant to pay the sum of 31 628 916 Romanian Lei (RON) by way of VAT and ancillary tax liabilities.
Enforcement of the debt stated in the tax assessment notice was not suspended and, in its ‘300’ value added tax return for the month of September 2016, the applicant completed line 36 […] stating a sum of RON 21 799 334, representing a balance of VAT due as established in the tax assessment notice and not paid prior to the submission of the VAT return, without requesting a refund. Thus, Philips Orăștie remained liable, after set-off, for a sum of RON 12 096 916.
On 4 November 2016, Philips Orăștie brought a tax appeal (No 82252) against the tax assessment notice, in which it disputed in part the lawfulness of the notice, to the extent of RON 21 799 334.
On lodging its tax appeal, the applicant submitted to the DGAMC the original of bank guarantee No 5163090001 of 4 November 2016, issued by Citibank Europe; the guarantee was for the sum of RON 31 577 059 and was extended to 4 March 2020 by subsequent documents.
After lodging its tax appeal against the assessment notice and submitting the bank guarantee (in November 2016), and up to March 2019, Philips Orăștie submitted VAT returns in which it did not complete line 38 with the balance of VAT due [Or. 2] as established by the tax inspection authorities in the notice communicated and not paid prior to the submission of the company’s VAT return. At the same time it requested the refund of VAT, taking the view that, in light of the provisions of Articles 233 and 235(1) and (5) of the Codul de procedură fiscală – Legea 207/2015 (Code of Tax Procedure – Law 207/2015), the payment obligations in question could not be classified as outstanding and could not be included in the cumulative amount of VAT due, as defined in Article 303(4) of the Codul fiscal – Legea 227/2015 (Tax Code – Law 227/2015). That interpretation was implicitly confirmed by the tax authority, which issued orders for the refund of VAT (copies of which have been placed on the file), without raising any objection to the manner in which the VAT return had been prepared or, by implication, to the interpretation of the relevant provisions.
On 5 March 2019, the Curtea de Apel București (Court of Appeal, Bucharest, Romania) upheld the action for annulment brought by the applicant against the tax assessment notice […] and, by Civil Judgment No 813 of 5 March 2019, cancelled the additional VAT in the sum of RON 21 799 334. That judgment has not yet become final.
8 The applicant drew up its VAT returns for April 2019 and May 2019 in the same manner, that is to say, it did not complete line 38 with a balance of VAT due as established by the tax inspection authorities in the notice communicated and not paid prior to the submission of the VAT return.
Although there was no change in the applicable regulatory framework, the tax authorities informed the applicant of the incorrect completion of line 38 relating to VAT due in the sum of RON 12 096 916. The applicant asserted that this was not an error, but intentional, and was based on interpretation of the relevant rules. The tax authority did not, however, accept that view and issued two VAT adjustment notices by which it altered the amount of VAT due as stated in the returns, including in the cumulative amount of VAT due the sum of RON 21 799 334, with direct effect on the amount of VAT to be refunded.
The applicant brought an administrative appeal, but the solution was confirmed. The applicant therefore applied to the administrative court, on 23 December 2019, seeking the annulment of the two VAT adjustment notices

Questions

May the provisions of [the first paragraph of] Article 179 and [the first paragraph of] Article 183 of Directive 112/2006/EC, regard being had to the principles of equivalence, effectiveness and neutrality, be interpreted as precluding national legislation or practices in accordance with which the amount of VAT to be refunded is reduced by including in the calculation of the VAT due amounts representing additional liabilities established in a notice of assessment that has been annulled by a judgment that is not yet final, where such additional liabilities are guaranteed by a bank guarantee and the national tax procedure rules recognise that such a guarantee has the effect of staying enforcement in the case of other taxes and duties?

AG Opinion

None

Decision

The first paragraph of Article 179 and the first paragraph of Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as well as the principle of equivalence must be interpreted as precluding national legislation which lays down procedural arrangements relating to appeals for reimbursement of value added tax (VAT) based on a breach of the common system of VAT, less favorable than those applicable to similar remedies based on a breach of domestic law relating to taxes and duties other than VAT.

Summary

The EU Court of Justice has ruled that Romania is acting in breach of EU law by providing for less favorable procedural rules for claims for VAT refund. For other levies, a refund is possible if a bank guarantee has been provided.

Philips Orăştie SRL does not agree with a tax assessment in which the Romanian Tax Authorities demand that Philips pay VAT and additional tax obligations. Philips therefore objects and submits a bank guarantee statement. The Tax and Customs Administration rejects the objection. Philips then argues that the Code of Tax Procedure grants suspensive effect to the implementation of tax obligations imposed by tax assessments that have been challenged and for which a bank guarantee statement has been submitted. This rule must therefore also apply when those payment obligations relate to an additional VAT assessment. The Romanian court is asking a question for a preliminary ruling in this case.

The EU Court of Justice has ruled that Romania is acting in breach of EU law by providing for less favorable procedural rules for VAT refund claims based on violation of the common VAT system. More favorable rules apply to similar claims that are based on taxes and levies other than VAT. When a bank guarantee has been provided, a refund can be obtained in such cases.

Source